Details

  • Service: Tax
  • Type: KPMG information, Publication series
  • Date: 10/3/2012

September, 2012 

Tax and Legal Newsletter

Corporate income tax (CIT)

A new wording of Par. 2, Art. 28 of the Law on CIT regarding treatment of support as allowable deductions was issued.

The commentary was re-worded and practical examples provided.

Furthermore, the commentary sets forth that granting, receiving and use of charity and support to the extent it is related to application of tax reliefs shall be controlled by the tax authorities. If it is identified that the charity or support is provided, received or used evading the requirements of the Law on Charity and Support of the Republic of Lithuania, the tax authorities shall repeal the tax reliefs and shall apply sanctions prescribed by laws to the person who has broken the law.

The commentary of the Law on CIT regarding fixed assets groups and maximum depreciation or amortisation rates of fixed assets was supplemented.

The amended commentary of Par. 2, Art. 18 of the Law on CIT specifies that the acquired fixed asset which is registered with the respective asset register, for corporate income tax purposes may be attributed to a certain group of fixed assets and depreciated (amortised) taking into account only the purpose of use of such asset.

The commentary of Par. 17, Art. 12 of the Law on CIT regarding treatment as non-taxable income of direct payment of an established amount and other compensation amounts in order to maintain certain level of income.

The commentary sets forth that direct and other compensatory payments made for maintenance of the income level, specified in the Lithuanian laws and other legislation received by the entities engaged in agricultural activity so far as it is defined in the Law on Agriculture, Food Sector and Rural Development of the Republic of Lithuania, shall be treated as non-taxable income.

The compensatory payment is considered as financial support provided in the manner prescribed by legal acts due to unfavourable farming conditions, responsibilities of ecologic farming, environment protection or other limitations specified in legal acts for compensation of non-received income or additional costs incurred.

Direct payment is a financial support provided for maintenance of income level of an entity. The support received by the entities engaged in agricultural activities for compensation of non-received income, i.e. loss of revenue irrespective whether the activity is suspended or terminated, is treated as compensatory payments for maintenance of income level.


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Social insurance

Support for an employer for the person employed for the first time will be pursued, however with certain changes.

According to this measure, the support will be provided to compensate part of a labour remuneration of the persons employed for the first time, who had not worked under a labour contract and are from 16 to 29 years of age, for the period not longer than 12 months.

The employer who has employed such young person, shall get a compensation for part (a fixed amount) of the labour remuneration paid to the latter, i.e. the employer shall pay an established salary to the employee and all related social insurance contributions, however, part of the amount paid shall be compensated to the employer by the funds of the measure Support for the First Job.

The compensation shall be paid every quarter starting from October of this year. The compensation will cover the period starting from 1 August of this year.


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Personal income tax (PIT)

The income threshold for being engaged in activities under business certificates was changed.

By Resolution No. 861 of the Government of the Republic of Lithuania, dated 11 July 2012, (which came into effect as of 15 July 2012) the limitation of 10 percent of the income received from sales to legal entities was replaced by establishing the maximum income amount to be received from legal entities of LTL 15,500.

It has been established that individuals having acquired business certificates have the right to sell their self-made goods or provide services (except for rent of dwelling premises) to legal persons if income from the sales of such goods or services to the legal entities, received from the activity indicated in the business certificate, does not exceed Litas 15,500 during a tax period and the activity of the legal entity is not identical to the one performed by the individual.

If an individual performs activities under more than one business certificate, for the purpose of calculation whether the income received from a legal entity during the taxable period does not exceed the threshold of Litas 15,500, the income received from legal entities under all business certificates held by the individual are included in the calculation.

When estimating whether the income received during the taxable period does not exceed the threshold established, the income received from legal entities starting from 1 May 2012 is estimated.

Application forms regarding support of 2 percent may be adjusted for longer period.

The regulations specifying the procedure of filing and adjusting of the application (form FR0512) to transfer part of income tax to the entities entitled to receive the support and (or) political parties were amended. According to the new provisions the submitted application for transfer of support for respective calendar year may be adjusted until 20 August of the following year (previously, until 31 July).

The amended regulations shall also apply to the applications for transfer of part of income tax for the period of 2011.


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Value added tax (VAT)

The commentary of the Law on VAT regarding deduction of input VAT when a person is engaged in economic VAT taxable activity and also in non-economic activity was supplemented.

The commentary of Subpar. 1, Par. 1, Article 58 of the Law on VAT was supplemented with point 1.6 which based on the practice of the European Court of Justice specifies how input VAT is deducted when the taxable person is engaged in both economic VAT taxable activity and non-economic activity.

Part of general expenses directly related to VAT non-taxable activity may not be included in the VAT deduction. While the input VAT on goods and services acquired for the general needs of the taxable person related to both VAT taxable activity and VAT non-taxable activity may be deducted to the extent the goods and services are related to the VAT taxable activity.

The commentary also provides practical examples.


The commentary of the Law on VAT regarding proportional allocation of the VAT amount was supplemented.


Par. 1, Art. 60 of the Law on VAT was supplemented with points 6.1.1 – 6.1.5 which set forth the criteria based on which transactions, related to the acquisition, holding or transfer of securities, which have an impact on the calculation of the proportion to be included in the VAT deduction, are attributed (or not attributed) to economic activities.

Practical examples and the practice of the European Court of Justice are also provided in the commentary.


