6 Distinctions in Preparing Annual Reports: A Comparison Between Poland and Belarus

Closing the fiscal year is a very important and quite complex process that results in the preparation of reliable accounting reports. Regardless of the country you are in, the outcome remains the same—Assets must equal Liabilities. While this may seem simple, in practice, the process is much more complicated. To correctly determine the value of assets and liabilities, several adjustments and clarifications must be made. And, of course, each country has its own peculiarities in achieving this critical goal. Let us consider some differences between Poland and Belarus.

First and foremost, we want to highlight the importance of the document known as the Accounting Policy. This is the most crucial document in accounting law, as it defines the essence of bookkeeping and the preparation of financial statements. Without it, the proper preparation of financial statements is impossible. However, in Poland, we often encounter situations where colleagues say that accounting policies are not mandatory. All necessary information regarding accounting principles can be found in the supplementary notes. But how can transactions be correctly reflected throughout the year without a documented accounting policy?

Important!

In Belarus, accounting rules, taking into account the changes to the Tax Code effective from January 1, 2024, must be submitted to the Tax Office in the event of any amendments no later than thirty calendar days from the date of their approval by the head of the organization or other authorized person. A newly established organization during the current year must submit its accounting policies to the Tax Office within thirty calendar days from the date of its official registration.

Distinction 1: Determining the Need to Submit Financial Reports

In Poland, newly registered companies in the current year may choose to start their financial year not from the date of registration but from the following year. This allows them to avoid reporting for an incomplete year and the associated additional costs.

In Belarus, there is no such provision, and reporting must be submitted for the previous year even if the company was registered on December 31 (except in cases where bookkeeping is carried out using a simplified tax system and the Book of Revenues and Expenditures).

Distinction 2: Defining the Format of the Annual Report

Small enterprises and micro-organizations in Poland can take advantage of simplified reporting forms, which facilitate the year-end closing process. This allows the use of several simplifications, such as omitting the prudence principle in valuation. It is also important to consider differences in reporting forms depending on the type of company, such as banks, insurance companies, and others.

What qualifies as a micro-organization?

In Poland, companies that meet the following criteria qualify as micro-organizations:

• Balance sheet total at the end of the fiscal year: PLN 1,500,000
• Net revenue from sales of goods and products for the fiscal year: PLN 3,000,000
• Average annual full-time employment: 10 employees

In comparison, in Belarus, micro-organizations are commercial organizations registered in the Republic of Belarus with an average number of employees in a calendar year of up to 15.

What qualifies as a small enterprise?

In Poland, companies that meet the following criteria qualify as small enterprises:

• Balance sheet total at the end of the fiscal year: PLN 25,500,000
• Net revenue from sales of goods and products for the fiscal year: PLN 51,000,000

• Average annual full-time employment: 50 employees

 

Figure 2 – Article 64 of the Accounting Act

In Belarus, small enterprises are commercial organizations with an average number of employees in a calendar year ranging from 16 to 100.

In Belarus, there is no option to choose the format of financial reporting based on the size of the company (differences exist for banks, insurance companies, and budgetary organizations), but there is no flexibility in reporting forms for annual financial statements based on company size.

Distinction 3: Mandatory Audit Requirements

In Poland, financial statements are subject to audit if the entity falls under Article 64 of the Accounting Act.

These entities can be divided into two groups:

1. Those that are always subject to mandatory audits due to their nature.

For instance, consolidated financial statements of entities such as national banks, branches of credit institutions, foreign bank branches, insurance companies, joint-stock companies (with certain exceptions), and others are always audited.

2. Companies that are subject to mandatory audits upon meeting specific conditions.

These conditions apply to companies that met at least two of the following criteria in the previous fiscal year for which financial statements were prepared:

• Average annual full-time employment: at least 50 employees.
• Balance sheet total at the end of the fiscal year: at least EUR 2,500,000 (converted to PLN).
• Net revenue from sales of goods, products, and financial transactions for the fiscal year: at least EUR 5,000,000 (converted to PLN).

In Belarus, mandatory audits are required for specific organizations regardless of their size. According to Article 22, Part 3 of the Law on Auditing Activities, these include:

• Joint-stock companies subject to public disclosure under securities laws.
• The National Bank, banks, banking groups, and banking holdings.
• Stock exchanges.
• Insurance companies and brokers.

The list is similar to that of Poland.

Special attention should be given to High-Tech Park (HTP) participants, for whom accounting audits are mandatory. Audited reports must be submitted to the HTP administration by July 1 of the current year for the previous year.

Additionally, other legal entities with annual revenue exceeding 500,000 base values (BYN 18,500,000, approximately EUR 5,138,000) are subject to mandatory audits.

