Belarus. A. Definitions and sources of data

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1 Belarus A. Definitions and sources of data Data on foreign direct investment (FDI) in Belarus are reported by the National Bank of Belarus (NBB). Since the country s independence in July 1991, Belarus, which was formerly considered to be relatively prosperous, experienced economic difficulties and registered declines in several branches. The introduction of market economic principles was shifted to socially oriented economic policy, and moves towards economic co-operation with the Russian Federation were envisaged. Despite the 1998 Russian economic crisis, GDP continued to expand, although the standard of living in Belarus declined, with consumer prices rising (should be excluded, while they do not reflect the real economic situation of that time). However, limited privatization and difficulties in implementing significant structural economic reforms led to the redenomination of a readjusted Belarusian rouble, equivalent to 1,000 new Belarusian roubles (introduced in August 1994), over a three-year period, in 1 January The NBB has now liberalized some segments of the foreign exchange currency market and pledged to converge the multiple exchange rates of the local currency into a single one by late Foreign investors are welcome in the country, and are given the same rights as local investors. Foreign investors are entitled to certain tax and customs benefits at the initial stage of business. Land is available on long-term lease up to 99 years and could be sold to foreigners in case of important investment project implementation. Most foreign investment in Belarus has taken the form of a joint venture with a local Belarusian company. Foreign investment enterprises are defined as businesses with foreign participation that is at least 30 per cent of total equity capital. Foreign nationals are allowed to take part in the privatization process. Investments through acquisitions, mergers and takeovers are not governed by any specific law in the country. Those wishing to invest in banking and in insurance should not exceed 49 per cent of the equity capital. Considering that the former registration procedure was too liberal and accorded much freedom, the Government issued the Edict No. 11 on 16 March 1999 establishing stringent rules for all businesses. Local authorities may bar an applicant from doing certain business, unless (s)he has secured clearances from the Ministry of Economy. Personal liability may be imposed on the founders / owners of insolvent limited liability business, if a financial court finds them guilty for their bankruptcy. Registration licence may be denied to investors having previous records of non-compliance with the tax authorities or overdue payments. Commercial currency transactions have to be made through the Belarusian Currency Exchange. The closure of a business with foreign investment requires the approval of a court. Currently, the Government is working an appeal procedure of registration. This would make it easier to register a business in Belarus. In an attempt to improve the business climate, there are six free economic zones in Belarus ("Brest", "Minsk", "Gomel-Raton", "Vitebsk", "Mogilev" and "Grodno-invest"). Besides its favourable geographic position, developed infrastructure, and diversified industrial profile, access to FEZs is possible for businesses with foreign investment. Tax and customs incentives available include: (a) exemption from the 15 per cent corporate tax levied on income derived from the sale of products and services during an initial 5-year period of business, (b) no VAT (currently set up to 20 per cent) is imposed, and (c) customs-free tariffs are allowed when importing to or exporting from an FEZ. Goods manufactured or transformed in the zone may also be sold on the local market or to any country of the Customs Union (Belarus, Kazakhstan, Kyrgyzstan, Russian Federation and Tajikistan), after payment of customs tariffs that depend on the country of origin of imported items. Protection against expropriation is available.

2 B. Statistics on FDI and the operations of TNCs

3 Table 1. Summary of FDI (Millions of dollars) Variable Inward Outward 1. FDI flows, (annual average) FDI flows as a percentage of GFCF, (annual average) 3. FDI stocks, 2000 a 1, FDI stocks as a percentage of GDP.... Sources : Based on table 3; UNCTAD, FDI/TNC database. a as of 1 July 2002.

4 Table 3. FDI flows, by type of investment, (Millions of dollars) Inward investment Outward investment Intra- Intra- Reinvested company Reinvested company Year Equity earnings loans Total Equity earnings loans Total Source : International Monetary Fund, September 2002 Balance of Payments CD ROM.

5 Table 86 : Largest home-based TNCs, 1999 Company Industry Sales A. Industrial MAZ Motor vehicles.. B. Tertiary Cargoexpress Nedelchev Dimitrov OOD Transport.. C. Finance and Insurance Assets Source : Dun & Bradstreet Ltd., Who Owns Whom, CD-ROM, United Kingdom, April 2001.

6 Table 88 : Largest affiliates of foreign TNCs in the host economy, 1999 Company Home economy Industry Sales A. Industrial Lukoil-Belarussia Russian Federation Petroleum.. Slavneft-start Russian Federation Petroleum.. Itera PET Russian Federation Petroleum.. Beltransgaz Russian Federation Gas.. Spartak United States Food.. Belvest Germany Shoes.. Belpak United States Chemistry.. Evimar Germany Shoes.. Mogilev Metallurgy Plant United States Metal.. Santa Impex Brest Germany Food.. Le Grand United Kingdom Shoes.. Otiko Germany Shoes.. Krovlia United Kingdom Non-metallic mineral products.. Belyevrobud Sp. OOO Germany Non-metallic mineral products.. Coca-Cola Beverages Belarus United States Beverages.. MAZ-MAN Germany/Russian Federation Motor vehicles.. Neokton Inostrannoye Predpryatye Ireland Wood.. ZAO Rautaruukki Belrotor Finland Basic metals.. Frebor Germany Medical equipment.. B. Tertiary Mobile Digital Communication United States Communication.. Belsel Netherlands Communication.. Belcaf Sp Germany Other services.. Kuehne & Nagel Ag Switzerland Diversified.. M&M Militzer & Muench Belarus IP Switzerland Transport.. TSW 2 Inostrannoye Predpriyatiye Netherlands Transport.. C. Finance and Insurance Source : Dun & Bradstreet Ltd., Who Owns Whom, CD-ROM, United Kingdom, April 2001 and National Bank of Belarus, unpublished data.

