May, 2013 

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

Kind regards,
KPMG in Lithuania

Personal income tax (PIT)

A new procedure of taxation of life insurance premiums and pension contributions to pension funds as well as benefits received thereof.

As of 7 May 2013, additional subparagraphs of Par.1, Art. 17 of the Law on Personal Income Tax regulating non-taxation of life insurance and pension fund benefits received by individuals as well as life insurance premiums paid by the employer to the benefit of employees under insurance contracts concluded on and after 1 January 2013 came into effect.

After the expiry of the term of a life insurance contract which is not shorter than 5 years, or in case it is terminated not earlier than after 5 years of its conclusion, the benefit received shall not be subject to taxation if not more than 5 years are left for the recipient of the benefit till the retirement age specified in the Law on State Social Insurance Pensions which was in effect at the moment of conclusion of the life insurance contract.

Analogous non-taxation terms shall also apply when a benefit is received from a pension fund upon the expiry of the pension accumulation agreement or having left the pension fund and having not moved to another fund.

Life insurance contributions, paid by the employer to the benefit of employees under life insurance contracts, shall also be not subject to taxation if the insurance benefit is paid to the insured for whom not more than 5 years are left till the retirement age specified in the Law on State Social Insurance Pensions which was in effect at the moment of conclusion of the life insurance contract. The amount of contributions during the taxable period shall not exceed 25 percent of the income related to employment relations calculated for the employee during the taxable period.

Commentaries of Subpar. 1 and 2, Par. 7, Art. 2 of the Law on Personal Income Tax regarding individual activities as well as Par. 22 regarding business certificates of the same article were amended.

Commentaries of Subpar. 1 and 2, Par. 7, Art. 2 of the Law on Personal Income Tax were amended. The amendments provide definitions what is deemed to be individual activity and a freelance profession. It is emphasized that sale of property immovable by nature and (or) its rent shall not be treated as individual activity.

Furthermore, the commentary of Par. 22 regarding business certificates of this article was amended and supplemented. Inter alia, the commentary was supplemented with the information on a possibility to obtain, prolong or terminate a business certificate online. Individuals can use this possibility via the electronic system Mano VMI.

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Social insurance

SODRA statistical data in a single place on the internet.

A public domain of SODRA statistical data has been launched where detailed information on income and costs of the State Social Insurance Fund, the numbers of insurers, payment recipients, average amounts paid, tendencies of their change as well as other relevant statistics information are available.


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Corporate income tax (CIT)

Manufacturing of a solar light power plant – an investment project.

The tax administrator issued an explanation that a solar light power plant which is attributed to the non-current asset group Equipment (facilities, wells etc.) and is used for production of new products (electricity power), from the sale of which the entity derives income, shall be deemed to be an investment project. Consequently, the investments incurred, i.e. the costs related to manufacturing of a solar light power plant, may be deducted for corporate income tax purposes.


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Value added tax (VAT)

Notification on unfairly acting individuals of third parties seeking VAT refund.

Having received information on possibly unfair individuals from third countries seeking to get a double VAT refund from dealers, the state tax inspectorate has prepared a notification to the persons who refund VAT on the goods acquired and supplied out of the territory of the European Union to individuals who are not residents of the European Union.

The dealers engaged in TAX FREE SHOPPING should be cautious and not refund the VAT twice to such purchasers as mentioned above. Such a case is possible when goods are returned to the dealers without providing the cash register receipt or some other document evidencing the settlement which has been handed to the foreign passenger along with the declaration of VAT refunding for a foreign passenger.

Consequently, a risk arises that VAT, which has already been refunded when a confirmation was received that the goods acquired have been taken out of the EU territory, could be refunded once more when the same goods acquired are returned to the dealer in Lithuania. Taking this into consideration, the dealers are recommended to take precaution measures and put an indelible mark etc. on the cash register receipt or some other settlement document on the basis of which the VAT refund declaration of a foreign passenger (or some other document) was completed.

A commentary of Par. 5 of Art. 64 regarding VAT deduction of the Law on VAT was amended.

Par. 5, Art. 64 of the Law on VAT specifying requirements for VAT deduction and its commentary were reworded. The new wording sets forth that import VAT may be deducted for VAT purposes if this amount is specified in import customs declaration of an established form or in some other document used as a replacement of the import customs declaration. Please note that earlier in this paragraph the payment of import VAT was additionally emphasized with regards to VAT deduction.

The commentary of Art.78 of the Law on VAT regarding accounting and document storing was amended.