Distinction 4: Inventory Deadlines

Annual inventory is a complex process that requires meticulous preparation. It is conducted to reconcile the actual availability of assets and liabilities with accounting records.

In Belarus, the procedure for inventorying an organization’s assets and liabilities, recording the results, and reflecting them in the accounts is regulated by Instruction No. 180. Inventory of assets and liabilities before preparing the annual financial statements must be conducted within the following deadlines (Art. 13 Sec. 3 Clause 2 of Law No. 57-Z and Clause 7 of Instruction No. 180):

• Fixed assets, intangible assets, construction in progress, raw materials, materials, finished goods, and goods for sale (including inventory in warehouses, retail goods, containers, and empty packaging, purchased products, and auxiliary agricultural products) — no earlier than November 1.
• Work in progress and semi-finished goods — no earlier than November 1.
• Livestock and fattening animals (including young animals) — no earlier than November 1.
• Cash funds — no earlier than December 1.
• Liabilities and other assets — no earlier than December 1.

In Poland, it is essential to refer to the inventory section in the company’s accounting policy and prepare inventory results accordingly.

For instance, an inventory of fixed assets, machinery, and equipment used in construction located in protected areas can be conducted every four years.

However, as of the balance sheet date of each fiscal year, an inventory must be conducted for the following assets and liabilities:

• Cash assets,
• Bank credits,
• Securities,
• Materials and goods that are expensed upon purchase,
• Assets and liabilities verified through control procedures.

Note:

Verification-based inventory applies to those assets and liabilities that, for various reasons, cannot be inventoried through physical counts or reconciliation and confirmation of balances. For example, buildings and structures under construction (excluding machinery and equipment included in construction) are inventoried through verification.

Distinction 5: Criteria for Related-Party Transactions

In both Poland and Belarus, maintaining accurate information about related parties is essential for monitoring transactions between them to ensure proper transfer pricing. This information must also be disclosed in supplementary notes and comments to financial statements.

It is important to be mindful of transaction thresholds for transfer pricing control.

In Poland, Article 11k(2) of the Corporate Income Tax Act (PDOPrU) establishes mandatory thresholds for preparing transfer pricing documentation. According to this provision, local transfer pricing documentation must be prepared for controlled transactions of a uniform nature exceeding the following thresholds in a fiscal year:

• PLN 10,000,000 for goods or financial transactions,
• PLN 2,000,000 for service transactions,
• PLN 2,000,000 for other transactions not specified above.

Figure 3 – Article 11k of the Corporate Income Tax Act

In Belarus, for example, foreign sales transactions with a related party are subject to control if they exceed:

• BYN 400,000 (excluding VAT and excise duties) for organizations not included on the list of large taxpayers,
• BYN 2,000,000 (excluding VAT and excise duties) for organizations on the list of large taxpayers, except for transactions specified in Art. 2.2, Sec. 2 of Article 88 of the Tax Code.

Additionally, transactions involving the sale or acquisition of goods (work, services) or property rights with a related legal entity that is a tax resident of the Republic of Belarus and does not calculate or pay income tax (exempt from income tax) in the calendar year of the transaction are controlled if they exceed:

• BYN 400,000 (excluding VAT and excise duties) for organizations not included on the list of large taxpayers,
• BYN 2,000,000 (excluding VAT and excise duties) for organizations included on the list of large taxpayers.

Distinction 6: Deadlines for Preparing, Approving, and Submitting Financial Statements

In Poland, financial statements must be approved by June 30 and submitted by July 15.

In 2023, Belarusian organizations preparing reports in accordance with the accounting and reporting legislation are required to submit their annual individual financial statements in the prescribed formats electronically to the Tax Office at the place of registration no later than March 31 of the year following the reporting year. Additionally, they must submit the regulation on accounting policies for the current tax period (Art. 22, Sec. 1, 3 Subsection 1.4.2, Clause 1 of the Tax Code).

Failure to submit financial statements to the Tax Office in Belarus within the specified deadlines is subject to administrative liability, resulting in a fine of up to 20 basic units (Art. 14.6, Sec. 1 of the Administrative Offenses Code). Additionally, any violation by an organization’s official of the established procedures for accounting and reporting may lead to administrative liability in the form of a warning or a fine of up to 20 basic units (Art. 12.32, Sec. 1).

In Poland, the consequences of failing to submit an annual report are more severe, ranging from fines to imprisonment for up to two years.

This is just a small glimpse of the differences in year-end closing and financial reporting preparation in Poland and Belarus. The year-end process is quite complex and involves numerous aspects (such as the thin capitalization rule, calculating reserves for doubtful debts, and many others).

If you have any questions or need advice, our SMAR POLAND team is happy to assist you.