2)any permanent establishment situated in another EU member state of an entity of a EU member state, which takes on one of the forms of business organisation listed in Annex to Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (hereinafter referred to as “Directive 2003/49/EC”) and which is subject to taxes specified in Article 3(a)(iii) of Directive 2003/49/EC without being exempt from such taxes, provided that the debt-claim in respect of which the payment of amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law arises is effectively connected with that permanent establishment and provided that the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law are recognised as income in respect of which that permanent establishment is subject to one of the taxes mentioned in Article 3(a)(iii) or in the case of Belgium to the “impôt des non-résidents/belasting der niet-verblijfhouders” or in the case of Spain to the “Impuesto sobre la Renta de no Residentes” or to a tax which is identical and which arises later or in place of those existing taxes.
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3.The provisions of this paragraph shall apply where at the time of payment of amounts to the entity of a Member State or its permanent establishment and for an uninterrupted period of at least two years before the payment is made, the entities of Member States meet one of the following criteria:
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1)the paying Lithuanian entity or the entity of a Member State, whose permanent establishment situated in the Republic of Lithuania pays out such amounts, controls directly at least 25% percent of the shares (interests, member shares) in the receiving entity of a Member State or in the entity of a Member State whose permanent establishment receives such income; or
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2)the receiving entity of a Member State or the entity of a Member State, whose permanent establishment receives such income, controls directly at least 25% percent of the shares (interests, member shares) in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment in the Republic of Lithuania pays such amounts; or
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3)any other entity of a Member State controls directly at least 25% percent of the shares (interests, member shares) in the receiving entity of a Member State or the entity of a Member State whose permanent establishment receives such income and also in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment situated in the Republic of Lithuania pays such amounts.
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4.Where a permanent establishment is treated as the payer, or as the beneficial owner, of the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law, no other part of the foreign entity shall be treated as the payer, or as the beneficial owner, of those amounts.
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5.The provisions of this Article shall apply to a permanent establishment which is the payer of the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law if such amounts may be deducted from the income of the permanent establishment in accordance with the provisions of this Law and other legal acts.
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6.A Lithuanian entity or a permanent establishment which is the payer of the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law must have documents evidencing the fulfilment of the requirements laid down in paragraphs 1-3 of this Article. The requirements for such documents shall be set forth by the central tax administrator.
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7.The provisions of this Article shall also apply to the dependent territories of states and EU Member States if such application is provided for in EU legal acts.
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Article 37(3). Taxation of Sponsorship Received, which is Used for Purposes other than Specified in the Law of the Republic of Lithuania on Charity and Sponsorship, and of Sponsorship Received In Cash An entity shall calculate and pay to the budget, in accordance with the procedure laid down in the this Law, corporate income tax on sponsorship received which is used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and on that part of sponsorship received in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 MLS.
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Article 38Taxation Applicable to the Lease of Assets or Sets of Assets
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1.Where the assets or a set of assets of the entity are transferred under a lease transaction, such a transfer of assets or a set of assets may be taxed by the decision of a tax administrator as the sale of assets for the purpose of calculating corporate income tax, provided that the lease transaction meets at least one of the following criteria:
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1)the term of lease exceeds 30 years, except for the cases when the land leased in accordance with the procedure laid down in the laws of the Republic of Lithuania or the lessee of assets is specified in paragraph 2 of Article 3 of this Law;
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2)the schedule of regular rentals states that the larger portion of the actual market price of fixed assets leased by the entity shall be paid within a shorter period of the lease term;
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3)the lease contract restricts the rights of the lessee of fixed assets or a set of assets in respect of taking on loans or/and distributing profits or paying dividends;
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4)the provisions relating to the renovation of the assets leased are not linked to the commercial activities of the lessee or the lessor and/or the value of the renovation of assets is not in line with the actual market price of the assets.
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2.Income from the sale of assets specified in paragraph 1 of this Article shall be included in the income for the tax period during which the said assets were transferred to the lessee at their actual market price.
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3.Provisions of subparagraph 2 of paragraph 1 of this Article shall not apply to leasing (financial lease) transactions.
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Article *38(1). Taxation of Income Received from International Carriage by Sea-going Vessels and Activities Directly related thereto 1. Income received by a shipping entity from international carriage by sea-going vessels and activities directly related thereto may be taxed in accordance with the provisions of this Article, if, during the whole tax period of a Lithuanian entity or a tax period of a permanent establishment through which a foreign entity registered or otherwise organised in a European Economic Area state carry on its activities in the Republic of Lithuania:
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1)a shipping entity owns sea-going vessels (cargo vessels, container vessels, tankers, ro-ro passenger or cruise vessels) by right of ownership or financial lease contract providing for the transfer of ownership rights or under a purchase and sale or lease contract providing for the transfer of ownership rights to the shipping entity only after the total value of the assets has been paid up or under a bareboat charter contract that are registered at the Lithuanian Maritime Register or in the register of sea-going vessels of any other European Economic Area state and that are used for international carriage or the activities directly related thereto, and
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2)the PC of sea-going vessels owned by the shipping entity by right of ownership is not less than 25% of the total PC of sea-going vessels owned by the shipping entity, and
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3)the shipping entity provides strategic, commercial or technical management services in Lithuania to sea-going vessels that are used for international carriage by sea-going vessels, and
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4)sea-going vessels owned by the shipping entity by right of ownership or financial lease contract providing for the transfer of ownership rights or under a purchase and sale or lease contract providing for the transfer of ownership rights to the shipping entity only after the total value of the assets has been paid up or under a bareboat charter contract that are used for international carriage or the activities directly related thereto comply with safety requirements set in legal acts of the Republic of Lithuania and the European Communities.
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2.After a shipping entity acquires the right and chooses to pay a fixed rate corporate income tax, the fixed rate corporate income tax shall be applied for a period not shorter than until the date specified in paragraph 5 of this Article, except for the cases when the shipping entity no longer meets the criteria set in paragraph 1 of this Article.
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3.Where a shipping entity loses the right to pay a fixed rate corporate income tax (i.e., it no longer meets the criteria set in paragraph 1 of this Article) or waives the right to pay corporate income tax from income received from international carriage by sea-going vessels and the activities directly related thereto during the chosen period of payment of the fixed rate corporate income tax (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax), then, starting from the tax period during which this right was lost (except for cases stipulated in paragraph 4) or during which this right was waived, general provisions of calculation of corporate income tax shall be applied in respect of income of such shipping entity and it shall not be granted the right to choose to pay the fixed rate corporate income tax for the remaining tax periods in the period of 10 forthcoming years (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax).
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4.Where a shipping entity that complies with the criteria set in paragraph 1 of this Article ceases to comply with the criteria set in paragraph 1 of this Article due to force majeure (i.e. due to reasons beyond the control of the shipping entity) during the chosen period of payment of the fixed rate corporate income tax (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax), such shipping entity shall not loose its right to apply the fixed rate corporate income tax, if, until the end of the next tax period following the tax period during which the shipping entity lost the right to pay the fixed rate corporate income tax from income received from international carriage by sea-going vessels and the activities directly related thereto due to force majeure, the shipping entity complies with the criteria set in paragraph 1 of this Article.
