January, 2014 

Please enjoy the January edition of the Tax, Legal and Accounting Newsletter.

Kind regards,
KPMG in Lithuania

Major tax amendments effective
as of 1 January 2014



Personal income tax (PIT)  

The tax-exempt amount (TEA) and additional tax exempt amount (ATEA) was increased.

As of 1 January 2014, the tax-exempt amount and additional tax-exempt amount applicable for those having children were increased.

The monthly TEA was increased from Litas 470 to 570, while the annual TEA - from Litas 5,640 to 6,840. These amounts shall apply if monthly employment income of an individual does not exceed Litas 1,000 and the annual income does not exceed Litas 12,000.

If the monthly salary exceeds Litas 1,000, the applicable monthly TEA shall be calculated according to the formula: TEA = 570 – 0.26 x (monthly remuneration – 1,000). The annual TEA shall be calculated according to the formula: the annual TEA = 6,480 – 0.26 x (annual income – 12,000).

As of the beginning of 2014, the ATEA of Litas 200 shall be applied for every child.


Tax rate for dividends is reduced.


Dividends and other income from the distributed profit paid as of 2014 shall be subject to a 15 percent PIT rate (before 2014 20 percent rate applied).


Gain received from the sale of securities exceeding Litas 10 thousand shall be subject to a tax rate of 15 percent tax rate as of 2014.


According to the provisions of the Law on PIT, starting from 2014 income from sale of securities or derivatives except those issued in tax havens, exceeding Litas 10,000, shall be subject to taxation irrespective of the date of their acquisition and duration of their holding under the ownership right. The taxable income shall be calculated by deducting the acquisition price of securities or derivatives and other related expenses from the income received (Subpar. 30 Par. 1 Art. 17, Art. 19 of the Law on PIT).

The income from sale of financial instruments shall be subject to taxation from the first Litas when a shareholder sells or otherwise transfers these shares to the ownership of the issuer of the shares. Special rules apply for increase of the nominal value of shares and in case of liquidation (Subpar. 1 Par. 14 Art. 2, Art 11 of the Law on PIT).

For the purpose of calculation of income of 2014 and subsequent years, the transfer of securities (including derivatives) shall not be recognised as individual activities.


Interest shall be subject to taxation as of 2014.


As of 2014, interest received for the loans granted (notwithstanding when the loans have been granted) shall be subject to a 15 percent PIT rate. However, interest received for:

    • non-equity securities, i.e. debt securities,
    • non-equity securities of local bodies of the governments of Lithuania and foreign states as well as their political and territorial administrative divisions,
    • deposits held in banks and other credit institutions of Lithuania and foreign states,


which does not exceed Litas 10,000, shall not be subject to taxation, if the non-equity securities were acquired or deposit agreements were concluded as of 1 January 2014.

If the securities of local bodies of the government of the European Economic Area (EEA) countries, state political and territorial administrative divisions were acquired or deposit agreements in the EEA were concluded before 31 December 2013, then the interest received as of 1 January 2014 shall not be subject to PIT, irrespective of the amount of income received.

For the purpose of calculation of PIT for 2014 and subsequent years, non-taxable income includes interest paid for non-equity securities of companies which had been issued before 31 December 2014 and are to be redeemed not earlier than after 366 days of their issue.

The provisions regarding taxation of interest are established in Subpar. 20-22 Par. 1 Art 17 of the Law on PIT.


The provisions regarding taxation of interest are established in Subpar. 20-22 Par. 1 Art 17 of the Law on PIT.

The payments received by a non-resident of Lithuania for being a member of a management board or a supervisory board as of 2014 shall be subject to a 15 percent PIT rate. Until now, only the annual payments to non-residents for their activities in a supervisory board were subject to taxation.


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Corporate income tax (CIT)


As of 2014, carry-forward of tax losses shall be limited.


When calculating payable corporate income tax of 2014 and subsequent tax periods, entities may carry forward tax losses, but not exceeding 70 percent of the taxable profit of a taxable period (Par. 4 Art. 30 of the Law on CIT).

