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Belarus Tax Note

A draft law that would amend the Tax Code of the Republic of Belarus has been posted on the website of the Belarusian Ministry of Finance (the “Draft Law”). This time the draft has been published long before the start of the calendar year in which the amendments are to take effect, giving taxpayers a chance to understand the changes and prepare for them.

In addition to the traditional indexation of tax rates in Belarusian rubles, the draft law contains a number of provisions that are new for business. Note that the amendments will once again affect the list of nondeductible expenses for profits tax purposes. The list will now include expenses for management services in excess of the amounts used by law to determine the average salary of a company’s chief executive.

What this means is that, for profits tax purposes, a taxpayer’s expenses for management services should not be more than eight times the average salary for the company as a whole.  This ratio between the average salary of the chief executive and the average salary for the company is currently stipulated by law. Expenses for management services that go over the limit will not be deductible for profits tax purposes.

The changes are also expected to affect tax on foreign companies’ income. A Belarusian company that is an income tax agent will have to pay this tax out of its own funds rather than withholding it from the revenue of a foreign company that provides intermediary, advertising or IT services if the foreign company independently withholds its fees for such services from amounts owed to the Belarusian company. It is also planned to allow Belarusian companies to treat paid income tax as an expense for profits tax purposes.

The inability to withhold tax from a foreign company’s fees is a problem for IT companies using foreign platforms.  The Draft Law addresses this problem by allowing tax agents to pay income tax independently rather than withholding it. Also, the mechanism for confirming tax residency is to be simplified, since income tax may not have to be paid under international tax treaties. One such simplification is that the Belarusian tax authorities will accept a tax residency certificate in electronic form as posted on a foreign company’s website and not have to ask the company for a hard copy.  Income tax agents will have to provide the tax authorities with monthly reports on the income of individuals in accordance with a list of such income approved by the Ministry for Taxes and Levies. Tax agents currently submit annual reports including information on income paid to foreign nationals.

The Draft Law would also make profits that residents of free economic zones earn from sales of their own goods (work, services) exempt from profits tax without any time limit and regardless of how long it has been since they declared the profit or registered as residents of free economic zones. Plots of land in free economic zones are also to be exempted from land tax without time limits, regardless of their designated purpose, provided that the activities carried out are covered by the preferential tax regime of the free economic zone.