Dividends from Belarusian companies

Belarus-sourced dividends are taxed there both for residents and non-residents. The good news is that no additional actions are normally required from individuals since Belarusian companies, as tax agents, withhold personal income tax from the dividend amount.

When Belarusian companies calculate personal income tax from dividends paid to individuals they tax them as of the date of actual receipt, i.e. when a corporate decision to distribute profits and pay out dividends is made according to Belarusian legislation.

The standard tax rate for dividends in Belarus is 13%. A special tax rate of 6% applies if shareholders who are Belarusian tax residents have not distributed profits for three years in a row, but have rather reinvested the profits. If Belarusian tax-resident shareholders have not distributed profits for five consecutive years, a 0% tax rate applies to dividends in Belarus. These reduced tax rates are not applicable for tax non-residents in Belarus.

Dividends in Belarus from foreign companies

Foreign dividends are only taxed in Belarus for Belarusian tax residents. An individual is generally recognised as a Belarusian tax resident if they stay in the territory of Belarus for more than 183 days in a given calendar year. This 183+ days term includes the time spent out of Belarus:

• on business trips formalised in accordance with Belarusian labour law;
• for medical treatment;
• on holiday, provided that the holiday did not exceed two months overall in a calendar year.

Since foreign dividends are foreign-sourced income, the residents must report them in their annual personal income tax return, which must be submitted no later than 31 March following the year of actually receiving the dividends.

Date and currency 

When an individual fills in the return, some questions may arise in practice.

One may concern the date of receipt of the dividends. This aspect differs from the mechanism established for Belarusian companies. Individuals must indicate the date of payment, i.e. the transfer of income to the bank accounts or electronic wallet of the individuals, as the date the foreign dividends are received.

Another practical question is what is the currency of income if a company transfers money in one currency, but the bank account of the recipient converts it into another currency.

This question is not directly regulated by national legislation, but we believe the income should be indicated in the currency in which the foreign company paid it to the individual. This situation may be relevant when dividends in Belarus are paid, for example, in euros, but settled to the individual’s bank account in US dollars. In such a situation a banking conversion takes place, i.e. the bank firstly exchanges euros for US dollars, and then settles the amount of money to the individual’s account.

The bank acts as an intermediary here, the dividends in Belarus are received by the bank in the currency that the foreign company decided to pay them in. Therefore, the income should be reflected in the tax return as it was received by the recipient bank directly from the foreign company. The conversion of funds is a term of an agreement between the recipient bank and the account owner. Therefore, in terms of taxation it should not affect the receipt of income in the form of a dividend. However, we always recommend being ready to confirm the amount and currency of the income with respective documents.

In terms of the currency, it is worth mentioning that as a final step the tax authorities recalculate the income received in the foreign currency to Belarusian rubles at the official rate of the National Bank for the date the income was actually received.

After submitting the annual return, an individual must pay 13% personal income tax no later than 1 June following the year the dividend was actually received.

Offsetting of tax paid abroad

Foreign jurisdictions normally oblige their resident companies to withhold personal income tax while paying out dividends, except for specific jurisdictions such as Cyprus. In such situations, according to Belarusian legislation an individual has the right to offset the amount of tax paid abroad. To do this, the individuals must confirm the income and paid taxes with an official document of the foreign tax authorities containing the respective information.

It is allowed to request offsetting when the personal income tax return is submitted with attached corporate documents, confirming the income and paid taxes. However, after this the individuals are still obliged to prove the facts with the documents issued by the tax authorities of the foreign country within one year of submitting the tax return. If the confirmation documents mentioned above are not provided on time, the tax authorities will recalculate the personal income tax and charge additional fines for not paying on time.

If you would like to know more about taxation of dividends in Belarus, please visit the homepage of Sorainen, the Baltic partner of WTS Global!

