PROVISIONAL LAW

PROVISIONAL LAW Official translation PROVISIONAL LAW ON INCOME TAX OF NATURAL PERSONS (As amended by 4 January 2000 No VIII-1520) I. General Provisions Article 1 Income tax of natural persons shall be paid by: 1) persons, including foreign nationals and stateless persons, deriving income through their employment relations in enterprises, institutions, and organisations established (registered) in the territory of the Republic of Lithuania, including representative and permanent offices of enterprises of foreign states, and at enterprises, institutions and organisations of the Republic of Lithuania, established (registered) in foreign states; residents of the Republic of Lithuania deriving income through their employment in enterprises, institutions and organisations of foreign states; foreign nationals and stateless persons employed in the Republic of Lithuania and deriving income through their employment relations in enterprises, institutions and organisations of foreign states; The provisions of this subparagraph shall not apply to foreign nationals and persons who are not permanent residents of the Republic of Lithuania, employed in foreign diplomatic missions and consular institutions and to persons employed in diplomatic missions and consular institutions of the Republic of Lithuania in foreign states, who are not citizens of the Republic of Lithuania and are not permanent residents of the Republic of Lithuania; 2) natural persons, including foreign nationals and stateless persons, deriving income not connected with employment relations from enterprises, institutions and organisations established (registered) in the territory of the Republic of Lithuania, including representative and permanent offices of enterprises of foreign states, and enterprises, institutions and organisations of the Republic of Lithuania, established (registered) in foreign states, as well as natural persons deriving income from the residents of the Republic of Lithuania and other activities in the Republic of Lithuania; permanent residents of the Republic of Lithuania, including foreign nationals and stateless persons who derive income not connected with employment relations from enterprises, institutions and organisations of foreign states, as well as income from foreign residents and commercial-economic and other activities in foreign states; 3) individual (personal) enterprises without the rights of a legal persons and partnerships (Chapter IV of this Law). 4) enterprises of foreign states the activities whereof are regulated by laws of foreign countries and the domicile whereof is in a foreign country (in the manner prescribed by Chapter IV of this Law). Permanent offices are dependent divisions of enterprises of foreign states, including their affiliates (hereinafter - representative offices) which in the Republic of Lithuania:

1. a)have a place of business where they conduct their business or part thereof; or
2. b)conduct their business through the authorised natural, legal or other person provided the person has the authorisation of the foreign state to conclude contracts on its behalf and acts on the authorisation;
3. c)use a building site, building, assembly or equipment facility; or
4. d)use equipment and structures, including drilling equipment and ships, for prospecting or extraction of mineral resources. The following persons shall be considered as permanent residents of the Republic of Lithuania under this Law:
5. a)natural persons whose principal place of residence is in the territory of the Republic of Lithuania. The principal place of residence shall be the place where the person has his permanent home or where he resides most of the time, or which is the place where he has his personal, social or economic interests;
6. b)natural persons who resided in the Republic of Lithuania continuously or intermittently for 183 days or more in a twelve months period beginning and ending in the same or in different taxable calendar year, except for foreign state diplomats, members of administrative technical and service personnel of diplomatic missions and consular institutions, who are nationals of the foreign states;
7. c)nationals of the Republic of Lithuania employed at diplomatic missions and consular institutions or other state institutions of the Republic of Lithuania, located in foreign states. Article 2 Income tax shall not be levied on: 1) pensioners' pensions paid out from state social insurance funds of the Republic of Lithuania, state and local government budgets, also pensions paid by foreign states, which are taxed in those state ; 2) grants and other benefits and payments paid from the grant funds of students of educational institutions financed from the budget, also grants paid from international organisations and foundations the list whereof shall be compiled by the Government of the Republic of Lithuania, and from state scholarships. Also income tax shall not be levied on benefits of trade unions, societies, other public organisations and political parties, paid to their members from the funds formed from membership fees of natural persons. This provision shall not apply when levying tax on benefits, received by persons related with these public organisations and political parties through employment relations. The rules of accounting of funds formed from membership fees of natural persons belonging to trade unions, societies, other public organisations and political parties shall be established by the Government of the Republic of Lithuania. Article 3 International double taxation shall be abolished under effective double - taxation treaties concluded with foreign states. In cases where no double taxation treaties have been concluded with foreign states, international double taxation may be abolished according to the procedure laid down by the Government of the Republic of Lithuania or, on its authorisation, by the Ministry of Finance. II. Taxation of Income Related to Employment Relations Article 4 The income received at the principal place of employment, related to employment relations, as well as the income derived from other activities provided for in the bylaws of an enterprise (with the exception of the income the taxation thereof is regulated by Chapters III and IV of this Law) shall be taxed at the rate of 33 %, after subtracting from it the tax-exempt minimum. The income related to employment relations at the principal place of employment, received during the cruise by seamen who are nationals of the Republic of Lithuania and who are on the list of the crew of a ship sailing under the flag of Lithuania, which is in conformity with the requirements of the Merchant Shipping Law, and who are employed in the ships of the same ship manager under an indefinite-term contract at least for one year, shall be taxed at the rate of 15%, after subtracting from it the tax-exempt minimum, in the manner