Corporate income tax (CIT)
The tax administrator has informed on the provision of sponsorship and the purpose of its use.
The state tax inspectorate has explained that provisions of the Law on CIT do not provide for limitations for sponsors regarding partly allowable deductions when a recipient of the sponsorship uses the sponsorship received not following the provisions of the Law on Charity and Support (the Law on CS). Consequently, an entity, being a provider of sponsorship, shall be entitled to treat the sponsorship as partly limited deductions in accordance with the provisions of Par. 2, Art. 28 of the Law on CIT.
The tax administrator has also noted that if the sponsorship was provided not according to the purposes specified in the Law on CS but only seeking a tax benefit for the provider of the sponsorship or a private person or a group of persons, then, when performing control actions, the tax administrator shall be entitled to calculate taxes based on the substance over form principle.
In such cases, having performed evaluation of the actual circumstances, the provisions of Art. 28 of the Law on CIT may be not applied to the providers of sponsorship while the sponsorship received by the recipients may be recognised as used not in accordance with the provisions of the Law on CS. The amount of the sponsorship received may be treated as taxable for CIT purposes in accordance with Par. 6, Art. 4 of the Law on CIT.
The state tax inspectorate specifies three cases when the substance over form principle may be applied when providing and using sponsorship:
• Fictitious transactions. Transactions which have not actually taken place.
• Provision of sponsorship related not to financing of social activities but to receiving benefit by the provider of the sponsorship or its employees (and/or his family members).
• Charity to related persons.
Letter No. (32.43-31-1)-RM-3144 of the state tax inspectorate of 17 May 2013.
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Value added tax (VAT)
The commentary of Art. 19 of the Law on VAT regarding VAT rates was updated.
The commentary of Art. 19 of the Law on VAT regarding VAT rates was updated. The major amendments relate to the commentary parts defining provisions of reduced VAT rates of 9 percent and 5 percent. Please be reminded that the following reduced VAT rates were established as of 1 January 2013:
• 9 percent - newspapers, magazines and other periodical publications, with the exception of erotic and (or) of a violent nature or professional ethics neglecting publications, recognised as such by an institution authorised by legal acts, as well as printed production where paid advertising takes more than 4/5 of the total area of the publication;
• 9 percent - services related to transportation of passengers and their luggage by regular routes approved by the Ministry of Transport or its authorised institution or municipalities;
• 5 percent - technical assistance means of the persons with disabilities and their repair.
Furthermore, the application of the following reduced VAT rate was extended until 31 December 2013:
• A 9 percent VAT rate on supply of thermal energy for heating of residential premises including thermal energy transmitted through the hot water supply system), hot water supplied to residential premises or cold water for hot water heating and thermal energy used for water heating;
• 5 percent – medicines and medical aid devices when they are fully or partly compensated in accordance with the procedures established by Lithuanian Law on Health Insurance.
The commentary of Art. 94 of the Law on VAT regarding the procedure of payment of import VAT was amended.
The commentary of Art. 94 of the Law on VAT regarding the procedure of payment of import VAT was supplemented with new provisions regarding taking over of the payment (offset) of import VAT by the state tax authorities. Please be reminded that the new procedure of the payment (offset) of import VAT in Lithuania came into effect as of 1 March 2013.
More detailed information on the change in this procedure is available in our Newsletters of February, March and May.
Deduction of VAT on the construction of solar power plants.
Taking into account enquiries of taxpayers regarding the right for non-adjustment of deduction of VAT on goods and services used for construction of solar power plants, when this construction has been terminated and will not be performed due to the reasons that are out of control of the taxpayers, the state tax authorities explained that, having ceased the construction of solar power plants, VAT deduction related to the goods and services acquired for their designing and construction of the plants should not be adjusted.
This right is relevant to the VAT payers who having received permits for construction of solar power plants for production and supply of electricity for consideration started designing and construction of the plants and deducted input VAT on the goods (services) acquired for implementation of these works. As the amendments to the legal base in 2013, related to provisions of construction of solar power plants and the decrease in purchase prices of the electricity produced shall be deemed to be objective reasons, which are out of control of the taxable persons, VAT payers shall have the right not to adjust VAT related to construction of solar power plants when the construction has been ceased.
