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Tax and Legal Newsletter, December 2012


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TAX NEWS

REGARDING THE AMENDMENTS AND SUPPLEMENTS OF THE COMMENTARY OF ARTICLES 30 AND 43 OF THE LAW ON CORPORATE INCOME TAX

State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania (hereinafter – STI under MF) has prepared the amendments and supplements of the Commentary of Articles 30 and 43 of the Law on Corporate Income Tax (hereinafter – CIT), which explains carrying forward of tax losses.

The amendments of the Commentaries of Articles 30 and 43 of the Law on CIT lay down the procedures of carrying forward the losses when these losses were accumulated from the discontinued activities of an entity.

If during the tax period the losses of the discontinued activities of an entity are covered by the profit derived from the other activities and the profit is calculated after the deduction of tax deductible expenses and limited allowable deductions (except for the tax losses of the previous tax periods there is profit), then the entity may deduct the losses of the discontinued activities of the previous tax periods within the limits of this profit. However, if the amount of losses of the discontinued activities exceeds the profit received from the other activities, and therefore, it results in the losses of the tax period, then the amount of the losses exceeding the profit of the other activities and the losses of the discontinued activities of the previous tax periods cannot be carried forward to the following tax periods.

If an entity earns profit from the discontinued activities and the result of the entity’s activities of the tax period is also profit (calculated by deducting the tax deductible expenses and limited allowable deductions from income, except the losses of the previous tax period), then such entity may deduct the tax losses incurred from the discontinued activities during the previous tax periods. The rest amount of losses of discontinued activities that is not deducted from the income cannot be carried forward to the following tax periods.

If a transferring entity transfers a part of activities or business as a complex in accordance with the provisions of Article 41 Paragraph 2 Subparagraphs 5, 6 and 8 to the receiving entity, then carrying forward of losses attributable to the transferred activity ends, since the entity discontinues activities, which resulted in losses.

The tax losses incurred in the previous tax periods, provided the time limits for carrying forward did not expire until the beginning of tax period of 2008, may be carried forward upon the choice of the entity by applying one of the following methodologies:

• Operating losses and losses incurred by financial institutions in 2008 or in the following tax periods as a result of transferring of shares incurred may be carried forward for the unlimited period of time. Losses incurred as a result of transferring of shares (for non-financial institutions) can be carried forward for no longer than 5 subsequent tax periods after the tax period during which the losses were incurred;

• The entity can carry forward the operating tax losses for 5 years and the losses from the transferring of shares (for non-financial institutions) can be carried forward for 3 years after the tax period during which these losses were incurred.

More information is available here.

REGARDING THE AMENDMENTS AND SUPPLEMENTS OF THE COMMENTARY OF ARTICLE 4 PARAGRAPH 6 SUBPARAGRAPH 1, ARTICLE 5 PARAGRAPH 4 AND ARTICLE 28 PARAGRAPH 2 OF THE LAW ON CIT

STI under MF has prepared the amendments and supplements of the Commentary of Article 4 Paragraph 6 Subparagraph 1, Article 5 Paragraph 4 and Article 28 Paragraph 2 of the Law on CIT.

Commentary of Article 4 Paragraph 6 Subparagraph 1 was supplemented with Subparagraph 3.6, which provides that in accordance with the Law on Charity and Support the amount of the expenses, which are incurred by the recipient of the support during the public disclosure of information on the provider of sponsorship, shall not exceed 10 % of the value of the granted support. As of 1 January 2013 the exceeding amount shall be considered as support, which was granted not in line with the purpose of support, and shall be attributable to the CIT base.

Subparagraph 4 of the Commentary of Article 5 Paragraph 4 provides that the support granted by the natural or legal persons is not regarded as income from the commercial and economic activities of the non-profit entities that obtained the status of the support recipient. If the status of support recipient is revoked in accordance with the Law on Charity and Support, the unused amount of support is attributed to the income of the entity of that period, during which the status has been revoked.

Subparagraph 7 of the Commentary of Article 28 Paragraph 2 of the Law on CIT explains that the support is voluntary and gratuitous, except the obligations of the support’s receiver that are determined in Article 8 of the Law on Charity and Support. The obligations of the support’s receiver shall be laid down in the agreement of the support.

More information is available here.

REGARDING THE AMENDMENTS OF ARTICLE 12 OF THE LAW ON PERSONAL INCOME TAX

STI under MF has prepared the amendments to the Commentary of Article 12 of the Law on Personal Income Tax (hereinafter – PIT), which explains which income should be attributed to income from the distributed profit.

