Title 1 – Times New Roman

Report
The recent changes in tax legislation: risks
and opportunities
Alina Ulinauskienė,
Tax Manager
9 February 2012
Presentation will focus on:
• Binding rulings for the future transactions;
• Recovery of VAT from bad debts;
• Other amendments to the Law on VAT;
• Amendments to the Law on CIT with respect to:
‒ application of 5 % CIT rate;
‒ tax incentive for free economic zone’s entities;
‒ tax incentive for investment projects.
• Amendments to the Law on Real Estate Tax;
• Changes in rules on distribution of profit.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Binding rulings for future transactions (1)
(Article 371 of the Law on Tax Administration)
• Safety to the business with respect to correct application of tax legislation
as well as more accuracy while planning the cash flows;
• Application could be submitted only by a tax payer or his attorney and the
ruling is binding for the Tax Authorities only in respect of the tax payer
who submitted the application;
• Tax payers may face difficulties with respect to the preparation of
application due to quite strict requirements applicable. For example, the
application should include:
‒ detailed description of a transaction (each fact shall be supported with the
relevant documentation that shall be provided together with the application);
‒ detailed description of all circumstances important for application of tax
legislation;
‒ provisions of tax legislation that in tax payer’s opinion are applicable for the
future transaction;
‒ transactions related with the future transaction, other information that might
be important for taxation, etc.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Binding rulings for future transactions (2)
(Article 371 of the Law on Tax Administration)
Indeterminations and possible subjectivity of the tax
administrator, for example:
• a restriction to apply with „simple“ questions;
• a tax administrator has a right to ask to provide additional documents / information
during the indicated term „correspondent with the criteria of prudence”.
However, in case the mentioned requirements are not met, the
application might be rejected. Besides:
• to receive a binding ruling might take from 3 to 5 months or even longer if the
process would be stopped due to additional documents / information requested;
• after the binding ruling is issued, it will be valid during the period of
implementation of this transaction but not longer than the current and 5
consecutive calendar years after the date the binding ruling is issued;
• the ruling is binding only to the Tax Authorities, i.e. the tax payer is not obliged to
implement this ruling.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Recovery of VAT from bad debts (1)
(Article 891 of the Law on VAT)
In order to take this opportunity, it is required:
• to prove that debts (including output VAT) are bad and that the efforts
were undertaken to recover these debts. However, the Government has
not yet issued the rules how this requirement should be implemented.
Therefore, it is not clear:
‒ whether these rules will require the same proofs as it is indicated in the
Order of Minister of Finance No. 40 applicable in order to prove the badness
of debts for CIT purposes;
‒ how difficult it will be to receive the required proofs in practice.
• to issue an accounting document by a supplier / service provider showing
the amount of a bad debt and related output VAT. According to this
document the purchaser is required to increase his VAT payable
respectively. However, the Government has also not yet issued the rules
regulating the issue of such document.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Recovery of VAT from bad debts (2)
(Article 891 of the Law on VAT)
Not clear of which period VAT returns shall be adjusted when
the bad debt or its part is afterwards repaid and the supplier /
service provider or the purchaser is already deregistered from
the VAT payers, i.e. whether VAT returns shall be adjusted:
• where the supplies were declared, or
• where the adjustment of VAT payable was declared due to recognition of
the bad debts.
5 years period of statute of limitation.
This possibility to decrease VAT payable is applicable to the
amounts of output VAT calculated and declared starting from 1
January 2012 and only if not less than 12 months have
elapsed after taxable moment of the goods supplied / services
provided.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Other amendments to the Law on VAT (1)
(Article 19 Paragraphs 3 and 4 of the Law on VAT)
• application of reduced 9 % VAT rate was extended up to 31 December
2012 to thermal energy, supplied to heat the residential premises, hot
water supplied to residential premises or cold water and thermal energy,
consumed to prepare hot water, supplied to residential premises;
• application of 5 % VAT rate was extended up to 31 December 2012 to
medicines and medical aid devices, when their acquisition costs are
partially or fully reimbursed according to the procedures established in
the Law on Health Insurance;
• application of reduced 9 % VAT rate was cancelled to accommodation at
hotels and other special accommodation services provided according to
the procedures established in the legal acts regulating tourist activities.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Other amendments to the Law on VAT (2)
(Article 71 Paragraph 2, Article 92 Paragraph 1, Article 66 Paragraph 2, Article
64 Paragraph 3 of the Law on VAT)
• threshold, from which the Lithuanian taxable person is obliged to register
as a VAT payer, was increased from LTL 100,000 to LTL 155,000.
