M&A in Belarus. A market in the making

An Expert's View about Business Administration in Belarus

Last updated: 9 Jun 2011

The M&A market in Belarus is in the making at present. However, in recent years the M&A activity has become more intense in such areas as banking, telecommunication, insurance and other sectors, mainly due to the heightened interest in Belarusian economy and constant liberalization of business regulations.

Types of M&A transactions

The structure of M&A transactions depends on the legal form of the target and bidder. Different paths will be followed in respect of open joint stock companies (public companies), close joint stock companies (private companies), unitary enterprises or state-owned companies. M&A transactions can be accomplished in the form of:

• reorganisation;

• acquisition of shares;

• acquisition of assets.


Under the legislation of the Republic of Belarus reorganisation may be effected through merger, accession, separation or spin-off. It is worth mentioning that as opposed to western takeover regulations, in the case of reorganisation of a legal entity through a merger at least one legal entity involved in the merger ceases to exist under the Belarusian legislation.

In the case of separation a legal entity is split into two or more new legal entities which become successors to the rights and obligations of the original entity which ceases to exist.

In case of spin-off one or more legal entities are split off from the original legal entity, and certain rights and obligations of the original legal entity, which continues to exist, are transferred to legal entities so split.

Acquisition of Shares

Acquisition of shares is the most commonly used form of M&A in Belarus.

The acquisition of shares in open joint stock companies, as a rule, is effected only via the stock exchange, with certain exceptions. The acquisition of shares in close joint stock companies may be effected over the counter by an off-exchange mechanism, however, subject to obligatory registration with the trader (stock broker). The transfer of title to the shares in all cases must be registered with a depositary.

Acquisition of participatory interests in limited liability companies and additional liability companies are usually concluded in writing without any special registration. Notarization of such transactions might be required in certain cases.

The purchase of a unitary enterprise is usually accomplished by way of acquisition of such enterprise as a single property complex, which can be rather complicated.

Acquisition of Assets

Acquisition of assets has a number of features. The purchaser can either purchase certain assets owned by the vendor without acquiring a legal entity or can purchase the whole business by means of acquisition of a target company as a single property complex.

The property complex is qualified as a special type of real estate and for that reason the assets acquisition transaction is required to be registered with the State Registry of Immovable Property.


The Labour Code implements the main principles of the employees’ protection during M&A proceedings. According to it the acquisition of shares is not likely to affect the employment relations. In the case of change of ownership or reorganisation of a legal entity the employment relationship cannot be terminated without the consent of the employees. In the case of change of ownership of a legal entity the employment relationship with CEO, deputies CEO and CFO can be terminated by the new owner without their consent but subject to a severance pay in the amount of not less than three-month average salary.


Taxation aspects in relation to M&A transactions are regulated by the Tax Code of the Republic of Belarus. If an M&A transaction is a cross-border deal, a double taxation treaty will be applied, if relevant. The Republic of Belarus has double taxation treaties with 65 countries.

The rates of withholding tax, profit tax of legal entities-residents and income tax of natural persons-residents are set at 12 per cent. The costs of acquisition of shares and share capital contributions are tax-deductible. If the seller of shares is a non-resident, the provisions of the respective double taxation treaty will be applied.

The sale of property, as a single property complex, leads to the obligation of the seller to pay not only profit tax at the rate of 24 per cent for residents and at the rate of 15 per cent for non-residents, but also a VAT tax at the rate of 20 per cent. 

It is worth mentioning that certain double taxation treaties stipulate that a transaction with shares of a legal entity whose assets mainly consists of immovable property might entail the same tax consequences as in transactions with immovable property of such legal entity.


In some cases M&A transactions require prior consent of anti-monopoly authorities (it concerns mostly companies having a dominant position on the market). Acquisition of assets does not usually fall within the scope of anti-monopoly control, except when a legal entity is being acquired as a property complex.

Special Regulation

M&A in Banking Sector

The threshold for foreign capital participation in the banking sector of the Republic of Belarus is restricted to 50 per cent. To that end, Belarusian banks with foreign participation are firstly required to obtain consent from the National Bank of the Republic of Belarus for:

• each sale of shares to foreign investors;

 • increase in the share capital financed by foreign investors.

M&A in Insurance Sector

The threshold for foreign participation in the share capital of insurance companies is restricted to 30 per cent.

Prior consent of the Ministry of Finance of the Republic of Belarus is always required to be firstly obtained by Belarusian insurance companies in cases of:

• increase in the share capital financed by foreign investors and/or their subsidiaries;

• sale of shares to foreign investors or to their subsidiaries;

• establishment of affiliates on the territory of the Republic of Belarus by the subsidiaries of foreign companies holding more than 49 per cent of shares in such subsidiaries;

 • participation (in the capacity of an incorporator or shareholder) of the subsidiaries of foreign companies, holding more than 49 per cent of shares in such subsidiaries, in other Belarusian insurance companies.


A considerably high level of acquisition of state-owned companies and property is one of the most distinctive features of M&A transactions in Belarus.

Co-operation with the investors in the process of privatisation can be realized through:

• incorporation of an open joint stock company by transformation (reorganisation) of a state-owned enterprise with the participation of an investor;

• sale of a state-owned enterprise as a property complex and sale of holdings of shares by conducting an auction or a competition;

• direct sale of shares to investors.

The choice of an investor as a founder of an open joint stock company is made on competition basis. If there is only one potential investor, the decision is made by direct negotiations.

Overview of M&A market in Belarus

The most significant privatisation deal was carried out in 2010 when the Swiss watch company Franck Muller acquired a 52% stake in the Minsk watch plant Luch. Noteworthy that M&A transactions are mostly conducted in the telecommunications and banking sectors.

The Belarusian M&A activity is affected to a great extent by the delay in privatisation and slow stock market development. It should be mentioned that with effect from 2011 the moratorium on the turnover of joint stock companies shares, declared in the process of preferential privatisation of state enterprises, has been lifted. However, meat-processing and milk-processing factories are still kept under state control, which poses a serious obstacle for private business to consolidate assets and to provide conditions for strategic investors. Moreover, non-transparency of transactions prevents the M&A activity from its further development in Belarus.

The article was published first in IFLR Guide 2011 Merger & Acquisitions

Authors: Darya Zhuk, Vitaly Kachelya

Source: www.glimstedt.by


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Posted: 07 June 2011, last updated 9 June 2011

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