Tax legislation changes in Belarus

From 1 January 2022, the new version of the Tax Code applies

The Law of the Republic of Belarus dated 31 December 2021 “On amending laws on taxation issues” (the “Law”) has amended the Tax Code of Belarus (the “Tax Code”). Most of the amendments came into legal force on 1 January 2022.

1. Simplified taxation system

From 1 January 2022, the simplified taxation system with payment of value added tax (“VAT”) cannot be applied when selling goods (works, services).

At the same time, as before, the following cases of VAT payment remain mandatory, including:

  • when importing goods into Belarus;
  • when acquiring goods (works, services), property rights sold in the Republic of Belarus by foreign companies which do not operate in Belarus through a permanent establishment and are therefore not registered with the Belarussian tax authorities.

This means that companies that currently apply the simplified taxation system with VAT payment and would like to remain VAT payers have the possibility to switch to the general taxation system from 1 January 2022. To do this, they should make an appropriate mark in their VAT return (corrected tax return) for IV quarter 2021.

Moreover, from 1 January 2022 the rate of tax under the simplified taxation system was increased. From now on the rate is:

  • 6% in relation to gross revenues;
  • 16% in relation to non-operation income, which includes, for example, goods (works, services) received free of charge, property rights, other assets as well as amounts of funds received free of charge.

Furthermore, a unified reporting period has been established for tax under the simplified taxation system – a calendar quarter.

2. Value added tax

From 1 January 2022, new rules are in force for determining the place of sale for the purposes of VAT calculation. So works and services are considered as directly related to real estate if they are performed for the purposes, among others, of physically changing real estate or changing property rights to a real estate object. They may include legal services, agency services, real estate management services, or prospecting work. Belarus is recognized as the place of supply of services and works.

Additionally, the location of a purchaser is now considered as the place of supply of services rendered to confirm compliance of the manufacturing process, production and other objects with the requirements of Belarussian technical regulatory legal acts in the field of technical regulation and standardization and (or) requirements under the legislation of a foreign state or international standards.

From 1 January 2022, the basis for applying VAT at the rate of 10% when importing into Belarus medicines that have passed all stages of the technological process with the exception of packing and (or) packaging processes is a certificate from the Ministry of Healthcare on the import of such medicines that confirms their purpose for performing stages of the technological process such as packing and (or) packaging.

Additionally, the list of transactions which are not recognized as sale of goods, works (services), property rights and therefore not subject to VAT, has been supplemented. From 1 January 2022, they also include gratuitous contributions to company property which do not lead to an increase in the company’s statutory fund or a change in the size of shares (par value of shares) owned by its shareholders.

3. Income tax for foreign companies or withholding tax

Under new rules, provision of documents confirming the amount of income of a foreign company’s shareholder(s) is not required if a list of all shareholders as of the date of occurrence of an obligation to pay withholding tax is submitted to the tax authority. This list must be certified by an official of the foreign company and contain information on the share of income of shareholders who permanently reside in a relevant state.

From now on, compensation for fulfillment of debt obligations is also recognized as a taxation object.  This compensation is subject to withholding tax at the same rate as income from debt obligations (generally, at the rate of 10%).

From 1 January 2022, criteria are specified for a foreign company that is a factual owner of income. Thus, a factual owner of income is a company that:

  • carries out business activity in the country of state registration;
  • is a direct beneficiary of such income;
  • has the right to independently use and (or) dispose of this income at its own discretion;
  • does not mainly carry out financial and (or) investment activity which is carried out directly by a member (members) of its management body (bodies) without involving other employees or other individuals who have the required qualification.

Moreover, from 1 January 2022 the list of cases when it is not necessary to provide confirmation of a foreign company’s residence to avoid double taxation is expanded. Thus, confirmation of residence is not required If the company is registered with the tax authority as:

  • a foreign company providing services in electronic form;
  • a foreign company engaged in remote electronic sale of goods.

4. Income tax

New rules set forth that gratuitous contributions to company property which do not lead to an increase in the company’s statutory fund or a change in the size of the shares (par value of shares) owned by its shareholders are not included in non-operating income and, respectively, are not subject to income tax.

Additionally, from 1 January 2022, the regional Councils of Deputies or the local Councils of Deputies of the basic territorial level and the Minsk City Council of Deputies on their behalf received the right to increase (by no more than 2 percentage points) the standard income tax rate (18%) for certain categories of taxpayers who fully pay income tax to the respective local budgets.

5. Transfer-pricing

Foreign trade transactions concluded with an interdependent party are subject to transfer-pricing control.

From 1 January 2022, new transfer-pricing control objects have been added. From now on:

  • sale (repayment) of securities, derivative financial instruments, as well as granting credits (loans) are recognized as sale of goods (works, services), property rights;
  • receiving securities, derivative financial instruments, as well as credits (loans) is recognized as acquisition of goods (works, services), property rights.

This means that the above mentioned transactions made with interdependent parties (legal or natural persons), as well as with Belarusian organizations that are interdependent parties that do not calculate and pay income tax (including residents of the High Technologies Park and free economic zones, payers applying special tax regimes, etc.) are subject to transfer-pricing control.

Also, the condition for inclusion of bonuses in the price of an analyzed transaction has been added for the purchaser. Thus, the amounts of bonuses provided in transactions for acquisition of goods (works, services), property rights are taken into account when determining the price of an analyzed transaction if they are included in non-operating income no later than 365 days after the analyzed transaction is made.

Source: National legal Internet portal of the Republic of Belarus (NLIP) 04.01.2022, 2/2861.

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