Non-resident legal entities pay tax on profits attributable to a PE (18%).
Taxation of a PE
If a non-resident company is deemed to have a PE in Belarus, it will have to register with a local tax authority and declare related profit. Profit related to a PE is taxed by CIT at a rate of 18%.
A PE’s profits are computed on substantially the same basis as Belarusian legal entities, including the composition of tax-deductible expenses. The Tax Code provides for the deductibility of expenses incurred abroad by a head office with respect to its PE in Belarus (including a reasonable allocation of administration costs).
To calculate a PE’s taxable income, a non-resident company is required to provide a tax authority with financial documents (i.e. accounting records, income statement, general ledger accounts, invoices, statements of services/works fulfilment, etc.) supporting the amount of revenue earned and expenses incurred. Generally, a PE’s taxable income is defined on a revenue less costs basis. Documentary support of each revenue and/or cost item is required.
When it is not possible to calculate a profit attributable to a PE, this profit can be calculated by the tax authority using one of the following methods:
- A profit-sharing method (i.e. gross foreign profit is allocated to PE by using one of the following coefficients related to a PE: working time costs, expenses incurred, services/works performed).
- Benchmarking method (tax authority performs benchmarking study by collecting the respective ratios/indexes of other entities engaged in similar activities).
Head office expenses related to a PE are considered for calculation of taxable income in Belarus and require confirmation of an independent foreign auditor or a tax advisor. Splitting of expenses is highly recommended in the audited financial statements of the parent company (head office).
Non-resident legal entities operating in Belarus through a PE are required to follow the filing and payment schedules established for Belarusian legal entities.
Non-resident legal entities are also allowed to operate in Belarus via a representative office or to set up a resident legal entity.
A representative office of a non-resident company is defined as the structural subunit registered with local authorities, which is entitled to protect and represent the interests of a non-resident company.
A representative office is not considered a legal person.
Non-resident legal entities are permitted to open representative offices in Belarus only for the purposes of carrying out activity of preparatory and auxiliary character. The scope of such permitted non-commercial activities includes the following:
- Contribution to the implementation of international treaties of Belarus in areas of trade, economy, finances, science, technologies, and transport; improving co-operation in these areas; and encouraging a larger amount of data on economic, commercial, and scientific issues.
- Research for investment opportunities in Belarus.
- Establishment of legal entities, including joint ventures.
- Ticket sale and seats booking of aviation, railway, automobile, and maritime transports.
- Other socially useful and non-commercial activity.
Copies of documents confirming state registration of a non-resident legal entity with competent authorities of its country of incorporation (to be filed along with the set of other documents required to open a representative office in Belarus) shall be issued no later than three months prior to the submission of the respective set of documents to the respective regional or Minsk authorities.
The permitted number of foreigners working in a representative office shall not exceed five individuals.
A representative office pays taxes due on its primary and auxiliary activities, such as real estate tax (with some exceptions), customs duties, VAT (in certain situations), personal income tax (PIT), SICs due on employment of individuals, etc.
A report on the activities of the representative office is submitted no later than 1 March to the state authorities.