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Belarus and United Kingdom Tax Treaty Enters Into Force — Orbitax Tax News & Alerts

The income and capital tax treaty between Belarus and United Kingdom entered into force 27 July 2018. The treaty replaces the 1985 tax treaty between the UK and the former Soviet Union as it applies in respect of Belarus and the UK.

Taxes Covered

The treaty covers Belarusian tax on income, tax on profits, income tax on individuals, and tax on immovable property. It covers UK income tax, corporation tax, and capital gains tax.

Withholding Tax Rates

  • Dividends - 5% in general, although a 15% rate applies to dividends paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle that distributes most of its income annually and whose income from such immovable property is exempted from tax
  • Interest - 5%, with an exemption if the beneficial owner is a bank, a central bank, the government of a Contracting State, etc.
  • Royalties - 5%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State (exemption for shares substantially and regularly traded on a stock exchange); and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries generally apply the credit method for the elimination of double taxation. However, the UK will exempt dividends paid by a Belarus company to a company resident in the UK if the conditions for an exemption under UK law are met. Exemption may also apply for profits of a permanent establishment in Belarus of a UK company if the conditions for an exemption under UK law are met. Where a dividend paid by a Belarus company does not qualify for exemption in the UK, the UK credit will take into account the Belarusian tax payable in respect of the profits out of which such dividend is paid, provided that the UK resident controls directly or indirectly at least 10% of the voting power in the Belarus company.

Limitation on Benefits

Article 27 (Special Provisions) provides that a benefit under treaty shall not be granted in respect of an item of income or a capital gain if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

MFN Clause

The final protocol to the treaty includes the provision that if any agreement between Belarus and an OECD member state (member as of 26 September 2017) is signed after the Belarus-UK treaty was signed and such agreement provides for an exemption or lower rate of tax on royalties than provided under paragraph 2 of Article 12 (Royalties) of the Belarus-UK treaty, then such exemption or lower rate will automatically apply for royalties governed by that paragraph.

Effective Date

The treaty applies in Belarus from 1 October 2018 in respect of withholding taxes and from 1 January 2019 in respect of other taxes. It applies in the UK from 1 October 2018 in respect of withholding taxes, from 1 April 2019 in respect of corporation tax, and from 6 April 2019 in respect of income tax and capital gains tax. Articles 24 (Mutual Agreement Procedure) and 25 (Exchange of Information), however, apply from the date of the treaty's entry into force in both countries.

The 1985 tax treaty between the UK and the former Soviet Union ceases to apply between Belarus and the UK from the last date the new treaty is effective.