Dear clients and cooperation partners,
We are pleased to provide a brief overview of the main amendments and supplements to the tax law of Belarus in effect since 1 January 2017.
- Transfer pricing
- Corporate income tax (CIT)
- Value added tax (VAT)
- Withholding tax (WHT)
- Special tax treatment
- Information exchange with tax authorities
- Disputes with tax authorities
- Changes in tax legislation from 2018: what to keep in mind
Important for: e.g. corporate income tax (CIT) payers in Belarus, including permanent establishments of foreign organisations which carry out controlled transactions, as well as their related parties, including non-residents of Belarus.
The scope of transfer pricing rules is narrowed by a supplement to the definition of related parties. For instance, related parties are parties that individually have a direct and (or) indirect participation stake comprising not less than 20% in an organisation, and transactions by those parties that comply with necessary requirements are controlled transactions for transfer pricing purposes. In this respect, direct and (or) indirect participation by the state is not a ground for such organisations to be considered related.
What to do: e.g. inform the tax authorities of controlled transactions, provide them with an economic rationale for the price and corresponding documentation on controlled transactions, pay additional amounts of CIT in Belarus, if necessary.
Corporate income tax (CIT)
Important for: e.g. CIT payers in Belarus, including permanent establishments of foreign organisations, members of the “Infopark” Science-Technological Association.
The procedure for CIT base determination for organisations that receive amounts from parties carrying out subsidiary liability under organisation obligations in the course of bringing those parties to subsidiary liability is amended. These amounts are excluded from non-operating income.
Moreover, the CIT base is determined with account taken of economically reasonable costs. “Economically reasonable costs” is a new definition for tax law and no clear current criteria are available for determining it. Clearly, economically reasonable costs do not cover:
- Expenses, if the fact of receipt of goods, works and services, or transfer of property rights is not established.
- Individual entrepreneur allowance, if the person is an employee of the organisation, and these works (services) are related to his work duties.
- Expenses incurred during provision of services (works) to the taxpayer by an organisation that is the founder of the taxpayer (or vice versa), if provision of those services/works is related to the duties of an employee of the organisation.
In our opinion, the exact list of economically reasonable costs accountable for taxation will appear out of practical application of this provision.
On a separate note, a special CIT rate of 5% in relation to income gained by members of the “Infopark” Science-Technological Association is abolished.
What to do: e.g. adjust CIT tax base taking account of economically reasonable costs, pay CIT tax at 18% rate (for members of the “Infopark” Science-Technological Association).
Value added tax (VAT)
Important for: e.g. organisations carrying out telecommunication services, search services and (or) services on providing information on potential buyers, “Forex” organisations, other VAT payers in Belarus, including permanent establishments of foreign organisations.
Since 1 January 2017 some important changes have come into force in the procedure for charging services with VAT in Belarus, as well as in usage of electronic VAT invoices (EVI), e.g.:
- If a Belarusian taxpayer receives search services and (or) services on providing information on potential buyers (consumers) Belarus is to be considered the place of providing those services, which are subject to VAT.
- The tax rate increases up to 25% for organisations carrying out telecommunication services for non-subscribers. These services include, e.g. services for interconnection, traffic transmission, providing communication channels connected under SIP protocol and (or) CCS No. 7 alarm systems, including 30B+D (EDSS1) on all levels, Internet access services with committed bandwidth. The reporting period for VAT is calendar monthly. Please note that since 1 April 2016, a VAT rate of 25% has already been applied to provision of services to subscribers.
- Transactions with non-deliverable over-the-counter financial instruments initiated by individuals and legal entities (activity on the over-the-counter market “Forex”) are not VAT-able.
We draw to your attention that since 1 July 2016 EVI usage has become mandatory for the purposes of VAT collection. Since 1 January 2017 EVI is the only ground for VAT deductions; primary accounting documents will not be accepted for VAT deductions. Moreover, the procedure for filing, submitting and using EVI has changed:
- The EVI issuance term is extended. EVI will be issued no later than the 10th day of the month following the month of dispatching goods, performing works or providing services.
- The list of cases when EVI should not be submitted is extended. These cases include importing goods to Belarus by IE who are not VAT payers for realisation of goods (works, services) or proprietary rights and realisation of goods (works, services) or proprietary rights that are VATable with a tax base equal to 0.
- For reduction of VAT amounts issued to a buyer EVI can be used alongside statements of accounts signed by the seller and the buyer.
- EVI should be directly uploaded to the portal, avoiding the buyer in relation to freight forwarding services exported and VATable at 0% rate.
- In case of malfunctions in portal operation EVI should be provided within five working days after the portal regains full efficiency.
On a separate note, according to changes to the Edict “On VAT Collection” the term for import VAT deduction is shortened from 90 to 60 days.
