Tax Guide for US Expats Living and Working in Belarus
Who Is Liable For Income Taxes in Belarus
Individuals who are tax residents of Belarus are subject to personal income tax on their worldwide income. Non-residents of Belarus are taxed on their Belarusian-source income.
Belarusian-source income includes, but is not limited to, the following:
- Employment income
- Payments under insurance contracts
- Income derived from copyrights exercised in Belarus
- Income derived from work and services performed in Belarus
- Capital gains derived from disposals of property located in Belarus
- Income derived from disposals of shares or other securities
- Rental income from property located in Belarus
- Dividends derived from legal entities registered with Belarusian authorities
- Pensions or similar payments
Non-Belarusian-source income includes, but is not limited to, the following:
- Employment income
- Payments received from foreign insurance companies under insurance contracts
- Income from copyrights exercised abroad
- Income from disposals of shares or other securities abroad
- Income paid by foreign companies or entrepreneurs for works or services performed abroad
- Capital gains from disposals of property located abroad
- Rental income from property located abroad
- Dividends received from foreign companies
Definition of Belarusian tax resident. For personal income tax purposes, an individual is treated as a tax resident if he or she stays in Belarus for more than 183 days in a calendar year. An individual staying in Belarus for 183 or less days in a calendar year is treated as a nonresident of Belarus for tax purposes. Time spent by an individual abroad because of medical treatment, recreation and business trips is included in this period, while time spent by an individual in Belarus exclusively for the purpose of medical treatment and recreation is not included in this period.
Income subject to tax
The taxation of various types of income is described below. For a table outlining the taxation of income items.
Employment income. Employment income includes, but is not limited to, salary and compensation, and bonuses received in cash or in kind. For personal income tax purposes, employment income received by an individual from a foreign company or entrepreneur is considered foreign income, regardless of the place where the employment duties were actually performed. Belarusian tax residents may claim several deductions in determining their taxable income (see Deductions).
Investment income. Income is treated as dividend income if originating from stocks or shares. A flat personal income tax rate of 12% applies to Belarusian- and foreign-source dividends.
Dividends received by nonresidents from local sources are subject to 12% personal income tax withheld at source.
Interest income from bank deposits in Belarus is generally not subject to personal income tax.
Self-employment and business income. The income of self-employed individuals is generally subject to personal income tax at a flat rate of 15%. Certain types of income are taxed at a specific flat rate of 9%. Tax is levied on the individual’s annual self-employment income, which consists of gross income, less documented expenses associated with that income.
A self-employed person whose activity is treated as business is required to register as a private entrepreneur with the appropriate registration authority. Private entrepreneurs are generally required to pay personal income tax on their quarterly income.
Specific tax regimes (simplified taxation and single tax) may be used by individual entrepreneurs under certain circumstances.
The single tax is paid with respect to limited activities determined by the tax law. Payers of the single tax include the following:
- Individual entrepreneurs selling services to individuals for their own personal needs or who sell certain types of goods at certain places of sales (for example, small shops).
- Individuals not engaged in entrepreneurial activities that make on-and-off sales of certain types of goods in market places of goods. Such sales may not exceed five days in every calendar month.
The single tax is applied at fixed rates, depending on the type of goods or services sold or provided by the entrepreneur. The basic monthly rates of single tax vary from BYR 20,000 to
BYR 1,770,000. The amount of the tax depends on the type of entrepreneurial activity and the location at which this activity is conducted. Increasing coefficients up to five may apply depending on the country of origin of the trading stock and the floor space of the sales location. The tax is payable in advance on a monthly basis. Entrepreneurs engaged in sales to legal entities and other private entrepreneurs do not qualify as payers of single tax.
Individual entrepreneurs (other than those qualifying as single taxpayers) may use the simplified taxation regime rather than the general tax system if the revenue generated by them does not exceed the statutory thresholds.
Newly registered entrepreneurs may use simplified taxation immediately after state registration by applying to the tax authorities. The tax is paid monthly or quarterly at a rate of 8% of the total revenue generated in the reporting period. The rate is reduced to 6% if an entrepreneur applies the simplified taxation regime and also pays value-added tax (VAT). Quarterly or monthly reporting applies, depending on frequency of VAT reporting.
Other income. Any other income that is not listed above is included in regular income and taxed at the general tax rate of 12% or at the specific 9% tax rate.
Capital gains. Capital gains are included in the total income of an individual taxpayer. A tax on capital gains is not paid separately. For additional information, see Property tax deductions
Deductions. Belarusian tax law divides tax deductions into the following four categories:
- Standard tax deductions
- Social tax deductions
- Property tax deductions
- Professional tax deductions
Tax residents may claim all of the above deductions in computing their personal income tax liability. Tax nonresidents may claim property tax deductions for expenses actually incurred with respect to purchases and disposals of property only.
Standard tax deductions. In computing tax, each taxpayer may claim the following standard tax deductions:
- Individual deduction equaling BYR 292,000 per month. This deduction is not available to individuals who earn more than BYR 1,766,000 per month.
- A deduction equaling BYR 81,000 per month per each child under 18 or dependent.
- Compensation-related deduction equaling BYR 410,000 per month. The compensation-related deduction is provided to disabled individuals, war veterans and victims of natural disasters.
To claim the second and third standard deductions listed above, appropriate documents must substantiate the deductions.
Standard deductions are provided for each month of a calendar year at the place of primary employment or by the tax authorities on the basis of the annual tax return (declaration) submitted to the tax authorities.
Social tax deductions. Tax residents of Belarus may claim social tax deductions for the total of the following amounts:
- Actually incurred education expenses for the taxpayer, and his or her close relatives (children, spouse, parents, brothers, sisters, grandparents and grandchildren). This deduction is allowed if the expenses are incurred by the taxpayer for a first education (higher or specialized secondary education).
