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12 february 2018

Legal Regulation of Incorporation and Activity of Commercial Organizations with participation of foreign investors in the Republic of Belarus

As of February 2018

Incorporation of Commercial Organizations

Types of commercial organizations

Regulation of incorporation and functioning of organizations is carried out on the basis of the following acts of legislation: the Civil Code of the Republic of Belarus dated 07.12.1998 with further changes and amendments (hereinafter - the “Civil Code”), Law of the Republic of Belarus “On Companies” in the wording of 15.07.2015 with further changes and amendments, Regulations on state registration of economic entities approved by Decree of the President of the Republic of Belarus of 16.01.2009  N 1.

Foreign investors are empowered to incorporate commercial organizations with any amount of foreign investment and in any legal forms stipulated by the legislation of the Republic of Belarus, namely in the form of:

  • unitary enterprise (UE),
  • limited liability company (LLC),
  • additional liability companies (ALC),
  • joint-stock companies (JSC) - closed joint-stock company (CJSC) or open joint-stock company (OJSC).

It is necessary to allocate such legal form as UE. This is a special form of legal entity, which inherent to the legislation of Republic of Belarus. In contrast to other forms of legal entities (hereinafter referred to collectively and in particular the "Company") UE does not owner of assets on its balance sheet. All assets of any unitary enterprise is owned by its founder and belong to UE by virtue of the right of commercial management.

All types of commercial organizations (with the exception of a unitary enterprise) can be incorporated both with a sole or several incorporators.

Specific Features of Participation of Legal Entities and Individuals in Companies

Shareholders of a Company from the Belarusian side may be both non-state entities and state legal entities.

In order to participate in the creation of Company state unitary enterprise must obtain the decision (approval) of the Ministry, state committee or any other state agency depending under which control Company exists. Moreover, depending on the value and kind of property, to be contributed to the charter capital of the Company by the state enterprise, subordination of such state enterprise, coordination of contribution of the property to the charter capital by other state authorities may be required. Thus, where state enterprise intends to contribute buildings or other objects of non-completed construction to the charter capital as its contribution, it must obtain the approval of relevant state agency and the State Committee on Property or Council of Ministers of the Republic of Belarus (for republican property) or approval of the respective local agency (for municipal property). 

When dealing with the state enterprise as the partner of a Company it is necessary to take into account the possibility of its further privatization. However, there is no legal restrictions for the participation of state enterprises in a Company in connection with the process of their privatization.

Shareholders of the Company on the Belarusian side may be represented by both: legal entities and individuals. It should be noted that according to the legislation of the Republic of Belarus officials employed in the bodies of state administration, executive committees of the Soviets of deputies, public prosecutor's offices and courts, as well as heads, deputy heads and main specialists of the state enterprises, organizations and institutions are not allowed to carry out business activities including participation in a Companies.

Foreign investors may be represented by individuals, stateless persons not permanently residing in the Republic of Belarus, citizens of the Republic of Belarus permanently residing outside the Republic of Belarus, foreign and international legal entities engaged in the investment in the territory of the Republic of Belarus.

Limitations in investment and participation in the commercial organizations

It is forbidden to invest in activities prohibited by the legislation of the Republic of Belarus. Restrictions on investments may be established on the basis of legislative acts of the Republic of Belarus in the interests of national security (including environmental, historical and cultural heritage), public order, protection of morality, health, rights and freedoms of others.

The legislation of the Republic of Belarus also establishes restrictions for participation in the commercial organization in relation to certain individuals and entities.

For example, the founder of a commercial organization cannot be a person who on the date of state registration is:

  • The owner of the property (founder, shareholder), head of a commercial organization which is in the process of liquidation, but the process of liquidation has not been completed;
  • The owner of property (founder, shareholder), head of a commercial organization is in a state of economic insolvency (bankruptcy);
  • The owner of property (founder, shareholder), head of a commercial organization which was recognized as insolvent (bankrupt) and from the date of its exclusion from Unified State Register of legal entities and individual entrepreneurs (hereinafter - USR) passed at least one year;
  • The owner of property (founder, shareholder) of a legal entity, or individual entrepreneurwhich was excluded from the USR less than 3 years ago with debts release

It should be noted that Company with a sole incorporator can not have another Company with a sole incorporator as a sole founder.

Liability of the Parties for obligations of commercial organization

Liability of the Shareholders for obligations of the commercial organization depends on the type in which it is created (unitary enterprise, limited liability, additional liability company, Joint Stock Company). Herewith, the Civil established a case when shareholders of commercial organizations are liable regardless of the type of created commercial organization. So if economic insolvency (bankruptcy) of the company was caused by the shareholders, owners of property of organization or other persons, including a Head of organization, entitled to issue compulsory orders or commit other actions determining organization’s activity, all persons mentioned above will bear subsidiary liability for the obligations of the company in the event if there are no enough company’s assets.

