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Tax and Legal Newsletter, January 2013


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TAX NEWS

REGARDING THE AMENDMENT OF ARTICLE 24 OF THE LAW ON CORPORATE INCOME TAX

The Law amending Article 24 of the Law on Corporate Income Tax (hereinafter – CIT), which regulates the taxes that may be deducted from the income of an entity, came into effect on 29 December 2012.

Amendment of Article 24 of the Law on CIT establishes the possibility to deduct the amounts of import value added tax (hereinafter – VAT) that are not deductible (recoverable) according to the provisions of the Law on VAT and calculated on the allowable deductions as regulated by the Law on CIT, independently of whether these amounts of import VAT are already paid to the budget or not. Prior to the amendment, only the amounts of import VAT that have been paid to the budget could be deducted, i.e. considered as tax deductible costs.

Amendments have been made in order to harmonize the provisions of Article 24 of the Law on CIT with the decision of European Court of Justice in the case No. C-414/10 dated 29 March 2012, which prohibits making the right to deduct VAT conditional upon the fact of actual payment of import VAT. Corresponding amendments to the Law on VAT were made earlier.

More information is available here.

REGARDING THE SUPPLEMENT TO THE COMMENTARY OF ARTICLE 39 PARAGRAPH 3 OF THE LAW ON CIT

On January 9 2013 State Tax Inspectorate under the Ministry of Finance (hereinafter – STI under MF) prepared a supplement to the Commentary of Article 39 Paragraph 3 of the Law on CIT.

Article 39 Paragraph 3 of the Law on CIT was supplemented by new explanations and examples explaining the procedures of taxation of income of a Lithuanian entity received from controlled foreign entities. The aim of the procedures is to avoid taxing twice the same income earned by a foreign entity in Lithuania.

The Commentary establishes that in case a Lithuanian entity controls foreign entity through another Lithuanian entity (i.e. indirectly), the positive income shall be included to the tax base of Lithuanian entity which controls the foreign entity directly.

Different rules of taxation of positive income are applied when the Lithuanian entity controls the foreign entity indirectly through another foreign entity – in this case the Lithuanian entity shall calculate the positive income of both foreign entities.

Another explanation provided in the Commentary is related to certain cases, when the shares of the controlled entity are owned partly by the controlling Lithuanian entity, its subsidiary and its manager (head). Commentary provides that each controlling person shall include the positive income of the foreign entity to the tax base proportionally to the shares owned.

More information is available here.

REGARDING AMENDMENTS AND SUPPLEMENTS OF ARTICLE 31 OF THE LAW ON VAT

On 15 January 2013 STI under MF has amended and supplemented Article 31 of Law on VAT.

The Commentary of Article 31 Paragraph 2, which regulates the taxation of so called “mixed” transactions of rent services, i.e. transactions, when other property that is in the immovable property is rented with the immovable property, was supplemented with sub-paragraph 3. Commentary provides, that in this case it is important to determine, which element of the transaction is considered as a main service, and apply the VAT taxation rules applicable to such a service. However, when the elements of the transaction are not closely related, each of them has independent objective and the client may choose only one product or service as well as to purchase the supplementary product / service for a fee, then each element is treated as separate supply and, thus, taxed with VAT separately.

Other editorial changes related to the amendment of Article 31 of the Law on VAT have been made to the Commentary, as the concept of “equipment” was changed to “structures and equipment”.

More information is available here.

REGARDING THE AMENDMENT OF ARTICLE 57 PARAGRAPH 1 OF THE LAW ON VAT

On 17 January 2013 STI under MF prepared the amendment of the Commentary of Article 57 Paragraph 1 of the Law on VAT. The amendments were made considering the new provisions of Article 57 of the Law on VAT effective as of 1 January 2013.

Commentary, same as the Law, provides that the right to deduct VAT belongs not only to the entities registered as VAT payers but also to the Lithuanian entities, which did not register as VAT payers, but had the obligation to apply for registration in line with Articles 71 and 71 (1) of the Law on VAT, with the condition, that goods/services were used for the supply of taxable goods/services. Analogically, foreign taxable persons who are not registered as VAT payers and supplied VAT taxable goods/services (with certain exceptions) also have the right to VAT deduction.

More information is available here.

