Personal income tax (PIT)
A commentary of the Law on Personal Income Tax (PIT) regarding the application of the income recognition principle was adjusted.
Commentaries of Art. 3, 7 and 30 of the Law on PIT were updated. The adjustments of the said articles are related to the fact that as of 30 December 2008 new provisions of the Law on PIT were adopted which specify that an individual shall pay personal income tax not only when he actually receives income or income is actually paid to him but also when income is earned.
Income is recognised when earned (though it has not actually been received) when individuals performing individual activities apply the accounting accrual principle.
A commentary of the Law on PIT regarding elimination of double taxation of income was adjusted.
The updated commentary explains the provisions of Article 37 of the Law on PIT regulating the procedure of the elimination of double taxation of income of a resident which is subject to taxation in a foreign state. The provisions regulating under what conditions the exemption method or the credit method can be applied is explained. Practical examples are also provided in the commentary.
A commentary of the Law on PIT regarding filing of returns of an individual departing permanently from Lithuania was updated.
The updated commentary of Art. 29 of the Law on PIT explains in detail what kind of returns and when should be filed by an individual departing permanently from Lithuania. The commentary also provides an analysis of the taxation and declaration of income earned from sale of real estate when filing the return of a departing person.
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Corporate income tax (CIT)
Form FR0438 of the report on controlled and controlling entities and persons was amended.
Form FR0438 Version 2 of the report on controlled and controlling entities and persons was reworded and the regulations for completion of the form were amended accordingly.
The updated form FR0438 shall be used when filing data for the taxable period starting in 2013 and subsequent periods.
Since now the foreign state code shall be indicated in the form when the controlling/controlled persons are foreign legal entities/individuals. Furthermore, an indication for a person identifying whether the controlling/controlled person is an individual or a legal entity was introduced.
The regulations of completion of the form were supplemented accordingly by making references to the websites where the structure of identification codes of persons of the European Union member states are available for checking. Furthermore, the regulations were supplemented with the cases when an entity should not file Form FR0438 when submitting the annual corporate income tax (CIT) return, i.e. when a CIT return of a transitional period is filed, when bankruptcy or restructuring procedures have been initiated and within 30 days a CIT return for the period starting from the beginning of the tax period until the start of the mentioned procedures shall be filed.
The OECD memorandum regarding filing of financial data of associated persons.
Taking into account Paragraph 13 of the Action Plan on Base Erosion and Profit Shifting (BEPS) launched in July 2013 and endorsed by G20 Finance Ministers, the Organisation for Economic Co-operation and Development (the OECD) announced a memorandum which initiates a discussion on the methods of country-by-country reporting and data sharing between state tax administrators on the income and taxes paid by associated entities.
The OECD is intent on creating a common country-by-country reporting template which would require taxpayers to submit information regarding the income earned and taxes paid in each of the jurisdictions a MNE Group operates in. Furthermore, the discussion extends to the inclusion of data on measures of economic activity other than income or taxes (e.g. tangible assets, number of employees, marketing expenditures, etc.) to be reported to state tax administrators. The aim of the country-by-country reporting is to allow the competent authorities to better assess the multi-jurisdictional operations of the MNE Groups and identify the possible transfer pricing risks in the controlled inter-group transactions.
This initiative is in its initial stage only and the OECD will be holding public consultation regarding its implementation. However, it is highly likely that a more detailed country-by-country reporting of income and taxes will be proposed by the OECD Working Party by the end of the next autumn and subsequently implemented into the legislation of the OECD member-states and other countries that follow the OECD guidelines (i.e. Lithuania).
It is likely that upon the implementation of this initiative the attention paid to the transactions between associated parties by the state tax administrators will increase.
Further information on this initiative (in English) may be found here.
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Value added tax (VAT)
Amendments to the Law on VAT regarding reduced VAT rates were adopted.
The adopted amendments to the Law on VAT, which will come into effect as of 1 January 2014, set forth the following:
- A reduced VAT rate of 5 percent for pharmaceuticals and medical equipment when the acquisition costs of these goods are fully or partially compensated in the manner prescribed by the Law on Health Insurance of the Republic of Lithuania. The period for the application of the reduced rate is not established;
- A reduced VAT rate of 9 per cent will pursue to be applicable to the thermal energy supplied for the heating of dwellings (including the thermal energy that is transmitted through the hot water supply system), to the hot water supplied for dwellings as well as to the cold water supplied in order to prepare the hot water for dwellings and to the thermal energy consumed to heat such cold water.
Furthermore, as of 1 January 2015, a reduced VAT rate of 9 per cent will be applicable to the accommodation services that are provided in accordance with the procedures laid down in the legal acts regulating tourist activities. The period for the application of the reduced rate is not established.
The amended rules of registration and deregistration with/from the registry of VAT payers came into effect.
As of 2 October 2013, the amended rules of registration and deregistration with/from the register of VAT payers came into effect. Several items, specifying by whom the specific box shall be filled in and what kind of information should be provided in it, were amended. The amended rules specify that the boxes to be filled in by a state authorities‘ representative instead of a tax payer are indicated as „the box shall not be filled in“. These amendments in the rules relate to the requests of both a legal entity (FR0388) or an individual (FR0389).
Publications „VAT Obligations of Persons which are not registered as VAT payers“ and „VAT deduction“ were updated.