Charter capital of commercial organization

The minimum size of charter capital of a commercial organization depends on the legal form:

  • for OJSC - about 4 000 euros (400 basic units, that is 9 800 Belarusian rubles);
  • for CJSC - about 1 000 euros (100 basic units, that is 2 450 Belarusian rubles);
  • for the LLC, ALC and UE - the minimum size does not set, determined by the charter.  

Charter capital of commercial organizations is being declared in Belarusian rubles and is being formed within 1 year from the date of charter capital is stipulated by charter.

While making a contribution to charter capital of commercial organizations in foreign currency in the prescribed manner, it will be re-calculated at the official rate of the Belarusian ruble to the respective foreign currency set by the National Bank on the date of actual contribution.

Contributions to the charter capital of commercial organizations can be made in monetary and/or non-monetary form.

Non-monetary contributions of founders (participants) of a commercial organization are subject to obligatory estimation, conducted in accordance with the Edict of the President of the Republic of Belarus N 615 of 13.10.2006 “On Evaluation Activity in the Republic of Belarus” as well as to examination of internal assessment reliability, conducted in accordance with the procedure, stipulated by the Council of Ministers of the Republic of Belarus (Regulation N 173 dated 10.02.2011).

In the case of an independent estimationof the value of non-monetary contribution in charter capital of commercial organization, examination of the reliability of this estimationis not carried out. 

As a general rule, the property imported by shareholder for the formation of charter capital of a commercial organization does not exempt from customs duty and is subject to VAT.

However, upon observance of certain condition a privileged import of certain goods is possible with the release from the payment of import custom duties. The condition for such privilege is:

  • location of commercial organization  on the territory of medium, small towns, rural areas of the Republic of Belarus;
  • carrying out economic activities in such location, location of fixed assets and employees of commercial organization in this area;
  • carrying out economic activities, which fall under the concept of "own production of goods (works, services)" which is confirmed by a special certificate issued by the Belarusian Chamber of Commerce.

Currency regulation in the Republic of Belarus

The main legal act in the area of foreign currency regulation is the Law of the Republic of Belarus «On Foreign Currency Regulation and Foreign Currency Control» dated 22.07.2003.

Currency regulation treats all commercial organizations, registered in Belarus, as residents of the Republic of Belarus. Term «Resident» means any individual irrespective of nationality constantly residing in Belarus as well as legal entity registered in Belarus.

The general rule for the residents is that all contracts, transactions and settlements between residents should be made in Belarusian rubles. Settlements between residents in other currencies are allowed in a strictly defined number of cases.

According to the Regulations «On Conducting Currency Operations in the Republic of Belarus» adopted by the Resolution of the Board of the National Bank of the Republic of Belarus N 72 dated 30.04.2004 with further changes and amendments all wire transactions between residents and non-residents can be conducted both in foreign currency and in Belarusian rubles. Therefore, if the clients of the commercial organization are residents, settlements will be carried out in Belarusian rubles. If the clients are non-residents, settlements will be carried out mainly in foreign currency though use of Belarusian rubles is allowed as well.

Foreign Currency Account of the commercial organizations

Organization registered in Belarus, being a resident, is obliged to keep its currency in a bank which has a license of the National Bank for carrying out transactions in foreign currency on the territory of the Republic of Belarus (authorized bank).

No restrictions are imposed for Belarusian organizations for opening currency accounts in local banks. In order to open a current (settlement) account commercial organization shall first submit to the bank a set of documents including the documents confirming its registration as a legal entity.

Purchase of Currency

Previously residents of the Republic of Belarus could buy foreign currency (for purposed use) through the authorized banks at the auctions of the Interbank Currency Exchange (ICE). However, since 01.06.2015 residents of the Republic of Belarus can buy foreign currency only out-of-the-Exchange market.

Compulsory Sale of Currency

The Edict of the President of the Republic of Belarus «On Compulsory Sale of Foreign Currency» dated 19.07.2006 N452  and the Resolution of the Board of the National Bank of the Republic of Belarus № 129 dated 13.09.2006 «On the Order of Execution of Compulsory Sale of Foreign Currency on the Internal Foreign Exchange Market»  provides for compulsory sale of 10% of foreign currency, transferred within contracts, involving refundable transfer of goods, proprietary information, exclusive rights on results of intellectual activity, lease of property, performance of works, rendering of services. Compulsory sale is pursued not later than within 7 working days from the day of receipt of relevant monetary funds. Types of foreign currencies subject to compulsory sale are established by the National Bank of the Republic of Belarus.

Foreign currency received as a contribution to charter capital of organizations is not subject to compulsory sale, as such transaction does not belong to transactions, for which compulsory sale is required.

