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Draft tax reform in Belarus was recently made public by the Belarusian Ministry of Finance. The reform includes changes to transfer pricing and thin capitalization rules, corporate and individual tax rates, and others.

The key changes include:

Corporate Tax Rates

  • The reduced 9% tax rate on gains from the sales of shares would be abolished
  • A 25% corporate tax rate would be introduced for banks and insurance companies

Individual Tax Rate

  • The individual income tax rate would be increased from 12% to 13%, although additional deductions will be allowed

Transfer Pricing

  • The scope of the Belarusian transfer pricing rules would be expanded to cover the sale of works and the provision of services (Currently only immovable property transactions and transactions involving goods are covered)
  • The minimum transaction value threshold of BYR 60 billion for goods would be abolished
  • The comparable profits method would be added as an acceptable transfer pricing method, which currently includes the comparable uncontrolled price (CUP) method, the resale price method, and the cost-plus method

Thin Capitalization

  • The scope of controlled debt subject to thin capitalization rules would be expanded to include not only controlled debt obligations to a foreign organization directly or indirectly controlling 20% or more of a Belarusian entity, but also:
    • Debt obligations to affiliates of such foreign organization,
    • Debt obligations guaranteed by such foreign organization or affiliates,

Contractual penalties and fines related to loan agreements would also be considered controlled debt subject to thin capitalization rules, as well certain fees and other expenses including fees payable under management, engineering, informational, marketing and consulting services agreements, and expenses for the acquisition or use of trademarks and service marks and amortization of industrial property.

In addition, a 1:1 debt to equity ratio would be introduced for manufacturers of alcoholic beverages with an alcohol amount of up to 7% and goods subject to excise duty, and for fees and expenses considered controlled debt as above when owed to Belarusian resident company that holds more than 20% of the shares in the debtor company.

The draft reform must be approved by parliament and signed by the president before becoming law.