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I nsights about the investment climate in Belarus

I nsights about the investment climate in Belarus. Olga Polozova Certified Lawyer 31 January 2012. Overview of Belarusian investment climate.

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I nsights about the investment climate in Belarus

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  1. Insightsaboutthe investment climate in Belarus Olga Polozova Certified Lawyer 31 January 2012

  2. Overview of Belarusian investment climate I. Investment system(i) Legal setup options(ii) Commercial organizations with foreign investments (COFI)(iii) Free economic zones(iv) Small towns (v) Hi-Tech park(vi) Investment agreements Taxation(i) Company level (Key taxes) a) Corporate taxes b) VAT and Real Estate Tax c) Simplified taxation system (ii) Shareholder level(iii) Tax burden III. Repatriation of profit IV. Currency regulation

  3. LEGAL SETUP OPTIONS

  4. COMMERCIAL ORGANIZATIONS WITH FOREIGN INVESTMENTS (COFIs) • Investment Code of the Republic of Belarus of 22.06.2001 • 2006: unification of the statuses of foreign and national investors. • COFI: foreign investments in share capital at least 20 000 US dollars. • The share capital specified in the charter documents has to be formed (in cash / in kind): • 50% within the 1st year from the registration date by each of the shareholders contributing not less than 50% of their share; • completely - within 2 years from the registration date (Exception: OJSC). • NB: Benefits apply only if: • situated in a free economic zone (FEZ), small town, rural area, Hi-Tech Park and / or • an investment agreement with the RB is concluded. • BUT: No permission is required for employing a shareholderor othernon-resident as a Director.

  5. 6 FEZ: FEZ Brest (1996); FEZ Vitebsk (1999); FEZ Gomel-Raton (1998); FEZ Grodnoinvest (2002); FEZ Minsk (1998); FEZ Mogilev (2002). FREE ECONOMIC ZONES (FEZ) • “On Free Economic Zones” - Law No. 213-3 of 07.12.1998; • “OnSome Issues of FEZ Activity on the Territory of the Republic of Belarus” - Edict of the President No. 262 of 09.06. 2005 • Aminimum investment of EURO 1 million is required to become a FEZ resident, but being one entails various benefits (approx. 40% of tax burden reduction), e.g.: • Tax-free profits for all goods and services manufactured within FEZ for 5 years, afterwards a 50% -discount applies; • VAT at 10% (regular rate is 20%) on import substitution goods manufactured within FEZ; • No taxes on real estate owned or leased in FEZ; • No obligation of compulsory currency sale; • A guarantee that legislation governing FEZ-residents will not change during 7 years after registration as a FEZ -resident.

  6. SMALL TOWNS “On Promotion of Manufacturing and Realization of Goods (Works, Services)” - Decree of the President No.1 of 28.01.2008 Carrying out business activity in towns with population less than 50 000 (90% of Belarus towns) Benefits: exemption from profit tax in respect of realization of goods (works, services) of own production - 7years since incorporation; exemption from customs duties and VAT levied on technological equipment imported as a contribution to the share capital; no obligation of compulsory currency sale - 5 years since incorporation; a guarantee that legislation will not change - 7years since incorporation. NB: In case of liquidation the commercial organisation is obliged to pay all the taxes it was exempt from for the calendar quarter when the decision on liquidation was adopted and for 12 preceding months.

  7. HI-TECH PARK(HTP) “On the Park of High Technologies” - Decree of the President of 22.09.2005 No. 12 Created in 2005 (Currently 94 companies are registered as the Park’s residents. HTP export share in the total production volume is 80%). Preferences and benefits to:- resident companies of the HTP and - companies implementing business projects registered by the HTP: exemptionfrom profit tax; value added tax on sales turnover; 9% tax on income of employees without including it into the total annual income; dividends tax is 5%, unless a smaller rate is established under a double taxation treaty; exemption from off-shore duty upon paying dividends; exemption from land tax throughout the duration of construction (3 years at most) and from real estate tax; exemption from customs duties and VAT on goods imported for IT business purposes.

  8. INVESTMENT AGREEMENT “On the Creation of Additional Conditions for Investment Activity in the Republic of Belarus” - the President’s Decree No 10 of 6 August 2009 ;“On Measures ofImplementation of Decree of the President of the Republic of Belarus No. 4 of 06.06.2011”- Resolution of the Council of Ministers of 06.87.2011No. 1058Benefits: construction of objects stipulated by the investment project simultaneously with the development, expert examination and approval of the design documentation; allocation of a land plot (on a leasehold basis) for the construction of objects without an auction; exemption from payment for the right to conclude a land lease contract; land tax or lease payments for a period of construction + 1 calendar year after the year of completion of construction; exemption fromtaxes arising in connection with free transfer of state property to an investor with the aim of project implementation; exemption from import customs duties and VAT on imports of equipment for project implementation + deductionof the full amount of VAT paid for the acquisition of goods (works/services) and property rights used for designing and construction under the investment project; right to use design documentation developed abroad for the purposes of construction and selecting without tenders of (sub)contactors and (sub)designers for the construction and renovation of the object; discharge from the obligation to compensate for the loss of agricultural and/or forestry production caused by the seizure of land plots; exemption from payment of the stamp duty for the issue of permits for employment in the Republic of Belarus to foreign citizens engaged by the investor for the implementation of the investment project.

