Legal Regulation of Creation and Activity of Commercial Organizations with Foreign Investments in the
Updated June 2011
Incorporation of commercial organizations with foreign investments
Definition of Commercial Organization with Foreign Investments
A legal entity is considered to be a commercial organization with foreign investments (hereinafter - COFI) in the territory of the Republic of Belarus in case foreign investments in its charter capital are equivalent to no less than 20 000 US dollars, such legal entities pursue a primary objective of deriving profit (income) and (or) distribute the received profit between members of the company.
All commercial organizations with foreign investments are viewed as commercial joint ventures (JV) and commercial foreign organizations (FO).
Commercial joint venture is a legal entity of the
Commercial foreign organization is a legal entity of the Republic of Belarus, the charter capital of which 100% consists of foreign investments, i.e. without any local participation.
Commercial organizations with foreign investments may be created in the form of limited liability companies, additional liability companies, joint stock companies, private unitary enterprises.
Regulation of creation and functioning of organizations with foreign investments is carried out on the basis of general legislation on legal entities effective on the territory of the
Peculiarities of creation and activities of commercial organizations with foreign investments connected to the presence of foreign investments in its charter capital are specified by the Investment Code of the Republic of Belarus dated 22.06.2001 with further changes and amendments (hereinafter the Investment Code).
State Registration of Commercial Organizations with Foreign Investments
An organization with foreign investments acquires the rights of legal entity from the date of its state registration.
From the 1st of February 2009 an application procedure of state registration is established (excluding registration of banks and non-bank credit and financial organizations). State registration is carried out on the day of filing all of the necessary documents. The oblast executive committees and Minsk City Executive Committee (except for banks, non-bank credit and commercial organizations, insurance companies and insurance brokers, and commercial organizations with foreign investments in free economic zones) are the bodies who carry out state registration of organizations with foreign investments. Certification of state registration is issued not later than the working day following the day of submitting documents for state registration.
Specific Features of Participation of Legal Entities and Individuals in a JV
Parties to a JV from the Belarusian side may be both non-state entities and legal persons based on state property.
For state unitary enterprise to participate in the creation of JV, it shall have to obtain the decision (approval) of the Ministry, state committee or any other state agency depending under which auspices the latter exists. In the event that state enterprise intends to contribute buildings or other objects of non-completed construction to the charter capital as its contribution, the enterprise shall have to obtain the approval of correspondent state agency and the State Committee on Property or Council of Ministers of the Republic of Belarus (for republican property) or approval of the respective local agency (for municipal property). Apart from that if the cost of the property contributed by state enterprise as its contribution to the charter capital of JV exceeds 10.000 established in the Republic of Belarus basic units [1] (at the present time it is equal approximately to 70 000 US dollars or 50 000 Euro according to the rate of the National Bank of the Republic of Belarus), it is necessary to obtain the decision of the President of the Republic of Belarus (for republican property) or approval of the respective local agency (for municipal property).
When dealing with the state enterprise as the partner of a JV it is necessary to take into account the possibility of its further privatization. However, no legal restrictions for the participation of state enterprises in a JV in connection with the process of their privatization are in force.
Parties to the JV on the Belarusian side may be represented by both: legal entities and individuals. It should be borne in mind that according to the legislation of the Republic of Belarus officials and specialists employed in the bodies of state power, executive committees of the Soviets of deputies, public prosecutor's offices and courts, as well as heads, deputy heads and main specialists of the state enterprises, organizations and institutions are not allowed to carry on business activities including participation in a JV.
Foreign investors may be represented by foreign states, international organizations, foreign legal entities and individuals, stateless persons as well as citizens of the
Liability of the Parties for obligations of JV or FO
Liability of the parties for obligations of the companies with foreign investments depends on the type in which it is created (unitary enterprise, limited liability, additional liability company, joint stock company). The Civil Code has introduced a provision, according to which parties of a JV or FO are liable regardless of the created type. This is the case when economic insolvency (bankruptcy) of the company was caused by the parties, owners of the company or other persons, entitled to issue compulsory orders or commit other actions determining maintenance of the company. All persons mentioned above bare subsidiary liability for the obligations of the company in the event there is not enough company assets.
