Transition from Individual Entrepreneur (IE) to Limited Liability Company (LLC)

* Prices are indicated without mandatory additional expenses: seal production, notarization of powers of attorney, electronic signature (E-signature), etc.

Earlier, we compiled a top-5 list of changes that occurred since the beginning of 2023, in favor of transitioning from individual entrepreneurship (IE) to a legal entity. However, judging by the fact that you have navigated to this page, the question remains relevant.

In October 2024, the Law on Amendments to Legislation Regarding Entrepreneurial Activities will come into force. You are reading it and trying to understand:

• Is it still possible to operate as an individual entrepreneur (IE)?
• Is it necessary to register a legal entity, and which type (LLC, joint-stock company, private enterprise)?
• What documents are needed and what should be done with them?
• How does a legal entity work, and what is the difference from an IE?
• What else should you know to avoid fines, activity bans, and other issues?

To avoid being caught in a situation of a ban on business activities, running to authorities on the last day, and standing in endless lines for re-registration with other entrepreneurs, we suggest you prepare in advance.

To avoid being caught in a situation of a ban on business activities, running to authorities on the last day, and standing in endless lines for re-registration with other entrepreneurs, we suggest you prepare in advance.

Before re-registration:

1. Notify employees (if any).

At least one month before the transition to a legal entity, you must notify employees with an offer to extend or terminate their contracts.
After re-registration, employees must be re-registered.

2. Notify creditors (if any).

An individual entrepreneur must notify creditors in writing about their decision to transition to a legal entity.

* There is no indication that creditors have the right to demand early repayment of obligations.

* The automatic liquidation of an IE after re-registration does not release it from further claims from creditors.

3. Prepare a transfer act.

A transfer act must be prepared between the IE and the legal entity, listing all the assets and documents of the IE.
* The obligations of the IE will transfer to the legal entity regardless of whether they are included in the act.

4. Choose the form of ownership.

The draft law does not specify which forms of legal entities IEs can create. This means you can choose any form: LLC, ODO, joint-stock company, private enterprise (PE), agricultural cooperative, etc.
* No state duty will be charged for the transition!

5. Develop the charter (with the help of a lawyer).

6. File a declaration with the tax authority (with the help of an accountant).

7. Choose a unique name for the organization and register it.

8. Determine the location of the legal entity (legal address).

Immediately after re-registration:

1. Sign a lease agreement for the legal address.

The legal entity must have a legal address. There are two options:

• a. Use a residential premises. Important: You must obtain the consent of all property owners. Utility payments are planned to remain at the same tariff.
• b. Rent an office and sign a lease agreement.

2. Re-register or open a current account in a suitable bank.

3. Obtain or replace the digital signature (if necessary).

4. Start operating as a legal entity.

This means:

• Signing an employment contract with the director and paying salaries + taxes monthly.
• Submitting all required reports.
• Receiving profits as dividends (with tax payment and following the appropriate procedure).
• Renegotiating contracts with suppliers, contractors, etc.

5. Re-register the cash register (if used).

The current register can be used for up to 11 months after transitioning to a legal entity, notifying the RUE "Information and Publishing Center for Taxes and Levies" about re-registration within 2 months.

6. Re-register the domain name of the website (if applicable).

7. Send a copy of the transfer act to the tax authority within 30 days after registration.

Gravis will help you complete the re-registration procedure easily, meeting deadlines and saving your time!

Top 5 changes that have occurred since the beginning of 2023 in favor of transitioning from individual entrepreneurship (IE) to a legal entity:

• All individual entrepreneurs (IE), regardless of their type of business, have lost the ability to apply the simplified tax system (STS). This means forgetting about paying only 6% tax on revenue and the peace of mind it provided.
• The personal income tax rate for those applying the general taxation system has increased from 16% to 20%.
• The rates of the single tax have increased 2-3 times, and the ban on working with other IEs and legal entities while applying it remains.
• A professional income tax (10% and 20%) has been introduced, but it can only be applied by those engaged in specific types of activities from a list of 38 allowed activities (see this link) and those providing services remotely via the Internet under certain conditions. In essence, the professional income tax was introduced for those IEs who were previously paying the single tax.
• Contributions to the Social Protection Fund (FSSN) are mandatory for all IEs, regardless of whether they have a primary workplace. The minimum contribution amounts to 34% of the minimum wage, which is set by the Council of Ministers of the Republic of Belarus. As of January 1, 2023, this amounts to a minimum of 188.36 BYN per month. Keep in mind that the minimum wage is continually increasing.

What does this actually mean for individual entrepreneurs (IEs):

• The monthly financial burden has increased due to FSSN contributions.
• In most cases, the tax burden has increased from 6% to 20%.
• The general taxation system requires expense reporting, meaning those who previously used the simple accounting under STS now face increased financial pressure by having to hire external accountants for preparing and submitting such reports.
• You still cannot hire more than three employees, and, consequently, it's unlikely that you will be able to maintain last year's profit levels due to the increased load under the current business model.

What conclusions can be drawn from these legislative changes?

It’s time to transform your business: stop operating as an individual entrepreneur and register an LLC (limited liability company).

• You will always have a clear tax burden and the ability to apply the simplified tax system (STS). The threshold for applying STS is much higher compared to what was available for IEs.
• After paying taxes, salaries, and other expenses, you can distribute the profit to yourself with a 13% personal income tax rate (i.e., you can distribute a larger portion of your revenue as personal income, paying 6% under STS and 13% personal income tax, which is already more profitable compared to operating as an IE under the general taxation system with minimal business-related expenses). You can distribute profit monthly, just know how!
• You can start expanding your business without being limited to a workforce of only three people, and there is no longer a ceiling on growth.
• An LLC is liable for its obligations independently, so you won’t be personally responsible for its operations or debts arising from factors like the coronavirus, currency fluctuations, and other force majeure circumstances. However, as an IE, you are personally liable for all obligations using your own assets.
• You can register an LLC anywhere in Belarus and start operations on the same day.

What should IEs do now?

Make the decision and restructure your business according to the changed conditions:

• Register an LLC and go through all necessary administrative procedures related to company registration.
• Set up the company’s operations (re-sign contracts with contractors, etc.).
• Re-sign the lease agreement for the premises. If the premises are in communal property in the city of Minsk, the lease can be re-registered without conducting an auction according to point 4 of the Instruction on the procedure for leasing capital buildings (structures, facilities), isolated premises, parking spaces, or their parts, owned by the city of Minsk, approved by the decision of the Minsk City Council of Deputies on 16.12.2009 No. 271.