Free economic zones: Republic of Belarus
Free economic zones (hereinafter referred to as the FEZ) are one of the two most powerful tools for booming the national economy of the country. The main methods of achieving this goal are to stimulate the development of production, increase the number of jobs, develop advanced technologies, and export orientation.
The FEZ, as a special customs and tax regime, provides foreign and domestic investors with the opportunity to conduct business on highly concessional terms. Currently, there are six SEZs in the Republic of Belarus, one in each oblast center:
- The Brest FEZ (established in 1996);
- The Gomel-Raton FEZ (established in 1998);
- The Minsk FEZ (established in 1998);
- The Vitebsk FEZ (established in 1999);
- The Mogilev FEZ (established in 2000);
- The Grodnoinvest FEZ (established in 2002).
The bases of legal regulation of FEZ activities are established by the following legal acts:
- The law of the Republic of Belarus «On free economic zones» № 213-3 dated 07.12.1998;
- The Agreement on free (special, specific) economic zones in the customs territory of the Customs Union and the customs procedure of the free customs zone” (Concluded in St. Petersburg on 18.06.2010) (ed. from 11.04.2017);
- The Decree of the President of the Republic of Belarus «On some issues of the activities of free economic zones in the territory of the Republic of Belarus» № 262 dated 09.06.2005;
- The Decree of the President of the Republic of Belarus «On free economic zones on the territory of the Republic of Belarus» № 114 dated 20.03.1996;
- Tax Code of the Republic of Belarus №71-3 dated 29.12.2009 (Chapter 41).
The FEZ resident
Any commercial organization in order to become the FEZ resident can pass the procedure of registration as a FEZ resident. Formally, a sole proprietor can also become the FEZ resident. But in practice, this is more difficult because of the existing restrictions for sole proprietors on the number of employees (no more than three). In addition, the status of a sole proprietors is closed for most foreign investors.
The registration process as the FEZ resident consists of the following stages.
Firstly, it is necessary to create a commercial organization. In this case, a commercial organization shall be registered within the boundaries of the selected FEZ or a previously created commercial organization shall move its location to the territory of the FEZ.
The transfer of the location of a commercial organization can be expressed both in the form of filing a notification of the established form, and in the form of making changes to the Charter.
Usually, commercial organizations in the Republic of Belarus are created in the form of limited liability companies (LLC) and joint-stock companies (open JSC, closed JSC). When choosing an organizational and legal form, it is worth to consult with a lawyer, since changing the organizational and legal form after entering the FEZ can create undesirable bureaucratic formalities.
Secondly, it is necessary to prepare an investment project.
An investment project is a business plan that describes the project, its total cost, realization period, capital, expected demand and revenue, and other issues. The form of the investment project is approved by the relevant FEZ Administration.
For entering into the FEZ, an investment project shall meet two main criteria:
- The declared amount of investment shall be equal to the amount equivalent to at least 1 million euros. If a person applying for registration as the FEZ resident plans to make investments in full within 3 years from the date of registration, the investment amount may be equivalent to at least 500 thousand euros;
- The investment project shall be appropriate for the purpose of creating the free economic zone, namely, to promote the social and economic development of the Republic of Belarus by creating and developing production facilities aimed at increasing exports and replacing imports.
On the territory of the FEZ, all activities can be carried out except prohibited ones. The list of these prohibited types of activities is contained in article 5 of the law of the Republic of Belarus «On free economic zones» № 213-3 dated 07.12.1998.
Thirdly, it is necessary to pass the registration procedure as the FEZ resident.
Registration is carried out by the FEZ Administration. A person applying for registration as a FEZ resident shall submit the following documents to the FEZ Administration:
- An application for registration in the form approved by the FEZ Administration;
- An original and a certified copy of constituent documents;
- An original and a certified copy of the Certificate on State Registration;
- An investment project in the form approved by the FEZ Administration;
- A document confirming the payment of the State duty for registration as the FEZ resident in the amount of 50 basic units (currently, 1 basic value is equal to 27 Belarusian rubles).