Contributions to the Charter Capital of Commercial Organizations with Foreign Investments
According to the Investment Code of the
The charter capital of an organization with foreign investments declared in the charter documents shall be formed for not less than 50% within the first year from the date of the state registration of the organization by each of the participants contributing not less than 50% of their share and completely - within two years from the date of its registration. The exception is the COFI in the form of an open joint stock company, the charter capital of which should be formed in full amount before the actual state registration.
Organization with foreign investments (except for those incorporated in the from of an open joint stock company) shall submit the registration agency with a documentary confirmation of the formation of the share capital in the established amount not later than thirty days from the date of expiry of the respective period; relevant auditor`s conclusion is considered a documentary confirmation of the formation of the share capital. Registration body has the right to extend established terms of formation of the charter capital of commercial organizations with foreign investments (excluding open joint stock company) to six months.
Contributions to the charter capital of the companies with foreign investment (JV or FO) can be made in monetary and/or in kind form.
In case there is a necessity of recalculation of the contributions, an official rate of Belarusian rouble in relation to correspondent foreign currency on the day of the approval of the charter of the company with foreign investments shall be used.
In the event the contribution to the charter capital of the organization with foreign investments being made in currency of the Republic of Belarus or foreign currency, the participant, making such contribution, shall take into account respectively the differences between the official rates of Belarusian rouble to the US dollar or difference between cross-rates of the correspondent foreign currency to US dollar, calculated based on the official rate established by the National Bank of the Republic of Belarus on the day of the approval of the charter of the company with foreign investments and on the day when the contribution is actually made. In the event of making decision on increasing the amount of the charter capital or on acquisition of the status of the commercial organization with foreign investments by the legal entity, the founder, while making contribution to the charter capital in official monetary units of the Republic of Belarus or in foreign currency should take into account respectively the difference between the official rates of Belarusian rouble to US dollar or difference between cross-rates of correspondent foreign currency to US dollar, calculated based on the official rate established by the National Bank of the Republic of Belarus on the day of making such a decision and on the day of the actual payment. The difference arisen shall be allocated to reserve fund of the COFI.
Foreign investor's in kind contribution shall be brought from a foreign state or acquired in the Republic of Belarus for hard currency or for currency of the Republic of Belarus, provided national currency of the Republic of Belarus was received as profits gained from activities of the created with its participation company with foreign investments, permitted commercial activity, as well as from exchange of hard currency in the banks of the Republic of Belarus.
In kind contributions of the participants of JV/FO with foreign investments are subject to obligatory estimation, conducted in accordance with the Edict of the President of the Republic of Belarus № 615 of 13.10.2006 “On Evaluation Activity in the Republic of Belarus” as well as to examination of reliability of estimate of in kind contributions, conducted in accordance with the procedure, stipulated by the Council of Ministers of the Republic of Belarus (Regulation No. 173 dated 10.02.2011). The estimation is carried out in the currency in which it was made. The results of the examination are reflected in the conclusion. Property is recognized as contributed to the charter capital to the amount, confirmed by the named conclusion.
Assets imported by the founders of a commercial organization with foreign investments for purposes of formation of the charter capital, on the common grounds, are subject to payment of customs duty and value-added tax. However, if observe certain conditions a privileged import of technological equipment (its components) as a contribution to the charter capital is possible with the release from the payment of import custom duties and tax value-added. Those conditions are the following:
- location of a commercial organization with foreign investments on the territory of urban area of the Republic of Belarus with the population less than 50 000 people included in the respective list of urban areas;
- carrying out of economic activity in the same urban area, location in this urban area of the main funds and employees of commercial organization with foreign investments;
- carrying out of economic activity known as “domestic manufacture of goods(works, services)” that is proved by a special certificate issued by Belarusian Chamber of Commerce and Industry.
CURRENCY REGULATION
The main legal act in the area of foreign currency regulation is the Law of the Republic of Belarus "On Foreign Currency Regulation and Foreign Currency Control" dated 22.07.2003.
Currency regulation treats JV and FO as residents of the Republic of Belarus. Term "Resident" means any individual irrespective of nationality constantly residing in Belarus as well as legal entities registered in Belarus including commercial organizations with foreign investments.
The general rule for the residents is that all contracts, transactions and settlements between residents should be made in Belarusian roubles. Settlements between residents in other currencies are allowed in a strictly defined number of cases.