determined by the Government of the Republic of Lithuania. Article 5 The tax-exempt minimum of income received at the principal place of employment, connected with employment relations shall be: 1) for the disabled of Group 1 - LTL 200 ; 2) for the disabled of Group 2 - LTL 175; 3) for the disabled of Group 3 - LTL 130; 4) for persons with three and more children under 18 years of age - LTL 200; 5) for the mother or father in case of a single parent family with one child under 18 - LTL 155 and with two or more children under 18 tax exempt minimum shall be increased by LTL 45 for the second and each successive child 6) for employees of enterprises producing agricultural products, whose monthly income generated from activities not connected with production or processing of agricultural products does not exceed 20 %of their gross monthly income - LTL 150; 7) for other persons not indicated in paragraphs 1-6 of this Article tax-exempt minimum (TEM) - LTL 115. In addition, for visually handicapped persons of Group 1 and 2, parents with at least one handicapped child, as well as for parents with 4 and more children, for the 4th and each successive child the computed tax shall be further reduced by LTL 10. The Government of the Republic of Lithuania shall index the tax-exempt minimum amounts specified in this Article according to the consumer price index. Article 6 The following monthly earnings in cash and in kind received at the principal place of employment shall be included in taxable income: 1) wages, including various additional payments, sickness, maternity (paternity) benefits paid form social insurance funds - the sums computed for that month. Sums of wages paid by enterprises, institutions and organisations for work of more than one month in duration and whose duration has been recorded provided the full monthly wage or a portion thereof has not been paid during that period, shall be phased in proportion to the number of months worked (but not for a period in excess of 12 months); 2) lump-sum bonuses, taxable benefits and other payments - the sums paid out within a month; 3) bonuses and other incentive payments for work done within the period exceeding one month shall be phased proportionately to the number of recorded months (but not exceeding 12 months) and shall be subject to taxation at income tax rates provided in Supplement 2 of this law, which were valid in the month when these payments were calculated for being paid. Additional payment (honorariums) shall also be taxed in the same manner. Provided several such bonuses or other incentive payments are paid within a month, the tax shall be imposed on each of them; 4) the sums of compensations and severance pay in the amount specified by the Law on Employment Contract that are paid to the employee upon discharge from work, also the sums of the awarded damages for forced absence from work by reason of unlawful dismissal shall be divided into separate parts the number whereof corresponds the number of average monthly wages which make up the corresponding sum of payments and each of them shall be taxed separately by applying income tax rates specified in Supplement 2 of this law. When calculating the amount of income tax payable for compensations for the unused holidays, the amount of compensation for each year's unused holidays shall be taxed separately (if the employee is entitled to several months of holidays, the amount of compensation due for each month shall be taxed separately) by applying the income tax rates specified in Supplement 2. Article 7 The following shall not be included in taxable income: 1) social security and social assistance benefits paid from the state and social insurance funds, except for sickness and maternity (paternity) allowances; 2) benefits paid by the employers in the event of death of the employee's spouse or other lawful heir apparent, also benefits in case of natural calamity or fire; 3) amounts of compensation awarded by the court for material and moral damage; 4) insurance contributions prescribed by Article 58 of the Law on Insurance of the Republic of Lithuania; 5) business trip expenses in the amount specified by law or the Government of the Republic of Lithuania, also compensation of other work-related expenses and default interest for payments connected with labour relations; 6) prizes (gifts) received on the occasion of personal celebrations or competitions or on any other occasion provided that the value of these gifts and prizes during the calendar year does not exceed the tax-exempt minimum. Taxable income shall be reduced: 1) by the amount given as charity or sponsorship under the procedure set forth in the Law on Charity and Sponsorship of the Republic of Lithuania; 2) by the amount of pension contributions to the personal accounts of participants in pension schemes under the Law of pension Funds of the Republic of Lithuania but not more than 25% of the income relating to employment relations calculated during a calendar year. Article 8 The income earned at extra jobs specified in Article 6 of this law shall be subject to taxation pursuant to Article 6 at the rates provided in Supplement 2. If a person is employed at several jobs, taxes shall be withheld at the job which the employee chooses as his principal place of employment and indicates it in the employment contract or in a separate application submitted to the principal place of employment. Payments made to students of educational institutions for work done during practical training or for collective assistance, payments made to patients of medical and labour health farms, inmates of boarding homes shall be taxed according to the procedure provided for in Articles 4 and 6 of this law. Article 81 Income, connected with employment relations, derived by persons who reside and are employed in the Republic of Lithuania, from foreign enterprises, institutions and organisations, as well as income derived from foreign residents and from commercial-economic activities or other activities in foreign states shall be taxed in the manner prescribed by V. Chapter of this Law. Article 9 Income tax at the rates specified in Article 4 and 8 of this Law shall be withheld by those enterprises, institutions and organisations, including representative and permanent offices of foreign state enterprises, which assessed and paid the income, as well as residents who pay wages to persons hired by them, who shall within 15 days after the close of every quarter file with the territorial tax inspectorate within whose territory they are registered information on wages paid to hired persons or other payments made in relation to employment as well as the withheld and paid amount of income tax. Article 10 Enterprises, institutions, organisations and individual employers, upon the receipt of money from banking institutions for paying wages for the appropriate month (or the second half of a