In recent decades, the world has been watching the rapid development of start-up and high-tech ecosystems, and Belarus’ Hi-Tech Park (HTP) occupies a special place in this context. The comparison of HTP with Silicon Valley is becoming more and more relevant, as both of these regimes represent centers of innovation and attraction of IT talent. However, despite the similarity in development models, and cultural and economic aspects, do they offer the same opportunities and challenges for entrepreneurs and investors? In this article, we will analyze the key factors that determine the uniqueness of HTP and its place in the global technological map, as well as compare it with the history and economic environment of Silicon Valley. Let’s consider how HTP can be considered the Belarusian version of the famous California Hub.
Historical Background – How It Started
To compare such high-tech development centers as HTP and Silicon Valley, let’s recall the history of their creation.
Silicon Valley
The name Silicon Valley in California, USA, was assigned to the area south of San Francisco in the 1970s of the last century. It was at this time that silicon was used in semiconductor devices that were manufactured by industrial enterprises in this area. The name “Silicon Valley” arose due to the analogy in the spelling of the English words silicon and silicone.
This is a technology park where employees of high-tech companies work and live, the history of which began with the Stanford Industrial Park. The first developments that companies made in Silicon Valley concerned semiconductors (chips) and not developments in high technology and software.
During the 20th century, the largest high-tech companies came to the valley – Xerox, Apple, Atari and Oracle, Microsoft, Electronic Arts, Cisco, E-Bay, Google, Yahoo, PayPal, Facebook, Twitter, Uber, and Tesla. Semiconductor manufacturing has moved from Silicon Valley mainly to Taiwan.
High-tech Park in Belarus
In 2005, a special legal regime was created in Belarus – the Hi-Tech Park. Geographically, the management company and the territory of the HTP itself are located within the borders of Minsk. However, employees of HTP resident companies do not have to live and work in this territory. The purpose of the HTP was to create favorable conditions for software development and high technologies.
The legal regime of HTP is regulated by the regulations of the President of Belarus and local documents of the HTP management company.
To become an HTP resident, the company does not need to move to the HTP territory, it is possible to work anywhere in Belarus. You only need to perform one or more activities that are allowed for HTP residents and defend your business project in new or high technologies before the HTP Supervisory Board.
As you can see, the history of Silicon Valley has deeper roots than the history of HTP. Unlike companies that operate in the Valley, HTP residents do not necessarily have to have offices or production facilities on the HTP territory (although they are given such an opportunity). Employees of HTP resident companies and their families do not seek to live on HTP territory.
Differences in Legal Regulation
Silicon Valley is essentially a technology cluster, a technopolis, where high-tech companies are located, and their employees live and work. The Valley is not a separate legal regime established at the state level.
HTP is a special legal regime. This regime, which is more preferential than other Belarusian companies, can be applied to Belarusian companies and individual entrepreneurs who have fulfilled several conditions for becoming HTP residents.
Features of Companies’ Taxation and Support
Silicon Valley and HTP combine high-tech companies. Are there specific taxation and incentives for such companies? Here are some data on taxes and opportunities to save on mandatory payments.
Benefits and Incentives for Silicon Valley Companies
In Silicon Valley, tax incentives and business incentives include several federal and local programs aimed at supporting technology startups and innovative companies. However, tax benefits depend on the type of business, its size, and stage of growth, as well as on the specific location and legislation in the state of California and at the level of a particular city. Here are the main benefits and rates:
1. Income Tax Rate (Federal Corporate Income Tax)
The standard federal rate in the United States is 21%.
There are no special federal benefits for Silicon Valley companies, but programs such as Research and Development Tax Credits are available to companies. Under this program, companies can deduct up to 20% of the confirmed research and development costs, which reduces the effective tax rate.
2. Income Tax in California (California Corporate Income Tax)
In California, the standard corporate income tax rate is 8.84%.
S-Corporations (S-Corporations are a form of business organization where the main taxes on business income are paid by the shareholders of companies, not the company) pay tax at a reduced rate of 1.5%.
For startups, “tax holidays” are possible (for example, in the form of a tax deferral or tax credit) during the first few years, especially if the company operates in priority sectors (for example, the technology sector or clean technologies).
3. Tax Benefits at the City Level
Silicon Valley cities such as San Jose, Sunnyvale, and Palo Alto offer local tax breaks and support programs. They may include:
- Reduced property taxes for high-tech companies.
- Job creation tax credits for businesses that create new jobs in technology or innovation.
For example, Palo Alto offers a tax subsidy program for businesses that create new jobs or expand their operations.
4. Payroll Tax and Employee Benefits
California has standard payroll tax rates, but there are tax breaks for companies that offer additional benefits to employees, such as health insurance and training. Taxes on salaries of employees of Silicon Valley companies were not previously withheld, but currently, in the state of California, federal (from 10% on a progressive scale) and local (12%) income taxes are withheld from employees’ incomes.
