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15 january 2015

Legal Alert: the Tax Code Changes in 2015

On January 1, 2015 changes to the Tax Code of the Republic of Belarus entered into force. Some of the major changes are discussed in our review below.

Transfer pricing

Tax authorities are now entitled to control income tax base formation with application of market prices (transfer pricing) with regards to a wider range of deals.

Thus, tax pricing control will apply not only to foreign trade deals on sales of goods, but also to those on execution of works and rendering services to non-residents, as well as on purchase of goods (works, services) from non-residents.

Such deals will be subject to control, if the deal price (or the price of several deals) made with one person within one calendar year exceeds 1 billion Belarusian roubles and deviates from the market price by 20 percent.

Thin capitalization

New restrictions on expensing certain costs for profit tax assessment have been implemented (thin capitalization). Earlier the restrictions applied only to expensing of loan interests, if the loan was provided to the tax payer by its founder (shareholder).

In particular, tax payers shall calculate capitalization rates and maximum amount of expenses that are taken into account for profit tax assessment, with regards to a number of transactions, where a founder (shareholder) of the tax payer is party. The transactions include engineering, marketing, consultancy, information and management services, remuneration for the transfer of industrial property rights and contractual penalties. This rule also applies when a founder (shareholder) is not party to the transaction, but secures payment of the debtor under such a transaction as a guarantor, surety or in any other capacity.

In our opinion, if a tax payer abides by the thin capitalization restrictions and tax authorities apply transfer pricing rules, “double” additional tax assessment by tax authorities should not take place.

Simplified tax system

The maximum amount of revenue, which allows the application of simplified tax system, has been increased. Individual entrepreneurs and legal entities are now able to apply the system, if their revenue for the defined period does not exceed 10.3 billion Belarusian roubles, and the simplified tax system without VAT – 9.4 billion Belarusian roubles accordingly.

Should the revenue exceed 13.7 billion Belarusian roubles, the tax payers already applying the system will no longer be able to do so.

Land tax assessment and payment becomes mandatory for the tax payers applying simplified tax system regardless of the size of their land plots (earlier they were exempt from land tax, if the size of the land plot did not exceed 0.5 hectares).

Individual entrepreneurs applying simplified tax system will be subject to 13% income tax with regards to the income earned from commercial entities (except for joint stock companies), if they are:

  • shareholders or property owners of such entities;
  • spouses, parents (adoptive parents), children (including adopted children) of the shareholders or property owners of such entities.

The list of tax payers that are not permitted to apply simplified tax system (among them realtors, banks, insurers, professional participants of the securities market, residents of free economic zones, High-Tech Park and others) now also includes the following entities:

  • unitary enterprises, if the owner of their property is a legal entity;
  • commercial entities, in which 25 % of shares belong to another entity or several entities collectively;
  • legal entities and individual entrepreneurs leasing (including finance lease) or transferring for use real estate in the absence of ownership rights, rights of economic or operational management (i.e. restricted rights to disposal of the property) to such real estate.

In case You need clarifications regarding each of the above mentioned issues we will be glad to provide You with consultancy and try to offer the most efficiency solution on the adaptation of Your activity to the legal requirements changed.