A Personal income tax on dividends in Belarus bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

After our three-part series of articles about the Belarusian M&A market published last year, now we would like to highlight the main characteristics of a merger clearance in Belarus. A merger clearance in Belarus differs from EU states, both in the terms of the scope of controlled transactions and the application process itself. Belarusian law establishes a specific control test for all transaction types separately, consisting of one or two elements:

• substantive element describing the specific characteristics of the transaction which make it subject to the merger control; and/or
• financial thresholds / market control

Controlled transactions and their testing

A merger clearance in Belarus can be required in relation to the following transaction types:

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The test for share acquisitions comprises substantive and financial / market control elements (both must be present for the transaction to be subject to merger control).

The substantive element is met whenever a transaction is characterised as any of the following:

• acquisition of at least 25% of the voting shares in a target by an acquirer holding a dominant position in the same market as the target;
• acquisition of at least 25% of the voting shares in a target holding a dominant position in a market;
• acquisition of the right to dispose of more than 25% or 50% of the voting shares in a target, i.e. any transaction which results in the shareholding of the acquirer in the target exceeding any of the specified thresholds (e.g. acquiring 10% of the shares when the acquirer already holds 20%).

Any of the following meet the financial / market control element:

• total non-consolidated worldwide book value of assets of the target or acquirer exceeds 200,000 basic units (BYN 5,100,000 or roughly EUR 2,176,000);
• total non-consolidated worldwide turnover of the target or acquirer for the year preceding the year of the merger clearance application exceeds 400,000 basic units (BYN 10,200,000 or roughly EUR 4,352,000);

either the target or the acquirer is included in the State Register of Entities Holding a Dominant Position in Commodities Market or State Register of Natural Monopolies.

[/et_pb_accordion_item][et_pb_accordion_item _builder_version=”3.15″ title=”Acquisition of fixed or intangible assets” use_background_color_gradient=”off” background_color_gradient_start=”#2b87da” background_color_gradient_end=”#29c4a9″ background_color_gradient_type=”linear” background_color_gradient_direction=”180deg” background_color_gradient_direction_radial=”center” background_color_gradient_start_position=”0%” background_color_gradient_end_position=”100%” background_color_gradient_overlays_image=”off” parallax=”off” parallax_method=”on” background_size=”cover” background_position=”center” background_repeat=”no-repeat” background_blend=”normal” allow_player_pause=”off” background_video_pause_outside_viewport=”on” text_shadow_style=”none” box_shadow_style=”none” text_shadow_horizontal_length=”0em” text_shadow_vertical_length=”0em” text_shadow_blur_strength=”0em”]

The test for acquisitions of fixed or intangible assets comprises substantive and financial / market control elements (both must apply for the transaction to be subject to merger control).

The substantive element is met whenever a transaction has all of the following characteristics:

• the acquired assets are either fixed or intangible and belong to a commercial organisation;
• the acquired assets are located in Belarus;
• the balance sheet value of the acquired assets (including assets acquired in several related transactions) exceeds 20% of the book value of all fixed and intangible assets of the seller.

Any of the following meet the financial / market control element:

• total non-consolidated worldwide book value of assets of the seller or acquirer exceeds 200,000 basic units (BYN 5,100,000 or roughly EUR 2,176,000);
• total non-consolidated worldwide turnover of the seller or acquirer for the year preceding the year of the merger clearance application exceeds 400,000 basic units (BYN 10,200,000 or roughly EUR 4,352,000);
• either the seller or acquirer is included in the State Register of Entities Holding a Dominant Position in Commodities Market or State Register of Natural Monopolies.

[/et_pb_accordion_item][et_pb_accordion_item _builder_version=”3.15″ title=”Other acquisition of control over a company” use_background_color_gradient=”off” background_color_gradient_start=”#2b87da” background_color_gradient_end=”#29c4a9″ background_color_gradient_type=”linear” background_color_gradient_direction=”180deg” background_color_gradient_direction_radial=”center” background_color_gradient_start_position=”0%” background_color_gradient_end_position=”100%” background_color_gradient_overlays_image=”off” parallax=”off” parallax_method=”on” background_size=”cover” background_position=”center” background_repeat=”no-repeat” background_blend=”normal” allow_player_pause=”off” background_video_pause_outside_viewport=”on” text_shadow_style=”none” box_shadow_style=”none” text_shadow_horizontal_length=”0em” text_shadow_vertical_length=”0em” text_shadow_blur_strength=”0em”]

The test for other acquisitions of control comprises substantive and financial / market control elements (both must apply for the transaction to be subject to merger control).