REGARDING AMENDMENT AND SUPPLEMENT OF ARTICLE 79 OF THE LAW ON VAT

On 16 January 2013 STI under MF prepared amendment and supplement of the Commentary of Article 79 of the Law on VAT. The Commentary was amended and supplemented in order to harmonize its provisions with the provisions of the amended Article 79 of the Law on VAT.

The most important amendments of the Commentary of Article 79 of the Law on VAT are related to the electronic VAT invoices (Commentary of Article 79 Paragraph 11 of the Law on VAT). The new Commentary defines the concept of electronic VAT invoice, describes the requirements of authenticity of origin, content integrity and readability, explains what measures of business control these requirements may secure and discusses other aspects of electronic VAT invoices. Commentary inter alia explains that the following documents are treated as electronic VAT invoices:

• Scanned paper VAT invoices that are scanned, sent and received by e-mail;

• VAT invoices in Word format that are sent and received by e-mail;

• VAT invoices transferred via electronic fax.

More information is available here.

REGARDING THE COMMENTARY OF ARTICLE 88(1) OF THE LAW ON VAT

STI under MF prepared the Commentary of Article 88(1) of the Law on VAT that comments on the reports of the supply of goods/services to the other EU member states. This is a new Commentary of the Article.

The provisions of the Commentary are prepared considering the rules adopted by Order No. VA-103 of the Head of STI under MF dated 23 December 2009 that discusses the form and the procedures of adjustment of the report of the supply of goods/services to the other EU member states.

According to the Commentary, VAT payers, who supply goods/services to the other EU member state, when the place of supply is in the other EU member state, must fill in and submit the form FR0564 of the Report of the supply of goods/services to the other EU member states to the local Tax Authorities. The report shall be submitted when the VAT payer supplies goods/services to the VAT payers of the other EU member states on the corresponding calendar month in one of these cases:

• supplies goods to VAT payers of the other EU member state, when the supply is taxed with 0% VAT rate in accordance with Article 49 of the Law on VAT (in some cases, including the supply of new vehicles and goods taxable with the excise duties to the VAT payers of the other EU member states as well as supply of goods imported to Lithuania and non-taxable with import VAT to the VAT payers of the other EU member states);

• in case the VAT payer transports the goods for the business purposes to which 0% VAT rate was applied from Lithuania to the other EU member state, in which they are registered as VAT payers, when the supply is treated as supply of goods for consideration by the provisions of the Law on VAT;

• in case of triangular trade (i.e. when the goods acquired from the other EU member state are supplied to the VAT payers in another EU member state);

• in case of provision of services, when the place of supply of services is in the other EU member state, except the services, which are VAT exempt or taxable with 0% VAT rate in the other EU member state.
The report is to be submitted until the 25th day of the next month. All the report (rather than its incorrect part(s)) has to be adjusted in case of mistakes in the completion.

More information is available here.

REGARDING THE AMENDMENTS AND SUPPLEMENTS OF THE COMMENTARY OF ARTICLE 83 OF THE LAW ON VAT

On 9 January 2013 STI under MF amended and supplemented the Commentary of Article 83 of the Law on VAT. The Commentary of Article 83 Paragraphs 1-3 were amended and supplemented considering the amendments of Article 81 Paragraph 3, according to which the required details of credit and debit VAT invoices were unified (they differed before).

Amended and supplemented Commentary provides that both credit and debit VAT invoices shall have these details:

• all required details of VAT invoice, provided in Article 80 Paragraph 1 of the Law on VAT, including the details that do not change (i.e. are not corrected);

• other information depending on whether it is possible to identify the document, data of which is adjusted:

o if it is possible to identify the document, data of which is corrected – the date, series and number of adjusted VAT invoice;

o if it is not possible to identify the document – other information on adjusted accounting documents (e.g. period of the supply of goods/services, etc.).

• information on the fact that the document is credit or debit VAT invoice (provided in any format).

Commentary of Article 83 Paragraph 4 was supplemented considering the supplement of Article 83 of the Law on VAT with Paragraph 4. Commentary generally repeats the provisions of the Law, which allow the VAT payer to provide not all required details of initial VAT invoice in the credit or debit documents in accordance with Article 80 Paragraph 1 of the Law on VAT, as mentioned, but much less details applicable to the simplified VAT invoices (the required details are listed in Article 80 Paragraph 9 of the Law on VAT). This possibility is granted to VAT payers independently on what details – simplified or not, were provided in the initial VAT invoice. Restrictions to this possibility are provided in Article 79 Paragraph 14 of the Law on VAT (e.g. in case of remote commerce, etc.).