These provisions shall also apply to the losses of financial institutions incurred due to disposal of securities and (or) derivatives.

These limitations accordingly shall also apply to carry-forward of losses in case of reorganisation, merger and acquisition and restructuring of entities in accordance with Art. 43 of the Law on CIT.

The procedure carry forward of losses of non-financial institutions occurring due to disposal of securities and derivatives shall not change, i.e. the 5 year tax loss carry forward rule still applies.


As of 2014, the period and the applicability of the incentive for investment were extended.


The period of investment incentive for certain groups of fixed assets was extended (applicable 2009-2018). Companies may reduce their taxable profits up to 50% by the amount of expenses incurred for investment in certain fixed assets: machinery and equipment, computer hardware and software, communication equipment, acquired rights. As of 2014 the incentive is also applied to acquired trucks, trailers and semitrailers. The investment assets shall be new and produced not more than 2 year ago (calculating from the start of the use of the assets). Part of the acquisition costs of fixed assets, which has not been utilised during the taxable year, may be carried forward, but not more than 4 years. The tax authorities should be notified that the company is performing an investment project.

Commentary of Art. 46-1 of the Law on CIT was update by the State Tax Inspectorate under the Ministry of Finance (hereinafter referred to as the STI under MF) by letter No. (32-42-31-1)-RM-8780. The update commentary provides an explanation regarding the incentives for investment project applicable to trucks, trailers and semitrailers. A detailed definition of motor vehicles is given, including trucks, trailers, semitrailers, tractors and self-propelled machines. Worth noting that although a tractor and a self-propelled machine are not considered as lorries, they can be assigned to the group of fixed assets “machinery and equipment”. While buses are not considered as assets meeting the requirements of investment project.


Funds for film production reduce not only taxable profit but also corporate income tax.


Entities which provided funds for free for production of a film or its part during the period from 2014 to 2018, may reduce the taxable profit and the payable CIT.

When calculating the taxable profit, an entity may deduct up to 75% of the funds provided for production of a film or its part in Lithuania from its taxable profit. Furthermore, the payable corporate income tax may be reduced up to 75% by the amount provided for film production. If the amount of funds exceeds 75% of corporate income tax payable, the exceeding amount may be carried forward to reduce profits of the other two subsequent taxable periods.

A film must meet the requirements established by the Lithuanian Cinema Centre. It is mandatory to have a investment certificate issued by the Cinema Centre. The manner for issuing the certificates is prescribed by Order No. ĮV-892/1K-406 of the Lithuanian Culture and Finance Ministers dated 20 December 2013. The taxable income and CIT may be reduced in the tax period when the certificate was obtained.


As of 2014 only life insurance investment income is not subject to taxation.

Non-taxable income of insurance companies include only life insurance investment income (except for dividends and other distributed profit) (Par. 16, Art. 12 of the Law on CIT).

These provisions shall apply for the calculation of corporate income tax for 2014 and subsequent periods.


The income basis of foreign entities in Lithuania was extended.

As of 1 January 2014, income of foreign entities received from a Lithuanian entity is consider to include not only annual payments (bonuses) for activities of members of the supervisory board but also any benefits from Lithuanian entities for the activities of the previously mentioned members.


CIT shall be paid earlier.


The main change in 2014 comparing to previous periods is the earlier deadline for CIT payment. As of this year, it is the same as the submission date of the annual CIT return. If the taxable year of an entity corresponds to the calendar year, the both the deadline for submission of the tax return and payment of CIT for 2013 is 1 June 2014. In other cases the return must be submitted and tax must be paid by the first day of the sixth month of the following taxable period.


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Value added tax (VAT)

Lower VAT rates for some goods and services.