month), shall simultaneously file a payment order to such banking institutions for paying sums of income tax withheld from that month's wages. In calculating payments specified in paragraph 3 of Article 6, the tax withheld from them must be transferred to the budget upon receiving money for said payments from banking institutions. It is prohibited to pay income tax from the financial resources of an organisation. Organisations and individual employers having no settlement accounts with the banking institution, or who pay wages from their current receipts, shall file payment orders to banking institutions for the payment of withheld income taxes not later than the day after the wage was paid out. Article 11 Enterprises, institutions and organisations possessing subsidiaries located on the territory of other municipalities shall transfer the sums of income tax withheld from the incomes of employees of those subsidiaries to the budget of that municipality on the territory of which such subsidiaries are located. Article 12 The overpaid amount of income tax shall be refunded in the manner laid down by the Law on Tax Administration of the Republic of Lithuania. Article 13 If the sum of income tax is not withheld or if the smaller amount is withheld than that due, said sums plus a penalty shall be collected from such enterprise, institution or organisation in the manner laid down by the Law on Tax Administration of the Republic of Lithuania. Institutions and organisations which are financed out of the budget shall not pay penalties for withholding smaller amounts of taxes than those due. An enterprise, institution or organisation may recover from its employee the due sum of income tax not withheld for the period not exceeding three preceding months, calculating from the month when the error was discovered. If an employee indicates more than one job as his principal job, the principal job shall be considered the one in which the smallest wage is received, and from it the sum due to be withheld and the penalty in the amount of 300 %of this sum shall be recovered for the entire period. Article 14 If the sums of tax withheld are not transferred into the budget when due, default interest shall be charged in the manner laid down by the Law on Tax Administration of the Republic of Lithuania. Article 15 Income of clergymen, religious ceremony attendants and service staff (excluding persons who perform construction and restoration work) of religious communities, associations and centres (higher church authorities) received from the believers shall not be subject to income tax of natural persons. III. Taxation Procedure of Royalties Paid to Authors and their Descendants for Works of Science, Literature, Art and Other Author's Works Article 16 The royalty paid to authors and their lineal descendants for works of science, literature, art, discoveries and inventions as well as for other author's works is subject to taxation at the rate of 13 %. The authors of discoveries and inventions possessing author's certificate are entitled to a tax-exempt minimal royalty in the amount of 8 TEMs for each discovery or invention. Taxable income shall be reduced by the amounts donated to the charity and sponsorship beneficiary in the manner specified in the Law on Charity and Sponsorship of the Republic of Lithuania. Article 17 Income tax on the sums of royalties shall be computed and withheld directly at source and shall be transferred to the budget according to the procedure provided for in Article 10 of this Law. Article 18 The royalty paid to the author's descendants for works for which such royalty had been paid already, is subject to an income tax rate of 60 %. Children under 18, spouses and parents (women over 55 and men over 60 as well as disabled persons of Group 1 and 2 irrespective of their age) are eligible for the 50% reduction of income tax computed under this Article Article 19 Erroneously determined income tax on a royalty paid for works of science, literature and art may be revised and recovered in the manner laid down by the Law on Tax Administration of the Republic of Lithuania . Article 20 The sum of income tax not withheld or the smaller amount withheld than that due, plus a penalty shall be collected from the enterprise, institution or organisation which has paid such a royalty, in the manner prescribed by the Law on Tax Administration of the Republic of Lithuania. Article 21 The withheld amount of income tax, exceeding the amount due, shall be refunded in the manner prescribed by the Law on Tax Administration of the Republic of Lithuania. Article 22 If sums of taxes withheld are not transferred to the budget when due, default interest shall be charged in the manner prescribed by the Law on Tax Administration of the Republic of Lithuania. Article 23 Municipal Councils shall have the right to reduce income tax for certain taxpayers or to exempt them from income tax by compensating same from the local budget. IV . Taxation Procedure of Income of Individual (Personal) Enterprises and Partnerships without the Rights of the Legal Person Article 24 Income tax shall not be imposed on the income of partnerships and individual (personal) enterprises without the rights of a legal person, producing agricultural products and rendering services to agriculture, the proceeds whereof from the sale of agricultural production and for services rendered account for more than 95% of the total sales proceeds. If the proceeds from the sold agricultural production and agricultural services ac1count from 75% to 95% of the total sales proceeds, taxable income from the commercial economic activity registered in the prescribed manner shall be subject to a 5% rate of income tax. If the proceeds from the sold agricultural production and agricultural services account from 65% to 75% of the total sales proceeds, taxable income shall be subject to a 10% rate of income tax. Taxable income of other partnerships or other individual (personal) enterprises without the rights of a legal person shall be subject to a 24% rate of income tax. The income used for investment shall be subject to taxation in the manner prescribed by subparagraph 2 of paragraph 1 of Article 7 of the Law on Taxes on Profits of Legal Persons or the funds of the above enterprises (equity or borrowed funds) used for investment shall be deducted from gross income in the manner prescribed by paragraph 1 of Article 4 of the Law on Taxes on Profits of Legal Persons. Where the purpose of use of the income, assigned for investment and taxed under subparagraph 2 of paragraph 1 of Article 7, is changed, including cases when the enterprise owners pay out for themselves part of the enterprise income (all income), the income tax levied on the income used for investment must be recalculated. Partnerships of free economic zones and individual (personal) enterprises without the rights of a legal person shall pay