WHAT WILL TAX AUTHORITY REQUIRE TO DECLARE!

Starting from 15 June 2017 the Law of the Republic of Belarus of 09.01.2017 N 16-З "On introduction of amendments and additions to some laws of the Republic of Belarus on declaration of income and property" came into force, introducing changes in the Belarusian Law which from now on will be called «On declaration of income and property by individuals as required by the tax authorities». To learn more about the Law please click here: http://www.pravo.by/upload/docs/op/H11700016_1484341200.pdf.

Analysis of provisions of the Law on declaration shows that:

  • The Law regulates specific reasons why the tax authorities are interested in some or other persons;
  • A number of provisions that regulate the procedure for declaration of income and property by public employees and other persons, including those who are obliged to file the income and property declaration in accordance with articles 28-32 of the Law of the Republic of Belarus "On the Fight against Corruption", as well as unemployed persons, have been excluded from the Law "On declaration of income and property by individuals", thereby specifying the scope of its application;
  • The scope of the Law does not include issues concerning individual income tax calculation and declaration in accordance with Article 16 of the Tax Code of the Republic of Belarus, when a tax declaration is filed by an individual, who incurs a tax liability;
  • This Law regulates relations that occur when individuals declare their income and property only at request of the tax authorities;
  • The Law regulates and specifies the type of individuals who are obliged to file the income and property declaration at request of the tax authorities;
  • TheLaw specifies the effective procedure for declaration of income and property by individuals at request of the tax authorities, including as it relates to the list of incomings not subject to declaration, rights of individuals and tax authorities in the matter of declaration of income and property; determination of peculiarities of control in regard to declaration of income and property by individuals in case an individual fails to file the income and property declaration.

The Law does not address the issues and procedures for protection of information received by the tax authorities about income and property of specific taxpayers, and in this regard it is worth recalling that both Article 15 of the Code of the Republic of Belarus of 07.12.1998 N 218-З (as amended on 09.01.2017) "The Civil Code of the Republic of Belarus", and Article 84 of the Code of the Republic of Belarus of 19.12.2002 N 166-З (as amended on 18.10.2016) "The Tax Code of the Republic of Belarus (General Part)" regulate general principles of the tax authorities’ responsibility for damages caused to payers (other persons liable) through their unlawful decisions, wrongful act (or failure to act), as well as unlawful decisions, wrongful act (or failure to act) of their officials while in the execution of duty. Additionally, in its Ruling dated 27.12.2016 N Р-1078/2016 the Constitutional Court of the Republic of Belarus brought to the special attention of executors of law that «in implementing provisions of the Law on declaration empowering the tax authorities to obtain information about income and property of an individual, it is essential to observe the measures guaranteeing confidentiality and storage of the relevant information, communication security, and protection against third-party unauthorized access or use for improper purposes.».

Analysis of the enacting clause of the Law and other regulations implies that the Ministry for Taxes and Levies of the Republic of Belarus and its Inspections, for one part, and:

  • Citizens of the Republic of Belarus, - in any case and always;
  • Foreign citizens who are permanently resident in the Republic of Belarus, - in any case and always, except as provided by Article 4 of the Law, and unless the international treaty of the Republic of Belarus establishes other rules than those provided for in the Law;
  • Persons without citizenship who are permanently resident in the Republic of Belarus, - in any case and always, except as provided by Article 4 of the Law, and unless the international treaty of the Republic of Belarus establishes other rules than those provided for in the Law,

for the other part, are the participants in relations regulated by the Law.

