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Income Tax in Belarus



Income Tax on Individual

Personal Individuals who are considered to be Belarus tax residents under applicable tax rules have personal income tax (PIT) liability on their income sourced from Belarus and abroad (i.e. worldwide income). Those who are considered as non-tax residents of Belarus are taxed on income derived from Belarus sources.

Tax Rates

Generally, any individual income derived from Belarus and foreign sources is taxed at a flat rate of 13%.

Employment-related income derived by individuals from entities or entrepreneurs registered with High Technology Park is taxed at the rate of 9%. Private entrepreneurs applying the general taxation regime are taxed at a rate of 16%. Income from prizes received from gambling organisers is taxed at the rate of 4%.

Income calculated based on the amount of excess of expenditures over declared income is taxed at the rate of 16%.

Income received by an individual from renting out premises to other individuals is taxed at flat rates if such income does not exceed 5,555 Belarusian roubles (BYN) during a tax year. Limits on flat rates are provided for in Annex 26 to the Tax Code.

Residency Rule

For PIT purposes, an individual is treated as a tax resident if one stays in Belarus for more than 183 days per calendar year. Days of arrival are not considered, while days of departure are included in determining the number of days. Non-residents are individuals who do not correspond to the above mentioned requirements (i.e. a non-tax resident is one who is staying in Belarus 183 days per calendar year and less).

Taxable Income

Belarus-source income includes (but is not limited to) the following:
· Employment income received from a Belarusian company or foreign company due to the activity of its permanent establishment (PE) in Belarus.
· Payments under insurance contracts received from a Belarusian company or foreign company due to the activity of its representative office or a PE in Belarus.
· Interest income received from a Belarusian company or foreign company due to the activity of its representative office or a PE in Belarus.
· Income derived from intellectual property (IP) rights exercised in Belarus.
· Capital gains derived from disposal of any property (with certain exceptions) located in Belarus.
· Income from disposal on the territory of Belarus of shares or other securities, and income from disposal of shares in the statutory capital of Belarusian companies.
· Interest from deposits held in Belarus.
· Rental income from property located in Belarus.
· Dividends received from a Belarusian company.
· Pensions, scholarships, or similar payments.
· Amounts received by an individual in compensation of moral damage (with certain exceptions).
· Income derived from the use of pipelines, power lines, telecommunication facilities and other means of communication, including computer networks, in the territory of Belarus.

Employment income

Taxable earnings in cash and in kind received from the principal employer include wages, various additional payments (e.g. sickness and maternity benefits paid from social insurance funds), bonuses, incentive payments, allowances and other similar payments, compensation upon dismissal from work (e.g. compensation for unused vacation), gratuities, and compensation for unlawful dismissal from work.

Capital gains

Capital gains are included in total income of an individual taxpayer. Taxable income derived from the sale of property is calculated as the difference between the sale price and the acquisition costs plus sales expenses supported by relevant documents.
Income derived from the sale of property, excluding securities, shares in companies, real estate, and vehicles, is exempt from PIT in Belarus unless it relates to commercial activities.
Income from the sale of one house, one apartment, one building, one land plot, one garage, and one car parking space within five years and more is not taxable. Income from the sale of the second and each following immovable property object of the same type within a five-year period is fully taxable.

Income derived from the disposal of one vehicle (of technically permissible total weight not exceeding 3,500 kilograms and the number of seats, excluding the driver's seat, not exceeding eight) within a calendar year is exempted from PIT. Income from each following disposal of vehicle is subject to PIT under standard terms.

Income derived from the disposal of shares in the statutory capital of Belarusian company is exempted from PIT if the taxpayer has been in possession of these shares continuously for a period of no less than three years (applicable to shares acquired by a taxpayer since 1 January 2014).

Income derived from the sale of securities is subject to PIT in compliance with special rules established by the Tax Code.

Dividend income

No special rules apply with regard to dividend income.

Interest income

Until 1 April 2016, interest income on all types of bank deposits, either in local or in a foreign currency (excluding those used for commercial activity), held in Belarus was exempt from PIT. Starting from 1 April 2016, interest income on bank deposits is subject to PIT if the following three conditions are met:

Bank deposit agreement is concluded in the period starting from 1 April 2016.