for 5 years from the day of registration an income tax at the rate reduced by 80 %, and for the following 5 years - an income tax reduced by 50 %. If a foreign investor (investors) has acquired at least 30% of partnership equity and invested the capital of foreign origin the value of which is not less than USD 1 million, these partnerships shall be exempt from income tax for 5 years from the date of their registration, and for the following 10 years shall pay income tax reduced by 50%. The portion of income of partnerships of free economic zones and individual (personal) enterprises used for the acquisition of essential fixed assets, research and introduction of new technologies, as well as for investment and capital investment in the zones, shall not be included in taxable profit. If a partnership or an individual (personal) enterprise without the rights of a legal person was set up (registered) or foreign capital was invested before 31 December 1993, the part of its income (proportionate to the share of foreign capital in the enterprise's equity) due to the foreign investment and not used for the payment of wages, also reinvested in the enterprise, for five years from the day of the receipt of income, shall be subject to income tax reduced by 70%. At the expiry of this period, for three years, the part of income due to the foreign investment shall be subject to income tax reduced by 50%. If such an enterprise was set up (registered) or foreign capital was invested from 1 January 1994 until 1 August 1995, for six years, the part of income due to foreign investment shall be subject to income tax reduced by 50%. An enterprise in which the foreign capital investment of a foreign investor (investors) has reached USD 2 million, for three years shall not pay income tax from the start of the accounting quarter when the income began to be gained. For the subsequent three years the enterprise shall pay income tax reduced by 50%. Tax concessions provided for in this paragraph shall not apply to oil products wholesalers and retailers if their proceeds from sale of these goods amount to more than 30% of their sale revenue. The income of partnerships and individual (personal) enterprises without the rights of a legal person, whose gross income over the taxable period is not in excess of LTL 1 million and the average number of workers on the payroll is 50 or less, shall be taxed at the rate of 15 %. This tax concession shall not apply to partnerships and individual (personal) enterprises without the rights of a legal person, engaged in trade in alcoholic beverages or tobacco products, in wholesale or retail trade in oil products (including cases where other products are also sold alongside), to partnerships and individual (personal) enterprises without the rights of a legal person which offer public catering services and sell alcoholic beverages, including beer and tobacco products. [Provisions of paragraph 8, Article 24 shall apply when taxing the interest received by foreign enterprises and paid by individual (personal) enterprises without the rights of a legal person and partnerships of the Republic of Lithuania after 1 January, 1999]. The income received by foreign enterprises (with the exception of foreign enterprises referred to in paragraph 9 of this Article) from private (personal) enterprises without the rights of a legal person and partnerships of the Republic of Lithuania for marketing, consulting and agency services as well as interest on loans granted, except interest on loans granted by foreign banks and international financial institutions which are on the list drawn up and approved by the Government of the Republic of Lithuania or a body authorised by it shall be taxed at source at the rate of 15 %, and the rate of 10 % shall be applied for the right to use trademarks, licences and business names. The income received by foreign enterprises registered in states and zones which are tax havens (territories where taxes are lower than in the Republic of Lithuania) from individual (personal) enterprises without the rights of a legal person and partnerships of the Republic of Lithuania shall be taxed at source at the rate of 24%. The list of those states (zones), the categories of taxable income and the procedure of paying taxes shall be established by the Government of the Republic of Lithuania or a body authorised by it. Dividends received by partnerships of the Republic of Lithuania and individual (personal) enterprises without the rights of a legal person shall be taxed at the rate of 29%. The amount of the tax shall be calculated, deducted and paid into the budget by an enterprise of the Republic of Lithuania which is paying the dividends. A partnership of the Republic of Lithuania or an individual (personal) enterprise without the rights of a legal person receiving dividends from foreign enterprises shall calculate the amount of the tax and pay it to the budget within 10 calendar days from the receipt of dividends. The financial statement relating to the receipt of dividends from foreign enterprises and the calculation of income tax shall be filed within 10 calendar days from the receipt of dividends with the local tax administrator in whose territory the enterprise calculating the amount of tax is registered. The statement forma and the manner of filling it out shall be determined by the central chief administrator. Article 25 Patent fee may be established for private (personal) enterprises without the rights of a legal person and partnerships, and for some types of activity - an obligatory patent fee. Enterprises which have acquired the patent shall not pay income tax from the income derived from the activities covered by the patent. The types of activities, minimal and maximal patent fees and the procedure for issuing patents shall be established by the Government of the Republic of Lithuania. The concrete rates of the patent fee shall be established by the municipalities. Article 26 Taxable income shall be calculated by deducting from the gross income the income generation costs specified in Article 5 of the Law on the Tax on Profits of Legal Persons and certified by legally valid documents. Enterprises without the rights of a legal person may choose the gross income recognition method: the moment of income generation or the actual moment of receipt of income. The method of income recognition may not be changed until the enterprise liquidation. The gross income shall be the sum total of sales revenue and taxable non-operating revenue. Revenue shall be assigned to sales revenue or taxable non-operating revenue pursuant to Article 3 of the Law on Taxes on Profits of Legal Persons. If property owned by owners of enterprises without the rights of a legal person or their family members is used to derive revenue, the expenses related to the maintenance, amortisation and repair of such property shall be recognised as