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5.The fixed rate corporate income tax shall be applied in respect of a shipping entity that complies with the criteria set in paragraph 1 of this Article until 31 December 2016. The shipping entity that complies with the criteria set in paragraph 1 of this Article and which has chosen to apply the fixed rate corporate income tax shall notify, in accordance with the procedure established by the central tax administrator, the local tax administrator about the decision to apply the fixed rate corporate income tax before the last day of the first quarter of the tax period during which the shipping entity became entitled and chose to pay the fixed rate corporate income tax. *Note. The provisions of Article 38(1) shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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Article *38(2). Calculation of the Fixed Rate Corporate Income Tax 1. If, at the choice of the shipping entity, income from international carriage by sea-going vessels and activities directly related thereto are subject to a fixed corporate income tax rate under the provisions of Article 38(1) of this Law, then the base of the fixed rate corporate income tax shall be calculated by applying a fixed daily amount for each 100 units of the PC of a sea-going vessel and multiplying the received amount by the number of days of the taxable period of the shipping entity. The fixed amount shall be:
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1)for each 100 units of the PC of a sea-going vessel up to 1 000 units of the PC of a sea-going vessel – LTL 3.2 per day;
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2)for each 100 units of the PC of a sea-going vessel starting from 1,001 up to 10,000 units of the PC of a sea-going vessel – LTL 2.3 per day;
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3)for each 100 units of the PC of a sea-going vessel starting from 10,001 up to 25 000 units of the PC of a sea-going vessel – LTL 1.5 per day;
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4)for each 100 units of the PC of a sea-going vessel starting from 25,000 units of the PC of a sea-going vessel – LTL 0.92 per day;
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2.The base of the fixed rate corporate income tax without any deductions shall be subject to a tax rate of 15%.
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3.Limits on calculating depreciation or amortisation:
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1)where, at the choice of the shipping entity, income from international carriage by sea-going vessels and activities directly related thereto was subject to the provisions of calculation of the fixed corporate income tax rate under the provisions of Article 38(1) of this Law, then, after starting applying general provisions of calculation of such income, depreciation or amortisation of the assets used when carrying out the activities shall not be calculated if, from the beginning of use of these assets till the end of the period of payment of the fixed rate corporate income tax, these assets would have been completely depreciated or amortized pursuant to rates stipulated in Appendix 1 to this Law.
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2)where a shipping entity loses the right to pay a fixed rate corporate income tax (i.e., it no longer meets the criteria set in paragraph 1 of Article 38(1) of this Law) or waives the right to pay corporate income tax during the chosen period of payment of the fixed rate corporate income tax under the provisions of Article 38(1) of this Law (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax), then, starting from the tax period during which this right was lost (except for cases stipulated in paragraph 4 of Article 38(1) of this Law ) or during which this right was waived, then depreciation or amortisation of the assets used for international carriage by sea-going vessels and the activities directly related thereto shall be calculated from the acquisition price of assets reduced by the amount of depreciation or amortisation which would have been calculated, if the shipping entity applied general provisions of calculation of corporate income tax throughout the whole period. In such case, depreciation or amortisation of such assets shall be calculated pursuant to rates that are not smaller than those stipulated in Appendix 1 of this Law, including the tax period (s) during which this asset has already been used in this particular shipping entity.
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4.Where, at the choice of a shipping entity income from international carriage by sea-going vessels and activities directly related thereto are subject to the fixed corporate income tax rate under the provisions of this Article, then, the advance fixed rate corporate income tax shall not be paid. *Note. The provisions of Article 38(2) shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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Article 39Taxation of Income of Controlled Foreign Entities
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1.The tax period of controlled foreign entities shall be the calendar year, however where the tax period of a controlled foreign entity does not coincide with the calendar year or where the tax period is not established, the tax period of a controlled foreign entity shall coincide with the tax period of the controlling entity.
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2.The procedure for calculating and attributing positive income to the income of the controlling entity as well as the types of income not included in positive income shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
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3.The same income of a controlled foreign entity shall be taxable, in accordance with the procedure laid down in this Article, in the Republic of Lithuania only once.
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4.The income of a controlled foreign entity shall be taxable under the provisions of this Article, provided that:
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1)the entity is not registered or otherwise organised in the countries or zones included in the list approved by the Minister of Finance;
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2)the entity complies with any of the forms of business organisation of a foreign entity included in the list approved by the Minister of Finance.
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5.The provisions of this Article shall not apply in the following cases:
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1)the income of a controlled foreign entity comprises only the payments made by the controlled entity, which are treated as non-allowable deductions under subparagraph 12 of paragraph 1 of Article 31 of this Law, or
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2)the income of a controlled foreign entity comprises less than 5% of the income of the controlling entity.
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6.A Lithuanian entity shall have the right to reduce corporate income tax on the positive income included in its income, which is payable to the budget and calculated according to this Law, by the amount of corporate income tax on the positive income of a controlled foreign entity included in the income of the Lithuanian entity, which was paid in a country or zone wherein the controlled foreign entity is registered or otherwise organised, in proportion to the number of the shares (interests, member shares), votes or rights to the profit of the controlled entity held by the Lithuanian entity. Where the tax paid in the said country or zone exceeds the amount provided for in the laws of that country or zone, the Lithuanian entity shall have the right to reduce corporate income tax on the positive income included in its income, which is payable to the budget and calculated according to this Law, by the amount of tax on the positive income of a controlled foreign entity included in the income of the Lithuanian entity, which had to be paid in the country or zone wherein the controlled foreign entity is registered or otherwise organised.
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7.A Lithuanian entity shall have the right to reduce corporate income tax on the positive income included in its income of the Lithuanian entity, which is payable to the budget and calculated according to this Law, by the amount of corporate income tax on the positive income of a controlled foreign entity included in the income of the Lithuanian entity, which was paid in a foreign country with which the Republic of Lithuania has concluded a treaty for the avoidance of double taxation and the prevention of fiscal evasion and under the relevant law whereof the positive income of the controlled foreign entity is included in the income of the entity of that country and taxed subject to the rules analogous to those laid down in this Law.
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Article 39(1). Apportionment of Income and Costs of the European Economic Interest Grouping among Members and Taxation Thereof 1. The income of a European Economic Interest Grouping shall be apportioned among its members in the proportions laid down in the memorandum of association of the grouping or, in the absence of any such provision, in equal shares.
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2.A member of a European Economic Interest Grouping shall attribute the grouping’s income to his own income on the last day of the grouping’s financial period in which the income was earned and/or received.
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3.A member of a European Economic Interest Grouping shall attribute his share of the grouping’s income to his own income, irrespective of whether or not the grouping’s profits have been paid out to him, and shall pay taxes on such income in accordance with the procedure laid down in this Law.
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4.The costs incurred by a European Economic Interest Grouping shall be apportioned among its members in accordance with the principles laid down in paragraph 1 of this Article.
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5.A member of a European Economic Interest Grouping shall deduct the costs incurred by the grouping, which are attributed under the provisions of this Law to allowable deductions and deductions of limited amounts, from his own income.
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6.The attributable income and costs of a European Economic Interest Grouping shall be expressed in litas according to the official exchange rate of the litas against foreign currencies established by the Bank of Lithuania on the day of attribution of income and costs.
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7.A member of a European Economic Interest Grouping shall not include profits or part of such profits received from the grouping in his income.
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Article 40Adjustment of Transaction or Economic Operation Value and Revaluation of Income or Benefits
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1.For the purpose of calculating taxable profits in accordance with the procedure laid down in this Law, entities shall recognise the amount which is in line with the actual market price of a transaction or economic operation as income from such a transaction or economic operation; they shall recognise the total amount of costs incurred by a transaction or economic operation which is in line with the actual market price of such a transaction or economic operation as allowable deductions or deductions of limited amounts.
