Legal environment and tax aspects of investment implementation in the Republic of Belarus

1. Legal environment and tax aspects of investment implementation in the Republic of Belarus Konstantin Mikhel Managing Partner“Vlasova Mikhel & Partners” Law firm

2. Distinctive features of the Belarusian economy • Improvement of investment climate • Doing Business (ranking 58 out of 183 in 2010 economies); • sovereign credit ratings of group “B” are assigned to the country by Standard & Poor's, Moody's and Fitch Ratings.

3. Many sectors are still dominated by state-owned companies and experience urgent need for investments. Under the stand-by program large-scale liberalization reforms and privatization of state-owned companies are carried out. It is planned to create a special Privatization Agency in 2010. The list of state companies that will undergo privatization in early 2010 is agreed with the IMF. Distinctive features of the Belarusian economy

4. Distinctive features of the Belarusian economy • It is possible to conclude an investment agreement with the Republic of Belarus, fix terms and conditions of investments, receive specific guarantees and benefits from the state. • There is high centralization of decision making • Special order of implementation of investment project applies.

5. Distinctive features of the Belarusian economy • Landmark privatization transactions include: • acquisition of gas transit pipeline by Russian Gazprom, • acquisition of local breweries by Heineken and Olvi, • acquisition of a state owned GSM-operator by Turkish telecom giant Turkcell, • acquisition of one of the major state bank BPS by Russian Sberbank.

6. Forms of investment activity • Creating a legal entity • Acquisition of property or property rights: • share in authorized capital; • real estate; • securities; • intellectual property rights; • concession; • other fixed assets.

7. Privatization. Legislative regulation Privatization - the acquisition by individuals and legal entities of ownership of the objects belonging to the State Legislative regulation: • Decree of the President on March 20, 1998 № 3 "On the Denationalization and Privatization of Public Property in the Republic Of Belarus"; • Decree of the President on November 10, 2008 № 605 "On Some Issues of Privatization of the Republican Unitary Enterprises"; • Decree of the President on February 25, 2008 № 113 "On Procedure and Conditions of Sale of Enterprises as Property Complexes of Unprofitable State-owned Organizations to Legal Entities"; • Law of the Republic of Belarus on January 19, 1993 "On the Denationalization and Privatization of State Property in the Republic of Belarus".

8. Forms of privatization • Establishing an open joint stock company (JSC) by transforming the state enterprises with the participation of the investor as a founder; investor is selected by competition; • Participation of investor in the auction/tender on sale of enterprises as property complexes; • Participation of investor in the auction/tender on sale of shares. List of JSC is approved by the Council of Ministers/local executive and administrative bodies; • Acquisition of shares of additional issue by investor; • Acquisition of shares by investor without auction/tender individually; sale - by the decision of the President.

9. International treaties in the field of security of foreign investments Republic of Belarus is a party to • International Convention on Settlement of Investment Disputes between States and Nationals of Other States of 1965 • Convention Establishing the Multilateral Investment Guarantee Agency (MIGA) of 1985 • Bilateral agreements on assistance in the implementation (promotion) and mutual protection of investmentswith: Federal Republic of Germany, the Turkish Republic, the Kingdom of Sweden, The Netherlands, the Republic of Finland, the Kingdom of Denmark, the Belgo-Luxembourg Economic Union, the Republic of Austria, the State of Israel, the Republic of Latvia, Lithuania, Czech Republic, the French Republic, Ukraine, United Kingdom of Great Britain and Northern Ireland, the Socialist Republic of Vietnam, China (more than 20 countries)

10. Guarantees to investors • Seizures (nationalization) only in the public interests with compensation, which • corresponds to the value of the confiscated investment; • payable immediately. Bank interest accrue by the time of payment. • Free movement of capital, including: • exchange of sums of investment in freely convertible currency; • further transfer of such amounts; • possibility of reinvestment.

11. Settlement of investment disputes • National: • economic courts of the Republic of Belarus; • International Arbitration Court at Belarusian Chamber of Commerce. • International level (according to the Treaty with Lithuania): • International Centre for Settlement of Investment Disputes (ICSID) in Washington, DC; • The arbitral tribunal in accordance with the Arbitration Rules of United Nations Commission on International Trade Law (UNCITRAL).

12. Investment agreement with the Republic of Belarus • Investment agreement is concluded to provide state support in the implementation of important to the economy investment projects • Terms of the investment agreement: • object, size (without limitation) and date of investment; • rights and responsibilities of the parties; • legal guarantees for the project; • responsibility of the parties; • order and the authority of disputes resolution.

13. Investment agreement with the Republic of Belarus • Decree № 10 of August 6, 2009 "On Creation of Additional Conditions for Investment Activity inthe Republic of Belarus” • 3 levels of decision making on investment agreements have defined: • The Republican state authority, region executive committee (Minsk City Executive Committee) - in case an investment project is implemented within the relevant industry or political subdivision; • Government - in cases where the investment agreement does not provide the investor with individual benefits and preferences; • Government by agreement with the President of the Republic of Belarus - in case of providing the investor with individual privileges and preferences.

