Foreign gratitude aid vs donation: difference in taxation

From a practical point of view, for the recipients of funds transferred in the form of foreign gratitude aid, it does not matter, whether they are received from a Belarusian or a foreign donor. Usually, the recipients of such funds are non-commercial and budget companies that channel the received funds for certain social purposes (targeted social aid, financing of charitable programs, creation of new objects of social and cultural purpose, etc.). 

However, the legislation sees receiving of sponsored funds differently depending on the source of payment (foreign or Belarusian).

Foreign gratitude aid may be received from foreign donors in accordance with the procedures defined by Presidential Decree No. 3 of 25 May 2020 "On Foreign Gratitude Aid" for the purposes specified in Decree No. 3. If the purpose of usage is not specified in Decree No. 3, the recipient will have to coordinate such purpose with the Interdepartmental Commission on the Use of Foreign Gratitude Aid. The main rule is if the aid is received by

• companies or individual entrepreneurs, or
• citizens who wish to obtain an income tax exemption,

funds may not be used by recipients until the foreign aid is registered with the Department of Humanitarian Affairs of the Office of the President. Usage of funds prior to obtaining a registration certificate is expressly prohibited.

Donation may be received from a Belarusian companies and individual entrepreneurs in accordance with the procedures determined by the Presidential Decree No. 300 dated 1 July 2005 for the purposes listed in the Decree. It is necessary to point out that the list of purposes does not coincide with the list defined for foreign gratitude aid. One more difference from foreign gratitude aid is that to receive foreign gratitude aid for the purposes not listed in Decree No. 3, it is necessary to receive the consent of the Interdepartmental Commission on the Use of Foreign Gratitude Aid. To receive donation for the purposes not listed in Decree No. 300, it is necessary to receive the decision or consent of the President. Finally, unlike foreign gratitude aid, donation does not need to be registered anywhere. It is enough to enter into an agreement on provision of  donation  between a donor and a recipient (the Council of Ministers has approved an approximate form of such an agreement).

Taxation of foreign gratitude aid and donation: there are differences. According to para 4.2 Article 174 of Belarusian Tax Code (Special Part) non-operating income of budget  companies, public and religious organizations (associations), republican state-public associations and other non-commercial companies established in accordance with the legislation, shall not include gratuitously received goods (works, services), property rights, funds provided that they will be used on designated purpose.

At first glance, such wording should have excluded both foreign gratitude aid and donation  from the object of income taxation, but it is not so. The thing is that for foreign gratitude aid the procedure of tax exemption is provided by the Decree No. 3 itself. It establishes that the decision on tax exemption of foreign gratitude aid is made either by the Office of the President (when receiving aid for the purposes directly listed in Decree No. 3) or by the Interdepartmental Commission on the Use of Foreign Gratitude Aid (in other cases). If the recipient of foreign gratitude aid has not applied for tax exemption or if foreign gratitude aid recipient was denied the requested exemption in defiance of the provisions of the Tax Code, the funds received will be subject to income tax.

Thus, in practice, receiving foreign gratitude aid from foreign donors may be more difficult and financially burdensome than receiving aid from Belarusian sources: first, because of its obligatory registration, and second, because of differences in taxation of received funds.

If you need additional information and/or comments on the recieving of foreign gratitude aid or donation, we will be happy to advise you.

Please contact partner Ekaterina Zabello (ekaterina.zabello@vmp.by).