Dear clients and cooperation partners,
We are pleased to provide you with this update on amendments to the Belarus Tax Code introduced by Law No. 343-Z dated 30 December 2015 and effective 1 January 2016. Below we have included the most significant changes in this report.
Apart from an expanded transfer pricing regime (please see below), the General Part of the Tax Code has undergone relatively few changes.
In particular, amended Article 11 of the Tax Code states that taxes, levies and duties may be introduced not only by amending the Tax Code, but also by legislative acts adopted by the President.
It has also been clarified that following transformation of a legal entity, the right to use tax incentives passes to the transformed legal entity.
Effective 1 July 2016, taxpayers with over 15 employees must use the electronic filing system for tax returns.
A special chapter has been added to the Tax Code regulating deferral of tax payments granted to legal entities and individual entrepreneurs.
- Transfer pricing
- Value Added Tax (VAT)
- Corporate Income Tax (CIT)
- Withholding tax
- Personal Income Tax
- Simplified Taxation System
The scope of transfer pricing rules has been substantially extended and now covers the following groups of transactions:
- Transactions of sale or purchase of real estate, housing bonds if the transaction price deviates by 20 % or more from the market price. Please note that transactions by issuers using housing bonds which they have issued themselves are not subject to transfer pricing control.
- Transactions with related parties or offshore residents and concluded in the course of foreign trade activity, including via a chain of transactions with an intermediary/unrelated party1, if the price of a transaction (or the sum of transactions with one person) on sales or purchase of goods, works, services exceeds BYR 1 billion (approx. EUR 47,7822), net of indirect taxes.
- Transactions with Belarusian residents enjoying a special regime which grants them exemption from corporate income tax payments (e.g., residents of High Technology Park, Great Stone, free economic zones), if the price of the transaction (or the sum of transactions with one person) on sales or purchase of goods, works, services exceeds BYR 1 billion (approx. EUR 47,782), net of indirect taxes.
- Transactions on acquisition/sale of goods, services, works in the course of foreign trade activity of an entity which has acquired/sold strategic goods from the list established by the Government3, if the price of the transaction (or the sum of transactions with one person) on sales or purchase of goods, works, services exceeds BYR 10 billion (approx EUR 477,828), net of indirect taxes.
- Transactions by a major taxpayer under Belarus law with one person, if the price of the transaction (or the sum of transactions with one person) on sales or purchase of goods, works, services exceeds BYR 10 billion (approx. EUR 477,828), net of indirect taxes.
Notwithstanding the above, the following transactions are excluded from transfer pricing regulations:
- transactions in which the price is established by international treaties of Belarus;
- banking operations defined by the Belarus Bank Code;
- transactions with securities and derivatives circulated on the organized securities market.
A new transfer pricing method has been added, namely the profit split method. This allows comparison of actual distribution of the overall profit between the parties to the transaction as against distribution of the overall profit that would be expected in transactions between unrelated parties.
In 2016 the taxpayer will be required to notify the tax authority of its controlled transactions. The notification will include submitting:
- information on controlled transactions (if they fall within the abovementioned categories) in electronic form to a special portal administered by the Ministry of Taxes and Duties; and
- confirmation of and/or documentation confirming the economic rationale of the transaction price for taxpayers that carried out major transactions.
Confirmation of and/or documentation confirming the economic rationale of the transaction price may be required to be filed with the tax authority at its request during an in-house audit, even if the taxpayer has already provided information on such controlled transactions.
Documentation confirming the economic rationale is the aggregate of documents or a single document executed in free form and comprises data, in particular, on transactions done, the economic sphere concerned, economic factors that influence prices in this sphere, information on a related party or a resident of an offshore zone, and so on.
1 Please note the intermediary must not:
- perform any additional functions in this aggregate of transactions, except for organizing the realization (resale) of goods, works, services by one party to a related party;
- use any assets for organizing the realization (resale) of goods, works, services by one party to a related party.
2 Hereinafter as the National Bank of the Republic of Belarus rate EUR 1 = BYR 20 928 effective on 14 January 2016.
3 Please note that no such list has been established to date.
Value Added Tax (VAT)
E-invoicing for VAT purposes
One of the main changes to VAT regulation is the introduction of e-invoicing. The rules below will come into effect on 1 July 2016.
As a general rule, an electronic invoice will be an obligatory document for all VAT payers. The electronic invoice will be a basis for VAT calculations between sellers and buyers, as well as accepting for deduction the corresponding input VAT amounts. Electronic invoices will be circulated via the portal of electronic invoices powered by the Ministry of Taxes and Duties. Please note that an e-invoice will not be regarded as a source accounting document.
At the same time suppliers will not be obliged to execute an electronic invoice in the following cases:
- goods, services, proprietary rights which are out of scope of VAT and their supply need not appear in tax returns;
- bank operations;
- insurance services;
- sales of VAT-exempt goods or services by foreign companies not registered with the Belarusian tax authorities;
- goods, services, proprietary rights are supplied by advocates associations, advocates bureaus, the Belarusian Notarial Chamber and its subdivisions, plus certain state bodies;
- goods are imported to Belarus under commissioner (agency) agreements.