Allowing for the fact that Article 4 of the Law releases diplomatic and consular staff, as well as staff of international organizations and interstate formations that are not citizens of the Republic of Belarus from the obligation to declare income and property, the Ministry for Taxes and Levies and its Inspections are entitled to request from all Belarusian citizens, as well as foreign citizens and persons without citizenship who are permanently resident in the Republic of Belarus to declare their income and property. We think this refers not to tax residents of Belarus, but to foreign citizens and persons without citizenship who were granted permanent residence permits in Belarus in accordance with the Law of the Republic of Belarus of 4 January 2010 "On legal status of foreign citizens and persons without citizenship in the Republic of Belarus" and the Regulations on procedure for granting foreign citizens and persons without citizenship permanent residence permits in the Republic of Belarus (the Resolution of the Council of Ministers of the Republic of Belarus of 03.02.2006 N 144).

The Ministry for Taxes and Levies and its Inspections has a right to request to declare income and property in accordance with Article 7 of the Law:

  • when there is information that cost of property owned by an individual and his/her expenditures overrun his/her income received from legitimate sources in the amount of at least 250 base amounts;
  • in response to a written enquiry from the bodies of the State Control Committee of the Republic of Belarus, law enforcement agencies, State Security Bodies, agencies of the Procuracy and Investigation Committee of the Republic of Belarus (in connection with administrative procedures, as well as criminal proceedings and pending proceedings);
  • in other cases by the decision of the Minister of Taxes and Levies of the Republic of Belarus and his/her Deputies.

Analysis of the said Article of the Law entitles us to assert that a written request from the tax authority to submit the declaration must be signed only by the head of such tax authority: either by the Minister/Deputy Minister of Taxes and Levies or the Head/Deputy Head of the Inspection of the Ministry for Taxes and Levies.

Your attention is specifically drawn to the fact that the bodies of the State Control Committee of the Republic of Belarus, law enforcement agencies, State Security Bodies, agencies of the Procuracy and Investigation Committee of the Republic of Belarus have no right to send a written request to submit a declaration directly to individuals. The above named authorities have only a right to send a written enquiry to the Ministry for Taxes and Levies and its Inspections signed by the officer with statutory authority, and only the Ministry for Taxes and Levies and its Inspections, in cases provided in paragraph 3, part 1, article 7 of the Law, have a right to request from an individual to submit the income and property declaration.

The following income earned during the declared period is subject to declaration by an individual at the request of the tax authority:

1. from the sources in the Republic of Belarus;

2. from the sources outside the Republic of Belarus;

3. income in the form of loans (except for commercial loans) received during the period preceding the declared period and not repaid as of the date of submission of the income and property declaration. Such income shall be indicated in the amount of the loans received.

In contrast with the income which is reflected for the declared period, i.e. the period specified in the written request, property owned by individuals as of the date of submission of declaration is subject to mandatory declaration.

Such property can be divided into two groups:

1) property that is subject to declaration regardless of its value:

  • real estate units and shares in the ownership right to such units;
  • means of transport (except for mopeds and motor vehicles equivalent to them, bicycles, animal-drawn transport), self-propelled vehicles, marine vessels, inland vessels and combined river-sea navigation vessels, aircrafts and shares in the ownership right to such transportation.

2) property that is subject to declaration when its value exceeds the prescribed by the legislation limits of two thousand base amounts as of the date of its acquisition:

  • shares in the authorized capital of business entities and partnerships, enterprises as asset complexes;
  • all other property.

In accordance with the Law an individual shall submit the declaration within a period of up to 10 business days after receiving the respective requirement. Declaration can be submitted by an individual, his/her representative or sent by mail.

Please notice that the tax authority is known to monitor the timely submission of declarations by individuals. The date of submitting the declaration is considered to be:

  • the date when the declaration is received by the tax authority – when submitting in person or by the authorized representative;
  • the date on which the declaration was mailed – when sending by mail.

If necessary, the tax authority may ask an individual, who is required to submit the declaration, to present documents confirming the completeness and reliability of information reflected in such declaration in order to compare his/her expenditures to his/her income, as well as any explanations from such individual necessary to control his/her compliance with the declaration procedure.

Keep in mind that the tax authority has no right to require from an individual to present the documents that the tax authority must have or can receive by its competence, except for information about credits obtained by an individual from banks, loans from natural and legal persons, including foreign states; income received outside of the Republic of Belarus or from the sources located outside of the Republic of Belarus. Such documents shall be presented to the tax authority by an individual in person or by his/her authorized representative.