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2.Where the conditions created or prescribed by mutual transactions or economic operations between associated persons are other than those created or prescribed by a mutual transaction or economic operation between non-associated persons, any profits (income) that would be attributed, if no such conditions existed, to one of such persons but due to such conditions are not attributed to him, may be included in the income of that person and taxed accordingly. The rules for implementing the provisions of this paragraph shall be set forth by the Minister of Finance.
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3.For the purpose of calculating taxable profits in accordance with the procedure laid down in this Law, entities shall revaluate income or benefits in the cases and subject to the procedure set forth by the Government of the Republic of Lithuania or an institution authorised by it.
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CHAPTER IX
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TAXATION APPLICABLE TO REORGANISATIONS, TRANSFERS AND LIQUIDATIONS. RECOGNITION OF INCOME AND LOSSES RESULTING FROM REORGANISATIONS, LIQUIDATIONS AND TRANSFERS
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Article 41Reorganisations and Transfers
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1.The income and losses of entities and their members shall be recognised in accordance with the procedure laid down in the other articles of this Chapter in the following cases:
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1)the assets, rights and obligations are transferred between Lithuanian entities the taxable profits of which are taxed at a rate of 15 or 13% as specified in Article 5 of this Law; or
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2)the assets, rights and obligations are transferred between Lithuanian entities the taxable profits of which are taxed at a rate of 15 or 13% as specified in Article 5 of this Law and foreign entities considered to be resident in EU Member States for tax purposes, which take on one of the forms of business organisation listed in Annex to Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (hereinafter referred to as “Directive 90/434/EC”) and which are subject to taxes specified in Article 3(c) of Directive 90/434/EC; or
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3)the registered office (of a European company or European cooperative society) is transferred.
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2.Cases of reorganisation and transfer:
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1)entities are reorganised by means of a merger by acquisition, i.e. one or more entities, on being dissolved without going into liquidation, (hereinafter referred to as the “acquired entities”) are merged with another existing entity (hereinafter referred to as the “acquiring entity”) and transfer to the latter at the time of the merger all their assets, rights and obligations in exchange for the issue to the members of the entities being acquired of shares (interests, member shares) in the acquiring entity; where the difference in the price of the shares exchanged is covered by a cash payment, it shall not exceed 10% of the nominal value of the shares, or, in the absence of a nominal value, of their accounting par value;
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2)entities are reorganised by means of a merger by the formation of a new entity, i.e. one or more entities, on being dissolved without going into liquidation, (hereinafter referred to as the “acquired entities”) are merged into a new entity (hereinafter referred to as the “acquiring entity”) and transfer to the latter at the time of the merger all their assets, rights and obligations in exchange for the issue to their members of shares (interests, member shares) in the new entity; where the difference in the price of the shares exchanged is covered by a cash payment, it shall not exceed 10% of the nominal value of the shares, or, in the absence of a nominal value, of their accounting par value;
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3)an entity, on being dissolved without going into liquidation, (hereinafter referred to as the “acquired entity”) transfers all its assets, rights and obligations to another entity which controls 100% of its authorised capital (100% of the shares representing its capital) (hereinafter the “acquiring entity”);
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4)entities are reorganised by means of a division, i.e. an entity, on being dissolved without going into liquidation, (hereinafter referred to as the “acquired entity”) divides all its assets, rights and obligations into two or more parts and at the same time transfers them to two or more existing or new entities (hereinafter referred to as the “acquiring entities”) in exchange for the pro rata issue to their members of shares (interests, member shares) in the acquiring entities; where the difference in the price of the shares exchanged is covered by a cash payment, it shall not exceed 10% of the nominal value of the shares, or, in the absence of a nominal value, of their accounting par value;
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5)an entity transfers without being dissolved (hereinafter referred to as the “transferring entity”) one or more branches of its activity in the form of assets, rights and obligations which from an organisational point of view constitute an independent business, that is to say an entity capable of functioning by its own means, (hereinafter referred to as a “branch of activity”) to one or more existing or new entities (hereinafter referred to as the “receiving entities”), which results in a reduction of its authorised capital, in exchange for the pro rata issue to its members of shares (interests, member shares) in the receiving entities; where the difference in the price of the shares exchanged is covered by a cash payment, it shall not exceed 10% of the nominal value of the shares, or, in the absence of a nominal value, of their accounting par value;
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6)an entity transfers without being dissolved (hereinafter referred to as the “transferring entity”) all or one or more branches of its activity to another entity (hereinafter referred to as the “receiving entity”) in exchange for the shares (interests, member shares) of the receiving entity;
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7)an entity, which seeks to obtain complete control over another entity by obtaining a qualified majority of votes (i.e. a holding of shares conferring 2/3 or more of the voting rights) (hereinafter referred to as the “acquiring entity”) or, holding such a majority (i.e. a holding of shares conferring 2/3 or more of the voting rights) seeks to acquire a further holding, transfers the issue to the members of the latter entity, in exchange for their shares, of shares (interests, member shares) in the former entity; where the difference in the price of the shares exchanged is covered by a cash payment, it shall not exceed 10% of the nominal value of the shares, or, in the absence of a nominal value, of their accounting par value;
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8)an entity transfers without being dissolved (hereinafter referred to as the “transferring entity”) one or more parts of its assets, rights and obligations to one or more new entities (hereinafter referred to as the “receiving entities”) and divides all its assets, rights and obligations in proportion to the number of the shares left in the transferring entity and transferred to the receiving entity;
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9)an entity (European company or European cooperative society), without winding up or creating a new entity, transfers its registered office to another Member State.
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3.Where, in the case specified in paragraph 2 of this Article, the acquiring entity is a foreign entity indicated in subparagraph 2 of paragraph 1, the provisions of this Chapter shall apply provided that following the reorganisation or transfer referred to in paragraph 2, with the exception of subparagraphs 7 and 9 thereof, the said foreign entity continues on the basis of the assets, rights and obligations acquired to carry on its activities through a permanent establishment in the territory of the Republic of Lithuania. Where, in the case specified in subparagraph 9 of paragraph 2 of this Article, the entity indicated in subparagraph 3 of paragraph 1 (European company or European cooperative society) transfers its registered office, the provisions of this Chapter shall apply provided that following the transfer of its registered office the entity continues on the basis of the assets, rights and obligations formerly attributed the Lithuanian entity to carry on its activities through a permanent establishment in the territory of the Republic of Lithuania.
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Article 42Income from the Increase in the Value of Assets Resulting from Reorganizations and Transfers
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1.Where, in the cases specified in Article 41 of this Law, members of an entity receive shares (interests, member shares) of another entity in exchange for those held in the former entity, the increase in the value of assets shall not be treated as income of such members. In this case, the acquisition price of the new shares (interests, member shares) received by the members of an entity shall be the acquisition price of the shares (interests, member shares) exchanged before the transfer was effected.
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2.Where, in the cases specified in Article 41 of this Law, an entity transfers assets to another entity, the increase in the value of assets shall not be treated as income of the transferring entity. In this case, the acquisition price of such assets with respect to the receiving entity shall be the acquisition price of the assets before the transfer was effected.
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3.Where, in the cases specified in Article 41 of this Law, a foreign entity transfers a permanent establishment situated in Lithuania to another entity, the increase in the value of assets with respect to the permanent establishment shall not be treated as its income. In this case, the acquisition price of such assets with respect to the receiving entity shall be the acquisition price of the assets before the transfer was effected.