As of 1 January 2014:

    • A reduced VAT rate of 5 percent shall apply for indefinite period to medicine and medical aid equipment when the acquisition expenses of the goods are fully or partially reimbursed in the manner prescribed by the Law on Health Insurance of the Republic of Lithuania


Until 31 December 2014:

    • A reduced VAT rate of 9 percent shall apply to thermal energy supplied to heat residential premises (including the thermal energy supplied through the hot water supply system), hot water supplied to residential premises or cold water used for preparation of hot water and thermal energy consumed for heating this water.


Please be reminded that as of 1 January 2014, the rules of non-levying import VAT on goods imported and supplied to another EU member state became more stringent.


As of 1 January 2014, the rules of non-levying import VAT on goods imported and supplied to another EU member state were amended. The rules were amended by Order No. 1B-811/VA-84 of the Customs department and STI under FM. More detailed information on the amendments to the rules is available in our Newsletter of December 2013.


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State social insurance

The payment of mandatory social insurance contributions for members of small partnerships has been postponed for a year.

A preferential procedure of payment of social insurance contributions applicable to owners of individual entities, general partners of partnerships and members of small partnerships was extended for a year. In 2014, such contributions shall be paid on the actually paid amounts for personal needs in the same manner as until now.


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Other amendments



Personal income tax (PIT)

Interest of non-residents of Lithuania for non-equity securities issued by the Government shall be exempt from taxation

In 2014 and subsequent years, interest of non-residents of Lithuania for non-equity securities issued by the Lithuanian Government shall be exempt from taxation in Lithuania at source.

The amendment is aimed at ensuring uniform treatment of income received by all foreign investors (both legal entities and individuals) from securities issued by the Government of the Republic of Lithuania.


Income from sale of metal scrap shall be taxed from the first Litas.

As of 2014, income from non-individual activity, which has been derived from sale of non-noble metal scrap, is taxed from the first Litas at a PIT rate of 5%. Having received such income, the provisions of Subpar. 27, Par. 1, Art. 17, establishing a non-taxable sum of Litas 8,000, shall not apply.

Furthermore, the acquisition price of the asset and payments (costs) related to disposal or sale of the assets, specified in legal acts, shall not be deducted from the non-individual activity income derived from sale or disposal of non-noble metal waste.

Par. 1, Art. 32 of the Law on PIT was amended accordingly. The reworded provision repeals a possibility for the persons, who in 2014 and subsequent periods derived income from sale of non-noble metal scrap, to apply for the recalculation of income tax.


Amounts paid from pension funds to the persons with limited working capacity shall not be subject to taxation.

Provisions of Par.1, Subpar. 16 and 16-1, Art. 17 of the Law on PIT were adjusted. The adjustments set forth that payments from the pension funds of the 3rd pillar pension system shall not be subject to taxation also in the cases when the recipient of income is rated to have a limited working capacity 0-25 or 30-40 percent.

The amendment shall apply for the calculation of income of 2013 and subsequent tax periods.


The life insurance premiums paid by guardians (caretakers) in favour of their dependants are tax deductible.

As of 2014 the taxable income of a guardian (caretaker) may be reduced by the amount of insurance premiums or payments to pension funds paid if they are paid in favour of their dependants, who are under permanent guardianship (care) family (Subpar. 1-2 Par. 1 Art 21 of the Law on PIT).


Tax non-residents of Lithuania will be able to claim back overpaid PIT, which accumulated because of taxation of interest, only upon filing of the annual tax return.

In accordance with provisions of Subpar. 20, Par. 1, Art. 17 of the Law on PIT, personal income tax shall not be levied on interest for non-equity securities and deposits in credit institutions, if the interest amount does not exceed Litas 10,000.

As this interest income is A class income of a tax non-resident of Lithuania, in accordance with Par. 5, Art. 17 of the Law on PIT, tax non-residents of Lithuania will be able to claim back overpaid PIT, which occurred because of taxation of interest, upon filing of the annual tax return after the end of the year.


Updates related to the issuance of business certificates.