The state tax authorities have updated their publications „VAT obligations of persons which are not registered as VAT payers“ and „VAT deduction“. The amendments to these publications are related to the new provisions laid down in the Law on VAT regarding the right of a non-registered VAT payer to VAT deduction.
Please be reminded that taxable persons who are not registered as VAT payers are also entitled to VAT deduction when they use the acquired (imported) goods or services for supply of goods or services which are subject to VAT. This right is established based on the practice of the Court of Justice of the European Union. The amendment to the law which provides for such right, came into effect as of 1 January 2013.
The publication „VAT obligations of persons which are not registered as VAT payers“ is available here , and „VAT deduction“ – here .
A commentary of Par. 4, Art. 14 of the Law on VAT regarding the taxation moment was supplemented.
Taking into account the practise of the European Court of Justice (case C-419/02, C-549/11), a commentary of Par. 4., Art. 14 of the Law on VAT regarding VAT charging, when the prepayment is effected for goods and services, was suplemented. To charge VAT in such a case, all the facts related to the taxable moment should be known in advance and the goods and services, where the prepayment is effected, shall be precisely identified. An example is provided in the commentary to illustrate this provision.
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State social insurance
When employing employees, the Social Insurance Authorities (SODRA) shall also be provided with information on their professions.
As of 1 November 2013, when providing information on a new employee to be employed, inter alia the employer shall indicate a code of the profession consisting of 4 digits, which is specified in the Profession Classificatory of Lithuania, in 1-SD notification to SODRA.
In the period from 1 November 2013 to 1 March 2014, the employers shall notify SODRA on the professions of current employees by filing 14-SD notification as well.
Information of professions and precise codes are specified in the Professions Classificatory of Lithuania. It should be noted that a profession is understood as the characteristics of the nature of work performed by an employee but not the person’s education or qualification.
According to the Ministry of Economy, the purpose of such information is monitoring of the demand and the supply of specialists, which will facilitate to adopt decision on education, development of human resources and formation of the labour market policy.
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The rules for administration of land tax and the forms of declarations related to the calculation of land tax were amended.
Taking into account provisions of the reworded Law on Land Tax, which came into effect, as of 1 January 2013, the rules for administration of land tax were updated and approved. The rules shall be applicable for administration of land tax of 2013 and subsequent tax periods. Declaration form KIT703 of the calculation of land tax and form KIT716 for the adjustment of the declaration data were reworded accordingly.
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An additional obligation to employers - before the end of the year.
Legal entities and self-employed natural persons (including farmers), that have hired employees, shall complete and provide the State Labour Inspectorate (the SLI) with the general questionnaire The Status of Safety and Health of Employees and Labour Law.
When providing the questionnaire, employers shall disclose to the STI their compliance with the requirements of legal acts regulating safety and health of employees and labour relations.
The questionnaire shall be filed before 31 December 2013. It may be completed online in the system of electronic services for employers (EPDS); or a completed questionnaire may be submitted directly to the administration of the SLI (at the adress Algirdo g. 19, Vilnius) or to the territorial department of the SLI according to the territory of the activities of the employer; or the questionnaire may sent at the address Algirdo g. 19, Vilnius.
More detailed information is available here.
The Supreme Court of Lithuania (the LSC) expressed its opinion on non-competition.
Recently, the LSC investigated several cases related to agreements on non-competition.
In its decisions, the LSC stressed that the salary is remuneration for work performed by an employee under a labour contract. Consequently, having an effective labour contract, an employee has no right to compete and shall persist to be loyal to the employer. Consequently, compensation for non-competition shall not be treated as part of a salary. It means that remuneration for non-competition shall be clearly defined and a compensation for non-competition shall be distinguished from other types of payments. Furthermore, if after the cessation of labour relations, a compensation is paid not a regular basis or as a single payment but in some other way, it should be duly specified in an agreement with the employee.
The LSC also stated that a non-competition agreement shall be concluded in such a way that the balance of interests between parties would not be infringed, i.e. for certain limitations a fair and straightforward compensation shall be established for the employee. Its amount shall be estimated taking into account individual circumstances, nature and specifics of the employee‘s position, the amount of information used at work and the significance in the company‘s activities as well as the ratio of the activities related to the employee‘s position with the scope of total activities of the company, the significance of his knowledge and skills acquired, the reality of the impact on the competiveness etc.
The LSC: Employment conditions and terms may be established not only in an employment contract.
In one of the decisions, the Supreme Court of Lithuania (the LSC) stated that employment terms and conditions may be established not only in a written employment contract, legal acts but also may be set forth by the court from the behaviour of the parties of the employment contract, actions performed, other significant circumstances related the actual implementation of the contract which presume that during the employment legal relations the parties had an agreement to evaluate respective behaviour, actions etc, as one of the contract terms.
In a specific case the LSC acknowledged that the agreement signed by representatives of the employer and a group of employees, which has set forth the scope of work, salary paid, the issues regarding transportation to work place, fuel etc., as part of the employment contract, although it was not formalised according to the requirements of Par. 2, Art. 99 of the Labour Code.
Consequently, formal non-compliance with the requirements of the provisions of Par. 2, Art. 99 of the Labour Code alone, does not mean that there were no amendments to the employment contract if it is clear from other circumstances (written documents, actions of the parties etc.) that the parties have agreed on amendments or supplements of certain terms of the employment contract.
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The newsletter has been prepared in accordance with legislation effective as at 15 October 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.