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4.Where, in the cases specified in Article 41 of this Law, a Lithuanian entity transfers a branch of activity in a Member State of the European Union to a foreign entity, the increase in the value of assets shall not be treated as income of the transferring entity.
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5.Where, in the cases specified in Article 41 of this Law, a Lithuanian entity transfers a branch of activity to another Lithuanian entity, the increase in the value of assets shall not be treated as income of the transferring entity. In this case, the acquisition price of such assets with respect to the receiving entity shall be the acquisition price of the assets before the transfer was effected.
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6.Where, in the cases specified in Article 41 of this Law, a foreign entity transfers a branch of activity in a Member State of the European Union to a Lithuanian entity, the acquisition price of such assets with respect to the receiving entity shall be the acquisition price of the assets before the transfer was effected.
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7.Where, in the case specified in subparagraph 9 of paragraph 2 of Article 41 of this Law, a Lithuanian entity transfers its registered office, the increase in the value of assets shall not be treated as income of the Lithuanian entity, while the acquisition price of such assets with respect to the permanent establishment situated in the Republic of Lithuania through which the entity continues to carry on its activities in the Republic of Lithuania shall be the acquisition price of the assets before the transfer of the registered office was effected.
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8.Where, in the cases specified in Article 41 of this Law, an entity transfers assets to another entity, the receiving entity shall continue to calculate the depreciation or amortisation of such assets according to the rules applied by the transferring entity before the transfer was effected. Where, in the case specified in subparagraph 9 of paragraph 2 of Article 41 of this Law, a Lithuanian entity transfers its registered office, the assets attributed to the permanent establishment in the Republic of Lithuania due to the transfer of the registered office shall be depreciated and amortised according to the rules applied by the Lithuanian entity before the transfer was effected.
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9.In the cases specified in Article 41 of this Law, the difference which arises at the moment of reorganisation or transfer (the amount by which the price paid by the acquiring entity exceeds the value of the net assets acquired) shall not be deducted from income, while the negative difference (the amount by which the value of the net assets acquired exceeds the price paid by the acquiring entity) shall not be attributed to income.
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10.The provisions of this Article shall apply only where, in the cases specified in subparagraphs 4, 5, 6 and 7 of paragraph 2 of Article 41 of this Law, an entity or its members do not sell or otherwise transfer into ownership the shares (interests, member shares) received by means of an exchange for a period of three years, except for the subsequent cases prescribed in subparagraphs 4, 5, 6 and 7 of paragraph 2 of Article 41 of this Law.
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11.In the cases specified in Article 41 of this Law, the difference in the price of shares paid in cash shall be attributed to the income of the receiving member of an entity. *Article 43. Losses Resulting from Reorganisations, Transfers and Transformations 1. Where a reorganisation or transfer is carried out, the losses of either the acquiring or transferring or acquired entity or entities for the tax period incurred before their reorganisation or transfer shall not be carried forward to the next year, except for the cases specified in this Article where the acquired entity or entities are merged with the acquiring entity, unless this Law provides otherwise.
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2.Where the acquired entity or entities are merged with the acquiring entity and more than 66% of the owners of the acquiring entity are the same persons who were its owners before the merger was effected and where the acquiring entity continues to carry on the same activities that had been carried on before the merger was effected, while income from such activities accounts for not less than 85% of the income of the said entity and the tax period does not change, the losses incurred during the tax period shall be carried forward in accordance with the procedure laid down in this Article. The losses of the acquired entities shall not be carried forward.
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3.In the event that the acquiring entity does not meet the criteria set out in paragraph 2, the losses incurred before the merger of the entity or entities was effected, beginning with the tax period during which the acquiring entity fails to meet at least one of the said criteria, shall not be carried forward.
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4.Where the entity is transformed during the tax period, the losses for the previous tax periods shall be carried forward only in the event that the owners of the entity remain the same persons and the transformed entity continues to carry on the same economic and commercial activities that had been carried on before the transformation was effected.
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5.Where, in the case specified in subparagraph 9 of paragraph 2 of Article 41 of this Law, a Lithuanian entity transfers its registered office, the losses of the Lithuanian entity for the tax period incurred before the transfer of the registered office and not carried forward to the next year in accordance with the procedure laid down in this Law may be carried forward by the entity that continues to carry on its activities in the Republic of Lithuania through a permanent establishment. *Note. The provisions of paragraph 43 shall apply for the purpose of calculating taxable profits for the tax period beginning before 2007. *Article 43. Losses Resulting from Reorganisations, Transfers and Transformations 1. In cases of reorganisation or transfer, unless this Article provides otherwise, the acquiring entity or entities, when continuing carrying forward the losses, may carry forward the losses for the tax periods of the acquired or transferring entity or entities (except for the losses of entities (not financial institutions) resulting from transfer of the securities and/or derivative financial instruments) and incurred before the completion of the reorganisation or transfer and not carried forward to the following year in accordance with the procedure established by this Law if the acquiring entity or entities continue carrying on the activity taken over or a part thereof for a period not shorter than three years. Only the losses for the tax periods that are related to the transferred activity, or a part thereof, transferred by the acquired or transferring entity or entities and continued in the acquiring entity can be transferred to the acquiring entity or entities.
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2.After the end of a three-year period stipulated in paragraph 1 of this Law, the losses for the tax period transferred to the acquiring entity and related to the activity, or a part thereof, of the acquired or transferring entity or entities shall not be carried forward starting from the tax period during which the acquiring entity ceases to carry on the activity taken over or a part thereof.
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3.The transferring entity shall reduce the losses for the tax period incurred before the completion of the transfer and not carried forward to the following fiscal year in accordance with the procedure established by this Law in respect of the acquiring entity by the amount of the losses in respect of the transferred activity or a part thereof.
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4.Where reorganisation is carried out in the case specified in subparagraph 7 of paragraph 2 of Article 41, entities shall continue carrying forward the losses irrespective of the provisions of paragraphs 1, 2 and 3 of this Article.
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5.Where the entity is transformed during the tax period, the losses for the previous tax periods shall be carried forward only in the event that the owners of the entity remain the same persons and the transformed entity continues to carry on the same economic and commercial activities that had been carried on before the transformation was effected.
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6.Where, in the case specified in subparagraph 9 of paragraph 2 of Article 41 of this Law, a Lithuanian entity transfers its registered office, the losses of the Lithuanian entity for the tax period incurred before the transfer of the registered office and not carried forward to the next year in accordance with the procedure laid down in this Law may be carried forward by the entity that continues to carry on its activities in the Republic of Lithuania through a permanent establishment. *Note. The provisions of Article 43 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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Article 44Repealed on 1 January 2006
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Article 45Income and Losses from the Increase in the Value of Assets Resulting from Liquidation
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1.Where an entity in liquidation distributes assets to its members, the distribution shall be treated as the sale of such assets for their actual market price determined on the day of transfer of ownership rights, while the difference between the acquisition and the selling price of the assets shall be treated as income from the increase in the value of assets of the entity, unless this Law provides otherwise. Where an entity is being liquidated, the losses incurred by the entity in respect of the transfer of assets shall be treated as the losses of the entity in liquidation.
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2.Members of the entity in liquidation shall recognise income from the increase in the value of assets (losses in respect of the value of assets) at the moment of receipt of the assets of the entity in liquidation or part of its assets. Such income (losses) shall comprise the difference between the acquisition price of the ownership rights (interests, member shares, shares) of members of the entity and the market price of the assets received from the entity in liquidation. The acquisition price of the assets received from the entity in liquidation with respect to members of the entity shall be the actual market price of those assets
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Article 46Accounting Reports
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1.The explanatory notes drawn up by the acquiring entity for the tax period during which the operations referred to in Article 41 of this Law were carried out shall specify the tax period during which the transfer of the assets and rights from the acquired entity or entities was effected. Subsequent explanatory notes shall specify which of the notes discloses the information referred to in this paragraph.