It is interesting to note that the Ministry for Taxes and Levies and its Inspections has no right to refuse to accept the declaration submitted by an individual on his/her own initiative and in the prescribed form, and is obliged, at request of an individual, to make a note on a copy of such declaration indicating the date of its acceptance. With that, the tax authority exercises control over compliance with the declaration procedure, including completeness and reliability of information reflected in the declaration, except for control over correspondence between expenditures of an individual and his/her income declared (the Decree of the Ministry for Taxes and Levies of hte Republic of Belarus of 20.11.2003 N 103 (revised 29.04.2016) "On approval of the Instruction on the procedure for organazing the work of tax authorities regarding request, acceptance, check and storage of income and property declarations requested by tax authorities, control over correspondence between expenditures of an individual and his/her income reflected in the income and property declaration"). 

It is important to bear in mind that the tax authority accepts for consideration any information submitted by an individual about his/her income, owned property, as well as any explanations regarding accumulation of funds, also as a result of actions taken by an individual to save previously received funds from inflationary developments and in connection with the monetary reforms and denomination of the Belarusian ruble.

The tax authority has a right to request to submit the declaration for the full calendar year preceding the year in which such request is sent. Moreover, it can also be requested to submit the declaration for full calendar months of the current calendar year preceding the month in which such request is sent.

The period for which the tax authority compares the amounts of expenditures and income of an individual is a full calendar month (several calendar months) of the current calendar year preceding the month in which the tax authority sends an individual a request to submit the income and property declaration, as well as ten full calendar years preceding the year in which such request is sent by the tax authority.

At the same time, where the declared by an individual income, from which expenditures were incurred, was earned during the period of more than ten full calendar years preceding the year in which the tax authority sent an individual its request to submit the income and property declaration, the tax authority compares the amounts of expenditures with the income of such individual also for the period beginning from the year when such income was earned.

When comparing the amounts of expenditures with the income, money to purchase the minimum set of food products and nonfood products and services necessary for health and life support in the amount of the minimum income level for survival is also classified by the tax authority as expenditures.

If the Ministry for Taxes and Levies finds that the expenditures exceed the declared income, or the earned income is not confirmed, the tax authority sends a request for explanations of the sources of such income. The above mentioned request is executed in writing in two copies: one is delivered to an individual by hand against signature or sent by registered mail with return receipt, and the other one is kept in the files of the tax authority.

Explanations must be given by an individual in writing within 30 calendar days from the date when such a request is delivered. Explanations given after expiration of this period are neither accepted nor taken into account by the tax authority. The time limits for giving explanation can be extended for the period of temporary incapacity or period of stay outside the Republic of Belarus, provided that it is confirmed by documents.

If an individual fails to give any explanations of the sources of his/her income duly and punctually as prescribed by the Law, or the given explanations don’t allow to determine the sources of income (to exclude the fact that expenditures were incurred), income of such an individual, calculated taking into account the amounts by which expenditures exceed income, is subject to taxation in accordance with the legislative acts.

In our opinion, when exercising control over correspondence between expenditures of an individual and his/her declared income, the income which was calculated by the tax authority taking into account the amounts by which his/her expenditures exceed his/her income is subject to income taxation at the income tax rates effective as of 31 December of the year for which such excess was detected.

Please consider that when comparing the income earned by an individual to the expenditures he/she incurred, it is only the income amounts received on or before the date when expenditures were incurred that are taken into account. Income earned after the date when expenditures were incurred is not taken into consideration and is recognized as income remained at the disposal of an individual for future expenditures.

QUESTION: Does an individual have a right to submit the amended declaration? – An individual has a right to submit the amended declaration before the tax authority draws up the office tax audit report, and the tax authority is obliged to accept the amended declaration submitted by an individual in case he/she finds that the information reflected in the earlier declaration is incomplete and(or) incorrect.