14. Investment agreement with the Republic of Belarus • Conclusion of investment agreement on the 1st and the 2nd level does not require a business plan and comprehensive state examination of investment project • Business plan and state comprehensive examination of investment project are required to make a decision on the 3rd level and provide individual benefits

15. Investment agreement with the Republic of Belarus • Implications of the investment agreement: • obtaining additional legal safeguards to protect investment, • opportunities for foreign investors to protect their rights in foreign courts (arbitration) in addition to those rights which are already available to investors with a significant number of existing international treaties on protection of investments, • obtaining benefits provided by the decree for the investor (it’s organization)

16. Investment agreement with the Republic of Belarus • Investors who have entered into an investment agreement are exempt from: • transfer to the state budget payments for the right to conclude a lease of land (the size of such fees is significant and determined cadastral value of land in accordance with the lease); • reimbursement of losses of agricultural and (or) forestry production in the seizure of land, as well as compensation payments related to the transfer and clearing of greenery on the land settlements (also taking into account the significant amount of the existing methods of evaluation); • payment of import customs duties and VAT (excluding VAT when importing goods from the territory of Russia) the import of equipment and spare parts for the investment project; • payment of fees in connection with the involvement of foreign labor, with very permissive order to attract foreign workers persists.

17. Investment agreement with the Republic of Belarus Other opportunities for investors • It is possible to construct simultaneouslywith the development, examination and approval of design estimates for each of the stages of construction with the simultaneous design of subsequent phases of the construction • Unlike the standard procedure the right to a land is given without holding an auction for the right to lease, with land allotment registration simultaneously with the carrying out construction works. It is prohibited to raise rental payment during implementation of investment project

18. Investment agents • Edict of the President of the Republic of Belarus of 06.08.2009 N 413 "On Providing Individuals and Legal Entities of Authority to Represent the Republic of Belarus on Attracting Investments to the Republic of Belarus" • Government • may provide physical and (or) legal persons authorized to represent the interests of the Republic of Belarus on investment • determines the investment agent for the submission of the national public body, regional (Minsk city) executive committee on appeal to the person applying for such status • defines the above-mentioned bodies for the conclusion of the investment agent at no cost agreement on representation of interests of the Republic of Belarus in attracting investments to the Republic of Belarus

19. Concession • Concession is a contract on transfer on onerousbasis for defined period of the right to engage in the Republic of Belarus certain activity for which the exclusive right of the state or the right to use property owned by the Republic of Belarus • Objects of concession: • the right to conduct certain activities, which in accordance with the laws of the Republic of Belarus is the exclusive right of the state - by a decision of the President; • minerals, forests, land and buildings (including the enterprises as property complex in whole or part thereof) which, in accordance with the law can only be owned by the state - in accordance with the list approved by the President

20. Tax regimes General tax regime • main republican taxes, payments (duties): • VAT. The basic rate is 20 %; • excises; • profit tax. The basic rate is 24 %; • profit tax of foreign organizations; • income tax. The basic rate is 12 %; • real estate tax; • land tax; • ecological tax; • customs duties and fees. • main local taxes and duties, in particular, tax for services • development areas duty. Rate – no more than 3% of gross profit

21. Tax regimes Special taxation regime • Simplified system of taxation (not used in case of implementation of insurance, banking, tourism, real estate and other activities). Rates 8% - for companies that do not pay VAT. Criteria: average number of employees - no more than 100 people, gross profit - up to 2861,25 mln. roubles (equivalent approximately770500 Euro); 6% - for companies that do pay VAT; Criteria: average number of employees - no more than 15 people, gross profit - up to 1090 mln. roubles (equivalent approximately293 500Euro); 15% - for companies that use gross receipt as a tax base. Rates for companies and individual entrepreneurs with the location in rural settlements (not apply to trading mediatory activity); 5% - for companies that do not pay VAT; 3% - for companies that do pay VAT; • Single tax for the producers of agricultural products. Rate is 2%;

22. Tax regimes Free Economic Zone (FEZ) • Six SEZ (Minsk, Brest, Vitebsk, Gomel-Raton, Grodnoinvest, Mogilev) • Conditions: • investment - at least 1 million euros • export • import substitution • selling to other residents of FEZ • FEZ residents pay • income tax–0 % for 5 years, afterwards - 12 %, • VAT –10 %. • Not apply to: • public catering, gambling, trading and procurement activities, operations with securities; activities of banks and insurance organizations etc.

23. Tax regimes Park of high technologies (PHT) • Residents of PHT are exempted fromtaxes • Income tax from individuals - 9% • Mandatory insurance contributions are not calculated on the income that exceeds one-time average wage of workers in the republic • Tax on income of foreign entities (dividends, bonds, royalties, licenses) - 5% • Offshore fee is not charged when dividends are paid to the founders (participants)

24. Tax regimes Taxation of commercial organizations with location in settlements with population not over 50 thousand people according to the approved list: • have the right within 5 years from the date of their creation not to paytaxes, excluding • VAT, tax on income from securities transactions, • excise, • land tax, • ecology tax, • off-shore charges

25. Tax regimes • Taxation of organizations located in rural areas from 1 January 2008 to 31 December 2012: • are exempted from profit tax, as well as real estate tax on the value of sites located in rural areas; • do not made as from 1 January 2008 to 31 December 2010 deductions in the Innovation Funds; • are exempted from import customs duties and VAT on processing equipment, components and spare parts are imported to contribute the remainder (increasing) of the authorized capital. • In 2007 - 2010 the organizations registered and operating in small and medium-sized urban settlements pay profit tax at 10% rate

26. Customs union • From January, 1st, 2010: • integrated customs rate (ECR), integrated mechanism of tariff quota, integrated order of benefits and privileges to the third countries is stated etc. ECR is a code of integrated customs duty rates on the customs union territory, applied to the goods imported from the third countries. • integrated rules of foreign commerce licensing, integrated measures on nontariff regulation, integrated order for introduce and application of measures affecting foreign commerce according to third countries • From July, 1st, 2010: • free goods movement inside customs union.

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