A commentary of Art.78 of the Law on VAT regarding accounting and document storing was amended. Major part of the amendments of this article is related to other previously made amendments to the Law on VAT.

A commentary of Par. 1 of this Article was supplemented with account correspondence cases when receivable and/or payable VAT are registered in certain transactions. Furthermore, Par. 4, Art. 78 and its commentary, the previous wording of which has become void as of 1 January 2010, were amended. Par. 7 and its commentary were supplemented with the information on filing of documents in electronic format. Some more minor amendments were also made.

A commentary of Par. 4, Art. 80 of the Law VAT regarding requisites of VAT invoices was amended.

A commentary of Par. 4, Art. 80 of the Law on VAT regarding requisites of VAT invoices was amended. It specifies what requisites shall be indicated on the VAT invoices when a single VAT invoice is issued for jointly supplied goods (services). The requirement for amendment of the requisites to be indicated is relevant to advocates acting on the partnership basis, or notaries working under a joint venture agreement in a notary office as only they can use a single VAT invoice.

A summarised commentary of Art. 89(1) of the Law on VAT regarding adjustment of a VAT amount in case of a bad debt was prepared.

The state tax authorities prepared a summarised commentary of Art. 89(1) of the Law on VAT which explains the provisions and provides cases of adjustment of payable VAT for a taxable period in a case of a bad debt. Please be aware that the VAT adjustment possibility due to a bad debt came into effect in Lithuania as of 1 January 2012.

Relevant! Importers wrongly declare import VAT.

Please be reminded that, as of 1 March 2013, the payment (offset) of import VAT was taken over by the state tax authorities. Information on these changes is available in our Newsletters of February and March and the website of the state tax inspectorate.

We recommend that you draw attention to the VAT declaration (FR0600) completion instruction. The tax authorities inform that they receive many improperly completed VAT declarations after the procedure of the import VAT has changed since 1 March 2013. The tax authorities send reminders to taxpayers to adjust and properly fulfil tax obligations. As to the information of the tax authorities, in March the amount of almost 10 million Litas was declared improperly.

The regulations of registration of supply of goods to another member state of the European Union were amended.

The regulations of registration of goods supplied to another EU member state for the purposes specified in Supar. 5-7, Par. 2, Art. 5(1) were amended. The amendment to Par. 3.1 of the regulations set forth that according to the provisions of the regulations the taxable person shall perform accounting separately not only in the cases when goods are supplied outside Lithuania to another member state for the purpose of maintenance, processing, treatment but also for evaluation works under a condition that the goods are returned back to Lithuania to the same taxable person after the service is completed.

Regarding the update of Form FR0608 of the VAT report of a non-VAT payer.

A new wording of Version 2 of Form FR0608 of the VAT report of a non-VAT payer to be completed online was issued. Please be reminded that the new wording came into effect as of 1 January 2013.

Focus of the Supreme Court of Lithuania on fraud regarding VAT.

In its annual information report, the Supreme Court of Lithuania (LSC) noted that in 2012 it also focused attention on disclosing of the content of deception in VAT fraud cases.

LSC sets forth that three phenomena should be identified in order to qualify actions as deception:

1) The perpetrator provided the victim with false facts and/or distorted situation, which is not in line with reality;

2) The victim was misled by the perpetrator due to the presentation of false facts and/or distorted situation, which is not in line with reality;

3) The perpetrator deliberately provided false facts and/or distorted situation, which is not in line with reality.

In case of VAT fraud, deception implies recording of falsified documents in the accounting and filing of falsified VAT returns or some other documents created on the basis of the falsified documents seeking to get refund of VAT overpayment when there are no legal grounds, to avoid an obligation to pay VAT or cancel it. LSC has identified the main fraud schemes based on VAT fraud cases investigated, however, it notes that the fraud schemes have more than one variety.


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Tax administration (TA)

A commentary of Art. 104 (1) of the Law on Tax Administration regarding establishment of a tax obligation according to the data of the latest tax return for the preceding tax period was prepared.

The commentary explains provisions of Art. 104 (1) of the Law on Tax Administration regarding regulation of the right of the tax administrator to establish a tax obligation according to the latest tax return for the preceding period in which the taxpayer declared the payable amount.

The commentary explains that the tax administrator can adopt a decision to establish a tax obligation only in the case when a taxpayer fails to fulfil its obligations with respect to a tax return in due time. The decision shall not be adopted with regards to the tax payers that are in liquidation or undergo bankruptcy proceedings as well as those that are exempt from such obligation.