The substantive element is met whenever a transaction is characterised as any of the following:

• acquisition of the right to influence decisions made by a target holding a dominant position in a market;
• acquisition of the right to give mandatory orders to a target or the right to perform functions of the target’s executive body, including on the basis of a trust management agreement, a simple partnership agreement, or an agency agreement;
• acquisition of the right to participate in executive bodies, supervisory board, or other managing bodies of two or more targets operating in the market of interchangeable (similar) goods by the same acquirer (provided that the acquirer has an opportunity to determine conditions for the targets’ business activities).

The financial / market control element is similar to the one for share acquisitions.

[/et_pb_accordion_item][et_pb_accordion_item _builder_version=”3.15″ title=”Conclusion of a joint venture agreement” use_background_color_gradient=”off” background_color_gradient_start=”#2b87da” background_color_gradient_end=”#29c4a9″ background_color_gradient_type=”linear” background_color_gradient_direction=”180deg” background_color_gradient_direction_radial=”center” background_color_gradient_start_position=”0%” background_color_gradient_end_position=”100%” background_color_gradient_overlays_image=”off” parallax=”off” parallax_method=”on” background_size=”cover” background_position=”center” background_repeat=”no-repeat” background_blend=”normal” allow_player_pause=”off” background_video_pause_outside_viewport=”on” text_shadow_style=”none” box_shadow_style=”none” text_shadow_horizontal_length=”0em” text_shadow_vertical_length=”0em” text_shadow_blur_strength=”0em”]

The test for concluding joint-venture agreements comprises substantive and financial / market control elements (both must apply for the transaction to be subject to merger control).

The substantive element is met whenever a transaction has all of the following characteristics:

• the parties to the joint-venture agreement are individual entrepreneurs and/or commercial organisations;
• the parties to the joint-venture agreement are competitors;
• the joint-venture agreement is concluded in the territory of the Republic of Belarus.

Any of the following meet the financial / market control element:

• total non-consolidated worldwide book value of assets of the parties to the joint-venture agreement (jointly) exceeds 200,000 basic units (BYN 5,100,000 or roughly EUR 2,176,000);
• total non-consolidated worldwide turnover of the parties to the joint-venture agreement (jointly) for the year preceding the year of the merger clearance application exceeds 400,000 basic units (BYN 10,200,000 or roughly EUR 4,352,000);
• any of the parties to the joint-venture agreement is included in the State Register of Entities Holding a Dominant Position in Commodities Market or State Register of Natural Monopolies.

[/et_pb_accordion_item][et_pb_accordion_item _builder_version=”3.15″ title=”Merger and joinder” use_background_color_gradient=”off” background_color_gradient_start=”#2b87da” background_color_gradient_end=”#29c4a9″ background_color_gradient_type=”linear” background_color_gradient_direction=”180deg” background_color_gradient_direction_radial=”center” background_color_gradient_start_position=”0%” background_color_gradient_end_position=”100%” background_color_gradient_overlays_image=”off” parallax=”off” parallax_method=”on” background_size=”cover” background_position=”center” background_repeat=”no-repeat” background_blend=”normal” allow_player_pause=”off” background_video_pause_outside_viewport=”on” text_shadow_style=”none” box_shadow_style=”none” text_shadow_horizontal_length=”0em” text_shadow_vertical_length=”0em” text_shadow_blur_strength=”0em”]

The test for mergers and joinders comprises only a financial / market control element, which is met when any of the following applies:

• total non-consolidated worldwide book value of assets of any of the parties to the merger or joinder exceeds 200,000 basic units (BYN 5,100,000 or roughly EUR 2,176,000);
• total non-consolidated worldwide turnover of any of the parties to the merger or joinder for the year preceding the year of the merger clearance application exceeds 400,000 basic units (BYN 10,200,000 or roughly EUR 4,352,000);
• any of the parties to the merger or joinder is included in the State Register of Entities Holding a Dominant Position in Commodities Market or State Register of Natural Monopolies.