On 18 December 2013, the Government of the Republic of Lithuania adopted Resolution No. 1255 which approved the amendments to the procedure of the issue of business certificates:

    • business certificates shall be issued and extended for a requested period of a calendar year but not longer one calendar year and not shorter than 5 days, except for trading business certificates which are issued and extended for any requested period of a calendar year but not longer than one calendar year.
    • business certificates shall be issued and extended to the foreigners, who have a residency permit in the Republic of Lithuania or a permit of a long-term resident of the Republic of Lithuania for residence in the EU, for a period not longer than the validity of the permit.
    • he persons, who have acquired business certificates of all types, in the place of their activities should have a passport of a citizen of the Republic of Lithuania, personal identity card, a passport or other personal identity document.


New rewording of the publication on business trip taxation.


The STI under MF has prepared new rewording of the publication Costs and Compensation Amounts of Business Trips which Are not Subject to Taxation. It is available here.

Relevant information regarding the taxation of business trips and practical cases are provided.


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Corporate income tax (CIT)

The commentary of the Law on CIT was supplemented regarding the interest for borrowed capital.

STI under FM have supplemented the commentary of Par. 3 Art. 40 of the Law on CIT by letter No. (32.42-31-1)-RM-9267. The commentary explains that when a controlling entity grants several loans with different interest rates and the total amount of such loans exceed the debt/equity ratio of 4:1, then all the interest calculated shall be considered as non deductible expenses, regardless of the loans granting order.

The commentary also explains that having a written evidence of a bank or other company regarding the granting of a loan to particular entity under particular conditions, could be considered as one of the evidences justifying whether a loan from a controlled entity was granted under similar conditions.


The list of investment companies, the income of which is not subject to taxation, was supplemented.


In accordance with Par. 5, Art. 12 of the Law on CIT, for the purpose of calculating taxable profit for the tax period beginning with 2013 and subsequent tax periods, the tax relief regarding exemption from taxation of investment income (except for dividends and other distributed profit) shall apply not only to variable capital investment companies and closed-end investment companies operating in accordance with the Law on Collective Investment Undertakings but also to investment companies operating in accordance with the Law on Collective Investment Undertakings for Informed Investors.

In accordance with the Law on Collective Investment Undertakings for Informed Investors”, an investment company may be of the following legal forms: UAB (private limited liability company), AB (public limited liability company), general partnership or limited partnership.


Certain provisions of the Law on CIT shall also apply in relation to Croatian companies.

As of 30 December 2013, Annex 3 of the Law on CIT was supplemented with the Directive of the Council of 13 May 2013. It means that provisions of Art. 41 and 37-1 of the Law on CIT shall apply to companies of the Republic of Croatia after its accession to the European Union. i.e. to the companies which in accordance with laws of the Republic of Croatia are known as „dioničko društvo“, „društvo s ograničenom odgovornošcu“ and other companies which are subject to and pay Croatian corporate income tax („porez na dobit“).


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Value added tax (VAT)

The rules for completion of the VAT return were supplemented.

Aiming that VAT payers would declare correctly import VAT, calculated for imported goods, in the VAT return form FR06000 (field 27), which is paid to STI, some adjustments to the rules for completion of the form were made. The amendments relate to a more detailed explanation of import VAT declaring, when it should be adjusted due to certain reasons and when import VAT is documented in import returns of various types.


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State social insurance (SSI)

For employers of the group II of insurers – lower SSI contribution rates.

The Law on the Approval of the Budget Ratios of the State Social Insurance Fund for 2014 sets forth that the rates of insurance contributions of this type for the companies attributed to group II of contribution rates of occupational accidents and occupational diseases shall be reduced from 0.42 to 0.37 percent.

Consequently, the total rate of the SSI contributions paid by companies of group two is as follows:

    • 40.17 percent = 31.17 percent (insurers group II ) + 9.0 percent (insured persons)

      or
    • 41,17 percent = 31.17 percent (insurers group II) + 10 percent. (insured persons), if the insured pay additional 1 percent pension contribution from his/her own funds.


Personal information available at SODRA is also provided by telephone.


