Key changes of the Belarusian Tax Code in 2019
by WTS CEE | 2018. 08. 16.
Belarusian Finance Ministry published a draft of the new Belarusian Tax Code 2019 on its official website. The changes are expected to come into force on 1 January 2019. Provisions we found the most interesting are summarised below.
New term for recognition of services permanent establishment
Planned change: as a rule, foreign company will constitute a permanent establishment in Belarus if its personnel performs works or renders services in Belarus for 180 calendar days or more (continually or in aggregate) in any given 12-month period.
Now works and services normally constitute permanent establishment in 90 days.
Incentives on dividends in case of reinvestment
Planned change: distribution of dividends is subject to 6% corporate income tax (CIT) or 6% personal income tax (PIT) in case the shareholders did not distribute dividends for 3 years, but rather reinvested the profits. If shareholders did not distribute dividends for 5 years and reinvested the profits, 0% CIT and 0% PIT apply to dividends. There is no such withholding tax (WHT) incentive for foreign companies.
We recommend to assess whether refusal from distribution of dividends and profits reinvestment is reasonable in your case.
Now distribution of dividends is subject to 12% CIT and 13% PIT regardless of the frequency of their distribution.
The list of related persons will be extended
Planned change: to extend the list of related persons which is important for marking transactions with related parties in electronic VAT invoices, transfer pricing and thin capitalisation rules. Important: a person which directly or indirectly influences business conditions or economic results of the other person will be recognised as a related person.
We recommend to update the list of related persons in advance and to evaluate new scope of the controlled transactions for transfer pricing and thin capitalisation purposes. Please note that Belarusian company can be subject to fines for failure to mark related transactions in electronic VAT invoices.
Transfer pricing rules will be changed in the new Belarusian Tax Code
Planned change: to make sufficient changes in Belarusian transfer pricing rules, including:
- thresholds of controlled transactions will be increased;
- any deviation from the arm’s length price (profitability range) in the controlled transactions can result in additional CIT charges;
- large taxpayers will be obliged to submit TP documentation to the tax authorities not later than 1 June of the year following the reporting calendar year;
- large taxpayers will be entitled to enter into advance pricing agreements with the tax authorities.
The transfer pricing rules still apply only to Belarusian CIT.
We recommend to calculate the amounts to be nondeductible for CIT purposes according to new rules. Large taxpayers may start preparing TP documentation in advance.
Now transfer pricing rules allow deviation by 20% from the arm’s length price (profitability range). None of the payers is obliged to submit TP documentation without a special request of the tax authorities. There is no possibility to enter into advance pricing agreements.
Obligation to report foreign cash flows
Planned change: Belarusian companies will be obliged to report to the tax authorities their cash flows via foreign accounts, excluding correspondent accounts, by 31 March of the year following the reporting year.
Now there is no such obligation.
Foreign company can be taxed as a Belarusian resident
Planned change: a foreign company can be taxed as a Belarusian resident if its place of actual management is situated in Belarus. This can result in considerable amount of additional tax charges.
We recommend to check whether your foreign companies are actually managed from Belarusian territory.
Now a foreign company can be taxed as a Belarusian resident in certain cases, if such company lacks (does not operate via) its place of state registration. Effective law does not clarify what is “lack (non-operation) of the place of state registration”.
Moving around countries will not eliminate Belarusian tax residency
Planned change: if a Belarusian citizen or individual with Belarusian residence permit is not recognised as a tax resident of any country (e.g., because of moving around the countries), then such person will be a Belarusian tax resident.
We recommend to be ready to prove your non-Belarusian tax residency by documents.
Now there is no direct ban on “erosion” of individuals tax residency because of moving around the countries. As a result of such actions an individual might not be recognised as a tax resident of any state of its stay. Earlier certain payers used such schemes for tax avoidance purposes, e.g. while receiving dividends from countries with no tax on dividends at source.
Deadlines for personal income tax return and payment will be changed
Planned change: to move the deadlines for PIT return submission and payment to 31 March and 1 June of the year following the reporting calendar year respectively.
Now the deadlines for PIT return submission and tax payment are 1 March and 15 May of the year following the reporting calendar year respectively.
Deduction of certain expenses is limited to 1% of the revenue
Planned change: to allocate a group of expenses which can be deducted in the total amount of not more than 1% of the company’s revenue. They will include, inter alia, remuneration for the annual performance results, cash aid for healthcare, remuneration to the board members, representation expenses, reimbursements for the usage of personal vehicles, interest for the overdue loan and credit payments.
We recommend to assess the structure of the expenses subject to 1% limitation.
Now some of these expenses are not deductible, others are deductible without limitation of the amount.
No more tenfold increase of real estate and land tax rates
Planned change: to abolish the tenfold rates of real estate and land taxes.
Now tenfold rates of real estate and land taxes can apply in case of ineffective usage (misuse) of property.
Investment deductions will be increased
Planned change: to increase the amounts of investment deductions up to 15% of the initial value of buildings and constructions and up to 30% of the initial value of machines and equipment.
We recommend to consider purchase of new fixed assets taking into accounts new amounts of investment deductions.
Now investment deductions are up to 10% of the initial value of buildings and constructions and up to 20% of the initial value of machines and equipment.
In practice the proposed amendments can still be changed or cancelled at all but according to the expectation of the experts the majority of changes will be passed.