[/et_pb_accordion_item][et_pb_accordion_item _builder_version=”3.15″ title=”Establishment of a commercial company” use_background_color_gradient=”off” background_color_gradient_start=”#2b87da” background_color_gradient_end=”#29c4a9″ background_color_gradient_type=”linear” background_color_gradient_direction=”180deg” background_color_gradient_direction_radial=”center” background_color_gradient_start_position=”0%” background_color_gradient_end_position=”100%” background_color_gradient_overlays_image=”off” parallax=”off” parallax_method=”on” background_size=”cover” background_position=”center” background_repeat=”no-repeat” background_blend=”normal” allow_player_pause=”off” background_video_pause_outside_viewport=”on” text_shadow_style=”none” box_shadow_style=”none”]

The test for establishing a commercial company comprises substantive and financial / market control elements (both must apply for the transaction to be subject to merger control).

The substantive element is met whenever a transaction has all of the following characteristics:

• the established commercial company acquires shares or fixed or intangible assets (as contributions to the share capital or otherwise);
• this acquisition of shares is subject to a merger control according to the rules as described above / this acquisition of fixed or intangible assets satisfies a substantive element of the test for merger control of acquisitions of fixed or intangible assets as described above.

Any of the following meet the financial / market control element:

• total non-consolidated worldwide book value of assets of the founders and the company whose shares / assets are acquired by a newly established company (jointly) exceeds 200,000 basic units (BYN 5,100,000 or roughly EUR 2,176,000);
• total non-consolidated worldwide turnover of the founders and the company whose shares / assets are acquired by a newly established company (jointly) for the year preceding the year of the merger clearance application exceeds 400,000 basic units (BYN 10,200,000 or roughly EUR 4,352,000);
• any of the founders or the company whose shares / assets are acquired by a newly established company is included in the State Register of Entities Holding a Dominant Position in Commodities Market or State Register of Natural Monopolies.

[/et_pb_accordion_item][et_pb_accordion_item _builder_version=”3.15″ title=”Establishment of an association, union, state association, and holding (specific type of amalgamation under Belarusian law) as well as joining an existing holding” use_background_color_gradient=”off” background_color_gradient_start=”#2b87da” background_color_gradient_end=”#29c4a9″ background_color_gradient_type=”linear” background_color_gradient_direction=”180deg” background_color_gradient_direction_radial=”center” background_color_gradient_start_position=”0%” background_color_gradient_end_position=”100%” background_color_gradient_overlays_image=”off” parallax=”off” parallax_method=”on” background_size=”cover” background_position=”center” background_repeat=”no-repeat” background_blend=”normal” allow_player_pause=”off” background_video_pause_outside_viewport=”on” text_shadow_style=”none” box_shadow_style=”none”]

The test for mergers and joinders comprises only a financial / market control element, which is met when any of the following applies:

• total non-consolidated worldwide book value of assets of the founders (jointly) exceeds 200,000 basic units (BYN 5,100,000 or roughly EUR 2,176,000);
• total non-consolidated worldwide turnover of any of the founders (jointly) for the year preceding the year of the merger clearance application exceeds 400,000 basic units (BYN 10,200,000 or roughly EUR 4,352,000);
• any of the founders is included in the State Register of Entities Holding a Dominant Position in Commodities Market or State Register of Natural Monopolies.

Any new company joining the holding requires merger clearance in Belarus.

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Foreign-to-foreign transactions

Belarusian anti-monopoly law and the merger clearance requirements potentially apply to foreign-to-foreign transactions. Antimonopoly approval is necessary in case the transaction negatively affects or might negatively affect competition in the Belarusian market. The potential effect on competition is assessed on a case-by-case basis by the antimonopoly authority, and there are no clear guidelines on how to verify the need to obtain the consent of the antimonopoly authority prior to applying for this consent. Nevertheless, it is generally recommended to consider the following circumstances:

• corporate presence of the acquirer and target in Belarus (also non-direct presence);
• supplies to the Belarusian market by the acquirer and target as well as their group companies.