The SODRA information centre has also started to provide personal information by telephone 1883. Individuals may receive personal information on the issues of pensions, benefits and unemployment payments.


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Declaration of property

From now property shall be declared by members of political parties as well.

On 14 December 2013, provisions of Subpar. 37, Par. 1, Art. 2 of the Law on Declaration of the Property of Residents came into effect. As to the provisions, the members of political parties and their family members shall declare their property and annual income if the membership fee of the member of a political party exceeds Litas 1,200. This obligation shall also apply when a member of a political party is a non-resident of Lithuania. While an obligation of property declaration of a family member of a member of a political party arises only if they are residents of Lithuania.

In accordance with explanation No. (32.42-31-1)-RM-9687 of the STI under MF, a member of a political party and his family members shall declare the property and annual income as at 31 December of the previous year, preceding the year when the membership fee of the member exceeded Litas 1,200. Members of political parties, who in 2014 will pay a membership fee higher than Litas 1,200, as well as their family members shall declare their property owned as at 31 December 2013 and income received during the calendar year of 2013.

Members of political parties or their family members who have declared their income in form GPM308 due to some reasons, shall not declare it for the second time (Annex FR0001P of form FR0001).


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Real estate tax (RET)

The deadline of payment of real estate tax is 3 February.

Please be reminded that the deadline for payment of real estate tax for 2013 is 3 February 2014.


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International taxation

Decision of the European Court of Justice (ECJ) regarding non-allowable deductions in case of the sale of real estate located in another member state of the European Union.

The European Court of Justice delivered its prejudicial judgment (available here) of 7 November 2013 regarding recognition of capital losses from the sale of real estate located in another member state of the European Union as non-allowable deductions.

The reason for the application to the ECJ is that according to the Finnish Law on Income Tax, a capital loss arising from the sale of real estate can be deducted against income, however, this tax relief is applicable only to real estate located in Finland.

A Finnish resident individual claimed deduction of the capital losses from the sale of real estate in France. The ECJ had to rule whether Finnish legislation is not in breach of EU legislation norms and whether such deduction should be allowable.

The ECJ delivered its judgment that member states have the right to apply rules which do not allow deduction of capital losses arising from the sale of real estate in another member state.

A commentary: this decision of the ECJ grounds the right of a member state to treat capital losses arising from the sale of real estate in another member state as non-allowable deductions. Furthermore, the principle that real estate transactions shall be subject to taxation in the state where the real estate is located, is verified.


As of 2014, the double taxation avoidance treaty with the Kyrgyz Republic shall be applied.


As of 1 January 2014, a double tax avoidance and prevention of tax evasion treaty between Lithuanian Government and the Government of Kyrgyz Republic came into force.

Please be reminded that according to the provisions of the double tax avoidance treaties, income of residents of Lithuania and of Lithuanian entities received from these foreign states as well as income received by the entities and residents of these states received from Lithuania shall be subject to taxation; furthermore double taxation of income received by Lithuanian residents from foreign states is eliminated.

Lithuania applies double tax avoidance treaties with 50 states.


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Miscellaneous

The calendar for payment of key taxes – 2014.

In the newspaper “Verslo žinios“ dated 14 January 2014, an article “The key dates of tax calendar 2014” by Vita Šumskaitė, Senior Tax Manager of KPMG Baltics, UAB, was published. The article introduces the key dates for entrepreneurs and accountants regarding the payment and declaring of taxes and social security contributions.


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The newsletter has been prepared in accordance with legislation effective as at 20 January 2014 which is subject to change retroactively or prospectively and any such change might affect the contents of the newsletter. We accept no obligation to update you should law or understanding change the contents of the newsletter in the future.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


 

Contact us:

Birutė Petrauskaitė

Birutė Petrauskaitė

Head of Tax and Legal

+370 5 2102600

Vita Šumskaitė

Vita Šumskaitė

Senior Manager, Tax

+370 5 2102600

Inga Šutaitė

Inga Šutaitė

Lawyer

+370 46 480 012