Term of actual allocation of monetary funds on the deposit is less than one year in Belarusian roubles and less than two years in a foreign currency. Interest rate is higher than the rate under demand deposits.

Royalty income

No special rules apply with regard to royalty income.

Exempt income

· The following income (among others) received from a Belarusian legal entity is also exempt from PIT:

· Social security and social assistance benefits paid from state social insurance funds or from the Belarusian budget, excluding sickness (temporary disability) allowances.

· Pensions

· Compensations of all types stipulated by the legislation, except compensation for unused vacations and compensation for depreciation of vehicles, equipment, tools, and appliances belonging to the employee.

· Business trip expenses, within the limits established.

· Benefits paid by an employer upon the death of close relatives of an employee, as well as benefits paid to a close relative of an employee upon the death of an employee.

· Insurance premiums, under certain conditions (e.g. under obligatory insurance, voluntary accident insurance during trips abroad).

· Non-employment income (including material support, gifts and prizes, payment for tours) received from the principal employer is exempted in the amount not exceeding BYN 1,678 per calendar year per each source of income. Income derived from other sources (companies and individual entrepreneurs) is exempted if it does not exceed BYN 111 per each source.
· Income received from the principal employer in the form of payments to Belarusian insurance companies for insurance services in the amount of up to BYN 2,874 per each source during a tax period.
· Income in the form of gifts received by taxpayers from other individuals in the total amount not exceeding BYN 5,555 from all the sources.
· In-kind income within the cost of a sanatorium voucher acquired by Belarusian employers for taxpayers' children under 18 years of age in the amount of up to BYN 705 in a calendar year per each child from each source of income.
· Income from lotteries and electronic interactive games, and other similar income.
· Compensation for moral damage received by the individual from Belarusian sources.
· Foreign gratuitous aid.




Deductions from Personal Income

Education expenses

Any individual may also apply PIT deductions for the actual incurred education-related expenses for an individual or for their close relatives, as well as amounts spent for repayment of loans borrowed for this purpose. Such expenses can be deducted if they are incurred by the individual when obtaining the first education (higher, specialised secondary, or professional) and if education is received in educational institutions of Belarus.

Any unused PIT deduction for education can be carried forward to subsequent tax periods.
PIT deductions for education are provided to the employed individual at the principal place of work at the end of a current tax year. For those individuals who do not have principal employment, tax deductions are provided by the tax authorities on the basis of a filed annual tax return.

Insurance premiums

Any individual may also apply PIT deductions for the insurance premiums paid under the contracts of voluntary life and pension insurance concluded for at least three years, and voluntary medical expenses insurance in the total amount not exceeding BYN 2,874 per year. If such premiums are paid by an individual for the benefit of their close relatives, the deduction is also possible.

Any unused PIT deduction for insurance can be carried forward to subsequent tax periods.
PIT deductions for insurance are provided to the employed individual at the principal place of work at the end of a current tax year. For those individuals who do not have principal employment, tax deductions are provided by the tax authorities on the basis of a filed annual tax return.

Property-related expenses

Individuals, for PIT purposes, can deduct the following actually incurred expenses related to property:
· Cost of construction or purchase of an apartment or a house located in Belarus as well as repayment of loans provided by Belarusian companies/entrepreneurs and loans of Belarusian banks for this purpose. This deduction is provided only to a taxpayer included in the list of persons in need of improvement of living conditions.
· Expenses related to the purchase and/or disposal of property (excluding an exemption on capital gains from sale of securities). The list of deductible expenses is stipulated by the Tax Code.

Construction expenses can be deducted for the employed individual by the principal employer during the current tax period based on supporting documents provided, or by the tax authorities based on a filed annual tax return. Expenses related to property disposal can be deducted by the tax authorities based on an annual tax return or by the employer during tax period if the taxpayer agrees to apply a 10% deduction instead of actual expenses.

Standard deductions

Monthly tax exempt amounts (TEAs) or standard tax deductions are applied to any income of Belarusian tax residents:
· TEA of BYN 93 per month is granted to individuals whose income does not exceed BYN 563 per month.
· TEA of BYN 27 per child or other dependant per month, and TEA of BYN 52 per child or other dependant in case of having two and more children in the family.
· TEA of BYN 131 is granted to some socially unprotected types of taxpayers (i.e. disabled individuals, veterans, victims of natural collapses or disasters).