the enterprise’s costs according to the procedure laid down by the Minister of Finance. When fixed assets are sold at a smaller price than their residual value, the gross income shall be not less than the residual value of the assets. The proceeds for sold assets of an enterprise which has been declared bankrupt shall not be included in the gross income. Taxable income of foreign enterprises shall consist of all the proceeds for marketing, consultancy, agency services and for the right to use trademarks, licences, business names received from private (personal) enterprises without the right of a legal person and partnerships of the Republic of Lithuania, and interest for loans granted, except the interest on loans granted by foreign banks and international financial institutions which are on the list drawn up and approved by the Government of the Republic of Lithuania or a body authorised by it, without deducting any costs. Taxable income of foreign enterprises registered in the states or zones which are tax havens shall be calculated according to the procedure determined by the Government of the Republic of Lithuania. Article 261 Enterprises holding cash and cash-and-prize lotteries, with the exception of those whose founder is the National Olympic Committee of Lithuania, the Department of Physical Education and Sports at the Government of the Republic of Lithuania, the Lithuanian Society of the Child, the Lithuanian Society of the Disabled, the Union of People with Disabilities, and Lithuania’s Union of the Blind and Partially Sighted shall pay into the budget 13% of the income from the sales at nominal value of lottery tickets (cards). Enterprises holding cash and cash-and-prize lotteries whose founder is the National Olympic Committee of Lithuania, the Department of Physical Education and Sports at the Government of the Republic of Lithuania, the Lithuanian Society of the Child, the Lithuanian Society of the Disabled, the Union of People with Disability, and Lithuania’s Union of the Blind and Partially Sighted shall pay into the budget 5 % of the income from the sales at nominal value of lottery tickets (cards). and shall in a mandatory manner allot to charity and sponsorship 8 % of the income from the sales at nominal value of lottery tickets (cards). The procedure of payment into the budget of the prescribed amount of income and of allotting the required amount to charity and sponsorship, also the lists of sponsors and beneficiaries of sponsorship shall be specified by the Government of the Republic of Lithuania. Tax concessions established by paragraph 2 of Article 6 of the Law on Taxes on Profits of Legal Persons shall not apply to mandatory amounts allocated for charity and sponsorship as prescribed by this Article. Enterprises holding cash and cash-and-prize lotteries shall pay the income tax in the manner prescribed by this Law. Article 27 When determining the taxable income, in addition to expenses specified in Article 26 of this Law, the sums specified in Article 6 of the Law on Taxes on Profits of Legal Persons shall also be deducted from gross income (by the same proportion and in the same manner). If the enterprise makes a loss (negative results) in the taxable year, it shall be permitted to carry the losses over to the following taxable year. The carry-over of the tax year losses shall be permitted for the maximum period of five tax years, starting from the year following the formation of losses. Upon the expiry of the above time period, no carry-over of losses shall be permitted. The tax year shall coincide with the calendar year. For taxpayers engaged in seasonal activities the Minister of Finance may at their request set a different taxable period, provided that the period shall be fixed (not subject to changes) and last for 12 months. The list of such taxpayers shall be approved by the Minister of Finance. The procedure for carrying over tax year losses shall also be established by the Minister of Finance. Article 28 Individual (personal) enterprises of creative unions (of architects, artists, designers, photo artists, composers, film makers, scientists, writers, folk artists, theatre, journalists) without the rights of a legal person shall be eligible for a tax relief provided for in Article 8 of the Law on Taxes on Profits of Legal Persons. The amounts of revaluation of long-term fixed assets shall be exempt from taxation in cases and procedure established by the Government of the Republic of Lithuania. Article 29 Municipal councils shall have the right to reduce income tax or to entirely exempt from income tax certain individual ( personal) enterprises without the rights of a legal person and partnerships, by compensating same from the local budget. If the taxpayer is entitled to several tax concessions under the laws of the Republic of Lithuania, only the biggest relief shall be provided. Tax concessions established in paragraphs 4, 5 and 6 of Article 24 of this Law shall be applicable when a partnership and an individual (personal) enterprise without the rights of a legal person was set up (registered) or when foreign capital was invested, or when the foreign capital investment by a foreign investor (investors) in the enterprise amounted to USD 2 million before 1 April 1997. Article 30 At the close of the tax year individual (personal) enterprises and partnerships shall by 1 May of the following year (by the fifth day of the following taxable period) shall file income tax returns with the territorial state tax inspectorate. Advance amounts shall be paid in the course of the year. The advance amount of the income tax (hereinafter - the income tax advance payment) payable by the taxpayer according to the submitted advance financial report shall be calculated in accordance with the procedure established in this Article. The profit tax advance payment shall be calculated by the taxpayer. For the first four months of the taxable period, the income tax advance payment shall be calculated based on the income tax amount actually computed for the taxable period prior to the preceding taxable period. The income tax advance payment for the fifth to twelfth months of the taxable period shall be calculated according to the amount of income tax actually computed for the preceding taxable period. Each month’s income tax advance payment shall amount to 1/12 of the amount of profit tax actually calculated over the said period. For the first taxable year the registered new enterprises shall be exempt from income tax advance payments. Said enterprises shall start to pay income tax advance payments from May (the fifth month of the taxable period) of the following year. If the preceding taxable period was shorter than 12 months, when calculating income tax advance payments, the amount of tax computed for the period, divided by the number of months in the period and multiplied by 12, shall be considered as the