QUESTION: An individual has confirmed the income in the declared period, but he/she doesn’t know the exact date when this income was earned. What is to be done? – The established practice in applying the law is the following: if an individual doesn’t have and fails to submit to the tax authority documentary proof of the date of income receipt in order to reflect such income amounts in calculations, the date of receipt shall be considered the last day of the calendar year for which such calculations are made. If there is no documentary proof of the date on which expenditures were made in order to reflect such expenditure amounts in calculations, the date of expenditures shall be considered the first day of the calendar year for which such calculations are made.

QUESTION: Does the loans received by an individual really come under taxation for income tax purposes? – According to the provisions of the Law any monetary funds, including loans (except for commercial loans), as well as other property received by an individual from citizens of the Republic of Belarus, foreign citizens, persons without citizenship and organizations (Article 1, paragraph 3) are classified as income.

It should be considered that starting January 1, 2015 the amendments into Article 178 of the Tax Code of the Republic of Belarus came into force providing for some cases when loans and credits received by citizens from other physical persons who are not individual entrepreneurs, or foreign organizations that don’t carry out activities in Belarus through a permanent establishment, or foreign individual entrepreneurs are subject to income tax.

And it is important to know that such loans and credits are taxable only in case when they are to be stated in the income and property declaration submitted by an individual at the request of tax authority, or when they are mentioned in the explanations of the sources of income made at the request of tax authority in the process of checking the requested income and property declarations.

It should be considered that an individual does not need to self-assess income tax on the loans received from Belarusian organizations and individual entrepreneurs, as well as credits granted by Belarusian banks and non-banking financial institutions.

Please also notice that the tax authority does not charge any tax on income in the form of loans or credits if such loans and credits:

  • are received from close relatives: spouses, parents (adoptive parents), children (adopted children), siblings, grandparents, grandchildren, great grandparents, great grandchildren;
  • are received from relatives-in-law: close relatives of the other's spouse, deceased as well;
  • are repaid in full, and the documents confirming repayment of loans or credits are submitted to the tax authority. When loans or credits are repaid partially, tax is charged on the outstanding amount of such loans or credits.

At the same time we think that the above mentioned income is to be stated in the declaration irrespective of whether it is subject to taxation or exempt from taxation in accordance with the legislative act of the republic of Belarus.


QUESTION: The law does not regulate the situation when a written request for submission of the income and property declaration is sent to an individual’s legal residence address, and then such a request is returned because of non-delivery. What happens in this case? – Relying on the Letter of the Ministry for Taxes and Levies of the Republic of Belarus of 06.08.2014 N 3-2-7/2199 the tax authority can cancel its request for submission of the income and property declaration. At the same time, when it is still necessary to request submission of the income and property declaration, the tax authority will keep taking all necessary actions directed at requesting from an individual to submit the declaration (on the ground of a new request with a new deadline for submitting the declaration) and exercising further control over an individual’s compliance with the provisions of the law on declaration of income and property.

QUESTION: How to determine the value of property being declared? – Value of property being declared (including share ownership of property) shall be indicated by an individual in the income and property declaration in the amount actually spent for its acquisition, and in case of permanent structures (buildings, constructions), isolated premises, car parking spaces, incomplete facilities, also when construction (reconstruction) is carried out without involvement of developers or contractors, – in the amount of funds allocated for their construction (reconstruction). If property (including share ownership of property) is inherited, received by an individual free of charge or under transactions that don’t involve any payments, the value of such property (including share ownership of property) shall not be indicated in the income and property declaration.

WE ARE ALWAYS GLAD TO BE OF SERVICE TO YOU!

For more detailed information, please, contact

Managing Partner of Audit Firm UHY BusinessCollegia Mr. Denis Kastsian →kastsian@collegia.by

Managing Partner of Collegia Law Firm Mr. Igor Stukanov → stukanov@collegia.by