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Tax and Legal Newsletter, October 2012


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TAX NEWS

REGARDING AMENDMENTS AND SUPPLEMENTS OF THE COMMENTARY OF ARTICLE 5 PARAGRAPHS 2 AND 3 AND ARTICLE 18 PARAGRAPH 3 OF THE LAW ON CORPORATE INCOME TAX

State Tax Inspectorate (hereinafter – STI) under the Ministry of Finance of the Republic of Lithuania (hereinafter - MF) in accordance with the changes of the Law on Corporate Income Tax (hereinafter – CIT) has prepared amendments and supplements of the Commentary of Article 5 Paragraphs 2 an 3 and Article 18 Paragraph 3 of the Law on CIT, which regulates application of the reduced CIT rate.

Commentary of Article 5 Paragraph 2 provides that provisions of this Paragraph, regulating application of 5% CIT rate, are also applicable to entities performing agricultural activities, in case provisions of Article 5 Paragraph 6 of the Law on CIT are not applicable. The latter provisions state that taxable profit of entities, where more than 50% of income during the tax period consists of income from agricultural activities, including income of cooperatives from the sold agricultural products that were acquired from their members, is taxed at 5% CIT rate.

Moreover, the Commentary of Article 5 Paragraphs 2 and 3 of the Law on CIT provides several examples related to application of this Article to small partnerships and general partnerships.

More information is available here.

REGARDING THE PREPARATION OF COMMENTARY OF ARTICLE 26 OF THE LAW ON CIT

STI under MF prepared the Commentary of Article 26 in order to unify application of the Law on CIT. According to the Commentary of the mentioned Article, entity can deduct education expenses paid for the benefit of an individual who is related with an entity with employment relationship, if all of the following conditions are met:

• individuals, whose education expenses are covered, are in an employment relationship with an entity;

• education expenses are paid directly to the educational institutions located in the states of the European Economic Area (hereinafter – EEA) and in states other than EEA states, but with which the Republic of Lithuania has concluded Double Tax Treaties;

• individuals obtain higher education and/or qualification after graduation;

• such education/qualification is necessary to earn revenue for an entity.

The Commentary of Article 26 provides that in case an employee, whose education expenses are covered, does not start working in a position, for which education and/or qualification was required, or the studies are cancelled and qualification is not obtained, limited allowable deductions of respective taxable period should be decreased by total education expenses amount. The amounts paid for the education of entity’s employees might be attributed to limited allowable deductions regardless of the amount of the employee’s salary, the amount paid and whether the payment is made for a full learning period or a part of it.

The aforementioned provisions are applicable to taxable profits earned in a tax period which started in 2008 or subsequent tax periods.

According to the Commentary of Article 26 Paragraph 2 of the Law on CIT, limited allowable deductions are expenses which are actually incurred by an entity when providing benefit to its employees and/or their family members and which are not attributable to allowable deductions or limited allowable deductions under the provisions of the Law on CIT, if all of the following conditions are fulfilled:  

• benefits are provided for the entity’s employees and/or their family members (spouses, children, (adopted children)), and

• it is impossible to determine the individual benefit received by a specific employee and/or his family members (spouses, children, (adopted children)), and

• the provision of such benefits is foreseen in the collective agreement of the entity, and

• all the employees of that entity are entitled to take advantage of such benefit without discrimination and restrictions.

The amount of expenses that could be attributed to limited allowable deductions cannot exceed 5% of the total amount of the employees’ salary calculated during the tax period (on which State Social Security Contributions are calculated). When the amount of expenses in question exceeds 5%, the amount exceeding 5% should be attributed to non-allowable deductions.

Expenses actually incurred by an entity in the course of provision of the benefit for the entity’s employees and/or their family members (spouses, children, (adopted children)) are attributable to non-allowable deductions if such provision is not provided in the collective agreement.

Such expenses have to be documented by a free form document that has to be confirmed by the head or authorized person of an entity and chief financial accountant or an authorized person. When the essence of transaction is clearly stated in invoices, the aforementioned informal document is not required.

More information is available here.

