Dear clients and co-operation partners,
As summer vibes seem to be just around the corner, we are delighted to share with you our summary of the main legal and business news in Belarus for the first few months of 2019.
As at the end of 2018, the Belarusian-Russian relationship is the main provider of news on the agenda. Disagreements concerning the oil and gas price, trade in agricultural products, as well as slow development of integration projects between the two countries have remained unresolved for a relatively long period of time. Experts say that unless Belarus and Russia manage to come to a mutually acceptable solution, Belarus is likely to suffer significant losses and a further economic slowdown. We have seen a lot over the years, but the intensity of the current confrontation seems to be almost unprecedented.
On a positive note, let us look at how the “Digital Country of Belarus” is developing. At the beginning of March the Minsk High-Tech Park reported that export of services by its residents has exceeded USD 1.4 billion, that the number of resident companies is in the proximity of 500, and they employ close to 46,000 workers. Not bad; judging by client requests, interest in opportunities offered by the enhanced regime of the Park remains high and more investment is under way.
New Laws-2019: Eurasian Integration, Self-Regulated Organizations, and Personal Data Protection
In January, the President approved the Lawmaking Plan for 2019 providing for 33 draft laws in various spheres to be prepared in the course of 2019. The most important business-related initiatives include the following:
- amendments to the Civil Code, including those related to certain new institutes of the civil law and unification of the civil law of the EAEU states;
- the law “On State Registration and Liquidation (Termination of Activities) of Business Entities”;
- A new version of the law “On Currency Regulation and Currency Control”;
- The law “On Self-Regulated Organisations”;
- the law “On Personal Data”.
We will provide more detail on these initiatives as the new laws move towards voting in the Belarusian parliament and approval by the President of Belarus.
Refined Foreign Currency Regulations to Ease Outbound Investment
Continuing its policy aimed at decreasing foreign currency usage in the economy, as well as related revision of the foreign currency regulations, the National Bank of Belarus has relaxed the approval requirements under the Foreign Currency Operations Rules and restated the list of operations allowed with foreign currency between Belarusian residents.
The updated regulations significantly limit the requirement to obtain a prior permit from the National Bank for performing foreign currency operations related to movement of capital (e.g., acquiring shares in a foreign company, issuing or receiving loans in foreign currency). Instead, these operations are either subject to subsequent registration or notification, or are performed without any additional formalities, depending on the type of operation. The requirement to obtain approval still applies to a limited number of operations performed by Belarusian individuals, though the latter are now free to open accounts with foreign banks without any special permits.
The changes also concern the list of cases where use of foreign currency in transactions between Belarusian residents is allowed. The updated list prohibits use of foreign currency, inter alia, in the following cases:
- operations related to bonds in foreign currency issued by Belarusian residents;
- settlements with transportation and forwarding companies for transportation of cargo to or from Belarus;
- payments under certain insurance agreements (e.g. insurance of financial and currency risks under export related agreements and investment projects);
- several banking operations (sale and purchase of precious metals and stones, use of foreign currency under a bank guarantee or factoring agreement with the main obligation nominated in Belarusian rubles);
- payments under individual permits of the National Bank.
The National Bank also reported on its further plans for reform of the foreign currency regulations, including, e.g., abolition of remaining requirements for performing foreign currency operations related to movement of capital, removal of the prohibition for legal entities and individual entrepreneurs to open accounts with foreign banks, abolition of restrictions as to the terms of repatriating proceeds in foreign currency under foreign trade agreements.
Orsha District to Become a New Free Industrial Economic Superzone
Following emphatic political statements in 2018 concerning the social and economic situation in Orsha District (eastern Belarus), the President forced introduction of a special legal regime to boost development of this territory. For a long time the region has been known for the depressed state of its manufacturing industry, low wages, and unemployment. The new regime regulated by Decree No. 506 “On Development of Orsha District of Vitebsk Oblast’” is aimed at addressing these problems by major expansion of remedial measures introduced in 2017.