actually calculated amount of tax. If the gross income received over the preceding taxable year is not in excess of LTL 100,000, the enterprise shall not be required to make income tax advance payments in the current taxable year. The taxpayer, who verifies that his gross income for the current year shows a reduction of 25% or more as compared with the gross income for the appropriate period of the preceding year or that he becomes eligible for tax concessions prescribed by this Law, shall have the right to apply to the local tax administrator, not later than a month before the regular payment of the profit tax advance, for the reduction of the remaining profit tax advance payments or exemption therefrom. The local tax administrator must reduce the taxpayer’s income tax advance payment liability in proportion to the reduced income or must exempt him from the income tax advance payment. If the taxpayer’s the current year gross income again shows an increase of up to 25% or more, the taxpayer must not later than a month before the payment day of the regular profit tax advance payment petition the local tax administrator to increase the amount of the remaining profit tax advance payments. The income tax advance financial report for the first four months of the taxable period shall be submitted by the last day of the first month (January) of the taxable period. The income tax advance financial report for the fifth to twelfth months of the taxable period shall be submitted by the last day of the fifth month (May) of the taxable period. The taxpayer may elect to pay the profit tax advance payment based on the amount of the profit tax computed for each month of the current year. If the taxpayer elects to pay the income tax advance payment in accordance with the income tax amount computed for each month of the current year, the income tax advance financial report shall be submitted after the close of each month of the taxable period by the 15th of the next month. The income tax advance payment must be paid after the close of each month of the taxable period by the 15th of the next month. If the income of foreign enterprises is taxed at source in accordance with the procedure laid down in this Law, the individual (personal) enterprise without the rights of a legal person and the partnership must deduct from the income specified in Article 24 of this Law and pay the income tax within 15 days following the close of the month when the income was paid out. Article 31 Income tax shall be paid on the working day following the expiry of the time period set for the filing of the tax return. If the tax (the advance payment) is not paid when due, default interest shall be charged in the manner prescribed by Law on Tax Administration of the Republic of Lithuania. Article 32 If individual (personal) enterprises without the rights of a legal person and partnerships engage in patentable activities without obtaining an obligatory patent, the sum in the amount of the patent fee and the penalty of the same amount shall be recovered from such an enterprise. In the event of understatement by the taxpayer of the income tax in the income tax return and underpayment of tax into the budget economic sanctions (penalties or default interest) shall be imposed on the taxpayer in the manner prescribed by the Law on Tax Administration. V. Taxation of Income Derived by Individuals from Commercial-Economic Activities and Other Receipts Article 33 The gross income generated from the rent of property and other income not specified in chapters II, III and IV of this Law and paragraphs 3, 4, 5 and 6 of this Article and in Article 331 shall be taxed at 20% rate of the income tax. No expenses shall be deducted from gross income specified in Article 33, with the exception of the sums donated to the beneficiary of charity and sponsorship in the manner prescribed by the Law on Charity and Sponsorship of the republic of Lithuania. The gross income shall be established upon deducting the VAT paid into the budget. The procedure for gross income and VAT computation shall be laid down by the Government of the Republic of Lithuania or the institution authorised by it. Proceeds from the sale of property, except for the proceeds specified Article 331, in excess of the amount established in subparagraph 11 of Article 35 of this Law shall be taxed at 10% rate of income tax. Proceeds of the inhabitants from the sold forest products (mushrooms, berries, hazelnuts, medicinal herbs, etc. ) as well as the secondary raw materials shall be taxed at 5% rate of income tax without applying the provisions of subparagraph 11 of Article 35 of this Law. Dividends shall be taxed at 29% income tax rate. Pensions from the pension funds established pursuant to the Law on Pension Funds of the Republic of Lithuania shall be taxed at 33% rate of income tax. Following the withdrawal of a member of the pension scheme from the scheme, the sum paid by the pension fund established under the Law on Pension Funds of the Republic of Lithuania shall be taxed at 33% rate of income tax. For certain types of activities an obligatory patent fee may be established for those natural persons who derive other income. Natural persons who have acquired the patent shall not pay income tax on income derived from the activities for which obligatory patent fee is established. Types of activities, minimum and maximum amounts of the obligatory patent fee, the procedure for the issuing of patent shall be established by the Government of the Republic of Lithuania. Specific obligatory patent fees shall be established by the municipalities. If natural persons derive income without obtaining an obligatory patent, the sum in the amount of the patent fee and the penalty of the equivalent amount shall be recovered from such persons. Article 331 Securities gains - income from the increase in the value of shares, bonds and debentures and other securities (hereinafter - securities), except for the income reinvested in securities, which exceeds 12 TEMs per year shall be taxed at the rate of 15%. Income from the increase in the value of securities shall be income received from the sale or other transfer into ownership of securities and shall be equal to the difference between the securities’ selling price and purchase price. Securities’ purchase price shall constitute the securities’ purchasing costs, including the paid commission and levies (dues) relating to the acquisition of securities. The selling price of securities shall comprise all income received from the sale thereof. If within a calendar year the sale or other transfer into ownership of securities results in a loss, it shall be permitted to carry forward the amount of the loss to the following calendar year. The amount of the calendar year losses may be carried over for a period not exceeding 5 years, calculating from the year following the year when the losses were