REGARDING THE PREPARATION OF COMMENTARY OF ARTICLE 781 OF THE LAW ON VALUE ADDED TAX

In order to assure the proper implementation of tax laws, STI under MF has prepared the Commentary of Article 781  of the Law on Value Added Tax (hereinafter – VAT), which regulates the rules applicable to VAT invoices while supplying goods and services. The following provisions are provided in the Commentary of Article 781 of the Law on VAT:

• rules applicable for VAT invoices are determined by the state in which supply of goods/services takes place;

• provisions of the Law on VAT regulating  issuance of VAT invoices are applicable to supply of goods/services which are performed in the territory of Lithuania in accordance with the Law on VAT. Provisions of the Law on VAT regulating issuance of VAT invoices also apply when the place of supply of goods/services is outside of the territory of the EU, but the supply of goods/services is performed by the Lithuanian taxable person or by foreign taxable person through its fixed establishment in Lithuania;

• when the obligation to calculate and pay VAT for supply of goods/services in another Member State (where regulation of VAT is substantially the same) falls on a purchaser, the provisions of the Law on VAT are applicable, when the supplier of goods/services is a Lithuanian taxable entity (in case the person has a fixed establishment in other Member State and goods/services are not supplied through that fixed establishment) or a foreign legal entity supplying goods/services through a fixed establishment of an entity in the territory of state;

• when the obligation to calculate and pay VAT on supply of goods/services falls on a purchaser in accordance with Article 95 of the Law on VAT, the purchaser issues VAT invoice according to the provisions of the Law on VAT;

• requirements on issuance of invoice stated in the Law on VAT are not applicable in cases when the supplier of goods/services in Lithuania is a foreign taxable person of another Member State, or goods/services are supplied through a fixed establishment of a foreign taxable person, which is established in another Member State, if a purchaser has an obligation to calculate and pay VAT.

Article 781 of the Law on CIT and Commentary of Article 781 of the Law on VAT will come into force as of 1 January 2013.

More information is available here.

REGARDING THE  CHANGES OF GOVERNMENT RESOLUTION NO. 861 DATED 12 JUNE 2002 REGARDING THE IMPLEMENTATION OF THE LAW ON VALUE ADDED TAX OF THE REPUBLIC OF LITHUANIA

By the Government Resolution No. 1283 dated 24 October 2012 the amendments of the Government Resolution No. 861 Regarding the implementation of the Law on Value Added Tax of the Republic of Lithuania were made. The mentioned Resolution amended the Rules on justification of lost goods in respect of force majeure or criminal activities of the third persons (hereinafter – the Rules). Paragraphs 7 and 8 of the Rules were amended as follows:

• the possibility not to adjust input VAT deduction or not to pay VAT shall be applied, if a tax payer holds a respective document, confirming that the pre-trial has begun in respect lost goods;

• the Rules were supplemented with the provision, that input VAT deduction shall be adjusted if it turns out that goods were lost not because of criminal activities of the third persons. In cases where goods, which were supervised by the Customs, were lost not because of criminal activities of the third persons VAT shall be paid according to the legal acts of Lithuania;

• Previously, the possibility not to adjust input VAT deduction and not to pay VAT in respect of the goods lost because of criminal activities of the third persons was applied according to the document confirming the initiation of criminal investigation only.

More information is available here.

REGARDING THE AMENDMENT OF THE GOVERNMENT RESOLUTION NO. 780 DATED 29 MAY 2002 REGARDING THE RULES OF ISSUANCE AND RECOGNITION OF ACCOUNTING DOCUMENTS APPLIED FOR CALCULATION OF TAXES

Government Resolution No. 780 Regarding the Rules of issuance and recognition of accounting documents applied for calculation of taxes (hereinafter – the Resolution No. 780) was changed by the Government Resolution No. 1240 dated 10 October 2012. The amendments of the Resolution No. 780 were made in accordance with the changes of the Law on VAT. The main changes of the Resolution No. 780 are the following:

• according to the new provisions, costs of taxi services can be recognized as expenses based on cash handling vouchers received from the service supplier, i.e. the driver. Previously expenses for taxi services were based on travel vouchers which had to meet requirements set in the Rules of transportation of passengers by taxi cars, approved by the Order No. 130 of the Minister of Transport and Communication dated 15 April 1997;

• the exception, according to which the VAT payer had the right to formalize all supplies of goods/services, as it is foreseen in the Articles 5 and 8 of the Law on VAT, executed during one taxable period in one VAT invoice, is abolished;

• the number of cases, when VAT invoices are not used for supplying goods/services to an individual, which is not a taxable person according to the Law on VAT, was supplemented by including the additional case when goods/services are supplied through trade (service supply) vending-machines complying with the technical, usage and revenue accounting requirements, foreseen by the legislation of the Republic of Lithuania;

