How can Belarusian companies’ financial situation be stabilized?
The COVID-19 pandemic and related restrictions had a significant negative impact on the economic health of many companies, which made businessmen think about stabilizing of the financial situation in their companies without using loans, credits and other similar instruments.
Currently, many financial instruments available in other states, for example, converting monetary claims into equities (shares), making contributions to the property of a business entity, are not available in Belarus, however, from April 28, 2021, they will become possible due to the changes provided for by Law No. 95-Z “On Amendments to the Laws on the Issues of Business Entities” dated 05.01.2021 (hereinafter – the “Entity” / “Entities”).
Conversion of monetary claims into equities (shares), which is especially relevant in a period of market instability, makes it possible to restructure Entities’ bad debts or to attract financing at the stage of a company setup.
Thus, the monetary claims of shareholders and creditors to the Entity are set off when additional contributions are made to the charter fund (payment for additional equities).
In a JSC, the conversion is carried out through a closed placement of equities among its shareholders and/or creditors, in an LLC – by the unanimous decision of all its shareholders. It should be considered that income (profit) arising from the conversion of the creditor’s/shareholder’s monetary claim into equities (shares) is subject to corporate income tax in accordance with the current Tax Code of Belarus.
Making contributions to the property of a business entity is another mechanism for stabilizing its financial and economic situation.
- Contributions to the Entity’s property are made by its shareholders free of charge at any time.
- Things, money, securities and other property can be contributed as contributions, which do not need to be returned later.
- For gratuitous contributions to the Entity’s property, an agreement is concluded between the shareholder and the Entity.
- Gratuitous contributions do not entail an increase in the Entity’s size of the charter fund or the size of its shareholders’ shares, respectively, there is no risk to exceed the amount of the charter capital over the net assets value, there is no need to make and register the changes to the charter.
From the tax accounting point of view, we are of the opinion that gratuitous contributions to property will be equated to non-operating income in accordance with cl. 3.7. art. 174 of the Tax Code of Belarus; however, the tax authorities’ position on this issue is not yet clear.