Commentary of Article 12 Paragraph 2 of the Law on PIT provides that when the share capital of the entity has been increased in the course of reorganization as it is described in Article 41 Paragraph 2 Subparagraph 7 of the Law on CIT by swapping the shares (interests, member shares) owned by the individual (member of an entity) for the shares (interests, member shares) of another entity, whose share capital is being increased, and if the latter share capital has not been increased from the profits or reserves, then, when the share capital is reduced, the cash payment made to the individual (member of an entity), exceeding the value of individual’s contribution, which existed prior to the reorganization (acquisition price), is regarded as other income, which is subject to PIT of 15 %.

The definition of dividends includes income received by the member of an entity (small partnership) from the entity’s distributed profit, except the amount received by a member of small partnership, that is attributable to the employment related income, which is taxed with 15 % PIT after the deduction of annual tax-exempt amount.

More information is available here.

REGARDING THE AMENDMENTS OF THE COMMENTARY OF ARTICLE 5 PARAGRAPH 4 OF THE LAW ON PIT

STI under MF has prepared the amendments of the Commentary of Article 5 Paragraph 4 Subparagraphs 2, 5 and 8 of the Law on PIT. The amendments are in line with the provisions of Law amending Articles 2, 6, 12, 16, 22 of the Law on PIT (No XI-2166) dated 29 June 2012 and effective as of 1 December 2012.

The amendments are related to the attribution of income received from the unlimited liability entity to the income from the distributed profit. This Commentary explains that income, which is treated as employment related income and is received from the unlimited liability entity, is not considered as income from the distributed profit.

Commentary of Article 5 Paragraph 4 Subparagraph 8 of the Law on PIT was supplemented with a new example.

More information is available here.

REGARDING THE AMENDMENTS OF THE LAW ON VALUE ADDED TAX

Law amending Articles 19, 31, 32, 60, 64, 71, 80, 81, 91 of the Law on Value Added Tax (hereinafter – VAT) was adopted on 20 December 2012.

The main amendments of the Law on VAT coming into force on 29 December 2012 are:

• The validity of preferential VAT rate of 9 % for heating energy and hot water supplied for heating of dwellings, for the cold water used to prepare hot water and heating energy used to warm the water, as well as the validity of preferential VAT rate of 5 % for pharmaceuticals and medical aids, when the expenses of purchase of these goods are wholly or partly reimbursed in accordance with the Law on Health Insurance, was extended to 31 December 2013;

• The requirement to have import VAT paid in order to deduct the import VAT of imported goods was eliminated;

• Concept of “equipment” was changed to “structures and equipment”.

Moreover, the requirement to provide the personal ID number of natural person in the VAT invoices or in the accounting documents that formalize the payment will expire on 1 March 2013.

More information is available here.

REGARDING THE AMENDMENTS AND SUPPLEMENTS OF THE COMMENTARY OF ARTICLE 14 OF THE LAW ON VAT

STI under MF has prepared the amendments of the Commentary of Article 14 of the Law on VAT.

Subparagraph 5.1.3 of Article 14 Paragraph 6 of the Law on VAT has been amended and now explains that in the situations when a VAT invoice is not issued and the payment for the goods provided or services supplied is not made, the obligation to calculate VAT arises when the supply of services is completed. According to the previous version of the Commentary, the obligation would have arisen the following day after the end of the term for issuance of VAT invoice.

More information is available here.

REGARDING THE AMENDMENTS OF LAW ON EXCISE DUTIES

Based on the Law amending Articles 30, 31 and 37 of the Law on Excise Duties (No XII-80), which was adopted on 20 December 2012, the following excise duty rates were increased:

• the specific element of excise duty on cigarettes will be increased from LTL 140 to LTL 148 as of 1 March 2013;

• the excise duty rate for cigars and cigarillos will be increased from LTL 84 to LTL 88 per kilo as of 1 March 2013;

• the excise duty rate for gas oils (including diesel) was increased from LTL 1,043 to LTL 1,140 for 1,000 liters of product as of 1 January 2013.

More information is available here.

OTHER NEWS

REGARDING THE AMENDMENTS OF THE LAW ON TAX ADMINISTRATION

STI under MF has supplemented the Commentary of Article 40 and has prepared the Commentary of Article 88 of the Law on Tax Administration (hereinafter – LTA).