• regarding the supplement of the Law on VAT by new Article 891, Resolution No. 780 was supplemented by Point 201, according to which the supplier of goods/services must issue the free form accounting document, referred to in Article 891 Paragraph 2 of the Law on VAT, which formalizes acknowledgment of a debt as a bad debt and   attribution of the sales VAT to that bad debt. The free form accounting document shall be issued in not less than 2 copies. The first copy is intended for the purchaser of goods/services and the second – for the supplier of goods/services. If the purchaser is dead or death is declared, or the purchaser is liquidated, except cases when economic activity (or part of it) is transferred as a complex by the taxable person - VAT payer - to a taxable person, which, according to the requirements of Article 68 Paragraph 2  of the Law on VAT, has the obligation to adjust VAT deduction, the supplier of goods/services shall issue at least one copy of the free-form document, foreseen in the Article 891 Paragraph 2 of the Law on VAT (which is for the supplier of goods/services). The Resolution No. 780 also provides particular requisites, which must be indicated in such free-form document. Point 202, supplementing Resolution No. 780, also foresees that such a document can also be electronic;

• V chapter of Resolution No. 780, concerning the issuance of credit and debit invoices and their usage for tax calculation, was abolished. According to the supplemented Point 203 of Resolution No. 780, credit and debit documents, which adjust the changes of supply of goods and services, documented by VAT invoices, should be issued according to the provisions of the Article 83 of the Law on VAT. These changes are prepared in accordance with the already adopted changes of Article 83 Paragraph 3 and newly adopted Article 83 Paragraph 4 of the Law on VAT (both Paragraphs will come into force as of 1 January 2013). It should also be noted that Resolution No. 780 was also supplemented with a new Point 291, which also replaces some provisions of abolished V chapter (i.e. Point 25) and relates with the changes of circumstances, when the supply of goods and services is documented not by a VAT invoice, but by other accounting document.

The changes of the Resolution No. 780 will come into force as of 1 January 2013.

More information is available here.

REGARDING APPROVAL OF RULES CONCERNING IMPORT VAT OFFSETTING

On 15 October 2012 by the Order No. VA-94/1B-785 of the Head of the STI under MF and the Head of the Customs department the Rules concerning import VAT offsetting (hereinafter – the Rules) were approved. The Rules set the order according to which import VAT is offset for goods that are released in the free circulation in the territory of the Lithuanian.   

According to the Rules, import VAT is offset if the importer of the goods is registered as a VAT payer in the Republic of Lithuania at the moment when obligation to pay import VAT arises, except the cases when obligation to pay import VAT arises in cases provided in the Law on VAT – due to release into free circulation or if the importer of goods is represented indirectly in the customs at the moment the goods are released into the free circulation.

According to Point 6 of the Rules, the import VAT that is offset includes import VAT, calculated at the moment of the release of goods in the free circulation as well as import VAT, calculated additionally, when goods are released in the free circulation.

VAT payers, which import VAT is offset according to the provisions of the Rules, must declare calculated import VAT in the VAT return (Form FR0600) of the appropriate tax period.  

The Rules will come into force as from 1 March 2013. If the obligation to pay import VAT will arise before 28 February 2013, it shall be offset according to Point 2.5 and 2.6 of the Resolution of the Government No. 861 dated 12 June 2002 Regarding the implementation of the Law on VAT.

More information is available here.

REGARDING THE AMENDMENTS OF RULES OF FILLING OF VAT RETURNS AND RETURN RELATED FORMS

By the 25 October 2012 Order No. VA-97 of the head of STI under MF the Rules of filling of VAT returns and return related forms were amended. The following amendments were made:

• VAT return form FR0608 of person not registered as a VAT payer was supplemented by fields 22, 23 and 24. The mentioned fields are necessary for the declaration of the amount of input (import) VAT deduction and calculation of payable or recoverable VAT amount. The amendments were made in accordance with provisions of Article 631 of the Law on VAT, which entitles a person not registered as a VAT payer to deduct VAT, when the obligation to calculate and pay VAT arises.

• The filling instructions of the field 26 (Paid import VAT) of VAT return form FR0600 was changed, providing that a VAT payer is entitled to include the amount of import VAT payable to the Customs into the field 26, even if the amount of the import VAT is not paid to the Customs.

• According to the new regulation, which will come into force as of 1 March 2013, the filling instructions of the field 27 (Import VAT setoff supervised by STI) was amended. The filling instructions provides cases, when import VAT amount on goods imported by Lithuanian VAT payers shall be entered into the field 27 of VAT return form FR0600 (as supervised by STI) and when the calculation and payment of amount of import VAT shall be supervised by the Customs.

