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© Grant Thornton International. All rights reserved. TAX GUIDE LITHUANIA 2012 The information below is based under the legal acts effective on 15 May 2012
© Grant Thornton International. All rights reserved. CORPORATE PROFIT TAX
© Grant Thornton International. All rights reserved. CORPORATE PROFIT TAX TARIFFS Standard corporate profit tax (CPT) rate is 15 %. Reduced CPT rate - 0 % and 5 % remains. Withholding tax tariffs - 10 % and 15 % unless subject to tax incentive. (if otherwise is not stated in the double tax avoidance treaty)
© Grant Thornton International. All rights reserved. WITHHOLDING TAX TARIFFS (1) 10 % withholding tax rate shall apply to the following income of foreign entities: - interests*; - royalties*; - compensations for breach of authorship or neighbouring rights*. * Tax free if established criteria is met
© Grant Thornton International. All rights reserved. WITHHOLDING TAX TARIFFS (2) 15 % withholding tax rate shall apply to the following income of foreign entities: - dividends; - income for the sold or leased real estate situated in Lithuania; - income for activity of artists and sportsmen performed in Lithuania; - annual bonus for the activity of the members of the Supervisory Council.
© Grant Thornton International. All rights reserved. WITHHOLDING TAX ON INTERESTS Interests are tax free if: - paid to European Economic Area (EEA) or entity registered in country where tax treaty is in effect. Royalties are tax free if: -paid to EU entity holding not less than 25% of shares for at least 2 years.
© Grant Thornton International. All rights reserved. DIVIDENDS DUE TO THE LEGAL ENTITIES CPT rate on dividends - 15 %. (unless otherwise provided by the double tax avoidance treaties) Participation exemption rule shall remain. (dividends are tax free if not less than 10 % of shares are hold for continuing period of 12 months)
© Grant Thornton International. All rights reserved. DIVIDENDS DUE TO THE INDIVIDUALS However Dividends (or their respective part) are subject to 15 % CPT rate* (excluding personal income tax) if a company paying the dividends: - applied 0 % CPT rate on taxable profit; - applied tax incentive on investment project; - obtained non taxable income from the sale of shares; - other. * Not applicable, if dividends paid by the Free Economic Zone company.
© Grant Thornton International. All rights reserved. DIVIDENDS DUE TO LITHUANIAN COMPANIES FROM ABROAD CPT rate - 15 %. Tax free if received from the companies registered in EEA*. (irrespective of voting rights possessed and time of possession) Tax free if received from the companies registered outside EEA provided meet the criteria of participation exemption*. * Subject to additional requirements.
© Grant Thornton International. All rights reserved. OFFSET OF CPT If dividends received from the Lithuanian registered entity where CPT on dividends was deducted, CPT amount is offset against CPT payable by company, recipient of dividends*. If CPT amount subject to offset exceeding the CPT amount payable for the appropriate tax period, difference shall be refunded (offset) to the company, recipient of dividends. * Subject to additional requirements.
© Grant Thornton International. All rights reserved. CPT INCENTIVE ON INVESTMENT PROJECTS (1) 50 % of the taxable profit may be reduced by the factual expenses spent on the investment project.
© Grant Thornton International. All rights reserved. CPT INCENTIVE ON INVESTMENT PROJECTS (2) Investment project means investment into fixed assets for the purpose: Production of new or additional products (provision of services), increase of production (provision of services) volumes; Implementation of the new production (services) process; Essential changes of the existing process (or part of it); Implementation of new technologies protected by the international invention patents.
© Grant Thornton International. All rights reserved. CPT INCENTIVE ON INVESTMENT PROJECTS (3) Tax incentive shall apply to the following groups of the fixed assets: - machinery and equipment; - devices (constructions, borings, etc.); - computer based technique and communication devices; - software; - acquired rights; if the fixed assets above should be unused and not older (produced) than 2 years.
© Grant Thornton International. All rights reserved. CPT INCENTIVE ON INVESTMENT PROJECTS (4) Taxable profit may be reduced maximum 50 %. The fixed assets have to be used in economic activity not less than 3 years. Expenses may be carried forward 4 years. Taxable profit may be reduced by expenses incurred in the years 2009 - 2013 only. Upon the commencement of the investment project the local tax authorities have to be informed.
