One the one hand, closure of a representative office of a foreign company (hereinafter, “Rep Office”) in Belarus is not subject to as high a number of detailed rules as liquidation of a commercial company. However, before taking a decision on closure of a Rep Office the Parent company should consider certain aspects to make the process faster and less time-consuming.
This Article is based on practical experience in closure of rep offices in Belarus and aims to emphasize the practical issues to be considered by the Parent company.
From the practical stand point, the process of closure of the Rep Office might be divided into two stages: the preliminary stage (to prepare the Rep Office for closure) and closure itself.
The preliminary stage includes consideration of the following key issues:
While in practice the first two points do not usually cause difficulties, and qualified lawyers will help to find the most suitable options and formalize them, termination of the Rep Office’s employees requires careful analysis.
Firstly, it is necessary to decide during the closure of the Rep Office who will:
To exercise the above authorities, the following options might be considered:
Granting of the above authorities to a new third party will require execution of a contract with such third party and issuance of a power of attorney. The third party will also need to complete administrative procedures, i.e. apply to get an e-key for signing reports and apply to the Rep Office’s bank to change the person authorized to make payments via the Rep Office’s bank account, if such authorities are granted to the third party.
Secondly, it will be necessary to determine the grounds for the given employees’ termination.
Belarusian law stipulates closure of a Rep Office as being grounds for termination of a labor agreement. In this case, the employer shall notify the employee of the termination two months in advance. The notification may be replaced by payment of compensation in the amount of two times the average monthly salary upon the employee’s consent. The employer shall also pay severance pay in the amount of at least three times the average monthly salary to each employee.
In practice, we have seen cases when companies seek to terminate labor agreements before the start of the closure of the Rep Office via mutual consent of the parties. However, in our opinion, applying such grounds for termination of a labor agreement is rather risky in cases when the Parent company is already aware of the closure of the Rep Office, even if an official decision has not yet been taken. To our mind, in this case the terminated employee might challenge the grounds of his/her termination, i.e. closure of the RO instead of mutual consent, and claim compensation provided for by the law for termination due to closure of the Rep Office.
Initiation of the Rep Office’s closure
To start closure of the Rep Office the Parent company (its authorized corporate body) must take a decision to this effect. As this decision is a corporate decision taken by a foreign company, Belarusian law is not applicable in this case. The only requirement is a written form of the decision as it is then submitted to the registration authority.
However, the decision must comply with the law of the Parent company’s jurisdiction and the Articles of Association of the Parent company. It might be the case that the law of the foreign jurisdiction or the Articles of Association provide for a notarized form for this kind of decision. In this case, under Belarusian law the notarized decision shall be duly legalized (e.g. apostilled).
For actions related to closure of the Rep Office in Belarus the Parent company should also grant a power of attorney to the respective party. This power of attorney shall be notarized and duly legalized (e.g. apostilled). It is better to entrust the drafting of the text of the power of attorney to Belarusian lawyers, as the indication in the power of attorney of the general wording that the representative "has all the powers to close the Representation Office" will not be sufficient for state authorities or banks (counterparties). In the power of attorney, the powers should be described using the same wording provided for in Belarusian legislative acts.
Both documents will be required as original documents. It is necessary to take into account that delivery of post currently, especially from European countries, takes about one month, and direct delivery to Belarus is not even available from some countries. For such cases, we would recommend to use partner offices (e.g. documents can be sent from the USA to Kazakhstan and from Kazakhstan to Belarus).
Timing of the closure of the Rep Office
Belarusian law does not provide for a fixed term of closure of the Rep Office. In practice, this process takes more than 5 months. The Belarusian tax authority, Social Security Fund and State Insurance Company have a right to initiate an audit of a closing Rep Office. Currently, in most cases of closure of a Rep Office the state authorities, especially the tax authorities, do exercise this right. Waiting for an audit of the state authorities and the audit itself are the most time-consuming steps and might take more than 3 months.
Cash transfer from Belarus
One of the last steps is closure of the bank accounts of the Rep Office. To close them, the rest of the cash is transferred to the bank account of the Parent company. Currently, due to sanctions, receiving cash from Belarus might incur negative consequences for the Parent company or might even be prohibited. Thus, it is advisable before initiating such a transfer to consult with the bank of the Parent company and its compliance team (if any).