The Order No. VA-97 of the head of STI under MF came into force on 1 November 2012.

More information is available here.

REGARDING THE AMENDMENTS OF THE LAW ON DECLARATION OF ASSETS OF RESIDENTS

The Law amending and supplementing Articles 2, 3, 5, 6 and 9 of the Law on Declaration of Assets of Residents of the Republic of Lithuania (No. XI – 2283) (hereinafter – the Law) adopted by the Parliament of the Republic of Lithuania on 17 October 2012. By the latter law the list of persons who are obliged to declare owned assets was extended.

According to the amendments, the obligation to declare the assets will also apply to the head officers of governmental or municipal institutions, the head officers of subdivisions of governmental or municipal institutions, assistants of the head offices of mentioned institutions, their family members and other persons set by the Law.

In addition, an obligation to submit the declaration of assets will also apply to candidates into the positions set by Article 2 Paragraph 1 Points 5−23 and 29−35 of the Law on Declaration of Assets of the Republic of Lithuania. The aforementioned candidates will be obliged to declare assets owned on 31 December of the calendar year proceeding the calendar year in which the candidate stands for the respective position. The Declaration of Assets should be submitted within 7 calendar days as of the day when the application of candidate was submitted.

The amendments will come into force as of 1 January 2013.

More information is available here.

REGARDING THE COMMENTARY OF ARTICLE 6 PARAGRAPH 2 OF THE LAW ON PERSONAL INCOME TAX

STI under MF supplemented and amended the Commentary of Article 6 Paragraph 2 of the Law on Personal Income Tax (hereinafter – Law on PIT) in order to unify an application of the Law on PIT.

As it is explained in the Commentary, income of the member of a small partnership, gained from distribution of profits, is taxed at the rate of 20%. The exception applies to the part of income of a member of small enterprise which is attributed to employment related income.

It is also clarified that profits of a non-resident of Lithuania gained from a Lithuanian non-limited liability company are subject to PIT at the rate of 15% also referring to the Double Tax Treaty between Lithuania and the respective country where the person resides (if the tax rate provided by the Double Tax Treaty is lower than 15%, the Double Tax Treaty is applied).

Provisions of the Commentary apply when calculating and declaring PIT of the tax period of the year 2012 and subsequent tax periods.

More information is available here.

OTHER NEWS

REGARDING AMENDMENTS TO THE RULES OF ACCOUNTING APPLIED TO RESIDENTS HOLDING BUSINESS CERTIFICATES AND RESIDENTS PERFORMING INDIVIDUAL ACTIVITIES

The Rules of accounting applied to residents holding business certificates and residents performing individual activities (hereinafter – the Rules) were amended by the Order No. 1K-313 of the MF on 19 September 2012 (hereinafter – the Order). The Order came into force as of 23 September 2012.
According to the new legislation, residents who hold business certificate and perform sales without using cash register, shall issue a receipt of purchase and sale of goods/services (hereinafter – the Receipt) under such circumstances:

• the customer wishes to receive the Receipt when the use of a cash register is not required and the customer does not request for a cash handling voucher (cases listed in Point 10 of the Description of the Rules regarding cash registers’ installation and use, approved by the Government on 13 August 2002 (No. 1283) (hereinafter – the Description);

• when the cash register is not required according to the Points 11.1, 11.2, 11.3, 11.5 and 11.7 of the Description, however, each customer gets a cash handing voucher or other accounting document (in cases when individual activity is performed using business certificate such document is the Receipt);

• when the price of purchased goods exceeds LTL 10 or when the customer requests for receipt in cases when the price of the purchased goods does not exceed LTL 10 in cases provided in the Order of the Head of STI No. VA-40 Regarding the cases of non-use of cash register, where the cash register cannot be used for objective reasons or cash register would clearly cause disproportionate administrative burden (hereinafter – Order No. VA-40).  

Moreover, the Rules of accounting applied to residents performing individual activities (except residents holding business permit) (hereinafter – the Rules) were amended by the Order No. 1K-312 of the MF on 19 September 2012 and came into force on 23 September 2012.