The new measures include tax, financial, economic, and regulatory benefits for business entities and individual entrepreneurs carrying out their activities in Orsha District. The main benefits are the following:
- exemption from a number of restrictions for applying the simplified taxation system, including the restriction for persons enjoying benefits from other special regimes (e.g. free economic zones, the High-Tech Park);
- lower tax rates under the simplified taxation system: 1% of turnover from sale of goods and 2% of turnover from performing work or rendering services. The lower rates apply only to goods, work, and services produced, performed, or rendered in Orsha District under a certificate of own production;
- the right to apply an investment tax refund of up to 30% of the initial cost of buildings and constructions located in Orsha District (or investment in their reconstruction), as well as similar refunds in regard to machinery, equipment, and vehicles used in commercial activities in Orsha District, but up to 50% of initial costs or investment in reconstruction;
- exemption from VAT in relation to certain types of imported machinery and equipment that are subject to 0% customs duty;
- full VAT refund for developers in regard to goods, works, and services used for constructing and equipping facilities in Orsha District;
- exemption from several mandatory requirements for foreign trade operations, including terms of their completion;
- lower annual rental payments for land plots for construction and maintenance of industrial, transportation, communication, and energy facilities (calculation based on the cadastral value of the land plot with a coefficient of 0.0025 instead of the default 0.032 to 0.5 coefficients);
- the right to apply EU, EAEU, and Chinese construction and technical rules without adaptation to Belarusian standards;
- moratorium for selective (planned) inspections until 31 December 2023.
The Decree also introduces a comprehensive programme for development of Orsha District covering such areas as industry, agriculture, transportation, construction, healthcare, tourism, culture, and others.
Furthermore, one more recently signed Presidential Decree “On Creation of a Special-Economic Zone in the ‘Bremino-Orsha’ Multimodal Industrial Logistic Centre” has laid the basis for one more investment project in Belarus and allowed business entities to acquire the status of special economic zone (SEZ) resident in order to enjoy a wide range of benefits.
The requirements for would-be SEZ residents comprise a declared amount of investments not less than USD 5 mln (or EUR 500,000 under the condition of investment within three years) in implementing projects in such spheres as manufacturing, e-Commerce, logistics and transport, and postal services. Upon approval by the President, investment projects may also relate to manufacture of food products, light industry, household appliances, and wholesale trade.
Law on Public-Private Partnership Amended to Encourage New Projects
The relatively new Law “On Public-Private Partnership” adopted on 30 December 2015 has not proved successful in developing cooperation between the state and private parties: so far no public-private projects have been implemented or even started under the provisions of the Law. With the aim of changing the situation, in mid-2018 the Parliament adopted amendments to the Law providing for improvements to bidding procedures and some additional state guarantees.
In particular, the amendments comprise the following:
- extension of PPP to both public and private infrastructure (previously only public infrastructure could be subject to PPP). In addition, PPP may now be established in regard to information and telecommunications infrastructure;
- change of the requirements for a private partner, which now can only be a Belarusian commercial legal entity. At the same time, individual entrepreneurs and foreign entities can still participate in PPP tenders, though if they succeed they will have to establish a company in Belarus;
- possibility for groups of entities to participate as one participant in a tender;
- an additional three-tier tender procedure providing for consultations with tender participants. As a result, there are now two types of tenders (two-tier and three-tier);
- increase of the term for concluding a PPP agreement (from 20 calendar days to 12 months);
- extension of the term for challenging a decision of the tender commission (10 business days for pre-court dispute resolution procedures and 20 business days for referring the dispute to a court);
- establishing litigation in national courts as the default dispute resolution procedure instead of ad hoc arbitration under UNCITRAL Arbitration Rules and ICSID arbitration. If an international treaty or a PPP agreement provide for a different dispute resolution procedure, the provisions of the treaty or agreement prevail over the default procedure;
- extension of the scope of investor’s guarantees (guarantee of financing by state partner, guarantee of independent choice of suppliers by the private partner).
All of these amendments came into force on 1 February 2019.