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2.The explanatory notes shall be accompanied by the last balance sheet of the acquired entity (balance sheets of the acquired entities).
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3.The explanatory notes shall be filed together with an estimation of the difference between the residual value of the assets depreciated or amortised as recorded with respect to the acquired entity (entities) and the acquiring entity.
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4.Members of entities (owners of shares/interests/member shares) shall specify in the explanatory notes the nominal value of the shares of the acquired entity or entities and the price of the shares (interests, member shares) received as recorded in the accounts of that entity.
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5.Failure to submit in due time the data specified in this paragraph to the tax administrator as well as the submission of a document indicating incorrect data shall incur liability in accordance with the law.
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CHAPTER X
\n
CALCULATION, PAYMENT, RECOVERY AND REFUNDING OF CORPORATE INCOME TAX
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Article 47Calculation and Advance Payment of Corporate Income Tax
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1.Advance corporate income tax shall be calculated in accordance with the procedure laid down in this Article. The amount of advance corporate income tax shall be calculated by the taxpayer.
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2.The amount of advance corporate income tax shall be calculated by the taxpayer in accordance with the following procedure:
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1)based on the results of activity for the previous year. For the first 9 months of the tax period, advance corporate income tax shall be calculated on the basis of the amount of corporate income tax actually calculated for the tax period preceding the previous tax period. For the 10-12 months of the tax period, advance corporate income tax shall be calculated on the basis of the amount of corporate income tax actually calculated for the previous tax period. The advance corporate income tax for each quarter shall comprise ¼ of the amount of corporate tax actually calculated for the above mentioned tax periods;
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2)based on the implicit amount of corporate income tax for the tax period. The taxpayer may choose to make quarterly advance payments of corporate income tax by instalments equal to ¼ of the implicit amount of corporate income tax for the tax period. The amount of advance corporate income tax calculated on the basis of the implicit amount of corporate income tax for the tax period shall account for not less than 80% of the actual amount of the annual corporate income tax. Where the implicit amount of corporate income tax calculated in the advance corporate income tax return accounts for less than 80% of the amount of corporate income tax calculated in the annual corporate income tax return, late payment interest shall be calculated, in accordance with the procedure laid down in the Law on Tax Administration, in respect of each amount of advance corporate income tax which was not paid for the quarter. The taxpayer may make adjustments in the advance corporate income tax return when calculating the amount of advance corporate income tax for each quarter in equal portions as of the beginning of the tax period.
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3.The amount of advance corporate income tax shall be calculated irrespective of the amount of corporate income tax calculated on sponsorship received which was used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and on that part of sponsorship received in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 MLS.
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4.Registered entities shall be exempt from advance payments of corporate income tax during the first fiscal year, while in the second tax year the taxpayer, where it has chosen to make advance payments of corporate income tax based on the results of activity for the previous year, shall begin making advance payments from the tenth month of the tax period. Where the tax period preceding the previous tax period was shorter than 12 months, the amount of corporate income tax actually paid shall be, for the purpose of calculating the advance payment of corporate income tax, the amount of corporate income tax calculated for that tax period divided by the number of months of that tax period and multiplied by 12.
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Version of paragraph 5 before 1 January 2009:
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5.Where taxable income for the previous tax period did not exceed LTL 100 thousand, entities do not have to pay advance corporate income tax for the tax period.
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Version of paragraph 5 after 1 January 2009:
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5.Where taxable income for the previous tax period did not exceed LTL 1 million, entities do not have to pay advance corporate income tax for the tax period.
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6.Advance corporate income tax must be paid by the last day of each quarter of the tax period, while the advance corporate income tax for the last quarter of the tax period must be paid by the 25th day of the last month of the said quarter.
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Article 48Moment of Calculation of Corporate Income Tax
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Corporate income tax shall be calculated on the basis of the financial position on the last day of the tax period.
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Article 49Entry in the Budget of Corporate Income Tax
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Corporate income tax shall be entered in the state budget.
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Article 50Corporate Income Tax Returns and Reports
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1.Corporate income tax returns are of the following types:
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1)annual corporate income tax return;
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2)advance corporate income tax return;
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3)tax return on income (amounts) paid to a foreign entity and on corporate income tax calculated and entered in the budget;
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4)corporate income tax return of a foreign entity carrying on its activities in the Republic of Lithuania (permanent establishment);
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5)tax return on corporate income tax calculated and paid in respect of the dividends received and paid out; *6) annual fixed rate corporate income tax return. *Note. The provisions of subparagraph 6 of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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2.Reports are supplements to the annual corporate income tax return:
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1)reports on mutual transactions or economic operations between associated persons;
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2)reports on controlled and controlling entities and individuals.
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3.Other reports:
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1)report on derivative financial instruments;
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2)other returns and reports in the form established by the central tax administrator. *4. Reports and tax returns specified in subparagraph 3, 5 and 6 of paragraph 1, subparagraph 1 of paragraph 2 and subparagraph 1 of part 3 shall be submitted only in the event that respective economic operations were carried out by the entity during the tax period. *Note. The provisions of paragraph 4 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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5.The report specified in subparagraph 1 of paragraph 3 shall be kept by the entity.
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6.The forms of tax returns and reports, the procedure for completing them and the cases where the report specified in subparagraph 1 of paragraph 3 of this Article has to be filed shall be established by the central tax administrator. *Article 51. Filing of Annual Corporate Income Tax Returns, Annual Fixed Rate Corporate Income Tax Return and Advance Corporate Income Tax Returns *Note. The provisions of the title of this Article shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods. *1. Lithuanian entities and permanent establishments whose income is subject to taxation in accordance with the procedure laid down in this Law shall complete annual corporate income tax returns and/or annual fixed rate corporate income tax returns, and advance corporate tax returns and file them with the local tax administrator in the territory whereof they are situated or have to be registered as taxpayers. Entities that had used the sponsorship received for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and entities that had received sporsorship in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 minimum living standards, shall complete annual corporate income tax returns and file them with the local tax administrator in the territory whereof they are situated or have to be registered as taxpayers. *Note. The provisions of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods. *2. The annual corporate income tax return and/or annual fixed rate corporate tax return accompanied by financial accounts (where such financial accounts have to be drawn up in accordance with the procedure prescribed by the legal acts) shall be filed after the end of the tax period and before the first day of tenth months of the next tax period. A Lithuanian entity or permanent establishment shall file the annual corporate income tax return and/or annual fixed rate corporate tax return accompanied by financial accounts (where such financial accounts have to be drawn up in accordance with the procedure prescribed by the legal acts) for the last tax period within 30 days after the end of activity. *Note. The provisions of paragraph 2 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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3.Filing of advance corporate income tax returns:
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1)where advance corporate income tax is calculated on the basis of the results of activity for the previous year, the advance corporate income tax return for the first nine months of the tax period shall be filed by the last day of the first month of the tax period. For the 10-12 months of the tax period, the advance corporate income tax statement shall be filed by the last day of the tenth month of the tax period;
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2)where advance corporate income tax is calculated on the basis of the implicit amount of corporate income tax for the tax period, the advance corporate income tax return shall be filed by the last day of the first month of the tax period.