  9. TAXATION: COMPANY LEVEL Tax Code of the Republic of Belarus of 29.12.2009 All businesses which are tax residents in Belarus are liable to corporate profit taxat 18%. Foreign tax residents are subject to withholding tax on income from the RB: works, services, transfer of property – 15% (Excl., e.g. transportation services – 6%). The rule is without prejudice to the double-taxation agreements, which may set different tax rates. NB: Withholding tax applies if commercial activity is NOT exercised through a permanent representative office (RO)! If a RO starts to carry out any commercial activity, it is automatically deemed to be a permanent RO, and its profit becomes taxable in the Republic of Belarus. Usually, the criteria for qualifying a representative office as a permanent one are set forth in Double-Taxation Treaties. CORPORATE TAXES

  10. TAXATION: COMPANY LEVEL The tax is levied on theturnover of goods (works/services) and personal property rights in the territory of the Republic of Belarus, and goods imported to the customs territory of the Republic of Belarus. Standard rate - 20% (in FEZ – 10%); Export of goods – 0%; Goods and services that are subject to governmental pricing policies (e.g. goods for kids) – 10%. REAL ESTATE TAX The tax is charged on depreciated cost of buildings/structures (including incomplete construction) that are in the ownership or possession (sometimes by virtue of lease) of the commercial organization. The tax rate is: 1% (* index depending on location), per year, or 2% (* index depending on location), per year, in relation to some objects of above-norm uncompleted construction provided that the construction of new objects was started. VALUE-ADDEDTAX (VAT)

  11. TAXATION: COMPANY LEVEL SIMPLIFIED TAXATION SYSTEM (STS) STS Taxreplaces virtually all taxes and duties (except for customs duty, social security contributions,stamp duty,offshore duty,tax on dividends, and profit tax on income from disposal of securities). STS TAX RATES: • 5% on gross revenue + VAT - under 100 employees and annual gross revenue no more than BYR 12 billion (approx. EUR 1 000 000); • 7% on gross revenue and exempt from VAT- under 15 employees and annual gross revenue no more than BYR 3.4 billion (approx. EUR 315,000); • 15% on gross income, but exempt from VAT - under 15 employees and annual gross revenue no more than BYR 3.4 billion (approx. EUR 315,000) andbusinesses engaged in retail and catering; • 2% - for exporters. For companies registered in small towns and rural areas included into the list approved by the Government: • 5% on gross revenue and exempt from VAT; • 3% on gross revenue + VAT.

  12. TAXATION: SHAREHOLDERS LEVEL Under theTax Code of the Republic of Belarus, 12% taxon dividends received by legal persons and individuals applies. The rule is without prejudice to the double-taxation treaties, which may set forth more favorable tax rates and regime.

  13. 1 – level Belarusian Structure ShareholderNon-resident *% 18% Managing company 18% 18% 12% 12% Real Estate Retail 18% - profit tax;12% - BY dividends tax;*% - dividend tax under Tax Treaty TAX BURDEN 2 – level Belarusian Structure Shareholder Non-resident *% *% 18% 18% Real Estate Retail 18% - profit tax;*% - dividends tax under Tax Treaty

  14. REPATRIATION OF PROFIT re-investing in Belarus; repatriation of profit from activity and/or gains received from selling of property upon termination of activity outside of the country upon payment of necessary taxes. No special permit of the National Bank for profit repatriation is required. No restrictions on currency purchase for the purpose of payment of dividends to a non-resident. Right to freely dispose of received profit by means of:

  15. CURRENCY REGULATION BY corporate tax-resident is obliged to maintain a bank account in a bank which has a license of the National Bank of the Republic of Belarus (authorized bank). General rule - all contracts, transactions and settlements between residents are in BYR. Settlements between residents in other currencies are allowed in a strictly defined number of cases. Non-Cash settlements between residents and non-residents can be conducted both in foreign currency and in BYR. Purchase of Currency Residents of the Republic of Belarus have to buy foreign currency at the Interbank Currency Exchange (ICE) and at over-the-counter market (under 1000 cu). Compulsory sale of currency RESIDENT: compulsory sale of 30% of foreign currency is pursued not later than within 7 working days from the date of receipt of relevant funds are received (contractual revenue). Types of foreign currencies subject to compulsory sale are established by the National Bank of the Republic of Belarus. NB: foreign currency is not subject to compulsory sale if it is: received as a contribution to charter capitals of organizations with foreign investments; received as a loan/credit; received by FEZ residents; received by organizations in small towns within 5 years since their incorporation.

  16. Vilnius Office Belarus HelpdeskOlga Polozova, сertified lawyerolga.polozova@rln.lt SWEDEN Blasieholmsgatan 4 A SE-103 90 Stockholm Sweden Tel. +46 (0)8 553 190 00 Fax +46 (0)8 553 190 01 www.roschier.com 16 ESTONIA Roosikrantsi 2 EE-10119 Tallinn Eesti Tel. +372 640 7170 Fax +372 640 7171 www.rln.ee LATVIA Valdemara 26 LV-1010 Riga Latvia Tel. +371 724 0689 Fax +371 782 1524 www.rln.lv LITHUANIA Lvovo 25 LT-09320 Vilnius Lithuania Tel. +370 5250 0800 Fax +370 5250 0802 www.rln.lt FINLAND Keskuskatu 7 A FI-00100 Helsinki Finland Tel. +358 (0)20 506 6000 Fax +358 (0)20 506 6100 www.roschier.com

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