TEAs are applied to individuals by their principal employer. For those taxpayers who do not have principal employment, TEAs can be applied by an entity or an entrepreneur from which the income is received (tax agents) or by tax authorities based on the annual tax return. TEAs can only be applied once.

Business deductions

Individual entrepreneurs and individuals involved in creation of IP may deduct business-associated expenses. The list of such expenses is stipulated by the Tax Code.
Individual entrepreneurs are required to maintain simplified records of income and expenses on an accrual basis. The register is of a prescribed format, and all transactions must be supported by primary accounting documents.

All business-associated expenses shall be supported by the relevant documents of the established format. There are explicit regulations on deductible and non-deductible expenses. If an individual entrepreneur is not able to support business-associated expenses by documents, may opt to deduct expenses constituting 10% of the revenue.

Individuals involved in creation of IP may opt for notional deduction (20%, 30%, and 40% of derived income), where the amount of deductions depends on the type of IP object.

Business expenses are deductible by an individual entrepreneur in the period when they were incurred. Business deductions are provided to an individual by the tax authorities when filing a tax return at the end of the tax period or by the tax agent during the year if fixed amounts of deductions are applied.

Corporate Tax

All businesses which are tax resident in Belarus are liable for tax on profits derived from the sale of products, goods, services and other assets, plus other incomes, at 18% (since 2012).

There are also local taxes of approximately 3%, creating an aggregate rate of profits tax of 26.3%. Foreign companies not registered for tax purposes in Belarus are subject to 12% with-holding tax.

There is no separate capital gains tax and to encourage entrepreneurs the government has created an effective tax rate for smaller businesses of 8%. Up to 5% of tax paid on profits can also be reduced by off-setting capital investment.
Belarus also has double taxation agreements with over 60 countries including the UK, USA, all CIS States and most EU members.

Deductions from Corporate Income

Deductible expenses include all the usual costs that an entity actually incurs for the purpose of earning income or receiving economic benefit, unless the Tax Code of Belarus or presidential regulations provide otherwise.

Depreciation

Assets may be depreciated using the directly proportional (straight-line) depreciation method, indirect disproportionate depreciation methods, and productive depreciation methods. Depreciation may not exceed maximum rates established by the law.

Almost all types of fixed assets (buildings, premises, equipment, vehicles) are depreciated for tax purposes in accordance with the established procedures. Land plots are not depreciated. There are many different depreciation rates established for different types of fixed assets. Generally, fixed assets may be divided into five basic groups, as follows:

Group of Assets
Description of the assets
Annual depreciation rate (%)
1
Buildings and constructions, premises
1 and 2
2
Vehicles and equipment
10
3
Cars and vehicles
12.5
4
Inventories (furniture, tools, etc.)
10
5
Computers and other related devices
20

Application of an investment deduction under the tax rules is possible in addition to the depreciation deduction provided by the accounting legislation, i.e. taxpayers are entitled to classify/record part of the initial value of fixed assets, as well as investment in reconstruction, as costs of production and supply of goods (works, services) for CIT purposes. The amount of the investment deduction is limited to 10% of the initial value or value of investment in reconstruction with regard to buildings and constructions and to 20% of the initial value with regard to machines, equipment, and vehicles.

An investment deduction is applied in a month starting from which:
· depreciation charges are calculated for accounting purposes and
· the value of investment in reconstruction increased the initial value of fixed assets in accounting records.

An investment deduction cannot be applied with regard to fixed assets received by a taxpayer free of charge.

Annual re-evaluation of fixed assets is required only with regard to buildings, constructions, and transfer units, provided the inflation rate in November of the current year has reached 100% for the period from the date of the prior mandatory re-evaluation. A particular company is entitled to re-evaluate fixed assets on its own initiative as of 1 January of the year following the reporting one.

Goodwill

Goodwill and personnel experience cannot be recognised as intangible assets for CIT purposes.



Start-up expenses

Deduction of start-up expenses is not possible.

Interest expenses

Interest expenses are generally deducted for CIT purposes unless interest is accrued on past-due loans. Thin capitalisation restrictions must also be considered (see Thin capitalisation in the Group taxation section).

Bad debt

Bad debts are deductible only if proved and specific criteria are met.