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Article 52Filing Tax Returns on Income (Amounts) Paid to Foreign Entities and on Corporate Income Tax Calculated and Entered in the Budget
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1.Where the income of a foreign entity is subject to corporate income taxation in accordance with the procedure laid down in Article 37 of this Law, the withholding agent – a Lithuanian entity or a permanent establishment – shall complete a tax return and file it with the local tax administrator in the territory whereof the withholding agent is situated or has to be registered as a taxpayer.
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2.The tax return on income (amounts) paid to a foreign entity and on corporate income tax calculated and payable to the budget shall be filed not later than within 15 days after the end of the month during which the income (amounts) were paid out.
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Article 53Payment and Refunding of Corporate Income Tax
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*1. Corporate income tax and/or a fixed rate corporate income tax shall be paid on the basis of the annual corporate income tax return and/or annual fixed rate corporate tax return. Corporate income tax and/or fixed rate corporate income tax shall be paid not later than the last day of the term for filing the annual corporate income tax return and/or the annual fixed rate corporate income tax return. Where the amount of corporate income tax calculated in the annual corporate income tax return exceeds the amount of advance corporate income tax paid for the tax period, the taxpayer must pay the difference to the budget. Tax overpayments shall be refunded in accordance with the procedure laid down in the Law on Tax Administration. *Note. The provisions of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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Paragraph 2 (version before the expiry of six calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments): *2. Corporate income tax calculated in respect of the income (amounts) paid to foreign entities shall be paid not later than the last day of the term for filing the tax return.
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Paragraph 2 (version after the expiry of six calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments):
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2.Corporate income tax calculated in respect of the income (amounts) paid to foreign entities shall be paid not later than the last day of the term for filing the tax return. Where a Lithuanian entity or permanent establishment has withheld and paid corporate income tax calculated in respect of the amounts (income), which may be subject to the provisions of Article 37(1) of this Law, paid to a foreign entity or its permanent establishment, such tax shall be refunded (credited) in accordance with the procedure laid down in the Law on Tax Administration. A foreign entity must submit a written request to refund (credit) the tax accompanied by documents evidencing the fulfilment of the criteria set forth in paragraphs1-3 of Article 37(1) of this Law within two years after the date of payment of the said amounts (income). Corporate income tax paid must be refunded (credited) not later than within one year after the date of receipt of the written request to refund (credit) the tax and documents evidencing the fulfilment of the criteria set forth in paragraphs1-3 of Article 37(1) of this Law.
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3.Repealed on 1 January 2008.
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Article 54Re-Calculation of Corporate Income Tax Calculated and Paid by Foreign Entity
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1.A foreign entity, after having received income from the sale or other transfer into ownership of property immovable by nature located in the territory of the Republic of Lithuania (hereinafter in this Article referred to as “property”), shall have the right to apply to the local tax administrator in the territory whereof the withholding agent is registered for re-calculation of corporate income tax that has been calculated and paid in respect of the property sold or otherwise transferred into ownership. In this case, corporate income tax shall be calculated in respect of the income received due to the increase in the value of property.
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2.Requests for re-calculation of corporate income tax and documents supporting the acquisition price of property shall be submitted to the local tax administrator in the territory whereof the withholding agent is registered. The local tax administrator, after having verified the legality of such documents and transactions, shall calculate the income received due to the increase in the value of property, which was earned from the sale or other transfer into ownership of assets, and also corporate income tax. Tax overpayments shall be refunded in accordance with the procedure laid down in the Law on Tax Administration.
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Article 55Deductions of Corporate Income Tax Paid in Foreign Countries
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1.A Lithuanian entity may deduct the amount of corporate income tax or equivalent tax paid in a foreign country on income received in that country during the relevant fiscal year from the amount of corporate income tax calculated in accordance with the procedure laid down in this Law, except from the amount of corporate income tax calculated on sponsorship received which was used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and on that part of sponsorship received in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 MLS, taking into account the dividends which are not included in the income of the entity, unless this Article provides otherwise.
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2.Where the amount of corporate income tax calculated in respect of the income received in a foreign country in accordance with the procedure laid down in this Law is lower than the amount of corporate income tax or equivalent tax paid on that income in the said foreign country, only the amount of corporate income tax calculated in accordance with the procedure laid down in this Law shall be deducted.
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Version of paragraph 3 before 1 January 20009:
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3.If a taxpayer receives income in several foreign countries during the fiscal year, the amount of corporate income tax to be deducted shall be calculated separately for every country where the income was received, except for the cases where dividends subject to taxation under this Law are received.
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Version of paragraph 3 after 1 January 2009:
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3.If a taxpayer receives income in several foreign countries during the tax year, the amount of income tax to be deducted shall be calculated separately for every country where the income was received.
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4.In the event that interest subject to taxation under this Law is received in foreign countries, which accounts for not more than 25% of the income of the receiving entity, the deductible amount of corporate income tax shall be deducted from the total amount of corporate income tax as calculated in respect of total income, but not in excess of 1/5 of the total amount of corporate income tax.
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Paragraph 4 shall be repealed on 1 January 2009.
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5.Deductions from the calculated amount of corporate income tax shall be allowed in accordance with the procedure laid down in this Article only where documents certified by the tax administrator of a foreign country have been issued concerning the income received in that country during the relevant fiscal year and the amount of corporate income tax or equivalent tax calculated and paid on that income, unless this Article provides otherwise.
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6.A Lithuanian entity may deduct the amount of corporate income tax or equivalent tax paid in a foreign country on positive income received by a controlled entity in that country during the relevant fiscal year, as specified in paragraphs 6 and 7 of Article 39 of this Law, from the amount of corporate income tax calculated in accordance with the procedure laid down in this Law on the positive income included in the income of the Lithuanian entity. Deductions from the calculated amount of corporate income tax shall be allowed in accordance with the procedure laid down in this Article only where documents certified by the tax administrator of a foreign country have been issued concerning the income received in that country during the relevant fiscal year and the amount of corporate income tax or equivalent tax calculated and paid on that income and where the Lithuanian entity supplies the local tax administrator with the following information:
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1)the name of the controlled entity and the address of its registered office;
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2)a list of its managers;
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3)the balance sheet and the profit and loss account;
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4)the amount of positive income attributed to income
\n
5)evidence of payment of taxes on positive income attributed to income.
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7.The Lithuanian entity shall submit the documents specified in paragraph 6 of this Article in accordance with the procedure established by the central tax administrator.
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8.The provisions of this Article shall not apply to dividends.
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Paragraph 8 shall be repealed on 1 January 2009.
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Article 56Liability for Violations of this Law
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Where the provisions of this Law are violated, except for the cases referred to in paragraph 5 of Article 46, fines shall be imposed and late payment interest charged in accordance with the procedure laid down in the Law on Tax Administration.
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CHAPTER XI
\n
ACCOUNTING REQUIREMENTS
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Article 57Requirements for the Keeping of Accounts
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1.The taxpayer’s accounts shall be kept in a manner that provides sufficient information for the purpose of calculating corporate income tax.
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2.Taxpayers shall keep their accounts and reporting in compliance with the Law on Accounting and other legal acts of the Republic of Lithuania.
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3.For the purpose of calculating corporate income tax, an entity may use the universally accepted methods of recognising income and costs as well as of measuring inventories, unless this Law provides otherwise.