An E-invoice should be issued for each transaction not earlier than the day when VAT-able supply took place and no later than the 5th day of the month after the month in which supply took place.
As of 1 January 2016 certain VAT exemptions are cancelled; in particular VAT payment will be required for:
- realisation of public transport vehicles for subsequent leasing agreements;
- realisation of liquefied gas to individuals;
- realisation of services on gas-supply and electricity supply to individuals
A new VAT exemption applies to the transfer of dwellings by lessors to individuals on the basis of leasing agreements which provide for their return after termination of leasing.
Corporate Income Tax (CIT)
Expenses and income considered in CIT taxation
Amendments to the Tax Code add several new items of non-operating income and expenses accounted for in CIT taxation.
The list of items of non-operating income now includes:
- decrease in accounts payable (increase in accounts receivable), following conclusion of a settlement agreement or conciliation agreement
- lease payments due to a lessor-individual (including an individual entrepreneur) that are outstanding for over 12 months.
Since January 2016 non-operating expenses do not include the amounts of penalties (fines) and amounts payable for breach of contractual obligations under investment agreements with the Republic of Belarus.
Compensation for the results of the year to employees as well as remuneration of the Board of Directors (Supervisory Board) are now not deductible for CIT purposes.
The 2016 amendments to the Tax Code have also introduced certain clarifications to the thin capitalisation rules:
- Expenses of intermediary services, recruitment, hiring services, and services for personnel provision to carry out activities in Belarus are now included in controlled debt in terms of thin capitalisation rules.
- Controlled debt will also be considered in regard to individuals recognised as related parties to a company’s foreign shareholder and fall under thin capitalisation rules.
Amendments to the Tax Code introduce a new calculation of the period for permanent establishment (PE) on works and services.
Since 2016 for the purpose of calculating the 90-day period, which is the minimum period for a foreign company performing work (rendering services) in Belarus to be recognised as a permanent establishment under the Tax Code, is linked to any 12-month period instead of a calendar year.
Additional requirements to the content of a foreign auditor’s report confirming foreign expenses are introduced in the amended Tax Code. In particular, the conclusion should include data on the amount of foreign expenses in foreign currency and Belarusian roubles by type of foreign costs, as well as the date of their booking as expenses for CIT purposes by the foreign entity in accordance with the laws of a foreign state).
Since 2016 income of foreign companies which do not operate in Belarus via PE from services on personnel secondment is subject to withholding tax.
Income of such companies from syndicated loan agreements is excluded from tax exemptions on income.
At the same time, the amended Tax Code exempts foreign companies’ income derived from loan agreements with non-offshore entities (confirmed in The Bankers Almanac published by Reed Business Information) and accrued in 2016.
New rules on beneficial owner for tax treaty purposes
Amendments aimed at improving existing regulations on avoidance of double taxation are introduced in part of the beneficial owner regulations.
A foreign company is recognised as beneficial owner if it:
- carries on entrepreneurial activity connected to obtaining income from sources in Belarus in respect of which it claims beneficial owner benefit,
- is a direct beneficiary of the income, and
- is free to use and (or) dispose of this income on its own.
- A foreign company is not recognised as the beneficial owner and therefore may be denied application of the treaty provisions when:
- it carries out only intermediary functions in the interests of another person, and
- it does not assume risks and (or) its right to use and (or) dispose of income is limited to contractual or other obligations to pay (transfer) at least 60% of the income within a 12 month period in favour of a foreign tax resident which would have been subject to less favourable taxation in the case of direct receipt of the income.
Personal Income Tax
Income paid to individuals by foreign legal entities having a permanent establishment in Belarus is now deemed to be income from Belarusian sources and therefore subject to taxation in Belarus even if derived by individuals non tax resident in Belarus.
A special tax rate of 4% has been introduced on pay-outs from gambling businesses. Additionally, the notional income assessed by the tax authorities on the expenses of individuals exceeding their documented income is now taxable at a rate of 16%.
If an individual derives income from rental of real estate without a registered contract or without payment of respective tax amounts, that income will be taxable at fivefold the applicable rate.
Simplified Taxation System
The simplified taxation system (STS) has been subject to several important changes.
The maximum turnover threshold for individual entrepreneurs for application of the STS has been decreased down to BYR 1.5 billion (approx. EUR 75,000). If the threshold is exceeded, the individual entrepreneur must switch to another taxation system.
Additionally the STS is no longer allowed for businesses, both legal entities and individual entrepreneurs, engaged in:
- retail sales via online shops;
- provision of information services via web-based information resources for retail businesses running online shops, in particular containing links to such online shops.
Any goods, services, assets or fund received free of charge by taxpayers subject to STS are to be taxed at an increased rate of 16%.