Belarus is planning to tax foreign companies with Belarusian roots

Belarus tax system

Issues with taxation are always the hardest to resolve as both governments and business have sometimes absolutely different opinions about amount of income to be taxed and its origin. Recent judicial dispute between Apple Corp and the European Commission is the most prominent example, thousands of others are happening every year. So far, Belarus was not looking for taxes from income derived from operations abroad. But the hunt for offshore tax evaders all round the world made the Belarusian government to look in details into activity of Belarusian residents far away from their home country.

Despite the fact the new revision of the Belarus Tax Code will first and foremost affect local businesses it might be also useful for foreigners who have been living in Belarus and operate own business both in this country and abroad to familiarize yourself with the new legislation.

Lawyers Ekaterina Popova and Valentin Anikin explained what will change in the legislation and how this will affect the Belarusian owners of foreign companies and foreigners who currently live in Belarus and manage their business from this country.


How does the place of registration affect payments to the Belarusian budget?

Tax legislation divides organizations into Belarusian and foreign ones – based on the place of registration.

Belarusian companies pay taxes to the country’s budget from all world income: both domestically and abroad. Foreign companies pay to the budget of Belarus only taxes on activities, incomes and property in the territory of the republic.


How foreign companies can now be considered as Belarusian companies?

The current version of the Tax Code (Article 15) states that foreign companies are to be considered as a subject of taxation in Belarus if their activity is close and solely related to activities of Belarusian companies.  It is determined by the following:

– Location of the highest governing body in Belarus;

– Place where key management decisions are made is Belarus;

– Place where the main accounting documents are located is Belarus;

– Place of residence of the head or founder is Belarus.

So far there is no active practice in the application of this article and the retraining of foreign companies into Belarusian ones for subsequent additional tax collection.


How will the approach change?

During public discussions and the preparation of a new version of the Tax Code in Parliament, Article 15 was amended several times. In the latest edition, the criteria for recognizing a foreign company of Belarus are detailed and expanded. This can happen in the following cases:

– in accordance with an international tax treaty of Belarus, the provisions of which determine the residency of the organization;

– in case of inaction of a foreign organization in the state under the legislation of which it was created, and finding the place of its actual management in Belarus (see above).


Foreign companies are at risk of becoming tax residents of Belarus, primarily if they do not have a really working executive body abroad: a director, manager or shareholders, depending on who is in charge of the current management of the organization’s activities, the experts warn.

Such rules are aimed at combating fictitious and truly inactive companies on the territory of foreign countries that are actually managed from the territory of Belarus.

What will be the practice of law, it is not clear. It will be very sad if it takes the formal way and taxes will be charged, for example, simply because the head of a foreign organization has Belarusian citizenship or a general meeting of shareholders in our country, the lawyers say.


Who are at risk?

Trading companies that were created for the convenience of working with non-residents. Such companies, for example, are often created in the Russian Federation to provide documents on imports from Belarus and pay import VAT — as  known, Russian companies never wanted to get involved in this activities on their own.

Transport and forwarding companies, in which the main customers are non-residents. The management of such companies does not always require a permanent presence on the territory of a foreign state: negotiations, correspondence and other processes, as a rule, are conducted via the Internet, and problematic issues related to the movement of goods can be solved from anywhere in the world.

IT companies. The specificity of the business allows you to register a company in a convenient jurisdiction, but manage it from Belarus and have a staff here.

–  Foreign companies associated with the Belarusian business.  Under this definition are suitable companies whose directors live in Belarus, from here they carry out operational management, and go to take key decisions at the place of registration.


What is the danger for the foreign business in Belarus?

For the time being, the question remains whether these changes will lead to the punishment of bona fide companies that have registered their business abroad for their own convenience and have not tried to get a tax benefit or to evade paying taxes.

It is also unclear whether Article 15 of the Tax Code applies to HTP residents who have decree No. 8 authorized to manage foreign companies remotely from Belarus.

It is not yet clear from the stipulated provisions whether this situation will be considered as inaction: a foreign company abroad has a real office with employees and a hired director. At the same time, he coordinates his actions with the owners, who are in Belarus.

Also, the methodology of additional taxation of a foreign organization remains unclear, as well as whether the costs of maintaining a foreign office, the cost of production and other expenses will be taken into account when determining the tax base, experts say.

Moreover, now in the country’s legislation there is no technical procedure for registering a foreign company as a taxpayer in Belarus. That is, even if there is a voluntary desire from a foreign organization to pay such taxes, it is technically impossible to implement this desire in reality. will follow this topic and provide more information when it will be available from governmental bodies.

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