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4.For the purpose of calculating corporate income tax, inventories shall be recorded by using the first-in, first-out (FIFO) method. At the request of the taxpayer and taking into account the characteristics of its activity, the local tax administrator may allow to record the inventories by using the method provided in the legal acts regulating accounting, which is used by the entity when drawing up financial accounts.
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CHAPTER XII
\n
FINAL PROVISIONS
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Article 58
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Procedure for Abandoning the Calculation and Taxation of Entities’ Profits or Income according to the Law on Taxes on Profits of Legal Persons and Chapter IV of the Provisional Law on Income Tax of Natural Persons 1. Continuity shall not be applied in respect of tax reliefs provided for in the Law of the Republic of Lithuanian on Taxes on Profits of Legal Persons and the Provisional Law of the Republic of Lithuania on Income Tax of Natural Persons, including investment incentives applicable to tangible fixed assets and software, unless this Article provides otherwise.
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2.Tax reliefs relating to foreign capital investments as specified in Article 8 of the Law of the Republic of Lithuania on Taxes on Profits of Legal Persons and Article 24 of the Provisional Law of the Republic of Lithuania on Income Tax of Natural Persons, which were applied to taxpayers before the date of entry into force of this Law, shall continue to be applied within the time limits and in accordance with the procedure set out in the said laws until the end of the tax period beginning in 2003.
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3.In the event that tangible fixed assets or software subject to the investment incentive referred to in Article 21 of the Law of the Republic of Lithuania on Taxes on Profits of Legal Persons are lent for use or invested in another entity after the date of entry into force of this Law, the entity’s income shall be increased by the acquisition price of such assets in the tax period during which the assets were lent for use or invested in another entity. In the event that tangible fixed assets or software subject to the investment incentive referred to in Article 24 of the Provisional Law of the Republic of Lithuania on Income Tax of Natural Persons are lent for use, invested in another entity or the purpose of their use is changed, including the cases where the owners of partnerships and individual/personal enterprises pay themselves that part of income which was used by partnerships and individual/personal enterprises for such investments, after the date of entry into force of this Law, the income of a partnership and individual/personal enterprise shall be increased by an amount, which is equal to that part of taxable income used for investments, in the tax period during which the assets were lent for use, invested in another entity or the purpose of their use was changed.
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4.Depreciation or amortisation of tangible fixed assets or software subject to the investment incentive specified in subparagraph 2 of paragraph 1 of Article 21 of the Law of the Republic of Lithuania on Taxes on Profits of Legal Persons and in Article 24 of the Provisional Law of the Republic of Lithuania on Income Tax of Natural Persons, shall not be calculated. Where such an investment incentive was applied to a portion of tangible fixed assets or software, depreciation or amortisation shall be calculated as of the moment when the amount of depreciation or amortisation, which would be calculated under the provisions of this Law if no investment incentive were applied when the assets were acquired, becomes equal to that portion of the value which was subject to the investment incentive.
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5.Dividends received as of the tax period beginning with 2002 shall be subject to the following corporate income tax rates:
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1)dividends received by Lithuanian entities from other Lithuanian entities shall be subject to a corporate income tax rate of 29% and shall not be subject to the provisions of paragraph 2 of Article 33 and paragraph 2 of Article 34 of this Law;
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2)dividends received by foreign entities from Lithuanian entities shall be subject to a corporate income tax rate of 29% and shall not be subject to the provisions of paragraph 2 of Article 33 and paragraph 2 of Article 34 of this Law.
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6.In the event that the amount of debts regarded as bad debts was accumulated before the date of entry into force of this Law, the provisions of paragraph 1 of Article 25 of this Law shall be applied to only those debts that were included in the taxpayer’s income from sales or where the appearance of such debts was recorded in the taxpayer’s accounting documents not earlier than in 1996. However, where the amount of bad debts was included in the taxpayer’s income from sales or the appearance of such debts was recorded in the taxpayer’s accounting documents between 1 January 1996 and 31 December 1999, the amount of bad debts or the portion of costs attributed to bad debts shall be included in the deductions of limited amounts of the entity in equal portions over a period of 5 years as of the tax period beginning with 2000.
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7.Insurance benefits received from insurance undertakings (insurers) shall not be subject to taxation under contracts concluded before 1 January 2002.
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8.Advance corporate income tax for the tax period beginning with 2002, which the taxpayer must pay under a submitted advance corporate income tax return, shall be calculated in accordance with the following procedure:
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1)for the first 4 months of the tax period, advance corporate income tax shall be calculated on the basis of the amount of corporate (income) tax actually calculated for the tax period preceding the previous tax period. For the 5-12 months of the tax period, advance corporate income tax shall be calculated on the basis of the amount of corporate (income) tax actually calculated for the previous tax period. The advance corporate income tax for each month shall comprise 1/12 of the amount of corporate income tax actually calculated for the above mentioned tax periods;
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2)an entity which provides evidence that its income for the tax period beginning with 2002 is lower by at least 25% than that for the tax period beginning with 2001 shall have the right to apply, not later than one month before the deadline set in this paragraph for making a regular payment of advance corporate income tax, to the local tax administrator with a request to reduce the remaining advance corporate income tax or to be exempt from it. The local tax administrator must reduce the amount of advance corporate income tax in respect of such an entity in proportion to the reduced income or exempt the entity from advance corporate income tax. Where the income of the said entity for the tax period beginning with 2002 increases by at least 25%, it must apply, not later than one month before the deadline set for making a regular payment of advance corporate income tax, to the local tax administrator with a request to increase the remaining advance corporate income tax.
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3)the entity may choose to make advance payments of corporate income tax based on the amount of corporate income tax calculated for each month of the tax period beginning with 2002;
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4)the taxpayer shall have the right to take into account the changes in the corporate income tax rate.
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9.The advance corporate income tax return for the first 4 months of the tax period beginning with 2002 shall be filed before the last day of the first month of the tax period. The advance corporate income tax return for the 5-12 months of the tax period beginning with 2002 shall be filed before the last day of the first month of the tax period. Where an entity has chosen to pay the advance profit tax based on the amount of corporate income tax calculated for each month of the tax period beginning with 2002, the advance corporate income tax return shall be filed before that 15th day of the month following each month of the tax period beginning with 2002. Advance corporate income tax shall be paid within 15 days after the end of each month of the tax period beginning with 2002.
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10.A declaration of income or a corporate income tax statement for the tax period beginning with 2001 shall be filed together with the financial accounts prescribed by the Law of the Republic of Lithuania on Accounting after the end of the fiscal year and before 1 May 2002 or before the first day of fifth month of the tax period beginning with 2002. Corporate (income) tax for the tax period beginning with 2001 shall be paid on the basis of a corporate income tax statement or declaration on income. Where the amount of corporate income tax calculated in the corporate income tax statement or the declaration of income exceeds the amount of corporate (income) tax paid for the tax period on the basis of advance corporate (income) tax statements, the taxpayer must pay the difference to the budget on the next working day after the deadline for filing the corporate income tax statement or the declaration of income.
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11.The depreciation or amortisation rates set out in Appendix 1 of this Law shall apply to tangible fixed assets, intangible assets and the value of goodwill acquired after the date of entry into force of this Law.
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12.Entities which before 1 January 2002 had recognised income at the actual moment of its receipt, but no longer meet under the provisions of this Law the criteria prescribed for the application of the cash accounting principle, shall have the option of moving to accrual accounting from the tax period beginning with either 2002 or 2003.
