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Dear clients and cooperation partners,
A number of hardly predictable events have occurred in our region since the beginning of the year, and these events have surely had their impact on doing business in Belarus. As always, we offer below, in a few bullet points, our view on major current tendencies and factors characterizing the state and prospects of the Belarusian economy:
- General decline in demand for Belarusian goods; exports January – July 2014 achieved 98.7% year-on-year.
- Devaluation of national currencies of major trading partners – Russia, Kazakhstan, Ukraine – limits opportunities to restore exports and increases pressure on the Belarusian ruble.
- GDP grew 1.6% from January – July 2014 year-on-year.
- Minor increase in foreign investments in the 1st quarter of 2014 (4.5% year-on-year).
- Events in Ukraine plus exchange of sanctions between Russia and the West have created new obstacles and generated risks for business in the region.
- Upcoming launch of the Eurasian Union of Belarus, Russia, and Kazakhstan in January 2015: big hopes for the Belarusian economy but it is already evident that not all expectations will be met.
- Presidential elections in 2015 are nearing: business tends to believe that “nothing bad will happen” during the next year.
We expected a range of important business laws to be passed during the spring parliamentary session. However, other than the new edition of the Labour Code, that did not happen. We are now following the autumn session which started on 2 October.
Below we offer for your attention an overview of the most substantial recent legal changes as well as deals in which SORAINEN acted as adviser.
Taxes 2014 and 2015: PIT, CIT, excise duty rates to increase
Delay in VAT deduction
Presidential Edict No. 361 of 21 July 2014 introduces a new temporary VAT deduction method for taxpayers that import goods either from a Customs Union (CU) or a non-CU country and sell them in Belarus without any processing. VAT amounts can be deducted only with a delay of 90 calendar days after customs clearance of goods or entry of goods into the books, i.e. in the next quarter. The new deduction method covers only goods imported between 25 July 2014 and 31 December 2014. At the same time, the annual amendment of the Tax Code which should be effective by 1 January 2015 may incorporate these changes as a permanent rule.
Presidential Edict No. 453 of 18 September 2014 lists imported goods not covered by the new VAT deduction method. The list includes certain fuel and energy resources.
Taxation changes announced for 2015
The draft Law on the 2015 State Budget announces other material changes which are likely to be incorporated in the new edition of the Tax Code.
In accordance with the draft, in 2015 the personal income tax rate will increase from the current 12% to 13%. Corporate income tax for banks and insurers will also be increased from 18% to 25%. Other changes announced include increase of excise rate for all excisable goods (e.g. alcohol, tobacco, fuel) as well as land tax and real estate tax rates on inefficiently used state property. A special levy on export of crude oil extracted in Belarus is also announced.
The Government explains the changes by the need to stabilise the tax system and increase state budget revenues.
In spite of no indication in the draft Law on the State Budget, public sources provide information that additional changes in tax legislation may take place in 2015, namely a VAT rate increase from 20% to 22% and a corporate income tax decrease from 18% to 15% (for taxpayers other than banks and insurers).
Kirill Laptev
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Significant revision of Belarusian Labour Code
On 25 July 2014 the Law of 8 January 2014 No. 131-Z “On Amendments to the Labour Code of the Republic of Belarus” (the Law) entered into force. The Law changes more than 180 articles of the Labour Code.
We have prepared an overview of the most material changes, which may be found here. In brief, they concern:
- Conditions for conclusion, procedures for amendment, and grounds for termination of employment contracts.
- Combinations of jobs by general managers of commercial companies.
- Working time conditions.
- Regulation of employment of professional sportsmen and coaches.
- Payment of salaries in foreign currency.
Yuliya Volozhinets, Mila Vedernikova
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New Law Sets More Specific Merger Control Requirements
A new Law on Countering Monopolistic Activity and Development of Competition entered into force in Belarus on 1 July 2014. The new Law will bring national legislation into line with agreements concluded within the Common Economic Space (Belarus – Russia – Kazakhstan). It does not provide essentially new regulation of merger control, but contains plenty of updated provisions and changes in merger clearance conditions and procedures. Below we describe the most material of these.
Operation of the new Law now fully extends to the financial services markets. This means that transactions with shares in banks, non-banking financial organisations, and insurance companies are now subject to merger clearance if certain thresholds are exceeded under procedures established by the Law.
A new merger control threshold is established in relation to acquisition of shares. The acquirer should apply to the antimonopoly authority for approval of an intended transaction with shares in the case of acquisition of the right to dispose of more than 25% of the shares in a target, or more than 50% of the shares when the acquirer already disposes of between 25% and 50% of the target’s shares before the transaction. Acquisition may take any form as long as a right of disposal of shares is gained. Previously, merger clearance was required on acquisition of 20% or more of shares resulting only from purchase, trust management and agency transactions.
The Law also provides one new case of mandatory merger clearance – acquisition of the right to participate in executive bodies, the supervisory board, and other managing bodies of two and more targets (which operate in the market of interchangeable (similar) goods) by the same acquirer (which obtains the opportunity to determine conditions for the targets’ business activities).
The Law introduces a new procedure for post-notification. When a transaction with shares subject to merger clearance is made by a “group of persons” as indicated by the Law, only notification should be provided to the antimonopoly authority within 1 month after the transaction. A “group of persons” is several persons one of which (legal entity or individual) possesses more than 50% of votes related to the voting shares of the other person due to shareholding or any agreement.
However, the new Law does not specify whether it is necessary to obtain approval for a foreign-to-foreign transaction, where no direct local nexus for the transaction exists. This issue remains a subject of the most frequent requests from clients contemplating transactions related to Belarus with parties having sales in this market, but a transaction not involving transfer of shares of local entities, if any.
Viktoryia Mikhnevich
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Deals advised
Soft Drinks Factory to switch to European standards with EBRD support
SORAINEN Belarus is advising the European Bank for Reconstruction and Development (EBRD) on the grant of a EUR 10 million loan to the Minsk Soft Drink Factory. The seven-year loan will enable the factory to upgrade its equipment, double its transport fleet and refinance part of its existing debt.
The EBRD is an international financial institution that funds projects in 35 countries from central Europe to central Asia, as well as in the southern and eastern Mediterranean.
Minsk Soft Drink Factory is the largest manufacturer of soft drinks, mineral and drinking water in Belarus.
SORAINEN is acting in this transaction as Belarusian legal counsel to the EBRD. Office managing partner Kiryl Apanasevich and senior associate Ann Laevskaya are working on the case.
Eurasian Development Bank to finance upgrade of transformer production in Belarus
SORAINEN Belarus assisted Sumitomo Electric Bordnetze, a group company from the Sumitomo Electric Industries Group, headquartered in Japan, in setting up a contractual joint venture with a Belarus-based manufacturer. The joint venture was implemented for supplying Volkswagen Group Russia with wire harnesses. The project is a major step in enlarging the activities of Sumitomo Electric Bordnetze in international growth markets.
Sumitomo Electric Bordnetze, headquartered in Wolfsburg, Germany, is a leading full-system supplier for the international automotive industry. The company currently employs more than 24,000 people at 21 locations worldwide and generated a turnover of approx EUR 900 million in 2012.
The SORAINEN team was led by office managing partner Kiryl Apanasevich and senior associate Maria Rodich. Norton Rose Fulbright LLP acting as international counsel to the client provided advice on foreign laws. |