The commentary sets forth that the tax obligation established under a decision of the tax administrator shall not be adjusted if the taxpayer adjusts the tax return of the previous period on the basis of which the tax administrator has established the tax obligation by its own decision.

A commentary of Art. 104 (2) of the Law on Tax Administration regarding the requirement to settle accounts in non-cash was prepared.

The commentary explained provisions of Art. 104 (2) of the Law on Tax Administration regulating the right to require from the tax payer to settle accounts in non-cash.

The state tax authorities, making a request to settle accounts in non-cash or cancelling it, uses Form FR1118 of a Request of the Tax Administrator to a Taxpayer to Settle Accounts in Non-cash and Form FR1200 of a Decision Regarding Cancellation of a Request of the Tax Administrator to a Taxpayer to Settle Accounts in Non-Cash.

The commentary explains that the tax payer that was requested to settle accounts in non-cash, may pay salaries in cash from the cash in hand, however, may not pay cash to its accountable person for payments to be made to other entities for services provided or goods acquired.

The state tax authorities specify what circumstances shall be treated as objective, when it is impossible to follow the request regarding settlement of accounts in non-cash. The commentary sets forth that such objective reasons may imply disruption in electricity supply, internet and telecommunication connection due to force majeure. Objective reasons do not imply a request of a business partner to settle accounts in cash, the fact that a party of the transaction does not have a settlement account in a credit institution in Lithuania and other similar circumstances.

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Miscellaneous

As of 1 May, public catering institutions will have fewer possibilities for fraud with preliminary cash receipts.

As of 1 May, the provisions of the state tax authorities, which set forth that the data on the preliminary (intermediate) cash receipts (so called „pre-cheques“) of a hotel, restaurant, cafe and other public catering institution shall be kept in the memory of a cash register in the same way as the final cash receipt confirming the payment, came into effect.

In this way, the state tax authorities seek to prevent avoidance of accounting of income derived from the services provided, when the intermediate data are deleted from cash registers.


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Accounting news

Amendments to BAS 15 Investments in Associates and BAS 16 Consolidated Financial Statements and Investments in Subsidiaries.

The main amendments to the Standards are as follows:

• In relation to the International Financial Reporting Standard 3, the concept Negative Goodwill was removed.

• A new paragraph 331 was added to BAS 16 stating that upon first-time preparation of consolidated financial statements, item Previous Financial Year shall contain the figures of separate financial statements of the parent company, except for the case when the parent had a power to exert significant influence over the subsidiary in the previous financial year. If this is the case, item Previous Financial Year shall contain consolidated figures of the financial statements of the parent and subsidiaries.

• Recast Chapter XIV of BAS 16, providing a more detailed clarification of the method to determine the acquisition cost of investment.

• Other amendments to the Standards are of editorial nature.

The amendments to the Standards are effective for financial statements of reporting periods beginning on or after 1 January 2014.

Orders No. VAS-7, VAS-8. of 22 April 2013 of the Director of the Authority of Audit and Accounting.

Amendments to methodological recommendations of BAS 4 Statement of Changes in Equity.

Based on Order No. VAS-16 of 10 October 2012 and Order No. VAS-21, of 14 December 2012 of the Director of the Authority of Audit and Accounting, amendment was introduced to methodological recommendations of BAS 4 Statement of Changes in Equity. Clarification of paragraph 9 of the Standard sets out how the share of profit payable to the state or municipality budget shall be presented in the statement of changes in equity of the state or municipal entities. Clarification of paragraph 10 of the Standard contains examples and sets out how unlimited civil liability legal persons shall prepare the statement of changes in equity.

European Commission Regulation amending International Financial Reporting Standards (IFRS).

Commission Regulation No. 313/2013 of 4 April 2013 endorses the amendments to IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities.

The amendments provide additional transition relief in IFRS 10, IFRS 11 and IFRS 12, limiting the requirement to provide adjusted comparative information to only the preceding comparative period. Furthermore, for disclosures related to unconsolidated structured entities, the amendments remove the requirement to present comparative information for periods before IFRS 12 is first applied.

The references to IFRS 9 contained in IFRS 11 should be read as a reference to IFRS 39 as IFRS 9 has not been adopted by the European Union yet.

Each entity shall apply the above mentioned amendments referred to IFRS, at the latest, as from the commencement date of its first financial year starting on or after 1 January 2014.


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The newsletter has been prepared in accordance with legislation effective as at 10 May 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.


 

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