State reduces risks of investments losses
On July 12, 2022, amendments to the Law "On Investments" came into force. Some of them were taken into consideration because of our recommendations sent to the government agencies and based on the practical issues faced by investors.
Three years has passed...
Adjustment or revocation of a decision of a state authority (such as on allocation of a land plot or on commencement of construction), based on which investments were made, may entail risks of loss of investments or additional costs for an investor even in absence of the investor's fault (there are some well-known examples of the land plots expropriation that took place in several years after the completion of construction).
Previously, these risks existed throughout the investment project lifespan and even after its successful completion and created legal uncertainty.
With the entry into force on July 12, 2022 of the amendments to the Law "On Investments", the period for submission of claims by the state (the period for revision of decisions) is limited to 3 years from the date of the decision / occurrence of another circumstance based on which the state is entitled to submit such a claim. Upon expiration of 3 years a bona-fide investor shall not bear the risks of losing the investments.
Unlike the "flexible" limitation period in the civil law (which is calculated not from the fact of violation, but from the moment when the such fact became known), this period in public relations will definitely expire after 3 years from the date of the "risky" decision.
What is about a grandfather?
The dynamique of the tax legislation can be a discouraging factor for the investor. Previously, protection from unfavorable changes in tax legislation* in the form of the "grandfather clause"** was available only to the "lucky ones" who received it as part of Presidential Edicts.
The introduction of the "grandfather clause" in the Law "On Investments" is a significant step in reducing the risks of investment losses. Despite the priority of the Tax Code over the acts of other branches of law containing taxation issues, due to the provisions of the Decree "On Creation of Additional Conditions for Making Investments in the Republic of Belarus", we believe that the "grandfather clause" will be applicable to everyone. However, it is still uncertain whether the "grandfather clause" will be applicable to investment agreements concluded before July 12, 2022.
* Unfavorable changes in tax legislation means an increase in tax rates and/or introduction of new taxes and levies.
** "Grandfather clause", an established principle in the world practice of non-application of new rules to the relations that arose before their emergence, if the new rules worsen the position of the party for which this clause is introduced. The concept has its roots in the nineteenth century, when constitutional amendments in seven southern states of the United States prevented the exercise of the right to vote among African Americans and poor.
In case you need additional information and/or comments on the implementation of investment projects, we will be happy to advise you. We have been successfully supporting our clients in the field of investments since the first investment projects in Belarus.
Please contact our managing partner Konstantin Mikhel (konstantin.mikhel@vmp.by)