Besides, it was explained that VAT shall be calculated from the total
amount of transaction due to which the threshold was exceeded (instead
of the part of amount which exceeds this threshold as it was calculated
previously);
• VAT deduction is not adjusted when the goods are lost due to the
reasons not depending upon the tax payer (destruction of expired goods,
etc.) if that could be supported with this fact proving documentation;
• the requirement was cancelled to fill in the registers of purchased goods /
services when goods / services are purchased from another member
state or when according to the provisions of the Law on VAT a purchaser
is obligated to calculate output VAT for acquired goods / services.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Amendments to the Law on CIT (1)
(Article 5 Paragraph 2, Article 58 Paragraph 16 Subparagraph 2 of the Law
on CIT )
• Income threshold has been increased from LTL 0,5 million to LTL 1 million
meaning that entities which income does not exceed the above mentioned
threshold shall be taxed by 5% CIT rate (except for non-profit entities or
entities which average number of employees exceeds 10);
• list of activities carried out in free economic zone has been expanded with
the following activities performed in the zone:
‒ manufacturing of aircraft, spacecraft and related equipment;
‒ maintenance and repair of aircraft and spacecraft;
‒ activities related to the maintenance and repair of aircraft (electronic and
optical equipment repair, technical testing and analysis);
‒ computer programing activities, computer consulting activities;
‒ computer facilities management and other information technology and
computer services activities;
‒ data processing, web servers (hosting) and related activities, call centre
operations.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Amendments to the Law on CIT (2)
(Article 58 Paragraph 16 Subparagraph 2 of the Law on CIT )
Reminders…
Free economic zone’s entity:
• shall not pay CIT for 6 tax periods, and
• shall be subject to a 50% reduction in CIT rate for 10 subsequent tax
periods.
This tax incentive may be applied only if:
• not less than 75% of income of a free economic zone’s entity for the
relevant tax period comprises income from the activities in the list;
• capital investments amount to at least EUR 1 million;
• free economic zone’s entity has an auditor’s report confirming the
required amount of capital investments.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Amendments to the Law on CIT (3)
(Article 461 Paragraph 5 of the Law on CIT )
Application of CIT incentive with respect to investment projects
has been extended, i.e. the entities will not be obliged to
restore the tax incentive applied when fixed assets are used in
the course of the entities activities for less than 3 years in
cases where the fixed assets:
• are no longer used or is transferred due to the statutory requirements, or
• are transferred due to reorganisation or transfer of the business to the
acquiring entity, provided that the acquiring entity will use these assets till
3 years period since the first exploitation of the acquired asset elapse.
Acquiring entity, which has taken over the fixed assets during the
reorganisation or transfer of business, or due to the statutory
requirements, may continue to reduce the taxable profit in the same
way as it would have been reduced by the entity which transferred
the assets and lost this opportunity.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Amendments to the Law on CIT (4)
(Article 2 Paragraph 121, Article 461 Paragraph 5 of the Law on CIT )
Reminders…
Investment projects – investments into particular new and
unused fixed asset for:
• production (provision) of new, additional products (services), or
• increase in the production (service provision) capacity, or
• introduction of a new process of production (provision of services), or
• substantial change in the existing process (part thereof), or
• introduction of technologies protected by international invention patents.
This CIT incentive:
• entitles the companies to reduce the taxable profit down to 50 %;
• is applicable to the expenses incurred during the years 2009-2013 and
could be carried forward till the year 2017.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Amendments to the Law on Real Estate Tax (1)
(Taxation of individuals)
With the effect from 1 January 2012, material changes were
introduced with respect to taxation of the Lithuanian real estate
(other than land) owned or being acquired by individuals:
• In cases where the tax value of the pool of the Lithuanian RE owned or
being acquired by a family is above non-taxable amount (LTL 1 million),
the exceeding part is subject to 1% annual real estate tax;
• Affected real estate, which was tax exempt (unless used for economic
activities or transferred for use to a legal person) - structures (buildings)
owned or being acquired by individuals and intended for dwelling purposes,
gardens, garages, homesteads, greenhouses, farms, subsidiary farms,
science, religion, recreation, fish-farming structures and engineering
structures (collectively, “RE”);
• Family members, whose RE is pooled: spouses, persons raising children
(adopted children) alone, and their children (adopted children) under 18
residing with them.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Amendments to the Law on Real Estate Tax (2)
(Taxation of individuals)
• Subject to certain exceptions, RE pool includes RE, which is:
• held by an individual by the right of ownership;
• managed by an individual under a financial lease (leasing) agreement
providing for transfer of right of ownership, under a hire-purchase contract or
a lease contract (provided data on respective transaction has been entered
in a public register).