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Mandatory health insurance (MHI)
The entry into force of MHI of self-employed insurers only after the third contribution is in conflict with the Constitution of the Republic of Lithuania.
On 16 May 2013, The Constitutional Court of the Republic of Lithuania adopted a resolution stating that a provision of the Law of Health Insurance, according to which for some individuals (e.g. persons engaged in individual activities, performers, sportsmen etc.) MHI becomes effective only in the month following the date when MHI payments have been made 3 months in a row or from the date of payment of a contribution of 3 minimum monthly salaries, is in conflict with the Constitution.
This provision is recognised as contradicting to the principle of equality of persons, which is stated in Art. 29 of the Constitution, as MHI for other persons (e.g. working under employment contracts etc.) becomes effective from the same date when insurance payments have been made on their behalf or they started to pay the insurance contributions themselves.
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Temporary employment agency may report on a new employee to Sodra (the State Social Insurance Fund) on the same day.
As of 1 May 2013, a new provision of the Law on Employment through Temporary Employment Agencies (Art. 3, Par. 4) comes into effect. Under this provision, a temporary employment agency shall report on the start of employment of a temporary employee to the administration office of the State Social Insurance Fund at least one hour before the employee starts to work. Meanwhile, the Labour Code states that an employer must notify Sodra about the new employee not later than one working day before the start of employment.
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The procedure of property and income declaration for the residents who wish to get state-guaranteed legal aid has been amended.
On 9 May 2013, by laws No. XII-271 and No. XII-273 the Law on Property Declaration of residents and the Law Personal Income Tax were amended respectively. Both laws will take effect as of 1 January 2014.
These legislative amendments are related to the new wording of the Law on State-guaranteed Legal Aid of the Republic of Lithuania (Law No. XII-270 of 9 May 2013; hereinafter - the Law on SGLA). As of 1 January 2014, the persons wishing to receive legal aid in the cases set forth in the Law on SGLA shall declare their income and property by filing the annual income and property declaration in the form prescribed by the Ministry of Justice of the Republic of Lithuania directly the institution which makes a decision on the provision of legal aid.
The names of newly established legal entities shall be checked by the State Commission of the Lithuanian Language.
As of May 2013, a new wording of the provisions of Par. 761 of the Register of Legal Entities entered into force. According to the new wording the manager of the Register of Legal Entities shall apply to the State Commission of the Lithuanian Language for consultations concerning the compliance of the name of an entity to the norms of the Lithuanian standard language. The Commission shall provide an advice on the name’s compliance within 6 working hours.
The Law on Small Partnerships (SP) was supplemented with the provisions regarding filing of information with Information System of the Members of Legal Entities.
As of 1 September 2013, the provisions of the Law on SP, under which the respective governing bodies of an SP shall provide information on the members of the SP to the Legal Entities Information System, will come into force. The changes in the members of a SP or their data shall also be provided within this term.
The following data shall be provided to the Information System of the Members of Legal Entities:
• name and surname,
• personal code,
• residence or mailing address,
• date of becoming a member and the membership end date.
SPs, that will be established prior to 1 September 2013, shall provide the information on their members mentioned above by 1 January 2014.
Project of the state tax inspectorate (STI) Cash in hand.
STI informs that the project of Cash in hand, which aims to ensure the accounting of income and payment of taxes, will particularly focus on transactions in cash of legal entities. Accounting of cash in hand and of trading outlets, movement of cash funds, cash granting to accountable persons of the entity and the use of granted cash for the intended purpose will be checked. Taxpayers trying to conceal the tax liabilities will be subject to strict control measures – the offending companies will not be allowed to settle accounts in cash.
Taxpayers can check themselves whether their activities comply with the relevant legislation. Checklists used by STI can be found in the STI website – controlling questionnaires.
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The newsletter has been prepared in accordance with legislation effective as at 10 June 2013 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.