According to the amendments, residents who registered their individual activity must issue accounting documents foreseen in Paragraphs 8.1–8.4 of the Rules approved by the Order No. 1K-040, such as receipt, invoice, VAT invoice or cash register receipt in all cases. The exemptions apply under such circumstances:

• when in cases provided in Point 10 of the Description accounting documents are issued only under the request of the customer;

• when the customer does not request for a Receipt and the price of purchased goods is less than LTL 10 under the circumstances settled in the Order No. VA-40.

More information is available here.

REGARDING THE REPORT ON TRANSACTIONS CONCLUDED BY THE TAX RESIDENT OF THE REPUBLIC OF LITHUANIA

The Rules on filling and submitting the report on transactions concluded by the tax residents of the Republic of Lithuania (Form PR907) and additional page (Form PRC907P) (hereinafter – the Rules) were adopted by the Order No. VA-92 issued on 11 September 2012 by the Head of STI.

The Rules determine the procedure for submitting information to the tax administrator in relation to transactions concluded by the tax resident of the Republic of Lithuania which are in accordance with Article 421 of the Law on Tax Administration.

According to the provisions of the Rules, residents have to submit information about their concluded sale contracts or other kind of ownership transfer, lease, donation, inheritance and other contracts to the STI. Information has to be submitted only regarding those transactions which comply with provisions set by the Rules:

• due to transactions concluded residents receives income;

• an annual income received due to concluded transactions with the same person exceeds LTL 50,000;

• transactions are not notarial deed;

• income received is not declared according to the rules set by other tax laws.

More information is available here.

LEGAL NEWS

LAW ON INSURANCE AMENDED: STRICTER REQUIREMENTS FOR SOLVENCY OF INSURANCE UNDERTAKINGS

16 October 2012, the Parliament enacted a new Law on Insurance No. XI-2277 (hereinafter – the Law), which implements the Directive 2009/138/EC of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), and Article 4 of the Directive 2011/89/EU of 16 November 2011.

The Law establishes stricter financial and disclosure requirements for insurance undertakings, i.e. the new minimum capital requirement is EUR 2,200,000.00 for insurance undertakings not related to life insurance, including insurance undertakings that belong to the group. Minimum capital requirement for insurance companies which are engaged in life insurance activities, including insurance undertakings belonging to the group, is EUR 3,200,000.00.

The new Law on Insurance also sets down qualitative requirements related to risk management and internal control. In order to achieve the proper corporate governance, insurance and reinsurance undertakings are required to have a written policy at least in the fields of risk management, internal control, internal audit and, when applicable, outsourcing. Furthermore, insurance and reinsurance undertakings will be required to set a regular own-risk and solvency assessment in their risk assessment system as an essential part of the business strategy.

The requirements of accountability to the supervisory authorities and public disclosure are also established in the new Law on Insurance. Namely, insurance and reinsurance undertakings, acting in conformity with the public disclosure requirement, shall prepare solvency and financial standing report and announce it in accordance with the requirements of the regulations of the supervisory authorities.

The new edition of the Law on Insurance shall come into force on 1 January 2014.

More information is available here.

NEW LAW ON PREVENTION OF DELAY IN PAYMENTS UNDER COMMERCIAL TRANSACTIONS ADOPTED

A new law amending the Law on Prevention of Delay in Payments under Commercial Transactions No. XI-2287 (hereinafter – the Law), aimed at harmonizing the current legislation with the Directive 2011/7/EU on combating delayed payment in commercial transactions, was adopted on 17 October 2012.

The Law clarifies the terms of payment for goods, delivered under commercial transactions, as well as the terms of payment for the provision of services and for work carried out thereof. The interest for delayed payments, its calculation method and creditor’s rights in cases of delayed payments are also specified therein. This Law shall not be applicable to contracts concluded with consumers.

The amendments to the Law determine general rule that a payment term between private entities or private entities and public institutions may not exceed 30 days, and in exceptional cases only, when it is objectively reasonable – 60 days, except for cases when other terms are clearly defined in a commercial transaction and on condition that such terms cannot be considered unfair with regard to the creditor.

In addition to this, the Law establishes different calculation of the statutory interest for a delayed payment. Instead of currently applied one month VILIBOR interest rate, increased by 7 percentage points, overnight repo rate defined by the Central Bank of the Republic of Lithuania and raised by 8 percentage points shall be used.

It is also established that in cases when interest for delayed payment becomes payable in commercial transactions, the creditor is entitled to obtain from the debtor a fixed amount of EUR 40.00 as recovery costs.

The new edition of the Law on Insurance shall come into force on 1 March 2013.

More information is available here.

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