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January 2010

Recent legal and business developments in Belarus, January 2010

1. The most significant development for business community in Belarus in January 2010 was entry into force of the Special Part of the Tax Code of the Republic of Belarus. The Special Part of the Tax Code comprises substantial codification and progressive development of the existing taxation system of Belarus, and at the same time – is a further step towards liberalization of regulation of business operations and interrelations of business and the state. 69 Laws were repealed due to adoption of the Special Part of the Tax Code, 14 Decrees and 71 Edicts will also be repealed shortly, some 98 Laws are being amended. The overall taxation burden is lowered, and tax administration is simplified: from the beginning of 2010 4 taxes are repealed, including two turnover taxes, quarterly reporting is introduced for many taxes instead of monthly reporting. Basic rate of profit tax is retain at 24% level. Amongst the progressive developments that should be noted are change in the system of tax deductable expenses calculation: instead of the list of permissible deductions, the list of non-deductable expenses is introduced. Therefore all other operational expenses are, as a general rule, tax-deductible. Limitations on marketing, advertisement and representation expenses are repealed. With the view to boost investment processes beneficial rates of profit tax are introduced for specific types of income: earnings from sale of shares (interests) in share capitals of Belarusian legal entities, as well as dividends payable to Belarusian legal entities are taxed at 12% rate. Dividends payable by Belarusian companies to their foreign shareholders are also taxed at 12% rates. Profit of foreign entities from provision of all types of debenture financing (loans, credits, interests on accounts with Belarusian banks) are taxed at 10% rate. Rate of the personal income tax for individuals applicable to dividends was also lowered to 12%.  Simultaneously in order to compensate decrease of budget incomes, VAT rate was increased up to 20%.

2. Amendments to the antimonopoly legislation entered into force in January, laying down new regulations in state merger control. New quantitive tests for mandatory filing for antimonopoly concentration approvals were introduced instead of the former vague criteria. Thus, at present it is mandatory filing for antimonopoly approval is needed in the following cases:

- acquisition of shares (interests) in the share capital of companies-competitors by acquirers holding more than 30% of a given product market;

- acquisition of more than 25% of shares (interests) in the share capital of companies enjoying the dominant position at a given product market by any acquirers;

- acquisition of more than 20% of shares (interests) in the share capital of companies, where balance value of the target net assets as of the last reported date exceeds equivalent of 849 000 Euro, or  receipts of the previous financial year exceeded equivalent of 1 698 000 Euro.

Competence of the antimonopoly authority was widened with the view to increase effectiveness of the state antimonopoly control. So, the antimonopoly authority now may file claims to court free of payment of the state duty in order to invalidate agreements violating Belarus antimonopoly regulations, and to conclude agreements with the entities enjoying dominant market position regulating market behavior of the latter.

3. Head of the National Bank Petr Prokopovitch announced the plans on privatization of one of the largest state-owned bank – JSC "Belinvestbank" – within the first half of 2010. It is reported that the National Bank is currently engaged in talks with an undisclosed European investor on acquisition of Belinvestbank’s shares. It had been previously reported that initially German Commerzbank intended to invest but was forced to cease talks due to EU regulatory requirements prohibiting to use funds of state aid to acquire foreign assets. Currently it is reported that Belarusian authorities consider one of the Italian banking groups as the most probable new owners of Belinvestbank.