7 C. Legal framework for FDI 1. National policy framework Belarus officially welcomes FDI as an important source of hard currency and economic growth. It seeks to encourage foreign investors. The Belarusian Government is working to create an environment conducive for foreign investors. In May 2002 the Belarusian Government approved the National Program on Investment Attraction. It plans to decrease the number of licensed businesses and to introduce an application-based order of registration. It intends to improve its system of privatization. There is also a plan to develop a stock exchange market and a higher responsibility of officials for decisions harmful for foreign investment. Foreign enterprises are legally protected from any subsequent change in laws for a period of five years from the date of registration. The Government established Consultant Council on Foreign Investment, comprising representatives of different administrative bodies, international organizations (UNDP, IFC) and foreign investors active in its market. Foreign investors, participating in the working groups, offer suggestions to the Government on current issues concerning business environment. The Government exercises control over financial and economic activities of enterprises with foreign investment. The legal framework for investment is set up by the relevant legislations: Investment Code of 2001, Land Code of 2000 and Presidential Decree of As of October 2002, the main features of the national FDI regime included the following: Admission and establishment: As a matter of law, foreign investors may freely establish and engage in any form of investment activities. However, approval or special authorization is required for investment in fields such as defense and security, manufacturing and sale of narcotic, explosive and toxic substances and into the assets of legal entities that occupy a monopoly position. A foreign investment may take a form of joint venture enterprise or foreign enterprise. Joint venture enterprise is owned jointly with Belarus national(s). Foreign enterprise is wholly foreign owned. A foreign investor may register a new enterprise, or acquire an enterprise s assets in whole or in part. He may also receive interest (shares) in an existing legal entity that did not previously have foreign investment. If a foreign investor decides to acquire an enterprise s assets in whole or in part, the acquired enterprise must be reorganized as legally required and be registered afresh. Foreign enterprises may be organized in the form of limited liability companies, additional liability companies, open joint stock companies, closed joint stock companies, or private foreign companies (private foreign unitary enterprises). Joint ventures can be established in the form of limited liability companies, additional liability companies, open joint stock companies and closed joint stock companies. Establishment of subsidiaries and representative offices is permitted. All businesses are required to register. Registration of a foreign enterprise may be denied if the applicant is also an owner/founder of some other business, which owes payments to the central and/or local budget, or has overdue wage payments. Belarus respects foreign investor s freedom to choose his own form of business organization. Nevertheless, the authorities are empowered to require the establishment of a company with additional liability of founders/owners, if a company intends to engage in a more risky business as, for example, gambling, equity market, pawn-shop, insurance and banking activities and if one of the founders/owners of a business under registration has violated tax regulations more than once within twelve months preceding registration. Ownership and control: Ownership rights are legally guaranteed. Foreigners are allowed to have a business enterprise, wholly or partially owned. Foreign investment in banking, insurance, and stock exchanges is restricted to a maximum of 49 per cent. Under special circumstances the Belarusian legislation provides the right to introduce so-called golden share, when ownership of single share