The commentary of Art. 91 of the Law on VAT regarding VAT overpayment and offset and refund from the state budget of the VAT difference was issued.


The commentary of Art. 91 of the Law on VAT regarding the procedure applicable for offset or refund of VAT overpayment was updated. The commentary is reworded and practical examples are provided.


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Declaration of resident property

The regulations of the completion, submission and adjustment of the annual resident (family) property declaration form FR0001 and its appendices were amended.

The regulations of the completion of the annual resident (family) property declaration have been amended taking into consideration the new provisions of the Law on Personal Income Tax of the Republic of Lithuania which set forth that residents, who donate to the participants of independent political campaigns, and their family members, except for the persons the donation of whom (includes total amount of donations) does not exceed 40 Litas to one independent participant of a political campaign during the campaign, should declare their property (including income).


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Real estate tax (RET)

The range of the real estate tax was increased.

As of 1 January 2013, a new wording of Par. 1, Art. 6 of the Law on Real Estate Tax (hereinafter referred to as the Law on RET) came into effect. It sets forth that the new range of the RET is from 0.3 percent to 3 percent (currently, up to 1 percent).

According to the provisions of the Law on RET the council of a municipality determines the specific rate of the RET until 1 June which will be effective for the next year. Consequently, the increase of the RET rate will be relevant when determining the RET rates by municipalities for the year 2014.


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Contributions to the Guarantee Fund (GF)

The Law on the Guarantee Fund was amended.

As of 1 January 2013, a new wording of the Law on the Guarantee Fund came into effect. It sets forth that the contributions to the GF shall be paid also by individuals (previously, only legal entities) engaged in individual activities and acting as employers. The individuals shall pay the contributions as of 1 March 2013. Such amendments are related to the Law on Bankruptcy of Individuals which will come into effect as of 1 March 2013.

The amendments to the Law on the GF has specified the provisions regarding contributions to the GF paid by the branches established in the Republic of Lithuania by legal persons and other organisation of EU and EEA member states when their branches established in the Republic of Lithuania carry out activities in Lithuania.

As of 1 January 2013, if an employer (both a legal entity and an individual) is engaged in activities not only in Lithuania but also in the territory of an EU members state or an EEA member state, the GF contributions shall be paid for the employees who work in the Republic of Lithuania on a permanent basis. It is deemed that employees work on a permanent basis in the Republic of Lithuania if they actually perform their main responsibilities to the employer here. In the cases when it is impossible to identify whether an employee works on a permanent basis in the Republic of Lithuania, it is deemed that the employee works in that member state where his employer is located.


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Labour law

Notification on the beginning of employment shall be sent earlier.

The Labour Code has been supplemented with the provision (which comes into effect as of 1 August 2012) that the employer shall notify the territorial division of the Board of the State Social Insurance on the beginning of employment of a person not later than one working day before the expected beginning of his work. Previously, a notification had to be sent not later than the first working day of an employee.

The Labour Code was also supplemented with a provision that an employee may start working not earlier that the net day after the conclusion of the labour contract.

Obligations of the employer, when a citizen of a third country is employed, have been established.

The Labour Code was supplemented with Art. 981 (which came into effect as of 1 August 2012) where obligations of the employer related to work of a citizen of a third country were defined:

    • not later than one working day prior to the date of the expected conclusion of a labour contract, to require from a citizen of a third country to provide an effective residence permit in the Republic of Lithuania or some other document which entitles to stay or reside in the Republic of Lithuania;
    • in the period of work of a citizen of a third country in the Republic of Lithuania to hold a copy of an effective residence permit in the Republic of Lithuania or some other document which entitles to stay or reside in the Republic of Lithuania and provide this copy at a request of a competent institution;
    • to ensure that a citizen of a third country would perform work specified in the work permit to be performed in the Republic of Lithuania, except for the cases when the citizen of a third country is exempt from the obligation to obtain a work permit in the Republic of Lithuania in the manner prescribed by the Law on Legal Status of Foreigners;
    • within three working days from the date of the termination of the labour contract with the citizen of a third country, to notify the Lithuanian Labour Exchange under the Ministry of Social Insurance and Labour in writing on the termination of the labour contract.

The procedure of investigation of an individual labour dispute changes.

According to the currently effective provisions of the Labour Code, an individual labour dispute may be investigated in the Labour Dispute Commission which is formed by the employer and its members are representatives of employees and the employer‘s administration.

As of 1 January 2013, provisions of Section XIX of the Labour Code which set forth that Labour Dispute Commissions will operate under the territorial divisions of the State Labour Inspection (hereinafter referred to as a territorial division) on a permanent basis. The Commission will consist of three members – the chairman of the Labour Dispute Commission, representatives of employees and the employers who will be appointed by professional unions and employers’ organisations operating in the territory of the territorial division. The chairman of the Commission could be a state service employee of the State Labour Inspectorate having higher education in law appointed by the chief state labour inspector.


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The Law on Small Partnerships was adopted

Starting from this autumn, a new legal entity – small partnership - may be established.

As of 1 September 2012, a new limited civil liability legal entity – a small partnership – may be established. The incorporators can be only individuals, not more than ten. A requirement of the minimum capital is not established for a small partnership.


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The newsletter has been prepared in accordance with legislation effective as at
6 September 2012 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.

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Contact

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