What to do: e.g. pay VAT for search services and (or) services on providing information on potential buyers (consumers), pay VAT at the rate of 25% for carrying out telecommunication services, upload EVI to the portal avoiding the buyer in relation to freight forwarding services exported and VATable at 0% rate, provide EVI to the portal within 5 working days after it regains full efficiency from malfunctions.
Withholding tax (WHT)
Important for: e.g. foreign banks, credit institutions, foreign organisations that provide loans, borrowings to Belarusian residents and those which provide database access services.
Foreign organisations receiving income from sources in Belarus without a permanent establishment in Belarus should note the following changes:
- Income from providing access to databases received by the taxpayer from sources in Belarus is subject to WHT.
- Income received from sources in Belarus from providing loans, borrowings by foreign organisations is again subject to WHT since 1 January 2017 according to Belarus tax law. A temporary exemption from WHT for such income was in effect from 1 January 2016 to 31 December 2016. Please note that income from loans, borrowings to the Republic of Belarus and the Government of the Republic of Belarus, as well as to Belarusian residents under state guarantees, and loans, borrowings received by foreign organisations from placement of securities issued by them for the purpose of providing such funds to Belarusian organisations still enjoys WHT exemption.
These provisions should apply with regard to double-taxation treaties (DTT).
What to do: e.g. pay WHT on interest income received from providing loans, borrowings to Belarusian residents or on income from providing access to databases, as an alternative, to apply to the tax authorities for WHT exemption in Belarus according to the DTT and provide corresponding “zero” rate declaration.
Special tax treatment
Important for: residents of Free Economic Zones (FEZ).
Some tax benefits of FEZ residents are extended and supplemented.
Thus, from 1 January 2017 to 31 December 2021, income received from the sale of goods (works, services) produced by FEZ residents registered as such before 1 January 2012 is exempted from CIT.
- Land plots belonging to FEZ residents for the period of construction of an object on the territory of a FEZ are exempted from land tax from the month when the FEZ resident was registered, but not for more than 5 years.
- Since 1 January 2017 and to 31 December 2021, if a FEZ resident carries out sale of goods (works, services) subject to specific FEZ taxation in the quarter preceding that in which a benefit was obtained, the land plots (regardless of their specific purpose) will be exempted from land tax.
These benefits are also effective if a land plot is rented.
Please note that the Edict “On Changes to Edicts of the President of the Republic of Belarus” No. 508 provides for a new unified term of expiration of FEZ activity – 31 December 2049 – and also grants FEZ residents some additional customs benefits such as VAT exemption for FEZ residents’ goods placed under the customs procedure of release for internal consumption produced (obtained) with use of foreign goods placed under the customs procedure of the free customs zone.
What to do: carefully examine the procedure and terms for provision of new benefits.
Information exchange with tax authorities
Important for: individual entrepreneurs, legal entities owing tax to the state budget, taxpayers with a registered personal account on the portal of the Ministry of Taxes and Duties of the Republic of Belarus (MoT) and other taxpayers in Belarus.
The new amendments are aimed at facilitating information exchange between taxpayers and the tax authorities. For instance:
- A taxpayer’s personal account status is established. This can be accessed either by a personal electronic digital signature key or a user account and password. The personal account will be used to inform the taxpayer of suspension and resumption of operations on his account.
- The list of data that constitute tax secrets is shortened. Tax secrets do not include data on a taxpayer’s registration in beneficial tax regimes (e.g. High Technology Park, FEZ), or data provided to participants within the AIS “Invoices Accounting”.
Please note that since 1 January 2017, the MoT will publish on its website a monthly list of taxpayers – individual entrepreneurs and legal entities with a tax debt to the state. The amounts owed will not be revealed.
What to do: e.g. acquire a taxpayer`s personal account, check the list of taxpayers with a tax debt to the state.
Disputes with tax authorities
Important for: persons that believe the tax authorities are infringing their rights and (or) legitimate interests.
Appealing the tax authority’s decisions, as well as action (inaction) by its officials is now possible for any person who believes that a decision or action (inaction) infringes their rights and (or) legitimate interests. Previously, appealing was possible only for taxpayers.
What to do: e.g. file a complaint with the tax authority or court to protect your rights.
Changes in tax legislation from 2018: what to keep in mind
Important for: foreign organisations providing or planning to provide electronic services (e.g. licensing software (including computer games), electronic books, graphic images, music, providing advertising services on the Internet) for Belarusian users, as well as intermediary organisations which take part in transactions with Belarusian users provided with electronic services.
Please note that so called “Google Tax” – VAT on electronic services provided by foreign organisations to Belarusian users will be introduced from 1 January 2018. Foreign organisations and their intermediaries need to apply for registration with the tax authorities in Belarus to pay such tax. The procedure for registration should be developed during 2017.
What to do: e.g. apply for registration with the tax authorities and pay VAT from 1 January 2018.