According to the Provisions "On Conducting Currency Operations in the Republic of Belarus" adopted by the Resolution of the Board of the National Bank of the Republic of Belarus No. 72 dated 30.04.2004 with further changes and amendments all cashless settlements between residents and non-residents can be conducted both in foreign currency and in Belarusian roubles. Therefore, if the clients of the JV (FO) are residents, settlements will be carried out in Belarusian roubles. If the clients are non-residents, settlements will be carried out mainly in foreign currency though use of Belarusian roubles is allowed as well.
At the moment limitations on settlements with non-residents in the foreign currency until 01.03.2012 are established by the Regulation of the Council of Ministers of the Republic of Belarus and National Bank of the Republic of Belarus from 25.02.2011 No. 240/5. According to the named Regulation settlements between importer and non-resident under foreign trade agreement, providing total amount of monetary obligations of importer exceeds 50 000 Euro in equivalent and import of goods, falling within Annex to the named Regulation, shall be made solely:
1) at the expense of receipts in foreign currency, at disposal of importer
2) at the expense of foreign currency at disposal of importer, received as:
contribution to the charter capital
foreign gracious aid
dividends and other profit from investments
interests under loan agreements, concluded with non-residents
interests for placement of foreign currency on accounts in banks
interests on obligations of banks
3) at the expense of foreign currency, received under loan agreements (credit agreements), concluded with non-residents for term exceeding 1 year
4) at the expense of foreign currency, received under credit agreements, concluded with Belarusian banks for term exceeding 1 year
5) in occasion of receipt of permission of the National Bank of the Republic of Belarus.
Annex to the Regulation No. 240/5 includes different types of equipment: power equipment, compressors, stoves, refrigeratory equipment, cranes, loaders, bulldozers, tractors, cargo transport, equipment for production and treatment of agricultural products, equipment for production of paper and cardboard, equipment of clothing industry, foundry equipment, machine tools, communication equipment, PCs, medical equipment, control and measurement instrumentation, as well as number of other kinds of machines and equipment.
Foreign Currency Account of the Commercial Organizations with Foriegn Investments
Being a resident, the company registered in Belarus as a JV or FO is obliged to keep its currency in a bank which has a license of the National Bank for carrying out transactions in foreign currency on the territory of the Republic of Belarus (authorized bank).
No restrictions are imposed on local companies including JVs and FOs for opening currency accounts in local banks. The order of opening of foreign current accounts is stated by the Resolution of the Board of the National Bank of the Republic of Belarus № 40 dated 03.04.2009. In order to open a foreign current account JV or FO shall first submit to the bank a number of documents including the documents confirming its registration as a legal entity.
Purchase of Currency
Residents of the
Compulsory Sale of Currency
The Edict of the President of the Republic of Belarus "On Compulsory Sale of Foreign Currency" dated 19.07.2006 No.452 and the Resolution of the Board of the National Bank of the Republic of Belarus № 129 dated 13.09.2006 "On the Order of Execution of Compulsary Sale of Foreign Currency on the Internal Foreign Exchange Market" provides for compulsory sale of 30% of foreign currency, transferred within contracts, involving refundable transfer of goods, proprietary information, exclusive rights on results of intellectual activity, lease of property, performance of works, rendering of services. Compulsory sale is pursued not later than 7 working days from the day correspondent monetary funds are received. Types of foreign currencies subject to compulsory sale are established by the National Bank of the Republic of Belarus.
Foreign currency received as a contribution to charter capitals of organizations with foreign investments is not subject to compulsory sale, inasmuch as such transaction does not belong to transactions, for which compulsory sale is required.
Remittance of Profit
The Investment Code guarantees foreign investors the following.
1) The foreign investor has a right to freely dispose of income received as a result of the investment activity, including reinvesting on the territory of the
2) The foreign investor upon making all necessary tax and other obligatory payments set forth by the legislation of the Republic of Belarus has a right to freely forward the income received as a result of investment activity on the territory of the Republic of Belarus outside of the country as well as forward gains received from selling the investment property upon termination of the activity.
Dividends received by foreign investors from participation in a company with foreign investments are subject to 12 % tax on profit of foreign organization or 12 % income tax rate of foreign individual unless otherwise is established by international agreements. The tax is withheld from the source of dividend payment.