More information is available here.

REGARDING AMENDMENTS AND SUPPLEMENTS OF THE COMMENTARY OF ARTICLE 92 PARAGRAPHS 1 AND 3 OF THE LAW ON VAT

STI under MF prepared the amendments and supplements of the Commentary of Article 92 Paragraphs 1 and 3, regulating the obligations of the entities not registered as VAT payers in relation to payment of VAT. The main amendments to the Commentary were:

• Commentary of Article 92 Paragraph 1 of the Law on VAT provides that the collective investment undertaking which does not have a status of a legal entity and which form of activity is an investment fund has an obligation to calculate and pay VAT on the supply of goods/services;

• Commentary of Article 92 Paragraph 1 of the Law on VAT provides that the consideration earned for the supply of goods/services outside the territory of Lithuania is not taken into account when calculating provided amount of LTL 155,000;

• Commentary of Article 92 Paragraph 1 also establishes that the VAT payer of the other EU member state, who supplies VAT taxable goods (except the goods taxable with excise duties) remotely and is not registered as a VAT payer in Lithuania (despite the fact that it has such an obligation) shall calculate and pay VAT to the Lithuanian budget. VAT shall be calculated on the value of the goods, because of which the threshold of VAT registration has been exceeded;

• Commentary of Article 92 Paragraph 3 was amended considering the amendment of Article 92 Paragraph 3 coming into force as of 1 January 2013. Commentary provides the list of taxable persons of the Republic of Lithuania, who have to submit VAT accounts form FR0608 as they have the obligation to register as VAT payers but have not done that yet.

More information is available here.

REGARDING THE AMENDMENTS AND SUPPLEMENTS OF THE COMMENTARY OF ARTICLE 2 PARAGRAPH 34 AND ARTICLE 22 PARAGRAPH 2 SUB-PARAGRAPH 1 OF THE LAW ON PERSONAL INCOME TAX

On 21 January 2013 STI under MF prepared amendments and supplements of the Commentary of Article 2 Paragraph 34 and Article 22 Paragraph 2 sub-paragraph 1 of the Law on Personal Income Tax (hereinafter – PIT).

Commentary of Article 2 Paragraph 34 of the Law on PIT was supplemented with a provision that for the income received from the small partnerships by their members, on which the social security contributions are paid, the same taxation regime is applied as it is for the income received by the members of the unlimited liability entities (individual enterprise and partnerships). Small editorial changes related to this supplement have also been made.

Commentary also provides that income earned by a non-resident of Lithuania – the owner of an individual enterprise, general partner of a partnership or a member of a small partnership can be treated as income connected to employment  corresponding (in their essence) relations, if the person is obliged to pay social security contributions in accordance of the Law on State Social Security.

Commentary of Article 22 Paragraph 2 sub-paragraph 1 of the Law on PIT provides that as of 1 September 2012 income earned (withdrawn) by a non-resident of Lithuania – the owner of an individual enterprise, general partner of a partnership or a member of a small partnership, for the purpose of PIT payment procedures is treated as class A income, on which the PIT is calculated and paid by the individual enterprise, partnership or small partnership, whereas the same income earned by a Lithuanian resident is attributed to class B income.

Commentary of Article 22 Paragraph 2 sub-paragraph 1 was amended in accordance with corresponding amendments of Article 22 Paragraph 2 sub-paragraph 1 adopted on 29 June 2012 and effective as of 7 July 2012.

More information is available here.

REGARDING AMENDMENTS AND SUPPLEMENTS OF THE COMMENTARY OF ARTICLE 16 PARAGRAPH 1 OF THE LAW ON PIT

STI under MF prepared the amendments and supplements of Article 16 Paragraph 1 of the Law on PIT on 17 January 2013. Commentary was updated in order to harmonize its provisions with the amendments related to the taxation of the income connected to the employment corresponding (in their essence) relations of the members of entities of unlimited liability and small partnerships.

Commentary also explains the application of minimum additional non-taxable amount of income (hereinafter – MPNPD) to the income from the distributed profit taxed with 15% or 20% PIT rate. Commentary provides that MPNPD cannot be subtracted from the income from distributed profits taxed with a 20% PIT rate and can be applied to the income taxed with a 15% PIT rate. Thus, MPNPD cannot be applied to the income (taxed with 20% PIT rate), a member of a small partnership receives from the distributed profit of this entity. However, MPNPD can be subtracted from the income received as distributed profit from unlimited liability entity as this income is taxed with a PIT rate of 15%.