Commentary of Article 40 of the LTA was supplemented in accordance with the amendments of LTA dated 19 June 2012. Commentary has been supplemented with Subparagraph 10, which explains the tax payer’s obligation to provide information on the transactions provided in Article 42(1) of the LTA.

According to the Commentary of Article 88 Paragraph 2 of the LTA, the tax payer together with the request to postpone or lay out the tax underpayments has to provide the documents proving that if the taxes were paid immediately, the financial situation of the tax payer would become critical or other difficulties to meet the financial obligations would arise, as well as the documents proving the possibilities of financial stabilization. These documents include agreements, letters of intent, business plans and other documents.

Commentary of Article 88 Paragraph 6 of the LTA provides that the Tax Authorities have a right to exempt the tax payer from the payment of interest, which was calculated but not paid, increased interest, late payment interest or a part of it only when on basis of Article 100 Paragraph 1 of the LTA.

Commentary also provides that in order to be exempted from the payment of abovementioned payments, the tax payer shall contact the respective tax administrator by submitting a request.

More information is available here.

REGARDING THE AMENDMENT OF THE RULES FOR ADMINISTRATION OF PAYMENTS OF COMPULSORY HEALTH INSURANCE CONTRIBUTIONS

Taking into account the amendments of the Law on Compulsory Health Insurance and the increase of the minimum monthly wages to LTL 850, the new edition of the Rules for Administration of Payments of Compulsory Health Insurance Contributions (hereinafter – HIC) was issued by the Order No VA-103 of the Head of STI under MF.

As of the beginning of 2012 STI under MF administrates HIC payments of the following individuals who perform agricultural activities:

• Individuals, who own an agricultural holding, which size in accordance with the calculations of state enterprise Agriculture Information and Rural Business Center for the period between January 1 and December 31 is not larger than 2 economic size units (hereinafter – ESU), irrespective of, whether such individuals are VAT payers or not;

• Individuals, whose agricultural holding is larger than 2 ESUs, and who are not VAT payers.

The examples of the Rules are updated by changing a payable HIC amount from LTL 72 to LTL 77 for the period from 1 August 2012 to 1 January 2013 with respect to the increased amount of minimum monthly wage.

More information is available here.

REGARDING THE HIC PAYMENT PROCEDURES AS OF 1 JANUARY 2013

According to the Resolution No 1543 of the Government, as of 1 January 2013 the minimum monthly wage has been increased to LTL 1,000. Therefore, the amount of payable HIC has also increased.

As of 1 January 2013 the monthly HIC payment for self-employed individuals, farmers, individuals performing agricultural activities and owning an agricultural holding, which size is larger than 2 ESUs, self-insuring individuals, owners of sole proprietorships, general members of partnerships, members of small partnerships has increased from LTL 77 to LTL 90.

The monthly HIC payments for the individuals performing agricultural activities and owning an agricultural holding, which size is equal or smaller than 2 ESUs, have also increased from LTL 26 to LTL 30.

More information is available here, here and here.

REGARDING THE HIC OF INDIVIDUALS WORKING WITH NATIONAL (D) VISAS

Provisions of the Law amending the Law on State Social Insurance (No XI-2302) have come into effect on 1 January 2013. According to the new provisions, foreign individuals, who will come to Lithuania and will work under employment agreements with the national (D type) visas will not be insured with HIC.

As previously, for the abovementioned individuals, the employer will have to calculate and pay the Social Security Contributions (pensions’ social insurance, sickness and maternity social insurance, unemployment insurance, workplace accidents‘ insurance, occupational diseases‘ social insurance) on their salary and other employment related income.

More information is available here.

REGARDING THE AMENDMENTS OF THE RULES FOR THE COMPLETION, SUBMISSION AND ADJUSTMENT OF ANNUAL PERSONAL INCOME TAX RETURN (FORM GPM308) AND ITS ANNEXES

By the Order No VA-106 of the Head of STI under MF the new Rules for the Completion, Submission and Adjustment of the Annual Personal Income Tax Return (Form GPM308) and its Annexes (hereinafter – the Rules) have been adopted.

The Order adopted a new edition of the annual personal income tax return (form GPM308) and amended the provisions of the Rules, related to the declaration of income of the individuals, who perform individual activities with the business certificates, when income earned from the sale of self-made goods (provided services) to the legal entities, received from the activities indicated in the business certificate exceeds LTL 15,500 or when the individuals have an obligation to register or are registered as VAT payers.

More information is available here and here.