© Grant Thornton International. All rights reserved. R&D Expenses incurred in connection to scientific research and experimental development may be 3 times deducted from the income for CIT purposes If scientific research and experimental development works are acquired from the third legal entities or individuals the expenses incurred may also be 3 times deducted from the income for the CIT purposes if such works were made in the EEA countries or countries where tax treaties are in place
© Grant Thornton International. All rights reserved. NON TAXABLE INCOME (the most notable) Capital gain on sale of shares if shares of the company registered in European Economic Area or country with which double tax avoidance treaty is concluded are sold and more than 25 % of shares were hold for not less than 2 years; Income of bankrupt enterprise upon the sale of its property; Investment income of the investment companies (excluding dividends and other profit subject to distribution) Fines and default interests (except received from the offshore countries)
© Grant Thornton International. All rights reserved. LOSSES Losses may be carried forward but not back; Losses incurred in the course of securities transactions may be carried forward up to five years and they may reduce profit from sale of the securities transactions; Other losses may be carried forward for unlimited period of time until the activity they have raised from is performed.
© Grant Thornton International. All rights reserved. TAX CONSOLIDATION WITHIN THE GROUP Starting 2010 – when not less than 2/3 of shares are held by the group member, tax losses can be consolidated between group members if losses transferred between group members which are or suppose to be at least for 2 years in the group * Subject to additional requirements.
© Grant Thornton International. All rights reserved. VALUE ADDED TAX (VAT)
© Grant Thornton International. All rights reserved. VAT Standard VAT rate – 21 %. Preferential VAT rates applied: 5 % to medicine and medical aid devices which are subject to compensation (until 31 December 2012) 9 % - to books and non periodical informational publications - to heating energy for residential premises and water heating (until 31 December 2012) 0 % rate of VAT in certain cases.
© Grant Thornton International. All rights reserved. MANDATORY HEALTH INSURANCE CONTRIBUTIONS (HIC)
© Grant Thornton International. All rights reserved. HIC Two taxable basis are established based on those HIC are calculated: - minimum monthly salary; - income/profit.
© Grant Thornton International. All rights reserved. INSURED PERSONS Persons who are paying themselves or HIC paid on their behalf: - recipients of work remuneration; - recipients of authorship remuneration; - owners of the individual enterprises; - persons performing individual activity; - recipients of other kinds of income; - persons insuring independently; - etc. Standard rates: to insured person – 6 % or 9 %; to insurer – 3 %.
© Grant Thornton International. All rights reserved. SOCIAL SECURITY CONTRIBUTIONS (SSC)
© Grant Thornton International. All rights reserved. SSC Payers: - Insurer; SSC rate depends on kind of income: standard rate - 27,98 % - Insured person. SSC rate depends on kind of income (standard rate - 3 % also could be 9 % or other) Extended list of insured persons. For certain groups of insured persons transitional period is established.
© Grant Thornton International. All rights reserved. PERSONAL INCOME TAX (PIT)
© Grant Thornton International. All rights reserved. PIT All kinds of income (save for dividends) – 15 %. work remuneration, authorship fee, honorariums, artists remuneration, capital gain, income of lease of property, annual bonus, profit of individual activity, income of owner of individual enterprise, etc. Dividends – 20 %. including income received by the shareholders when distributing profit of the company or decreasing authorized capital or property received. Fixed PIT. applied to persons performing individual activity under the business licence.
© Grant Thornton International. All rights reserved. DIVIDENDS DUE TO INDIVIDUAL * Paid from the funds of the company. Permanent residentTemporary resident 15 % CPT* applied if a company (not registered in a free economic zone) paying out the dividends applied 0 % CPT or CPT incentive for investment project, received non taxable income from sale shares, etc. + 20 % IIT
© Grant Thornton International. All rights reserved. NON TAXABLE MINIMUM (NTM) (1) Maximum monthly NTM – LTL 470 (ca EUR 136). applied if gross work remuneration is not exceeding LTL 800 (ca EUR 232) Upon increase of work remuneration NTM decreasing: NTM = 470 – 0,2 x (work remuneration – 800) If gross work remuneration is LTL 3,150 (ca EUR 912) or more, then NTM=0. During the calendar year NTM applies to permanent residents only. Temporary residents may apply NTM upon the end of the calendar year.
© Grant Thornton International. All rights reserved. NON TAXABLE MINIMUM (2) Annual NTM is recalculated based on annual taxable income Maximum annual NTM – LTL 5,640 (ca EUR 1,633), if annual taxable income is not exceeding LTL 9,600 (ca EUR 2,780). If annual taxable income is LTL 37,800 (ca EUR 10,948) or more, annual NTM=0. Permanent residents having children may benefit from additional NTM: for the first child – LTL 100 (ca EUR 29); for each subsequent – LTL 200 (ca EUR 58).