It is also possible to apply in advance to the antimonopoly authority to seek its opinion on the need to obtain approval with regard to a specific transaction. However, this opinion is non-binding and can be disregarded if the antimonopoly authority becomes aware of new circumstances, which is almost always the case. Hence, it is usually recommended to apply for consent in any controversial or unclear situation.

Application process

Generally, applications for merger clearance in Belarus can be submitted by any party of the controlled transaction. For the most common type of transaction – share acquisitions – applications are usually submitted by the acquirer.

Within 10 working days of the submission, the antimonopoly authority considers the provided documents and can issue an additional request, or refuse to accept the application. If the application is accepted, the final decision is issued within 30 calendar days of the date of its submission. The antimonopoly authority refuses to issue its consent to the transaction in any of the following cases:

• the information provided is false or incomplete; or
• the transaction can create or strengthen a dominant position in the market or otherwise negatively affect competition.

The antimonopoly authority has the discretion to allow a transaction that negatively affects the competition, provided that some of the advantages gained from the transaction are transferred to consumers or that the transaction can result in an improvement to the production or sales process, can stimulate technical progress, or can increase the competitiveness of goods in the global market. Furthermore, the antimonopoly authority can also make the transaction subject to requirements aimed at reducing the negative effect on competition.

If consent to the transaction is granted, it remains valid for one year.

Some intragroup transactions are subject to a simplified procedure, which only means notifying the antimonopoly authority about the transaction within one month of its completion. These intragroup transactions comprise transactions between a company and its shareholder controlling more than 50% of the voting shares as well as transactions between companies controlled by the same persons (the same persons shall hold more than 50% of the voting shares in each company).

Failure to comply

Failure to comply with the merger clearance requirements can result in the transaction being acknowledged as invalid, provided it has created or strengthened a dominant position in the market or otherwise negatively affected competition. A corresponding claim can be filed at a court by the antimonopoly authority.

Furthermore, a person can be subject to a fine of up to BYN 2,700 (roughly EUR 1,150) in the event of failure to comply with a request of the antimonopoly authority, including failure to provide requested information.

If you would like to know more about merger clearance in Belarus, please visit the homepage of Sorainen, the Baltic partner of WTS Global!

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A Merger clearance in Belarus bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Cancellation of 20% deviation from the arm’s length price

One of the key changes regarding the latest TP trends in Belarus is that now any deviation from the arm’s length price (profitability range) in controlled transactions may trigger additional corporate income tax liabilities. Previously 20% deviation from the arm’s length price (profitability range) was allowed.

Advance pricing agreements

Taxpayers with controlled transactions exceeding a value of BYN 2 million excluding indirect taxes (currently approx. EUR 800,000) and high taxpayers are entitled to enter into advance pricing agreements with the tax authorities.

The list of related persons is extended

A person that directly or indirectly influences the business conditions or economic results of another person is recognized as a related person. Tax Code 2019 introduces the new term “beneficiary of the company” which is defined, for tax purposes, as an individual who directly or indirectly takes key managerial decisions and decisions affecting the business activities of the company. Such beneficiaries and the company are related persons.

The latest TP trends regarding the trade in shares of companies

The current opinion of the Belarusian tax authorities regarding TP control of transactions involving shares between related persons is that the sale of shares can be interpreted as transactions involving property rights which are subject to TP control. Still there is a lot uncertainty because the Tax Code does not specify how to determine the arm’s length price of shares. Currently there is no rule that taxpayers should stick to the value of net assets per share or similar.

Practice of the supervisory authorities

President Lukashenko publicly announced a campaign against corruption and manipulations in structures involving intermediaries. Financial investigators of the State Control Committee now pay close attention to structures involving related intermediary companies during their audits, especially those registered outside Belarus. We expect that the supervisory authorities will focus even more on deals involving intermediary companies in 2019.

If you would like to know more about the new Tax Code and the latest TP trends in Belarus, please visit the homepage of Sorainen, the Belarusian partner firm of WTS Global.

A The latest TP trends in Belarus bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.