8 empowers the governmental representative to veto major decisions. However, this right has never been applied to enterprises with foreign investment. Besides, recently the Belarusian Parliament has been considering a legislative act draft, which would limit the sphere of golden share right usage only within the process of joint stock company registration, but not afterwards. The government exercises control over financial and economic activities of enterprises with foreign investment. Enterprises with foreign investment are obliged by law to submit to the authorized bodies reports and documents on their activities. The National Bank is entrusted with controlling the activities of the banks with participation of foreign investors. Operational conditions: No explicit performance or local requirements is imposed on foreign investors. However, certain incentives are conditioned upon specific performance. For instance, earning of revenue from selling goods or services produced by a company with foreign participation of more than 30 per cent in the country, gives the right to a three-year (from the moment of its profit declaration) period tax exemption, including the first profitable year. Production of goods with extreme importance for the country gives the right to fifty per cent profit tax reduction for a period of another three years. A company can be liquidated through a legal mechanism in case of violation of Belarusian legislation or in accordance with the decision of its founders. Foreign exchange controls: All commercial currency transactions are required to be made through the official Belarusian currency exchange. Remittance of earnings, loan repayments may be transferred freely, once tax obligations are met. Incentives: Foreign investors are entitled to certain tax benefits at the initial stage of their business activities. Business with foreign participation of more than 30 per cent is entitled to customs and tax privileges. Equipment imported as a part of charter capital of the joint or foreign enterprise is also free from customs payments and value-added tax. A foreign investor who applies new and high technologies may be granted exemption from taxes and customs duties and reduction of rates of profit taxes and on the added value for the period of 5 years. Profits of enterprises are subjected to the tax rate of 24 per cent. Incomes from lotteries are subjected to 8 per cent tax rate. A tax rate of 15 per cent is imposed on incomes obtained by enterprises from their own shares, bonds and other securities; from their shared participation in joint ventures with the participation of foreign legal persons and nationals as well as in joint ventures without the participation of a foreign capital. A fixed tax rate, approved by the Council of Ministers (Resolution of the Council of Ministers of the Republic of Belarus 1372 of 17 September 2001), is imposed on incomes from casinos, video-halls, gambling, slot-machines with money winnings, prizewinning, attractions, mass concerts and shows (performances) and other events (except sport events) at open grounds, stadiums and indoors. 2. International framework a. Multilateral and regional instruments Belarus is a party to the following multilateral and regional instruments: Paris Convention for the Protection of Industrial Property of 20 March 1883, as amended and revised; the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958; the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 18 March 1965, 10 July 1992, effective; 9 August 1992; the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, adopted on 16 November 1977; the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices, adopted on 5 December 1980 by the General Assembly of the United Nations (resolution 35/63); the Convention Establishing the Multilateral Investment Guarantee Agency of 11 October 1985, signed on 13 August 1992, effective since 3 December 1992; the Energy Charter Treaty of 17 December 1994, signed on 17 December 1994; the CIS Agreement on Cooperation in the Sphere of Investment Activity, signed on 24 December 1993, effective since 21 November 1994; the CIS Convention on Protection of Investor's

9 Rights, signed on 28 March 1997, effective since 21 January It also enjoys an observatory status at the WTO. The Decree of the President of the Republic of Belarus dated 10 April 2002 approved the Programme of Improving of Legislation of the Republic of Belarus. This Programme stipulates the bringing of Belarusian legal acts in line with requirements of multilateral agreements of the WTO. b. Bilateral treaties 1. Bilateral investment treaties for the protection and promotion of investments: Finland 1992, Poland 1992, Viet Nam 1992, China 1993, France 1993, Germany 1993, Switzerland 1993, Sweden 1994, United Kingdom 1994, United States 1994, Islamic Republic of Iran 1995, Italy 1995, Netherlands 1995, Romania 1995, Turkey 1995, Ukraine 1995, Bulgaria 1996, Czech Republic 1996, Serbia and Montenegro 1996, Egypt 1997, Korea, Republic of 1997, Pakistan 1997, Cyprus 1998, Latvia 1998, Syria 1998, Tajikistan 1998, Kyrgyzstan 1999, Lithuania 1999, Moldova, Republic of 1999, Cuba 2000, Israel 2000, Libya 2000, Singapore 2000, United Arab Emirates 2000, Armenia 2001, Austria 2001, Croatia 2001, Kuwait 2001, Lebanon 2001, The former Yugoslav Republic of Macedonia 2001, Mongolia 2001, Qatar 2001, Bahrain 2002 and Belgium-Luxemburg Bilateral treaties for the avoidance of double taxation: Poland 1994, Sweden 1994, China 1995, Latvia 1995, Lithuania 1995, Ukraine 1995, Moldova 1996, India 1997, Kazakhstan 1997, Netherlands 1997, Russia 1997, Uzbekistan 1997, Vietnam 1997, Belgium 1998, Bulgaria 1998, Estonia 1998, Kyrgyz Stan 1998, Romania 1998, Turkey 1998, Czech Republic 1998, Serbia and Montenegro 1998, Egypt 1999, Cyprus 1999, Tajikistan 1999, Switzerland 1999, Slovakia 2000, Armenia 2001, Iran 2001, United Arab Emirates 2001, Austria 2002, Syria 2002.

10 D. Sources of information 1. Official Belarusian Foreign Investment Promotion Agency Ministry of Economy Ministry of Entrepreneurship and Investments Ministry of State Property Management and Privatization National Bank of Belarus 2. Secondary 1. Business Information Service for the Newly Independent States, Country commercial guide to Belarus, FY 2000 ( 2. Country Monitor, Belarus, Lithuania, Country Monitor, New York, 25 March Davidson, Helen, Russia fall-out: Central Europe under a cloud Central European, Vol. 8, October 1998, pp Euromoney, Eastern Europe: reshaping the future, Euromoney, No. 348, April 1998, pp Europa World Yearbook 2000, Belarus, Vol. I, 41 edition (London, Europa Publications Ltd., 2000), pp Filatotchev, I., M. Wright, T. Buck and V. Zhukov, Corporate entrepreneurs and privatized firms in Russia, Ukraine and Belarus, Journal of Business Venturing, New York, September Kim, Theodore, Living with an image problem, Euromoney, London, September Manenok, Tatiana, Belarusian economy, a realistic investment outlook ( 9. Ministry of State Property Management and Privatization ( 10. Swain, Adam, Globalization, institutions, foreign investment and the reintegration of East and Central Europe and the former Soviet Union with the world economy, Regional Studies, Cambridge, Vol. 32, October 1998, pp