© Grant Thornton International. All rights reserved. NON TAXABLE MINIMUM (3) Monthly NTM of LTL 800 (ca EUR 232) is applied to*: - Permanent residents having working capacity of 0 - 25 %; - Retired persons having considerable demand of special needs; - Permanent disabled residents (serious level). Monthly NTM of LTL 600 (ca EUR 174) is applied to*: - Permanent residents having working capacity of 30-55%; - Retired persons having small or medium demand of special needs; - Permanent disabled residents (small or medium level). *Annual NTM is calculated accordingly.
© Grant Thornton International. All rights reserved. BENEFITS IN KIND (1) Benefits in kind are not considered all the below listed kinds of income: 1)Gifts and prizes received from the entities or persons other than employer if their value is not exceeding LTL 320 (ca EUR 93); 2) Benefit received when other person paying directly to educational institutions for the education of person, who will obtain higher education and/or qualification upon graduating the educational institution;
© Grant Thornton International. All rights reserved. BENEFITS IN KIND (2) 3) Benefit received when employer pays to the individual for the medical services when it is required by the legislation; 4) Personal income tax (PIT) paid by other person on behalf of the tax payer; 5) Work clothes, shoes, tools, equipment and other property provided by the employer for the performance of the work functions only as well as benefit when the employer pays expenses related to use of this property.
© Grant Thornton International. All rights reserved. BENEFITS IN KIND (3) All the other kinds of income shall be considered as benefits in kind and taxed accordingly. For example: - use of the employers car for the personal needs; - property or services received instead of monetary work remuneration; - indemnification of accommodation expenses; - loyalty programs to employees; - non interest bearing loans or loans concluded not on an arms length basis; - shares acquired under the stock option plan for less than market price.
© Grant Thornton International. All rights reserved. TAX INCENTIVES TO INDIVIDUALS (1) Tax exempt income of individuals: Interests for the loan granted if the loan will start to be repaid not earlier than 366 days after it was provided; Gift income from spouses, children, parents, brothers, sisters, grandchild and grandparents; Capital gain which is not exceeding LTL 8,000 Lt (ca EUR 2,316) per fiscal year; (not applicable to real estate and movable property subject to registration in Lithuania)
© Grant Thornton International. All rights reserved. TAX INCENTIVES TO INDIVIDUALS (2) Tax exempt income of individuals: Capital gain from sale of shares, which were acquired after 1 January 1991 and if title to them was held for more than 366 days and individual persons 3 years was not an owner of more 10 % of the shares*. * Tax incentive is not applicable if shares were obtained free of charge when increasing authorized capital of the company from the profit or reserves of the company.
© Grant Thornton International. All rights reserved. TAX BURDEN (1) IITHICSSC Work remuneration Employee 15 % Deducted by employer 6 % Deducted by employer 3 % Deducted by employer Employer-3 %27,98 % Authorship remuneration Individual 15 % Deducted by company 6 % Deducted by company 3 % Deducted by company Company-3 % 27,98 % or 26,7 % Business licence Individual Fixed Paid himself 9 % Paid himself 50 % of basic pension Paid himself
© Grant Thornton International. All rights reserved. TAX BURDEN (2) IITHICSSC Dividends (permanent resident, temporary resident) Individual 20 % Deducted by company -- Individual activity Individual 5 % or 15 % Paid himself 9 % Paid himself 28,5 % Paid himself Other income (property sale&lease, interests, annual bonus, etc.) If income of class A 15 % Deducted by enterprise -- If income of class B 15 % Paid himself --
© Grant Thornton International. All rights reserved. LUXURY TAX
© Grant Thornton International. All rights reserved. LUXURY TAX Starting 2012 individuals (including non residents) are liable to 1% real estate tax on real estate situated in Lithuanian and owned by the family taxable value of which is exceeding LTL 1 million (EUR 289,620); Luxury tax is paid from the value exceeding LTL 1 million (EUR 289,620); The below real estate is not subject to luxury tax: – Real estate of commercial nature, – Real estate transferred for use to legal entities; – Land.
© Grant Thornton International. All rights reserved. AGREEMENTS WITH THE TAX AUTHORITIES
© Grant Thornton International. All rights reserved. AGREEMENTS WITH THE TAX AUTHORITIES Starting 2012 the following instruments are available: Binding Rulings Advanced Pricing Agreements. The tax authorities have to take decision in 90 days. Agreements may be concluded for up to 5 years.
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