- Actually incurred repayments of loans (including interest due on loans) obtained from banks, local companies or entrepreneurs by a taxpayer to pay for education.
- Up to 48 basic rates (currently, BYR 1,680,000) that is actually spent during the year on insurance under voluntary pension, life or medical insurance agreements. Pension or life insurance agreements must be entered into for a period not less than five years.
Any amounts incurred that are claimed as social tax deductions must be supported by relevant documents.
Property tax deductions. Under the Belarusian tax law, individuals may claim the following property tax deductions:
- Deduction of expenses actually incurred by a taxpayer or any of his or her family members to construct or purchase an apartment or a house located in Belarus as well as for expenses incurred on repayments of loans provided by local and foreign companies or entrepreneurs or by Belarusian banks for this purpose. The deduction is provided only to a taxpayer whose living conditions require improvement. This fact must be confirmed by a local authority based on appropriate documents.
- Deduction of expenses actually incurred and documented for purchases and disposals of property. However, income derived by individuals from sales of property, excluding real estate, cars and securities, is exempt from personal income tax in Belarus. Disposals of real estate (one house, apartment, land plot, garage or similar item) owned by a taxpayer for five years or more and cars owned by a taxpayer for more than one year are not taxable.
The first type of property tax deduction mentioned above is provided to an employed taxpayer based on appropriate documents held by his or her employer at his or her primary work place during the current tax year or on the annual tax return (declaration) submitted to the tax authorities.
The second type of property tax deduction mentioned above is provided to the taxpayer based on the annual tax return submitted to the tax authorities.
Income derived from sales of securities is subject to personal income tax in accordance with special rules established by the Belarusian tax law. In particular, the taxable gain on disposals of stocks equals the difference between the sales proceeds and the documented expenses associated with the purchase, possession, and sale of the stocks.
Gains derived from sales of any properties to close relatives are exempt from tax. Business and professional tax deductions. Individual entrepreneurs and other individuals performing work or services on a contractual basis may deduct associated business expenses in accordance with the Belarusian tax law.
All business-related expenses must be supported by the relevant documents made in the established format. Explicit regulations contain descriptions of deductible and nondeductible expenses. If an individual cannot support business-related expenses with documents, the individual may claim deductible expenses equal to 10% of revenue.
Instead of claiming professional tax deductions based on documented expenses, certain individuals involved in creating intellectual property may claim tax deductions equal to 20%, 30% or 40% (depending on the type of activity) of the income derived.
Entrepreneurs may deduct business expenses in computing the tax for the period in which the expenses are incurred. Professional tax deductions are allowed to taxpayers by the tax authorities when the tax return is submitted at the end of the tax year.
Relief for losses. Business losses of a self-employed person incurred during a year cannot be carried forward.
B. Other taxes
Estate and gift taxes. Belarus does not impose estate and gift taxes.
Net worth tax.
Belarus does not impose net worth tax.
Immovable property tax and land tax. Immovable property tax and land tax are payable by individuals for houses, apartments, certain other properties (for example, garages) and land plots possessed by them. The annual immovable property tax rate payable by an individual is 0.1%. The tax is paid annually on the value of the taxable item at the beginning of the relevant year.
The annual land tax is set at a fixed rate per each 10,000 square meters of a land plot, depending on the cadastral value of a land plot and its size and location.
C. Social security
Contributions and coverage. All payments to employees are generally subject to social security contributions at a rate of 34%. These contributions include payments to social security and pension security. Social security contributions are paid by employers and must be remitted to the Fund of Social Protection of People under the Belarusian Ministry of Labor and Social protection within a day established for salary payments by the employer. The employers’ contribution rates are 28% for pension insurance and 6% for social insurance. Employees also pay pension insurance contributions at a rate of 1% on their gross compensation. This tax is withheld and paid to the Fund of Social Protection of People directly by the employers together with their own social security contributions. Both employer and employee contributions are payable on the gross compensation (salary) of employees. However, the monthly tax base for social security charges is limited (capped) to 4 average salaries in Belarus (equivalent to US$2,000). Accordingly, the effective social security contribution rate for employees earning more than four average monthly salaries is actually lower. In addition, the tax law contains a list of payments to employees that are exempt from social security contributions.
Self-employed individuals and private entrepreneurs must make contributions for pension insurance at a rate of 29% and for social insurance at a rate of 6%. These contributions are payable on their computed income on a quarterly basis. In the event of a lack of income in the reported period, social security contributions must be calculated on the minimum monthly salary applicable for the reported quarter.
In addition to social security contributions, employers must make mandatory payments for insurance against accidents at work and professional diseases to the state insurance company “Belgosstrakh.” A rate of 0.6% applies to all payments to employees.
In general, mandatory insurance contributions are also payable for resident individuals employed by foreign legal entities registered for tax purposes in Belarus.
Totalization agreements. Belarus has entered into agreements regarding social security contributions with the following countries.
Armenia
Moldova
Turkmenistan
Kazakhstan
Russian Federation
Ukraine
Kyrgyzstan
Tajikistan
Uzbekistan
Lithuania
Belarus.
Broadly, the agreements listed above provide that the obligations of foreign individuals with respect to social security contributions are generally governed by the legislation of the country where they are working on the basis of employment contracts.
A self-employed person whose activity is treated as business is required to register as a private entrepreneur with the appropriate registration authority. Private entrepreneurs are generally required to pay personal income tax on their quarterly income.
We have been preparing US income tax returns for US Citizens and permanent residents living in Belasus for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Belasus and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the Belasus tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Belasus Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working in Belasus, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Belasus.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a consultation by phone, skype or email