• Tax value of RE:
• Set by State Enterprise “Registrų centras“ and based on the latest
documents of mass valuation of RE (except for engineering structures,
where recoverable value method is used);
• Above tax value can be challenged (once per year) and value determined by
individual valuation can be accepted if it differs by more than 20% from the
above tax value. Individual valuation has to be presented to State Enterprise
„Registrų centras“ within 3 months as of the start of the calendar year.
• RE tax return has to be filed and tax to be paid by 15 December of the
current year.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Changes in rules on distribution of profit (1)
(Amendments to the Company Law)
INTERIM DIVIDENDS – a new opportunity
• In addition to the existing regular way of distribution of dividends after the
end of financial year, possibility to distribute dividends to shareholders for
a period shorter than the financial year (i.e. distribute interim dividends) is
introduced as of 1 March 2012.
• Not applicable to distribution of dividends by banks, other credit and financial
institutions, insurance and re-insurance companies, operator of regulated
market, Central Securities Depository of Lithuania.
• Material pre-conditions for declaring of interim dividends:
• Financial result for the period, with respect to which interim dividends are to
be declared, must be positive (there can be no losses);
• Company must have no outstanding obligations, with the terms of
performance expiring before decision on interim dividends is made;
• Solvency: having paid out interim dividends, company must be able to meet
its obligations for the current financial year.
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Changes in rules on distribution of profit (2)
(Amendments to the Company Law)
INTERIM DIVIDENDS – a new opportunity (contd.)
• Distribution of interim dividends is subject to a number of procedural
requirements:
• Proposal by shareholders holding shares, which carry at least 1/3 of all votes
(this threshold can be increased in the Articles of Association);
• Preparing and audit (if mandatory for annual financial statements) of interim
financial statements;
• Obtaining opinion from other bodies of the company;
• Approval of interim financial statements by Shareholders’ Meeting and
making (by a qualified majority of at least 2/3 of votes of attending
Shareholders) of the decision on distribution of interim dividends;
• Filing of interim financial statements and auditor’s report with the Register of
Legal Persons (within 30 days as of the decision to distribute interim
dividends).
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Changes in rules on distribution of profit (3)
(Amendments to the Company Law)
INTERIM DIVIDENDS – a new opportunity (contd.)
• Time constraints – Shareholders’ Meeting, which is to decide on interim
dividends, has to take place:
• Not earlier than annual financial statements are approved and decision on
distribution of profit for previous financial year is made;
• Not later than within 3 months as of the end of the period, with respect to
which interim dividends are to be declared;
• Not later than by the end of a current financial year;
• After interim dividends are declared, it is allowed to allocate interim dividends
once again only after at least 3 months.
• Amount for distribution of interim dividends is not limited by profit made
during relevant part of current financial year – distribution of profit for
previous financial year is also possible (subject to certain restrictions).
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
Changes in rules on distribution of profit (4)
(Amendments to the Company Law)
ANNUAL BONUSES – a new restriction
As of 6 January 2012 another restriction on the amount of annual bonuses
to members of Board of Directors or Supervisory Board (“Bonuses”) was
introduced, whereby:
• Share of financial year’s profit, allocated for payment of Bonuses, must
not exceed 1/3 of profit, allocated for payment of dividends;
• Above restriction is in addition to the existing restriction, under which the
aggregate amount of Bonuses, annual bonuses to employees and similar
compensations cannot exceed 1/5 of net profit for the financial year.
Issue:
- Favorable tax treatment of Bonuses (15% PIT / WHT; no social insurance
contributions; potential tax deductibility for the company) and increased
attention of the Tax Authorities – substance over form principle (employment
related income or dividends).
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The recent changes in tax legislation: risks and opportunities, 9 February 2012
© 2012 Deloitte Lithuania
THANK YOU FOR YOUR ATTENTION!
ANY QUESTIONS?
Contacts:
Alina Ulinauskienė
Manager, Tax & Legal Department
Deloitte
Tel. +370 5 255 3008
[email protected]
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private
company limited by guarantee and its network of member firms, each of which is
a legally separate and independent entity. Please see www.deloitte.com/lt/about
for a detailed description of the legal structure of Deloitte Touche Tohmatsu
Limited and its member firms.
© 2012 Deloitte Lithuania

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