December 22, 2017 could go down as a turning point in the history of the Belarusian economy. That day, the country’s president Alexander Lukashenko signed a law “On the Development of a Digital Economy” which introduces thorough changes in the legislation, aiming to liberalize the high tech sector in the country.
A variety of activities are concerned, from IT outsourcing, to startup innovation, to cryptocurrencies, to ICOs. Almost all the regulations of the Law are set to come into force three months after its publication.
The key provisions of the law can be summarized as follows:
- High tech companies, including startups, will receive additional tax benefits and see their international payment operations simplified.
- International investment agreements in this field can be based on English law.
- Cryptocurrency mining and exchange as well as ICOs are being liberalized with zero taxation on mining and trading activity.
“Belarus will become the first government in the world that opens wide opportunities for the use of blockchain technology. We have every chance of becoming a regional center in this area,” Lukashenko said in a statement in his website.
From immediate reactions to long-term effect
The new law has triggered a variety of reactions in IT and investment communities even beyond Belarus. “Congratulations! A giant step for humanity!,” commented Alexander Borodich, a Russian VC operating internationally, in Facebook.
“We can only be jealous of how quickly issues are resolved in Belarus,” wrote Olga Pascal from Moldova.
Yonatan Brender, managing partner of the Israeli Fund Atooro, was quoted as saying: “This legislation solves the biggest problem faced by the IT community in Belarus: the lack of adequate legal instruments for foreign venture funds to invest in the country. The law is fully aligned with international norms. It will make Belarus a regional hub in the field of technology – which is much more than just outsourcing.”
Dmitry Smirnov, who heads Flint Capital, a fund with Russian roots operating internationally, said: “If special conditions for venture companies in Belarus will be established, we’ll consider opening a representative office in Minsk. All that we see in Hong Kong, Singapore and other high-tech development centers can be achieved and become available in Belarus. This country has an important IT potential with a shift from the outsourcing model towards product development.”
Time will tell how this law will be applied and its actual impact on the tech sector. “Much will depend on how the international community will react, and whether or not the Belarusian authorities will be able to build a trusting relationship with businesses,” said Viktor Prokopenya, one of the businessmen who lobbied the law, to the Belarusian media.
Belarus also needs to raise its education standards in the field of technologies in order to fully realize its potential, believes Prokopenya. In a hint to the challenge of building a modern economy in an authoritarian state, the businessman also called to “develop dialogue, criticism and the variety of opinions in Belarus.”
Regional impact
Belarus’s move is being followed closely in neighboring countries, which also need to address the challenges of the globalized tech market and to regulate such new practices as ICOs.
“The new Belarusian legislation has already triggered active discussions within our administration, it may become a point of reference for us, if not a source of inspiration,” a Russian official told East-West Digital News.
The new Belarusian law might also create new challenges to countries like Russia or Ukraine, should their own IT companies decide to move their head office to Belarus or even relocate there entire teams to benefit from Lukashenko’s IT-friendly legislation.
KEY PROVISIONS OF THE BELARUSIAN LAW “ON THE DEVELOPMENT OF A DIGITAL ECONOMY”
I. Favorable conditions for IT companies
The law creates unprecedented conditions for resident companies of High-Tech Park (HTP), the state-back tech park launched in Minsk in 2005, whose special legal status is being extended until January 2049.
HTP residency is now open to software development and IT businesses specializing in the following activities (the list is not exhaustive):
- Design, development, support, sale, maintenance of software and (or) firmware based on or using the Blockchain and distributed database;
- Mining, cryptocurrencies exchange activity, cryptocurrency converter activity, other activity using token;
- Neural networks and other algorithms in Artificial Intelligence;
- Unmanned vehicle driving systems;
- Medical technologies and biotechnologies;
- Cybersport activity;
- Software publishing and promotion;
- Business processes outsourcing.
2. New tax benefits are being introduced as part of the HTP’s special legal status. Specific additional benefits aim to stimulate IT product development. Foreign entities will enjoy a 0% income tax rate.
3. HTP residents’ activities will be simplified. In particular, companies will be able to open and use accounts in foreign banks without the authorities’ permission, while most restrictions to electronic money operations are being lifted.
4. International investment deals involving HTP residents can be made according to English Law. This concerns, in particular:
- Agreements on granting right of first refusal to execute contracts;
- Convertible loan agreements;
- Property loss indemnity agreements;
- Agreements on liability for labor pirating;
- Non-compete agreements with employees;
- Agreements to issue irrevocable powers of attorney
II. Cryptocurrencies and tokens are put in circulation in Belarus.
The authorities claim they are creating “an unprecedented regulatory environment for the circulation of cryptocurrencies and tokens.”The law defines the rights of physical and legal entities in terms of token circulation. Legal entities are entitled to possess tokens, create and list their own tokens through HTP residents, buy and exchange tokens, and perform other operations using tokens only through cryptocurrency exchanges and cryptocurrency exchange operators.
As for individuals, not only are they allowed to perform cryptocurrency mining and possess ICO tokens. They can also exchange tokens, buy and sell them for Belarusian rubles, foreign currency and other electronic currencies.
Even more striking is the cancellation of any taxation in the field of mining and token trading operations. These will not be considered as entrepreneurial activity, and the revenues they will generate will not be subject to declaration by individuals. Turnovers, profits (income, proceeds) from various operations with tokens will not be taxable until January 2023.
For more information: http://goo.gl/xBAZrp
