Foreign Loans in Belarus
Loan agreement is one of the most common ways of financing in Belarusian companies when a foreign shareholder provides a loan to the Belarusian Company. This article covers some crucial issues of receiving loans from foreign companies including currency and tax regulations.
It should be noted at first that in case if a foreign lender provides an interest-free loan, certain problems may arise. Interest-free loan is considered as foreign gratis aid in Belarus. Foreign gratis aid may be used by recipients exclusively for the following legally established goals:
• liquidation of emergency situations aftermath;
• scientific research, education, as well as realization of scientific programs;
• protection, restoration and establishment of historical and cultural values, development of national parks;
• medical help;
• provision of social aid to the indigent citizens, disabled, pensioners, children, large families, tutorial and foster home families, etc.; and
• for personal needs of citizens.
The use of foreign gratis aid for other goals (including commercial financing) is considered as improper use. In case of the improper use of foreign gratis aid by a Belarusian organization, the Belarusian Company will face administrative penalty in the form of the amount up to 100% price of foreign gratis aid with confiscation of such gratis aid or without confiscation. Thus, at least minimal interest rate should be established in the loan agreement.
It is worth mentioning that obtaining a loan from foreign lender is a capital operation. Such operation shall be held on condition that the bank in which the Belarusian Company has a current account, is to be obligatory informed of it. Additionally, the loan agreements providing special conditions shall be held exclusively on the basis of the National Bank permit. The list of special conditions includes as follows:
1. The interest rate prevails the following limits: loans in USD and Euro – 14% annual interest rate, loans in other currencies and Belarusian rubles - refinancing (interest) rate established by the central (national) bank plus 5% interest annual rate;
2. The sum of interests and penalties for breach of payment periods prevails 0.01% for one day (3.65% annual interest rate);
3. Loan agreement additionally to the annual interest rate provides other payments to the lender (except credit agreements between banks);
4. The sum of loan is provided in the form of payments for the borrower’s obligations without acceptance on the bank account of the borrower;
5. The obligation of the borrower to return the loan is executed from the account of a third party;
6. The lender is registered in the offshore state.
It is also noteworthy that in case of provision of a loan from by a Belarusian company to foreign borrower and return of the loan within time period more than 180 days, the Belarusian lender shall also apply for the National Bank permit.
Any foreign company that has no permanent establishment (except subsidiary companies) in Belarus but still has income from the sources in Belarus is obliged to pay foreign company income tax in Belarus (hereinafter – income tax). The object of taxation includes interests for the loans paid by Belarusian companies to this foreign company.
This tax shall be deducted by the Belarusian Company from the sums paid to the foreign company. General tax rate is 10% is established by the Tax Code. However, Belarus has entered into several bilateral international treaties on avoiding of double taxation. According to these bilateral international treaties, foreign legal entities are entitled to pay taxes for some objects of taxation (including interests) exclusively in the state of its permanent residence or pay taxes in Belarus under lower tax rates stipulated in these treaties.
It should be noted also that a Belarusian borrower is entitled to include the interests paid to a foreign borrower in the manufacture and realization costs to minimize taxation basis for the corporate tax in Belarus.
Thus, before the conclusion of loan agreements with foreign entities, the Belarusian companies should take into account all the above features as well as draft the loan agreement carefully and obtain all necessary permits.
ABOUT THE AUTHOR: Nikita Tolkanitsa
Nikita Tolkanitsa is a lawyer at law fim GLIMSTEDT. He is specialized in such practice areas as International Trade and Customs, Taxation and Company and Commercial Law.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.