In practice, situations arise where a tax resident of the Russian Federation who is registered as an individual entrepreneur owns real estate in Belarus and decides to let it.
This naturally raises the question of where the rental income received by the entrepreneur should be taxed: in the Russian Federation, where the individual entrepreneur is tax resident, or in Belarus, where the real estate is located.
Below, we explain how this issue is addressed.
Income received from sources in Belarus by an individual who is not regarded as a tax resident of Belarus, including a foreign individual entrepreneur, is subject to personal income tax in Belarus. This includes income derived from letting property.
The Agreement between Belarus and the Russian Federation for the Avoidance of Double Taxation (the DTA) applies and governs the procedure for withholding and paying personal income tax.
Under the DTA, income received by a resident of the Russian Federation from real estate situated in Belarus may be taxed in Belarus (Article 6(1) of the DTA). This rule also applies to income derived from letting real estate.
The DTA does not provide any tax relief in respect of rental income earned by a foreign individual entrepreneur. This means that neither a tax exemption nor a reduced tax rate applies. The income is therefore taxed in accordance with the Tax Code of Belarus at a rate of 13% (Article 214(1)(1.1) of the Tax Code).
To avoid paying tax on the same income again in the Russian Federation, the Russian individual entrepreneur must obtain a certificate from the Belarusian tax authority confirming the payment or withholding of personal income tax. On the basis of this certificate, the tax paid in Belarus may be credited against the entrepreneur’s tax liabilities in the Russian Federation.
It is important to understand that this involves a credit for the tax paid, rather than a refund of that tax in Belarus.
However, where the Russian individual entrepreneur pays a tax other than personal income tax, for example, tax under the simplified taxation system, the DTA does not apply to that tax pursuant to Article 2 of the DTA. In such circumstances, double taxation may indeed arise.
If you are planning to let real estate in Belarus or are already receiving rental income, REVERA specialists are ready to assist you in determining your tax obligations, assessing whether the DTA may be applied, and preparing the documents required to ensure proper compliance with the laws of both countries.