incurred. The losses shall not be carried over after the expiry of the above period. The amount of losses shall be deducted only from the income received from the increase in the value of securities. The procedure for calculating income received from the increase in the value of securities as well as for calculating and carrying over the losses shall be laid down by the Government of the Republic of Lithuania. Article 34 Persons deriving miscellaneous income (in cash and in kind) shall be taxed by the enterprises, institutions and organisations which pay such income to individuals or by the State Tax Inspectorate according to their permanent place of residence. In the cases when the taxpayer receives income (in cash or in kind) specified in Article 33 of this Law from enterprises, institutions and organisations or through them, income tax shall be withheld and paid into the budget by these enterprises, institutions and organisations. Income specified in paragraph 4 of Article 33 of this Law shall be taxed only in cases where said income is paid by enterprises, institutions and organisations. The tax must be paid within 10 days following the close of the month in which that sum was paid out. When natural persons receive income specified in this Article from other natural persons, they must declare it at the state tax inspectorate of their permanent place of residence. Income of foreign nationals derived from commercial-economic activities or miscellaneous income received in Lithuania shall be taxed according to the same procedure as income of the residents of the Republic of Lithuania. Upon receiving the income specified in Article 331, natural persons must state it in their tax returns filed with the state tax inspectorate of the locality of their permanent residence. Article 35 Income tax shall not be levied on: 1) income derived from blood-donations; 2) income taxed by estate or gift tax, also the property inherited by children (adopted children), parents (adoptive parents), foster parents (foster children), grandparents, grandchildren, brothers and sisters; income received by gift (in cash and in kind) from natural persons if during the calendar year the total sum (value) of the income is not in excess of LTL 10,000, as well as income received by gift (in cash and in kind) from spouses, children (adopted children) and parents (adoptive parents); 3) received child support; 4) sums received as a compensation in case of loss of the breadwinner or capacity to work; 5) sums awarded by court as a compensation for material and moral damage, and cash compensations not exceeding the rates established by the Government; 6) interest on the debentures of economic entities of the Republic of Lithuania and on the securities of the Government and municipalities of the Republic of Lithuania; 7) lottery winnings; 8) sums received from compulsory and voluntary insurance, including state voluntary social benefits payable in case of sickness, pregnancy and childbirth; 9) contributions returned to shareholders not in excess of their initial value, and to owners/stakeholders sums for sold shares; 11) proceeds from the sale of property owned by a resident if the sum of proceeds does not exceed 1 TEM (tax-exempt minimum) per month or when only one article (good) of any value of one or another kind is sold per year, except for the income specified in Article 21 of this Law; 12) prizes and gifts received for merit in sports and other competitions ; 13) interest received on deposits in the banks and other credit institutions licensed by the Bank of Lithuania; 14) par value of shares issued to shareholders or employees of an enterprise according to the business results of 1992, 1993, 1994, 1995, 1996 and 1997 or the sum by which the par value of shares issued earlier has been increased; 15) the sums paid from charity funds and organisations (with the exception of allowances paid to the employees of these funds and organisations); 16) allowances given by the Government or municipal authorities; 17) prizes awarded on the basis of a competition from the budget of the Republic of Lithuania or from municipal budgets, from funds or organisations of foreign countries, also by the decision of the Government; 18) death benefits paid in the event of an employee's (former employee'
8. s)death by the employers to the spouse or another lineal heir at law, also benefits paid in the event of natural disasters and fires; 19) donations and gifts received in accordance with the procedure prescribed by the Law on the Political Campaigns Funding Control; 20) proceeds from the sale of agricultural produce produced on the individual farm, on farmers’ farms, except for the proceeds from the sale of carnivorous fur animals, nutrias and their products; 21) securities gains - income received from the sale or other transfer into ownership of securities acquired prior to 1999. Article 36 Income tax shall be computed in the following manner: 1) income tax for the current year shall be computed by taking into account estimated income indicated in the return filed by the taxpayer. When the amount of income earned has changed considerably during the taxable year, the income tax can be recomputed; 2) following the close of the year or upon the loss of the source of income, the tax is recomputed taking into account the factual amount of income earned. The difference between the computed amount and the amount due shall be recovered or refunded within a month, and in the event of loss of the source of income, within 15 days from the day the tax return was filed. Article 37 Income tax return of a natural person (hereinafter - the tax return) shall be filed with the state tax inspectorate of the locality of the person’s permanent place of residence. Foreign national or stateless persons (without the registered address in Lithuania) shall file the tax return with the state tax inspectorate within whose territory they reside or work. The tax return shall be filed in the following cases and within the following time period: 1) a return of the expected steady income for the current year shall be filed by 1 February of the current year; 2) returns of income received during the current year shall be filed within 5 days after the generation (receipt) of income; 3) the annual amended return (for the period up to 1 February) shall not be required where the return of one-time income received in the current year, except for the securities gains return, is filed; 4) where income is earned in a foreign state, the income tax return shall be filed within 5 days after the person’s return to Lithuania or the source of income in the foreign state comes to an end. The income shall be returned regardless of whether of not tax has been paid thereon abroad; 5) amended return showing the actual income received during the previous year shall be filed at the close of the year before 1 February of the following