TAXATION
The Tax Code of the Republic of Belarus (special part) provides the following tax rates that are subject to payment by organizations with foreign investments and the following objects of taxation:
- Value-added Tax (VAT)
The object of levying are overturns of realization of goods (jobs, services) and personal property rights on the territory of the Republic of Belarus, and goods imported in the customs territory of the Republic of Belarus.
The rate of the tax is 20 %, in some cases - 0 %, 0,5%, 10 %; 9.09 % or 16.67%.
- Profit Tax
The rate is 24 %.
- Excise Tax
Excises are levied on ethyl technical spirits, alcohol products, inedible spirit containing substances, produced with usage of ethyl spirits from all kind of raw materials, other spirit containing substances, tobacco, low-alcohol products with volume of ethyl spirits from 1,2 to 7 %, vines with volume of ethyl spirits from 1,2 to 7 %, beer and beer cocktails, petrol, diesel oil, oil for diesel and (or) carburetor (injector) engines, vans, cars regardless of the working capacity of the engine, with the exception of cars aimed at preventing and rehabilitation of invalids, edible spirit containing substances, produced with usage of ethyl spirits.
The rates may be stated:
- in absolute sum on physical unit of excised goods (fixed (specified) rate);
- in percents from the value of excised goods or customs value of excised goods, increased by levied amounts of customs duties (interest (ad valorem) rate).
- Land Payments
Land payments are charged annually in the form of land tax or lease payments. The rates of lease payments, seized instead of land payments are defined by the Edict of the President of the Republic of Belarus № 101 dated 01.03.2010 "On Levy of Lease Payments for Land plots in Public Domain".
- Real Estate Tax
The basic law governing the procedure of paying the tax is the Law of the Republic of Belarus "On Real Estate Tax" of 23 December 1991 with subsequent alterations and additions thereto. The tax rate is 1 % per year or 2 % per year in relation to some objects of uncompleted construction. The tax is charged on the cost of buildings and constructions including incomplete constructions, that are the property or in possession of the commercial organization. The tax is also levied on objects of construction in process.
- Compulsory Payments Charged on the Wage Fund of Joint Ventures (foreign organizations):
a) State insurance contributions to the Social Safety Fund - 34%;
GUARANTEES TO FOREIGN INVESTORS
The Legal Status of Foreign Investments
The Investment Code establishes, that legal status of foreign investments in the territory of the Republic of Belarus, terms of activities of foreign investors and created with their participation commercial organizations shall not be less favourable than corresponding status for the property and property rights, as well as terms for investment activities of legal entities and individuals of the Republic of Belarus with the exception of the cases stipulated by the Code.
Guarantees from Forced Alienation
The State guarantees protection of investments in accordance with the legislation of the
Foreign investments cannot be nationalized, requisitioned, removed, seized, compulsory acquired without compensation or taken or be subject to other actions, equivalent for their consequences.
Nationalization and requisition are possible only upon timely and full compensation of the value of the investment property being nationalized or requisitioned and other damages caused by nationalization and requisition.
Compensation of the value of the nationalized or requisitioned investment property should be equal to the market value of this property, determined in the order, established by the President of the
Furthermore, the compensation should include interest calculated in accordance with the rate of the corresponding currency, namely established by the National Bank of the Republic of Belarus for national investor and by London Interbank market (LIBOR) for a foreign investor, for the period from the date of the forced alienation (or its public announcement) till the date of the actual payment of the compensation. Compensation of the nationalized or requisitioned investment property is paid out to the investor in the same currency as it was initially invested in. In the event of a disagreement on the value of the nationalized or requisitioned investment property, the issue can be appealed by investor before the court.
Guarantees from the Illegal Acts of State Bodies and Their Officials
Any interference with commercial and other activities of commercial organizations with foreign investments from the side of state agencies and their officials is prohibited with the exception of the cases of fulfilling of the stipulated by the effective legislation for the control and supervision of the activities of the commercial organization.
[1] Starting from February 1, 2007 one basic units is 35 000 BYR (as of June, 2011 it is equal approximately to 7 $ or 5 € at exchange rate of the National Bank of the Republic of Belarus).
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