Transfer of profits

Law "On Investments" guarantees to foreign investors upon making all necessary tax and other obligatory payments set forth by the legislation of the Republic of Belarus has a right to freely forward the income received as a result of investment activity on the territory of the Republic of Belarus outside of the country. Dividends received by foreign investors from participating in the Belarusian companies are taxed on the income of foreign companies at a rate of 12 % and income tax rate of 13 %, unless otherwise stipulated in international agreements. The tax is withheld at the source of payment of dividends.

Remittance of Profit

Law "On Investments" guarantees to the foreign investor a right to freely forward the income received as a result of investment activity on the territory of the Republic of Belarus outside of the country upon making all necessary tax and other obligatory payments set forth by the legislation of the Republic of Belarus. Dividends received by foreign investors from participation in a Belarusian organizations are subject to 12 % tax on profit of foreign organization or 13 % income tax rate of foreign individual unless otherwise is established by international agreements. The tax is withheld from the source of dividend payment.

Taxation

The Tax Code of the Republic of Belarus (special part) provides the following tax rates that are subject to payment by organizations with foreign investments and the following objects of taxation:

  • Value-added Tax (VAT)

The object of levying are overturns of realization of goods (jobs, services) and personal property rights on the territory of the Republic of Belarus, and goods imported in the customs territory of the Republic of Belarus.

The rate of the tax is 20%, in some cases – 0%; 10%; 9,09% or 16,67% or 25%.

  • Profit Tax

The objects of levying are recognized as gross profit, as well as dividends and similar income accrued by Belarusian organizations.

The rate is 18%.

The rate for dividends and similar income is 12%.

  • Excise Tax

Excises are levied on spirits; alcohol products; inedible spirit containing substances, produced with usage of ethyl spirits from all kind of raw materials, beer and beer cocktails, low-alcohol products with volume of ethyl spirits from 1,2 to 7 %, vines with volume of ethyl spirits from 1,2 to 7%; tobacco; petrol; diesel fuel and diesel fuel with methyl esters of fatty acids; marine fuels; liquefied hydrocarbon gas and natural gas fuel compressed that are used as automotive fuel; oil for diesel and (or) carburetor (injector) engines; ciders; alcohol-containing food products in the form of solutions, emulsions, suspensions produced using ethanol.

The rates may be stated:

  • in absolute sum on physical unit of excised goods (fixed (specified) rate);
  • in percents from the value of excised goods or customs value of excised goods, increased by levied amounts of customs duties (interest (ad valorem) rate). 
  • Land Payments

Land payments are charged annually in the form of land tax or lease payments. The rates of lease payments, seized instead of land payments are defined by the Edict of the President of the Republic of Belarus № 101 dated 01.03.2010 «On Levy of Lease Payments for Land plots in Public Domain».

  • Real Estate Tax

The tax rate is 1% per year or 2% per year in relation to some objects of uncompleted construction. The tax is charged on the cost of buildings and constructions including incomplete constructions, that are the property or in possession of the commercial organization.

  • Compulsory Payments Charged on the Wage Fund of commercial organizations

According to the Law of the Republic of Belarus "On compulsory insurance contributions to the budget of the state extra-budgetary fund of social protection of population of the Republic of Belarus" state insurance contributions to the Social Safety Fund - 34%;

Guarantees to Foreign Investors

Guarantees of the transfer of funds of foreign investors

According to the Law "On investments" after the payment of the established taxes, dues (duties) and other obligatory payments to the budget of the foreign investors are guaranteed free transfer from the Republic of Belarus of profit (income) and other legally obtained funds related to investments in the territory of the Republic of Belarus, as well as payments made for the benefit of foreign investors and investments related to the implementation, including:

  • Funds received by foreign investors after partial or complete termination of the investment in the territory of the Republic of Belarus, including funds received by foreign investors as a result of the alienation of investments, and formed as a result of investment property and other objects of civil rights;
  • Funds owed to the payment of wages to foreign citizens and stateless persons engaged in labor activities under an employment contract;
  • Funds owed to foreign investors in accordance with a court order.

Guarantees from Forced Alienation

The State guarantees protection of investments in accordance with the legislation of the Republic of Belarus.

Foreign investments cannot be nationalized, requisitioned, removed, seized, compulsory acquired without compensation or taken or be subject to other actions, equivalent for their consequences. Nationalization and requisition are possible only upon timely and full compensation of the value of the investment property being nationalized or requisitioned and other damages caused by nationalization and requisition.

Compensation of the nationalized or requisitioned investment property is paid out to the investor at the choice of the foreign investor in the Belarusian rubles or in foreign currency in the state specified by foreign investor, if such a transfer does not conflict with the international obligations of the Republic of Belarus.

The amount of compensation for the nationalized or requisitioned investment property can be appealed by the investor in court. 

 

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