year; 6) in case of material changes (increase or decrease) in the amount of income actually received within the current year the natural persons who have filed a return of expected income and are making advance payments may file a new income return on the basis whereof the amount of the calculated income tax payments shall be revised; 7) amended return of the actually received income may be filed when the income source comes to an end during the current year. The resulting difference between the calculated and imposed tax liability amount shall be collected or refunded in the manner prescribed by the Law on Tax Administration; 8) on the basis of the findings of investigations carried out by the state tax inspectorate and other available material bearing upon the income of the taxpayer. Where natural persons receive income specified in Article 331 from enterprises, institutions, organisations or other natural persons, the return shall be filed according to the procedure specified herein. Income tax on the expected steady income and on the income actually received at any time shall be calculated and paid in equal instalments by the 15th day of the second month of each quarter. Tax on income received at any time of the year shall be paid within the time periods remaining till the end of the year. If the return is filed after 15 November (past all deadlines set for the payment of tax), the income tax must be paid within a month after the filing of the return. The form of the income return and the procedure for filling it out shall be approved by the Government of the Republic of Lithuania or the institution authorised by it. Article 38 Taxpayers on whom the tax was not imposed when due shall be charged tax, incorrect taxation shall be rectified and the tax shall be refunded or recovered in the manner prescribed by the Law on Tax Administration of the Republic of Lithuania. The additional tax computed for the preceding period and sanctions shall be paid within the time limits established by the Law on Tax Administration of the Republic of Lithuania. Article 39 For failure to pay the tax when due, default interest shall be charged in the manner prescribed by the Law on Tax Administration of the Republic of Lithuania. Article 40 When enterprises, institutions and organisations do not withhold income tax from income of individuals specified in Article 33 and do not pay it into the budget when due, this tax and the default interest shall be computed and recovered from the enterprise by the state tax inspectorate. The computed income tax and the penalties shall be paid in the manner prescribed by the Law on Tax Administration of the Republic of Lithuania. When tax returns are not filed or the income is understated in the returns filed, the computed sum of income tax and the penalty shall be recovered from the owner of the property (principal tenant) and any other person who derived income from the renting of property as well as other income in the manner prescribed by the Law on Tax Administration of the Republic of Lithuania. When the state tax inspectorate establishes that the proceeds of a resident from the sold property are in excess of 1 TEM (tax-exempt minimum) per month or the resident has sold more than one article of the same kind in a year to different enterprises, institutions and organisations (or through them) and has not notified them about it and therefore has not paid income tax, the income tax computed on the sum paid to him and the penalty shall be recovered from the taxpayer in the manner prescribed by the Law on Tax Administration of the Republic of Lithuania. Article 41 Enterprises, institutions and organisations must provide the state tax inspectorates with the information pertaining to all the sums (in money and in kind) paid to the residents of the Republic of Lithuania, foreign nationals and stateless persons, with the exception of payments specified in II, III and IV Chapters of this Law, in paragraph 4 of Article 33, and in Article 35 of this Law (except for the provision of subparagraph 11 of this Article with regard to one article of any value of one or another kind sold in the course of the year.). The information about the sums paid to the residents of the Republic of Lithuania shall be provided to the state tax inspectorate in the territory of whose jurisdiction the recipient of the income resides. Information shall also be provided in the like manner in those cases when enterprises, institutions and organisations pay sums to the residents of the Republic of Lithuania for one sold article of any value of one or another kind and do not withhold income tax. The information pertaining to the payment of sums to foreign nationals shall be furnished to the State Tax Inspectorate at the Ministry of Finance of the Republic of Lithuania. The information specified in this Article shall be furnished within 10 days following the close of the month when said sums were paid. Failure to provide the information specified in paragraph 1 hereof or its provision past the due date shall make the persons liable under the laws of the Republic of Lithuania. Article 42 Municipal councils shall have the right to reduce income tax or to exempt from it separate individuals who derived miscellaneous income, compensating same from municipal budgets. Final Provisions 1. The provisions of amendments of paragraphs 2 and 9 of Article 24, paragraph 1 of Article 26, Articles 261, 27, 30, 31 and 32 of the Provisional Law on Income Tax of Natural Persons shall apply when calculating the taxable income of individual (personal) enterprises and partnerships for 1998. The amount of the income tax advance payment for the first nine months of 1998 shall be the income tax paid on the income actually received for the first nine months of the year. The income tax advance report for the tenth to twelfth months of the 1998 taxable period shall be submitted on of before the last day of the tenth months (October) of the taxable period. 2. The provisions of paragraph 10 of Article 24, paragraph 5 of Article 33, Article 331 and subparagraph 21 of Article 35 of the Provisional Law on Income Tax of Natural Persons as well as paragraph 8 of Article 24 of the Law pertaining to the taxation of interest received by foreign state enterprises on the loans granted shall come into force as of 1 January 1999. 3. Subparagraph 8 of Article 35 of the Provisional Law on Income Tax of Natural Persons as well as the provisions of subparagraph 10 of the Article regarding exemption from tax of the sums received for the shares sold shall remain in force until 31 December 1998. 4. The provision of paragraphs 7, 8 and 9 of Article 24 of this Law pertaining to the application of the preferential (15%) income tax rate shall come into force as of 1 January 1991. Vytautas Landsbergis Chairman Supreme Council of the Republic of Lithuania Vilnius 5 October 1990 No. I-641