5. Special Tax Incentives for Startups
Under federal law Section 1202, founders and early investors of startups can qualify for a capital gains tax exemption when selling shares if they have held shares for at least 5 years. As a result, up to 100% capital gains tax (up to a certain limit) can be avoided for qualified small businesses.
An example of the tax burden for a startup in Silicon Valley
1. Federal income tax: 21% with a possible reduction to 10-15% thanks to the R&D Tax Credit.
2. California Income tax: 8.84% or 1.5% for S-corporations.
3. Local tax benefits: vary, and may reach several percent of the total cost of taxes or property.
These tax incentives make Silicon Valley attractive to startups and high-tech companies despite high overall tax rates in California.
Benefits and Incentives in the Hi-Tech Park in Belarus
The Hi-Tech Park in Belarus provides residents with several benefits and advantages aimed at supporting IT business and stimulating innovation. The main ones include:
1. Tax benefits
- Income Tax
HTP residents have been provided with an exemption from income tax (0% rate) or a reduction in the income tax rate for some transactions – 9%. The total income tax rate in Belarus is 20%.
- VAT
Exemption from VAT on the territory of Belarus for several transactions. For ordinary companies, the VAT rate is 20%.
- Personal Income Tax
The reduced income tax rate for HTP resident employees is 9% instead of the standard 13%.
- Customs Privileges
HTP residents can import equipment for domestic use without paying customs duties.
2. Social Benefits and Incentives
- Payments to the Social Protection Fund
HTP resident companies have the right to apply simplified conditions for payments to the Fund from employee income. It does not so much reduce the costs of companies, as it allows employees to receive salaries in a larger amount compared to employees of non-resident HTP companies. This may be because 1% of the Social Security Fund is deducted not from the entire salary of an employee, but from an amount equal to the average salary in the country.
- Less Bureaucracy in Attracting Foreign Employees
Simplified conditions for hiring foreigners have been provided, which makes it easier to attract qualified specialists from abroad. In particular, foreign workers can stay in Belarus without visas.
3. Attracting Investments and Legal Support
HTP resident companies can attract foreign investments in a simplified manner: especially for HTP residents, they have developed a legal framework that is understandable to foreign investors.
HTP provides its residents with educational events in the field of new and high technologies and support for startups.
Thanks to these benefits, the Hi-Tech Park residents have favorable conditions for business in Belarus and competing in international markets.
Differences in Benefits and Advantages
Silicon Valley resident companies are subject to the California tax regime, while at the same time, there are several tax reduction opportunities. As a percentage of income, the tax burden on Silicon Valley companies varies, as there are measures to support startups and high-tech companies and companies that provide benefits to employees.
The legal regime of the HTP does not provide tax or other benefits for startups, but a preferential tax regime is provided for all residents. The income tax of 1.5% is not applied in the HTP and Belarus because the country does not have such a form of business organization as S-corporations.
Regarding the income of company employees, tax rates are approximately at the same level, but the income amounts themselves are very different in the Belarusian HTP and in Silicon Valley, which is due to the different economic levels in the countries.
Can HTP be Called Silicon Valley?
The Belarusian Hi-Tech Park (HTP) is sometimes called the “Silicon Valley of Eastern Europe” due to the concentration of IT companies and a significant contribution to the country’s economy, but the comparison with the original Silicon Valley in California is not entirely correct. Here are a few factors to evaluate:
1. Scope and Impact
Silicon Valley USA is the world’s largest high–tech center, where the headquarters of such giants as Apple, Google, Facebook, etc. are located. HTP plays an important role in the Belarusian economy, attracting international companies and developing local startups, but its scale is much smaller, and there are no companies of the same global level here.
2. Innovative Infrastructure and Culture
Silicon Valley has created a unique innovation ecosystem that includes universities, venture capital funds, and cultural and professional communities. HTP provides tax incentives and support, but it does not have the same developed infrastructure, culture of venture capital, and private investment that promote fast start-ups and major innovative breakthroughs.
3. Raising Capital and Investments
Silicon Valley attracts significant amounts of private capital and investment, whereas HTP is heavily dependent on government support. Although Belarusian IT companies are increasingly attracting international investments, the volume of financing is significantly lower, which limits growth and global influence.
4. The Ecosystem of Talents
Silicon Valley attracts top professionals from all over the world, and it is a magnet for talent. HTP actively develops local IT talents, but still, due to emigration, climate, and living conditions, the influx of specialists is much less.
Thus, the HTP can indeed be called a Belarusian technology center, but it has not yet reached the level of Silicon Valley in terms of scale, investment, and innovation infrastructure.
How to contact us
For more information or advice on issues related to Belarus Hi-Tech Park, do not hesitate to contact us. We are here to help and support you.
Phone and email communication options are available for your convenience:
- +375293664477 (WhatsApp/Telegram/Viber);
- info@spex.by.