Also, during the registration procedure as the resident, the FEZ Administration and the resident sign an agreement on the terms of activity in the FEZ.
This agreement defines the procedure and conditions for the realization of the investment project and is usually concluded for the duration of the project with the extension possibility. The exemplary form of the agreement is approved by the FEZ Administration.
After submitting the necessary documents and signing the agreement on the terms of activity in the FEZ, the FEZ Administration makes entries about the resident in the register of the FEZ residents. Within three working days from the date of registration, the FEZ Administration issues a certificate of registration of a commercial organization or individual entrepreneur as a resident of the FEZ.
Special tax treatment
The Tax Code of the Republic of Belarus provides special tax treatment for FEZ residents. This treatment applies to the realization by FEZ residents of goods (works, services) of their own production manufactured on the territory of the FEZ:
- outside the Republic of Belarus to foreign legal entities or individuals on the terms of an agreement concluded between them;
- outside the Republic of Belarus to foreign legal entities or individuals on the basis of commission agreements, agreements of order or other similar civil agreements. These agreements shall be concluded between the FEZ resident who is a member of a holding company registered in the Republic of Belarus and a commission agent or other similar person who is also a member of this holding company;
- to foreign legal entities or individuals outside the Republic of Belarus on the terms of an agreement concluded between them;
- to other FEZ residents on the terms of the agreement concluded between them.
The special tax treatment consists in giving the following preferences to the FEZ resident:
- Exemption from profit tax on income received from the sale of goods (works and services) of own production.
- Exemption from value added tax levied by customs authorities on goods produced with using of foreign goods that are placed under the customs procedure for release for domestic consumption.
- Exemption land tax on land plots located within the boundaries of the FEZ in two cases:
– the FEZ resident is offered a land plots for construction of objects after registration – for the period of construction of this object, but not more than five years from the moment of registration of the resident;
– regardless purposiveness of these objects – in the quarter, provided that in preceding quarter the FEZ resident sold products for export or sold them to other FEZ residents.
- Exemption from real estate tax on objects located on the territory of the FEZ in two cases:
– acquisition of a real estate object in a three-year period, calculated from the quarter in which the FEZ resident was registered, regardless of the direction of using this object, – for a period of three years, calculated from the quarter in which the resident was registered. However, preference is not given when a resident lease or rent out the object, or use this object in any other way.
– regardless purposiveness of these objects – in the quarter, provided that in the preceding quarter a resident of the FEZ sold products for export or sold them to other residents of the FEZ.
Customs benefits and preferential entitlements
Customs-free zones (hereinafter referred to as CFZ) have been created on the territory of the FEZ, within these CFZ a certain customs procedure of the CFZ applies to foreign goods and goods of the FEZ. The FEZ customs procedure – a procedure according to which goods are placed and used within the territory of the FEZ or in its part, while tax and duty payment is not produced. As for Non-Tariff Measures, these measures do not apply to foreign goods. Prohibitions and restrictions are also not applied to goods of the Customs Union.
Also, the FEZ residents do not pay customs fees when:
- importing construction materials, equipment, commodity, materials and components for the production of products in order to realize the investment project;
- exporting foreign goods placed under the customs procedure of the Customs Union in an unchanged state, as well as products produced using foreign commodity outside the customs territory of the Eurasian Economic Union.
The Republic of Belarus, in addition to tax and customs preferences, provides the FEZ residents with guarantees of investors’ rights and investment protection provided for by law.
First of all, these guarantees include guarantees of unhindered transfer of funds of a foreign investor outside the Republic of Belarus after payment of all necessary payments to the budget. Investors are also provided with guarantees against compulsory acquisition. Property that constitute an investment or a result of an investment cannot be subject to nationalization or requisition, except in cases specified by law. The Republic of Belarus has concluded bilateral investment protection treaties with a large number of developed and developing countries, including the United States, Canada, the United Arab Emirates, and China.