Free economic zones in Belarus

Free economic zones (FEZ) exist in the Republic of Belarus with the aim of improving the operation of industries using modern technologies, as well as expanding the number of jobs and the volume of exported goods. There are preferential legal, tax and other operating modes for FEZ. The most common types of activity of FEZ residents are: trade, work in the field of real estate transactions, automotive activities, research and technical work.

What is a free economic zone?

A free economic zone is a separate site within the borders of the Republic of Belarus, which is characterized by special loyal conditions for production activities.

Loyal conditions mean a special tax regime, customs preferences, and more.

As a rule, such an economic zone is created temporarily, for the period necessary to achieve the set goals.

Free economic zones in Belarus

FEZs began to appear in the Republic of Belarus in 1996. At the moment there are 6 SEZs:

• • Brest,
• • Gomel-Raton,
• • Minsk,
• • Vitebsk,
• • Mogilev,
• • Grodnoinvest.

Reasons for creating a SEZ

The main reasons for the creation of a SEZ include:

• Lack of foreign investment;
• An attempt to integrate the local economy with the world system;
• Awakening the interest of foreign investors in entering the Belarusian market;
• The desire for export with a lack of natural resources, but the presence of a strong processing industry and high-quality employment;
• An attempt to solve the problem of a specific location.

Obtaining the status of a FEZ resident

Requirements for obtaining FEZ resident status

Only Belarusian legal entities or individual entrepreneurs, whose addresses are registered in the territory of the FEZ, and who have signed an agreement on the conditions of activity with the administration of the corresponding zone, can become residents of the zone under discussion.

Activities in the FEZ

The most common types of activities on the territory of the FEZ are:

• Modern production aimed at producing profitable products for export;
• Creation of building materials;
• Waste recycling;
• Fuel industry;
• Work with electrical goods and radio equipment;
• Creation of medical equipment;
• Agriculture;
• Mechanical engineering and so on.

The procedure for registration of FEZ residents

Company creation

As it was mentioned earlier, only a legal entity or an individual entrepreneur can become a FEZ resident. The location of such a company must correspond to the boundaries of the FEZ. Such registration on the territory of the FEZ is carried out by the administration of the FEZ itself.

Investment project preparation

One of the main documents required for registration of a resident is an investment project.

The following requirements are imposed on it:

• The minimum investment amount is 1 million euros, except for cases when the contribution is made within 3 years, in which case, the investment volume is 500 thousand euros;
• Export or import substitution focus.

Registration as a FEZ resident

Registration is carried out by the administration of the FEZ, for this a package of documents is submitted there, including:

• Application of the established form;
• Copies of charter documents and certificate of state registration (with demonstration of originals);
• Investment project;
• Proof of payment of the state fee.

After that, an agreement on the conditions of activity is signed with the resident.

If all procedures are completed correctly, then the FEZ administration issues a certificate of registration as a FEZ resident to the legal entity.

Termination of the activity of residents of the FEZ

The existence of a legal entity, as a resident of the FEZ, ceases if:

• Legal liquidation of the economic zone or the resident himself;
• Exit from the zone of the plot of the territory in which the corresponding person is registered;
• Reorganization of a resident;
• Change of place of registration (outside the economic zone);
• The end of the contract signed with the administration;
• Adoption of such a decision by the FEZ administration (due to the desire of the resident, violation by the resident of the requirements of the contract, failure to comply with the time of formation of the statutory fund).

Legal regime of activity of FEZ residents

Activities withdrawn from the legal regime of FEZ

Certain types of activities were removed from the list of possible ones for obtaining the legal status of the FEZ, in particular:

• Public catering;
• Activities related to gambling;
• Trade and procurement;
• Activities related to securities;
• Turnover of goods that fully or partially use the fixed assets of a resident of an economic zone outside its territory;
• Activities of banks, non-bank financial and insurance organizations.

Special tax regime

Income tax

The income tax rate has been reduced by half of the usual rate, taking into account the nature of the business, but not more than 12%.

VAT tax

VAT is 10%, subject to the sale of import-substituting goods in the Republic of Belarus, produced by a resident on the territory of the FEZ.

Land taxes

Do not pay land tax and rent for land plots:

• During the drafting and construction of buildings, but not more than five years from the date of registration by the administration of the relevant resident of the economic zone;
• Not taking into account the scope of their use (subject to the sale of goods for export and (or) other participants in the FEZ).

Property tax

FEZ residents do not pay real estate tax for 3 years from the date of registration of the person as a FEZ resident. This preference does not apply to rented property.

Activities prohibited for FEZ residents

The following activities are prohibited for FEZ residents:

• Activities related to weapons and ammunition;
• Work with radioactive and other hazardous materials;
• Sale of drugs or other psychotropic substances;
• Sowing crops containing poison;
• Creation of alcohol, except champagne, grape wines and beer;
• Creation of tobacco products;
• Activities with securities, production of money, coins, stamps;
• Lotteries;
• Broadcasting radio or television programs;
• Treatment of people or animals that pose a danger to the population by their disease;
• Work aimed at employing people.

Benefits and preferences of FEZ residents

In addition to the already mentioned tax advantages, residents of the FEZ do not pay the state duty for issuing special permits to foreigners and stateless persons to work in the Republic of Belarus.

Another significant advantage of the SEZ is compensation for the costs of creating engineering and automotive infrastructure, which is needed to implement the investment project of the FEZ participant, primarily at the expense of the funds determined for this purpose in the State Investment Program and local budgets, provided that the FEZ participant implements an investment project with a fixed investment volume of over 10 million euros.

Customs benefits for FEZ residents

FEZ resident status makes it possible not to pay customs fees for:

• Import into the free customs zone of materials for construction, other equipment, raw materials and other components for the implementation of the investment project;
• Export abroad of the EAEU of foreign goods subject to customs registration under the customs procedure of a free customs zone, in an unchanged state, as well as goods created with the help of foreign raw materials.
• VAT required by customs when exporting goods to the customs territory of the EAEU, created with the help of foreign products that fall under the customs registration of a free customs zone.

Legislative regulation of FEZ

The most significant legal act regulating the activities of FEZs is the Law of the Republic of Belarus “On Free Economic Zones”.

There are also many Resolutions of the Council of Ministers and Decrees of the President that regulate certain aspects of the existence of FEZs. Some legal acts are general for all zones, and some for each in particular.

State guarantees for FEZ residents

Money transfer guarantees of foreign investors

The legislator of the Republic of Belarus provides for the free movement of profits or other legally received funds (through investments) of foreign investors abroad. This rule is valid provided that the investor pays for all tax and customs obligations.

Guarantees against expropriation

The Republic of Belarus guarantees a ban on the gratuitous alienation of property that is investment or created through investment.

Nationalization is allowed only out of social necessity and with absolute compensation for damages.

Requisition can be applied in case of cataclysms, accidents, epidemics and so on, with payment of the price of the requisitioned property.

Photo: grodnoinvest.by