Charitable contributions

Amounts not exceeding 10% of an entity’s gross profit granted to health, education, social welfare, culture, and sports state institutions; religious organisations; social services institutions; and public associations (i.e. ‘Belarusian Society of Disabled Persons’, ‘Belarusian Society of Deaf Persons’, ‘Belarusian Fellowship of Visually Impaired Persons’, ‘Belarusian Children’s Fund’, and ‘Belarusian Children’s Hospice’), or spent for acquisition of goods, works, or services for the benefit of the named institutions, are exempt from CIT.

Taxes

Generally, the following taxes, dues, and other compulsory charges to the state authorities are deductible for CIT purposes:

· Excise taxes paid at purchasing/importation of excisable goods to be used in manufacturing of goods or provision of works and services in Belarus, with some exceptions.
· Ecological tax.
· Real estate tax, except for the tax due on late construction in progress.
· Land tax, with some exceptions.
· Tax on natural resources.
· State dues.
· Offshore charge.
· Tax on providers.
· Payments for social and other mandatory security.

The following taxes shall not be deducted for CIT purposes:
· VAT paid, with certain exceptions (see below).
· CIT.

VAT can be treated as deductible for CIT purposes only if acquired goods, works, or services are used for production or sale of goods, works, or services that are VAT exempt.

Other significant items

Limited deductible expenses also include the following:
· Modernisation and reconstruction of fixed assets. The value of modernisation or reconstruction is included in the acquisition costs.
· Business trips.
·  Premiums on certain types of voluntary insurance, with restrictions.
·  Natural losses, with certain exceptions.
· Cost of fuel and energy resources, with restrictions established for certain entities.
· Membership fees, contributions, and premiums, with restrictions.

Non-deductible expenses also include the following:
· Expenses on provision or acquisition of works and services not related to the taxpayer’s business activities.
· Construction, maintenance, and other works, including all types of repair of assets that are not used for the purpose of earning income or receiving economic benefit.
· Default interest (forfeit), fines, and other sanctions paid to the state authorities.
· Dividends paid and similar type of payments.
· Contributions made to the authorised share capital.
· Expenses incurred on purchase and/or creation of depreciable assets.
·  Depreciation for tangible and intangible assets not used in business, as well as for tangible assets that are not in operation.\
· Cost of assets or material rights transferred as advance or a pledge to a third party.
· Expenses covered by reserves for future expenses created by a taxpayer in the prescribed manner.
· Interest on overdue loans.
· Remunerations to the members of the board of directors (supervisory board).
· Foreign exchange differences arisen as a result of revaluation of most obligations the expenses on which are not deductible for CIT purposes.
· Other expenses not related to the deriving of income and not attributed to operating activities of the entity as well as expenses that are not considered as allowable deductions under the Tax Code of Belarus.

On 1 January 2017, the Belarusian government introduced new criterion for deductibility of expenses for CIT purposes. To be deductible, expenses must be economically justified. The expenses that cannot be economically justified are as follows: (i) expenses for goods, works, services, and property rights actually not received by a taxpayer, (ii) expenses for services/works of the individual entrepreneur who is an employee of the taxpayer in case such services/works are related to one’s working duties, and (iii) expenses for services/works of a taxpayer's parent company or subsidiary in case such services/works are related to working duties of the taxpayer's employees.

Net operating losses

Belarusian companies are given the possibility to recognise in the current tax period the tax losses incurred in the previous tax periods. Taxpayers are entitled to carry forward losses incurred in 2011 and subsequent tax periods. Losses can be carried forward only for ten years after the tax period when the losses have occurred.

However, tax loss carryforward is not applied to losses:
· incurred as a result of activities outside Belarus, if a company is registered as a taxpayer in a foreign state with regard to such activities, or
· incurred in a tax period when a company was entitled to apply CIT relief (tax exemption) established for several tax periods.

Tax losses cannot be carried forward if, following the results of a relevant previous tax period (calendar year), a taxpayer received book income (profits), notwithstanding the fact that losses available to be carried forward in line with the Tax Code were actually suffered or not.
Tax losses cannot be carried back in Belarus.

Payments to foreign affiliates

Payments to foreign affiliates of a Belarusian resident legal entity in amounts of financing aimed to cover ongoing costs thereof are deductible for CIT purposes in Belarus.


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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.



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This blog is Created by CA Anil Kumar Jain.