Launch of Prequalification for Project on Reconstruction and Maintenance of the M-10 Highway
The Ministry of Transport and Communications has announced the launch of a prequalification for a public-private partnership project on reconstruction and maintenance of an 85km section of the M-10 Highway.
The project provides for design, construction, financing, and further maintenance of the highway section by the private investor. The estimated investment for implementation of the project comes to EUR 200 million. Upon implementation of the project, the private partner will receive up to EUR 461.3 million from the public partner.
Amendments to the Civil Code Favour a New Approach to Written Form
The amendments to the Civil Code, effective since 1 February 2019, introduce a new approach to simple written form for transactions and contracts.
Previously, the regulations by default did not allow use of signing methods other than handwritten signature and digital electronic signature. Alternative methods were available only by agreement between the parties, which, in turn, in most cases required a contract in writing personally signed by the parties. From now on, the parties may skip the first step by making a separate agreement on acceptable signing methods, and use the preferred methods from the very beginning.
Based on the updated regulations, the signing methods available to parties are the following:
- handwritten signature;
- digital electronic signature;
- signature by other technical means, computer systems, information systems or networks that allow reliable confirmation that the document is signed by an authorised person.
The law does not further clarify the meaning of the “reliable confirmation” requirement, though explicitly names a facsimile reproduction of a handwritten signature as a proper signing method. We expect future court practice to develop criteria for defining acceptable signing methods. Meanwhile, we recommend either relying on the old-fashioned signing practices, or choosing the most trustworthy alternatives (e.g. digital signatures with cryptographic protection).
Updated Forms of Tax Returns
Starting from 16 February 2019, new forms of tax return must be used. The forms are approved by Decree of the Ministry of Taxation as of 3 January 2019 No. 2 “On calculation and payment of taxes, fees (duties) and other payments”.
Recently closed deals
EBRD exits the largest Belarusian children’s goods retail chain
Sorainen Belarus assisted the European Bank for Reconstruction and Development (EBRD) with the sale of its share in Commercial and Industrial Group West-Ost Union, owner of the children’s goods retail chain operating under the “Buslik” trademark (Buslik). The retail chain started operations in 2006 and now holds the leading position in the retail segment of goods for children with 46 stores located in 20 towns across Belarus. According to published data, the annual revenue of the Buslik chain is estimated at over USD 65 million with EBITDA exceeding USD 2 million.
The EBRD sold its share to CDRL S.A. and to the current Buslik CEO and shareholder, Siarhei Misiachenka. CDRL S.A. is a Polish public company listed on the Warsaw Stock Exchange and engaged in design, manufacture, and distribution of clothes. The company owns the Coccodrillo brand and has representation in multiple countries around the world. CDRL is also known for its previous cooperation with the Buslik chain in Belarusian children’s goods retail.
The Sorainen team, consisting of country managing partner Kiryl Apanasevich, senior associate Viktoryia Mikhnevich and associate Aliaksei Vashkevich, assisted the EBRD in the transaction, including preparation of transaction documents, compliance with corporate procedures, as well as during the signing and closing processes.
Back in 2009, Sorainen Belarus also advised the EBRD regarding its equity and debt investments in Buslik.
EBRD to extend second loan to Modus Group for construction of biogas power plants in Belarus
Sorainen is advising the European Bank for Reconstruction and Development (EBRD) in connection with a second facility to Modus Group: a loan of USD 11.3 million will be used for construction of two biogas power plants with total installed capacity of 3MW in Belarus.
In 2018 Sorainen advised the EBRD in connection with the first facility to Modus Group ‒ the first ever EBRD investment in the Belarusian renewable energy sector.
Modus Group is an international group of companies currently operating in Lithuania, Latvia, Estonia, Spain, Poland, Ukraine and Belarus in the fields of renewable energy, the auto business and real estate.
Sorainen is advising the lender on Belarusian and Lithuanian law aspects of this financing. The cross-border Sorainen team is represented by partners Kiryl Apanasevich and Augustas Klezys, senior associate Ann Laevskaya with associates Artem Semchik and Urtė Armonaitė.