REGARDING THE AMENDMENT OF THE RULES FOR THE COMPLETION, SUBMISSION AND ADJUSTMENT OF THE INDIVIDUAL’S (FAMILY’S) PROPERTY DECLARATION (FORM FR0001) AND ITS ANNEXES

By the Order No VA-116 of the Head of STI under MF the Rules for the Completion, Submission and Adjustment of the Individual’s (Family’s) Property Declaration (Form FR0001) and its Annexes (hereinafter – the Rules) have been amended.

The Rules explain the procedures of filling in the individual’s (family’s) property declaration with respect to the new groups of individuals, who have an obligation to declare the property in accordance with the new provisions of the Law on Individual’s Property Declaration (No XI-2283) dated 17 October 2012. The Rules have also supplemented the lists of income codes and position codes. Other minor changes were also made.

More information is available here and here.

REGARDING NEW PUBLICATIONS

STI under MF has announced about the issue of new publications – “Income Tax Incentives” and “Individual Activities of the Traditional Craftsmen”.

The publications are available here and here.

LEGAL NEWS

AMENDMENTS TO THE LAW ON INFORMATION SOCIETY SERVICE CAME INTO FORCE

On 1 January 2013 the New Law on Amendments and Supplements to the Law on Information Society Service No. XI-2382 (hereinafter – the Law) came into force. This Law establishes a new electronic delivery service that enables electronic delivery of official documents and notifications.

According to the Law, electronic delivery has the same legal and evidential effect as registered postal deliveries.

Furthermore, the Law establishes an obligation for the electronic delivery service supplier to guarantee the confidentiality of the delivery content and respect for the correspondence to the sender and recipient of the electronic delivery.

More information is available here.

AMENDMENTS TO THE LAW ON LEGAL STATUS OF FOREIGNERS CAME INTO FORCE

On 1 January 2013 the amendments to the Law on Legal Status of Foreigners (hereinafter - the Law), adopted on 30 June 2012 and aimed at harmonizing national law with European Union (hereinafter – EU) legal regulation, came into force.

The Law was amended and supplemented by provisions related to entry and residence of highly qualified third country nationals in Lithuania, status of long-term EU residents, terms for issuing and cancelling visas, including but not limited to the following amendments and supplements:

• The term for issuance of a temporary residence permit to highly qualified employees was shortened to 2 months;

• A concept of higher professional qualification was established (i.e. skills, certified by a higher education diploma or, when it is established by Lithuanian laws, a professional experience of not less than 5 years which is equivalent to higher education skills, necessary for performance of highly qualified work specified by the employer);

• A foreigner intending be employed for highly qualified work and obtain a temporary residence permit in Lithuania is required to meet the following requirements:

- Monthly salary may not be lower than two average gross salaries announced by the Lithuanian Department of Statistics;

- A foreigner submits a document certifying that he meets requirements established by Lithuanian laws which are necessary for performance of particular professional practice specified in the employment contract. Though, in case the professional practice is not regulated by laws – a document verifying a higher professional qualification;

- Lithuanian Work Exchange Office resolves that foreigner’s work meets the requirements of Lithuanian labour market.

• The list of grounds when a foreigner is not required to obtain a work permit was extended (i.e. when foreigner intends to work highly qualified work; or a long-term resident of another EU, possessing work and residence permits in Lithuania, has been working in Lithuania for at least one year, etc.).

More information is available here.

AMENDMENTS TO THE LABOUR CODE CAME INTO FORCE

On 1 January 2013 the amendments to the Labour Code, adopted on 26 June 2012, amending the individual labour dispute settlement procedure, came into force.

The amendments establish that the Labour Dispute Commissions, acting under the territorial departments of the State Labour Inspectorate, shall be mandatory primary body for settlement of individual labour disputes. An employee or an employer may apply to the Labour Dispute Commission within 3 months from the day when he found out or ought to have found out about the violation of his rights. The decision of the Labour Dispute Commission shall be passed within 1 month from the day of receipt of application (this term may be extended up to one month). Decisions of the Labour Dispute Commission may be appealed to the district court within one month from receipt thereof.

Without applying to the Labour Dispute Commission, directly in courts shall be heard the disputes concerning:

• legitimacy of dismissal;

• suspension from work upon employer’s initiative;

• suspension from work at request of officials or bodies entitled to apply suspension by law;

• other cases provided by laws.

More information is available here.

 

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Head of Tax & Legal department
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Tomas Davidonis
Company:
Deloitte
Job Title:
Attorney-at-Law
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Email
tdavidonis@deloittece.com
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