Ministry of Finance of the Republic of Belarus has published a draft of the new Tax Code for 2019 on its official website. The changes are expected to come into force on 1 January 2019. Please see key changes below.
IMPORTANT FOR OWNERS AND CEOS
Incentives on dividends in case of reinvestment
Planned change: distribution of dividends will be taxed to 6% corporate income tax (CIT) or 6% personal income tax (PIT) if the shareholders do not distribute dividends for 3 years, but rather reinvest profits. If shareholders do not distribute dividends for 5 years and reinvest profits, then 0% CIT and 0% PIT apply to dividends. No such withholding tax (WHT) incentive is available for foreign companies.
We recommend assessing whether not distributing dividends and reinvesting profits is reasonable in your case.
Currently distribution of dividends is taxed at 12% CIT and 13% PIT regardless of the frequency of distribution.
Obligation to report foreign cash flows
Planned change: Belarusian companies will have to report to the tax authorities on their cash flows via foreign accounts, excluding correspondent accounts, by 31 March of the year following the reporting year.
Currently no such obligation exists.
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 in Belarus. This can result in considerable additional tax charges.
We recommend checking whether your foreign companies are actually managed from Belarus.
Currently a foreign company can be taxed as a Belarusian resident in certain cases if the company lacks (does not operate via) a place of state registration. Effective law does not clarify what is “lack (non-operation) of a place of state registration”.
Moving around between countries will not eliminate Belarusian tax residency
Planned change: if a Belarusian citizen or individual with a Belarusian residence permit is not recognized as a tax resident of any country (e.g., because of moving around between countries), then that person will be a Belarusian tax resident.
We recommend having documentary proof ready to show your non-Belarusian tax residency.
Currently there is no direct ban on “erosion” of individuals’ tax residency because of moving around between countries. As a result, an individual might not be recognized as a tax resident of any state where they stay. Previously, some taxpayers used such schemes for tax avoidance purposes, e.g., receiving dividends from countries with no tax on dividends at source.
Deadlines for personal income tax return and payment to 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.
Currently the deadlines for PIT return submission and tax payment are 1 March and 15 May of the year following the reporting calendar year.
IMPORTANT FOR ACCOUNTANTS AND LAWYERS
Quarterly personal income tax reports to be introduced
Planned change: to oblige companies and individual entrepreneurs to report to the tax authorities about income paid to individuals not later than the 20th day of the month following the reporting quarter.
We recommend changing internal procedures (including payroll software, if applicable) in advance.
Currently employers need not in general submit PIT reports.
Deduction of certain expenses is limited to 1% of revenue
Planned change: to allocate a group of deductible expenses totalling not more than 1% of company revenue. These expenses will include, for example, remuneration for annual performance results, cash aid for healthcare, remuneration to board members, representation expenses, reimbursement for use of personal vehicles, interest on overdue loan and credit payments.
We recommend assessing the structure of expenses subject to the 1% limitation.
Currently some of these expenses are not deductible, while others are deductible without limitation.
No more tenfold increase of real estate and land tax rates
Planned change: to abolish the tenfold rates of real estate and land taxes.
Currently tenfold rates of real estate and land taxes can apply for ineffective use (misuse) of property.
Late payment interest to be limited to the unpaid tax amount
Planned change: to limit late payment interest following a tax audit to the amount of unpaid tax.
Currently no limitation applies to maximum late payment interest.
New period for applying to tax setoff and refund
Planned change: to extend the deadline for applying for a setoff or refund of excess taxes paid to 5 years from the date of tax payment.
Currently the deadline to apply for a tax setoff or refund is 3 years from the date of tax payment.
Investment deductions to 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 considering purchase of new fixed assets taking into account the new limits on investment deductions.
Currently investment deductions are available up to 10% of the initial value of buildings and constructions and up to 20% of the initial value of machines and equipment.
List of related persons to 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 capitalization rules. Important: a person that directly or indirectly influences the business conditions or economic results of some other person will be recognised as a related person.
We recommend updating the list of related persons in advance and evaluating the new scope of controlled transactions for transfer pricing and thin capitalization purposes. Note: a Belarusian company can be fined for failure to mark related transactions in electronic VAT invoices.
Transfer pricing rules to be changed
Planned change: to make appropriate changes to Belarusian transfer pricing rules, including:
- thresholds of controlled transactions will be increased;
- any deviation from the arm’s length price (profitability range) in controlled transactions can result in additional CIT charges;
- large taxpayers will have to submit transfer pricing 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 calculating the amounts to be non-deductible for CIT purposes under the new rules. Large taxpayers may start preparing transfer pricing documentation in advance.
Currently transfer pricing rules allow deviation by 20% from the arm’s length price (profitability range). No payer need submit transfer pricing documentation without a special request from the tax authorities. No possibility exists to enter into advance pricing agreements.
Calendar quarter to be new withholding tax period
Planned change: to introduce the calendar quarter as the new withholding tax period. This means that WHT returns will be submitted and tax will be paid on a quarterly basis.
Currently the WHT tax period is the calendar month.
New term for recognition of services permanent establishment
Planned change: as a rule a 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.
Currently work and services normally constitute permanent establishment after 90 days
In practice the proposed amendments can still be changed or cancelled altogether. However, we believe that the majority of changes will be passed.