Commentary also establishes that income from distributed profit to which 20% PIT rate is applied cannot be reduced by the expenses provided in Article 21 of the Law on PIT. Considering that, a member of an entity of unlimited liability, who receives income from the distributed profit of individual enterprise or partnership (including the income treated as connected to employment corresponding (in their essence) relations) may reduce the taxable income by the expenses provided in Article 21 of the Law on PIT. Meanwhile, a member of a small partnership, who receives income from it, may subtract the expenses provided in Article 21 of the Law on PIT only from the income treated as connected to employment corresponding (in their essence) relations.

Amendments and supplements of the Commentary also include other editorial changes, related to the aforementioned amendments.

More information is available here.

OTHER NEWS

REGARDING THE IMPLEMENTATION OF ARTICLE 104(1) OF THE LAW ON TAX ADMINISTRATION

On 7 January 2013 Head of STI under MF adopted (i) the Rules on establishing the tax obligation by the decision of tax administrator and (ii) the form FR1119 of decision regarding establishing of tax obligation.
The rules and form FR1119 were adopted with respect to the supplement of the Law on Tax Administration with Article 104(1) effective as of 1 January 2013. The mentioned article defines the cases, when the tax administrator itself sets the tax obligation to the tax payer, if the tax return is not submitted on time.

More information is available here.

REGARDING THE IMPLEMENTATION OF ARTICLE 104(2) OF THE LAW ON TAX ADMINISTRATION

Head of STI under MF adopted the Rules of completion of the form FR1118 of the instruction of the tax administrator to tax payer to settle in non-cash and form FR1200 of the decision to lift the instruction of the tax administrator to tax payer to settle in non-cash.

The rules were adopted in order to implement Article 104(2) of the Law on Tax Administration, regulating the cases when the tax payer is instructed by a tax administrator to settle in non-cash for a period not longer than one year, aiming to enforce the tax obligations of the tax payer. It should be noted that Article 104(2) of the Law on Tax Administration is effective as of 1 January 2013.

More information is available here.

REGARDING THE CONFIRMATION OF TAX RESIDENCE FOR THE RESIDENTS OF LITHUANIA

STI under MF considering received inquiries and practice of application of international double tax treaties explained the procedures of confirmation of tax residence of the residents of Lithuania. Such confirmation is required when the resident receives income from the foreign state, with which Lithuania has concluded and applies double tax treaty, and wants the tax relief provided in the double tax treaty to be applied.

More information is available here.

REGARDING THE AMENDMENT OF THE RULES OF DISSEMINATION OF THE NON-CONFIDENTIAL INFORMATION ON TAX PAYER TO THIRD PARTIES

By the Order No. VA-119 of the Head of STI under MF dated 31 December 2012 the Rules of dissemination of the non-confidential information on tax payer to third parties were amended.

Rules allow to publicly disclose the information or data on the legal entities in the new website of the Tax Authorities www.nauja.vmi.lt, in case the entity:

• has tax underpayments (except the underpayments, which term of payment is postponed or spread across time with respect to which the tax disputes are taking place and there is no effective decision at the time);

• has been instructed by the Tax Authorities to settle in non-cash based on suspicion that the tax payer may be seeking to avoid tax obligations;

• declared and paid the taxes on time, or paid the largest amount of taxes as well as the information on the taxes paid by another legal entities.

More information is available here.

REGARDING THE ADJUSTMENT OF THE MEMOS FOR THE INDIVIDUALS ACQUIRING THE BUSINESS CERTIFICATE

On 10 January 2013 STI under MF announced that it had updated the short version and large version of memos for the individuals acquiring the business certificate. The memos were adjusted taking into account the changed size of minimum monthly wages, changed requirements for the completion of the check and form as well as amended accounting rules applied for the individuals conducting the activities with the business certificate.

More information is available here.

REGARDING THE UPDATE OF THE PUBLICATION “ON THE REAL ESTATE TAX FOR LEGAL PERSONS”

STI under MF considering the amendments of the Law on Real Estate Tax prepared a new edition of the publication “On the real estate tax for legal persons” on 23 January 2013.

More information is available here.

