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Tax and Legal Newsletter, April 2014


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TAX NEWS

THE COMMENTARY OF THE LAW ON PERSONAL INCOME TAX HAS BEEN AMENDED

The State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania (hereinafter − STI under MF) announced the updated Commentary of Article 9 of the Law on Personal Income Tax (hereinafter – Law on PIT).

The Commentary was supplemented with the following provisions on the moment of recognition of income in kind, in a case of an interest-free loan or loan with preferential interest:

- if preferential interest is paid, then recognition of a benefit received is performed at the moment of preferential interest payment (as defined in the contract). The moment of recognition does not change, if the preferential interest, which is set in a loan (credit) agreement is, for some reason, actually paid by a resident within the other term than set in the contract;
- if interest is not paid (interest is not foreseen in the loan (credit) agreement (interest-free loan) or interest payment is due less than once during the tax period), then the recognition of received benefit is performed as follows;
(i) if an entire loan is repaid during the year – at the moment of repayment of loan and / or its part, or
(ii) if only a part of the loan is repaid during the year, then the assessment of a benefit received is performed at the time of repayment of part of the loan and, considering the fact that, according to Article 7 of Law on PIT tax period is the calendar year, on the last day of the tax period, or
(iii) only on the last day of the tax period, if a loan or its part is not repaid during the tax period.
- if at the time of concluding a contract interest is not set or set lower than the actual fair market price, and later the contract amendments, that determine the fair market value interest, are agreed by the parties of the contract, and the interest (interest part) is paid for the entire period of the contract, personal income tax which was paid to the budget is refunded according to procedure set in the laws;

More information is available here.

THE COMMENTARY OF THE LAW ON PERSONAL INCOME TAX HAS BEEN AMENDED

STI under MF has updated Commentary of Article 17 Part 1 Section 22 of the Law on PIT according to the amendments of the law No. XII-427 of 27 June 2013

The Commentary was supplemented with the following provisions on non-taxable income:
- in a case a contract for the deposit, which is kept with credit institutions of European Economic Area, was concluded till 31 December 2013 (interest paid according to this contact is not taxed), and after this date the agreement is extended or only non-essential conditions are changed (examples are given in the commentary), it is assumed that the date of concluding an agreement has not changed. However, in case when the essential terms of the agreement (specified in the commentary) are changed, it is assumed that the interest is paid according to the agreement, concluded from the year 2014, and, therefore, the interest received is taxable.

More information is available here.

THE COMMENTARY OF THE LAW ON VALUE ADDED TAX HAS BEEN AMENDED

STI under MF has updated Commentary of Article 32 Part 2 of the Law on Value Added Tax (hereinafter – Law on VAT).

The Commentary states that although according to the Immovable Property Register and Cadastre purpose of the land plot use is not "other", but e. g. “agricultural” this land plot for VAT purposes will be considered as land for construction activities (its supply is subject to VAT), if at the moment of concluding a contract, the following decisions were made:

- a decision of National Land Service Manager (Authorized Territorial Unit Manager), Council of Municipality, Director of Municipality Administration or Institution, which certifies a special planning document, to change the purpose of land plot use and (or) method that allows construction activities in this land plot, and there is an approved document of territorial planning or land management project;
- a decision of the Director of the Municipality Administrations to change the purpose of the land plot use, and (or) method that allows construction activities in this land plot.

More information is available here.

RULLING IN THE ADMINISTRATIVE CASE

The Supreme Administrative Court of Lithuania (hereinafter - SACL) issued a controversial ruling in the administrative case No. A552-629/2014 on 15 April 2014, noting that with respect to self-employed persons the state social insurance base has to be set by taking 50% from all taxable income received during a calendar year. According to the court, the concept of taxable income which is used in the Law on State Social Insurance is independent and the calculation of this income is not the same as specified in the Law on PIT.

The Rulling specifies that:

- Article 7 of the Law on State Social Insurance refers to the Law on PIT only for defining the concept of individual activity, but not taxable income.
- Law on PIT is used for income tax calculation and allows to deduct the costs from the total amount of income, while reducing only the amount of personal income tax payable. However, this does not mean that other taxes, such as social security contributions, should be reduced by such costs in this way.

More information is available here.

LEGAL NEWS

THE LAW ON INTRODUCTION OF THE EURO IN THE REPUBLIC OF LITHUANIA HAS BEEN ADOPTED

On 17 April 2014 the Parliament of Lithuania adopted the Law on Introduction of the Euro in the Republic of Lithuania (hereinafter – the Law) which establishes the procedure for (i) preparatory steps to adopt the euro, (ii) changeover of litas to euro, (iii) the recalculation of values in litas to euro and (iv) the withdrawal of litas from the circulation.

The Law establishes the following procedure for the introduction of the euro:

- cash payments in litas and euro will be accepted for 15 days as from the adoption of the euro;
- deposits and savings in litas in banks or other credit institutions will be converted to euro automatically and free of charge on the day of adoption of the euro;
- cash in litas will be exchanged to euro free of charge without applying limitations to the amount at commercial banks and branches of foreign banks in Lithuania for 6 months from the adoption of the euro and banknotes of litas will be exchanged under the same conditions for additional 6 months;
- the Bank of Lithuania shall exchange the litas to the euro free of charge for an unlimited period of time and without any limitation on the amount;
- cash in litas will be exchanged to the euro at Lithuanian post offices free of charge for 60 days after the adoption of the euro;
- prices both in litas and in euro will have to be indicated at their publication sites within 30 calendar days following the conversion rate establishment date and for 6 months after the introduction of the euro;
- the rules of conversion of salaries and social benefits establish the requirement of rounding-off in favour of the recipient;
- sanctions for breaches of the Law for legal entities as well as natural persons: a warning or a penalty up to LTL 1,000 and a penalty up to LTL 10,000 for a repeated violation of the Law.

The Law shall come into effect after the institutions of the European Union adopt all the necessary decisions on the introduction of euro in Lithuania.

More information is available here.

Contacts

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Tatjana Vaiciuliene
Company:
Deloitte
Job Title:
Head of Tax & Legal department
Phone:
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Email
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Name:
Tomas Davidonis
Company:
Deloitte
Job Title:
Attorney-at-Law
Phone:
+370 5 255 3000
Email
tdavidonis@deloittece.com
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