REGARDING THE IMPLEMENTATION OF DOUBLE TAX TREATIES WITH MEXICO AND INDIA

As of 1 January 2013 the Treaty regarding the avoidance of double taxation of income and prevention of tax evasion signed with Mexico and Treaty regarding the avoidance of double taxation of income and capital and prevention of tax evasion signed with India became effective in Lithuania.

Currently Lithuania applies 49 double tax treaties signed with other countries.

More information is available here.

REGARDING THE SUPPLEMENT OF “WHITE LIST”

By the Order No. 1K-009 of the Minister of Finance dated 8 January 2013 the list of the foreign states and zones, entities established in which are not subject to the provisions of Article 39 of the Law on CIT, was amended (so called “white list”). The list was initially adopted by the Order No. 24 dated 24 January 2002. Amendment added two new states – Mexico and India to the list (so the list currently comprises 49 countries).
The provisions of the Order are applicable in calculation of the taxable income for 2013 and following tax periods.
More information is available here.

LEGAL NEWS

THE LAW ON ENERGETICS OF RENEWABLE RESOURCES HAS BEEN AMENDED

On 17 January 2013 the Parliament adopted the law amending and supplementing the Law on Energetics of Renewable Resources of the Republic of Lithuania No. XII-169 (hereinafter – the Law), which amends the conditions for development of solar power plants.

The Law determines that all solar power plants with the capacity of more than kW 10 must compete in auctions in order to obtain a promotion quota. Promotion quotas, their distribution order and the regions for auctions should be specified by the Government.

The Law also establishes that the permission to develop solar energy production facilities is not required provided that the capacity of such facilities does not exceed kW 10 and they are aimed at producing electric power only for private consumption and household needs. In such cases the producer has to inform the network operator.

Implementing law No. XII-170 specifies that permissions to develop solar energy production facilities issued until the entry into force of the Law (i.e. until 1 February 2013) are valid until the date specified therein, but not longer than until 1 July 2013. Persons who are already issued with the aforementioned permissions, must apply to the Ministry of Energy of the Republic of Lithuania for the permission to produce electric power. Given the application is not submitted, the permission to develop solar energy producion facilities will cease to have effect. Persons who will not finish development process until 1 July 2013, may apply to the Ministry of Energy requesting the extension of the permission to develop solar energy production facilities. In such cases the application must be submitted not later than until 1 July 2013 together with the proof that at least 50 percent of the intended project investments had been completed.

More information is available here.

THE LAW ON SECURITIES HAS BEEN AMENDED

On 17 January 2013 the law amending and supplementing the Law on Securities of the Republic of Lithuania No. XII-148 (hereinafter – the Law) was adopted. The Law implements the Directive 2010/73/EU of the European Parliament and of the Council (amending Directives 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading and 2004/109/EC on the harmonisation of transparency  requirements in relation to information about issuers whose securities are admitted to trading on a regulated market).

In addition to other amendments and supplements, the Law amends the definition of the professional investor and defines companies with reduced market capitalisation. According to the Law, a company with reduced market capitalisation means a company listed on a regulated market that had an average market capitalisation of less than mEUR 100 on the basis of end-year quotes for the previous three calendar years.

The Law also amends the conditions related to the publication of prospectus. It is established that the obligation to publish the prospectus shall not apply to the following types of offer: (i) an offer of securities addressed to fewer than 150 (previously – 100) natural or legal persons per Member State, other than qualified investors, and/or (ii) an offer of securities addressed to investors who acquire securities for a total consideration of at least tEUR 100 (previously – tEUR 50) per investor, for each separate offer, and/or (iii) an offer of securities whose denomination per unit amounts to at least tEUR 100 (previously – tEUR 50), etc.

Furthermore, it is specified that prospectus should contain a summary of key information, i.e. essential information related to the activities of the issuer and guarantor, the securities offered or admitted to trading on a regulated market and risks thereof. The Law establishes that the key information includes (i) a brief description of risks, related to the essential characteristics of the issuer and the guarantor (including property, obligations and financial state); (ii) a brief description of risks related to the investment in securities and the essential characteristics of such investment (including rights attaching to the securities); (iii) general terms of the offer (including estimated expenses charged to the investor by the issuer or the offeror); (iv) description of the involvement in trading on a regulated market; and (v) the grounding of the offer and the use of income.

The Law also establishes that, in addition to other cases, a legal entity is not considered to be an issuer once the shareholders‘ meeting, court or the meeting of creditors adopts a decision to liquidate it.

The Law came into force on 30 January 2013.

More information is available here.

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