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13.Interest paid on bonds of a Lithuanian entity shall be subject to taxation under the provisions of Article 4 of this Law, provided that they are issued after the date of entry into force of this Law. Interest on loans issued by the banks of foreign countries and international financial institutions (institutions or organisations all members or founders of which are governments of several countries, and also the funds and state financial institutions of foreign countries in which over 50% of the block of shares are held by the governments of foreign countries) included in the list approved by an order of the Minister of Finance of the Republic of Lithuania shall be subject to taxation from 1 January 2003 under the provisions of Article 4 of this Law, including premiums and bonuses relating to such liabilities, but excluding loans issued to the Republic of Lithuania under loan agreements concluded after the date of entry into force of this Law.
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Interest on loans issued by the banks of foreign countries and international financial institutions (institutions or organisations all members or founders of which are governments of several countries, and also the funds and state financial institutions of foreign countries in which over 50% of the block of shares are held by the governments of foreign countries) included in the list approved by an order of the Minister of Finance of the Republic of Lithuania and also on loans issued to the Republic of Lithuania under loan agreements concluded after 1 January 2003 shall be subject to taxation under the provisions of Article 4 of this Law.
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14.Interest on securities issued by the Government and municipalities of the Republic of Lithuania as well as by international financial organisations in which Lithuania holds membership and whose articles of incorporation are ratified under the Law of the Republic of Lithuania on Treaties shall be subject to taxation under the provisions of Article 4 of this Law, unless agreements on the distribution of securities are concluded after 1 January 2003.
\n
15.The following shall not be subject to taxation before 1 January 2003:
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1)interest on securities issued by the Government and municipalities of the Republic of Lithuania as well as by international financial organisations in which Lithuania holds membership and whose articles of incorporation are ratified under the Law of the Republic of Lithuania on Treaties, and also interest on securities issued by the Nordic Investment Bank;
\n
2)income from the sale on the secondary market of securities issued by the Government and municipalities of the Republic of Lithuania as well as by international financial organisations in which Lithuania holds membership and whose articles of incorporation are ratified under the Law of the Republic of Lithuania on Treaties, and also of securities issued by the Nordic Investment Bank, except for income from intermediary services relating to the trading of such securities on the secondary market;
\n
16.Until a separate decision is adopted by the Seimas of the Republic of Lithuania, the taxable profit of entities engaged in agricultural activity, cooperative companies (cooperatives) that sell agricultural products produced by and acquired from their members and/or that sell to their own members fuels, fertilisers, seeds, feeding stuffs, pest and weed control measures as well as tangible assets intended solely for the agricultural activities of their members, and also free economic zone enterprises, legal persons (except for those specified in paragraph 5 of Article 5 of this Law) in which persons with limited capacity for work are employed, credit unions and the Central Credit Union shall be subject to taxation as follows:
\n
1)where income from agricultural activities received by entities engaged in agricultural activity accounts for 50% or more of their income, the taxable income of such entities shall be subject to a corporate income tax rate of 0%;
\n
2)a free economic zone enterprise in which capital investments amount to at least EUR 1 million shall not pay corporate income tax for 6 tax periods beginning with the tax period in which such an amount was reached and shall be subject to a 50% reduced corporate income tax rate for the subsequent 10 tax periods. The relief granted under this paragraph may be applied only where not less than 75% of the income of a free economic zone enterprise for the relevant tax period comprises income from the manufacture, treatment, processing and storage of goods, wholesale trade in goods stored within the zone, and/or services provided in the zone and related to the aforementioned activities carried out within the zone (transportation and servicing of the goods manufactured, treated, processed or stored within the zone and of the goods required for manufacturing, treatment or processing within the zone, the territory of the construction zone as well as other services relating to the aforementioned activities).
\n
The relief granted under this paragraph may be applied only in the event that the free economic zone enterprise has an auditor’s report confirming the required amount of capital investments. Where the amount of capital investments decreases and no longer amounts to EUR 1 million before the end of the deadline for applying the relief granted under this paragraph, the said relief shall be suspended for the tax period in which the amount of capital investment was so reduced and it may be renewed in the tax period when the capital investment once again amounts to EUR 1 million. The relief granted under this paragraph may not be applied in any circumstances to credit institutions and insurance undertakings;
\n
3)legal persons (except for those specified in paragraph 5 of Article 5 of this Law) whose income from own production exceeds 50% of the total income received and which employ persons with limited capacity for work shall reduce the calculated corporate income tax as follows:
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Proportion of persons with a limited work capacity within the total of persons employed Reduction of calculated corporate income tax More than 50% 100 % 40–50 % 75 % 30–40 % 50 % 20–30 % 25 % The categories of persons with limited capacity for work, the method of calculating the proportion of such persons within the total of persons employed and the procedure for applying the said relief shall be established by the Government of the Republic of Lithuania;
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4)(Repealed on 1 January 2004);
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5)credit unions and the Central Credit Union shall be exempt from corporate income tax during the first three tax periods beginning with the date of their registration in accordance with the procedure laid down in the laws of the Republic of Lithuania, while the amount of corporate income tax to be paid beginning with the forth tax period shall be reduced by 70%;
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6)in the event that cooperative companies (cooperatives) do not meet the criteria set forth in subparagraph 1 of this paragraph, but the portion of their income from the activities specified in subparagraph 1 of this paragraph and/or income from the sale of agricultural products produced by and acquired from their members (entities which may be subject to the provisions of subparagraph 1 of this paragraph or individuals who may be subject to the provisions of subparagraphs 24 and 25 of paragraph 1 of Article 17 of the Law of the Republic of Lithuania on Personal Income Tax concerning income from the sale of agricultural products) and/or from the sale of fuels, fertilisers, seeds, feeding stuffs, pest and weed control measures as well as tangible assets, intended solely for the agricultural activities of their members, to their own members (entities which may be subject to the provisions of subparagraph 1 of this paragraph or individuals who may be subject to the provisions of subparagraphs 24 and 25 of paragraph 1 of Article 17 of the Law of the Republic of Lithuania on Personal Income Tax concerning income from the sale of agricultural products) accounts for 85% or more of their income, the taxable profit of such cooperative companies (cooperatives) shall be subject to a corporate income tax rate of 0%.
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17.For the purpose of calculating corporate income tax in the cases specified in Article 38 of this Law, the transfer of assets or a set of assets of the entity under a lease transaction shall be taxed as the sale of such assets if the assets or a set of assets was transferred after 1 January 2002.
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18.Advance corporate income tax paid by individual (personal) enterprises and partnerships in 2002 as well as corporate income tax withheld (and paid) at source in 2002 shall be entered in the budget of the municipality in the territory whereof the said individual (personal) enterprises and partnerships are registered.
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19.Banks whose specific provisions for doubtful assets, established between the beginning of the tax period starting with 1997 and the beginning of the tax period starting with 2002, were not included in the taxable profit-reducing costs shall include such amounts (after coordination with the central tax administrator) in equal portions in the deductions of limited amounts during the tax periods starting with 2002, 2003, 2004 and 2005. Where a bank meets its liabilities linked to the repayment of debts, the amount of the debt or a portion thereof, which matches the amount of the specific provision for doubtful assets established in respect of such a debt, shall be recognised as income at the moment the claim is settled.
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Article 59Entry into Force and Application of the Law
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1.The Law shall enter into force as of 1 January 2002, with the exception of subparagraph 5 of paragraph 18 of Article 2, Article 40, and subparagraph 3 of paragraph 4 of Article 42.
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2.Provisions of subparagraph 5 of paragraph 18 of Article 2 shall enter into force on 01.01.03.
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3.Provisions of subparagraph 3 of paragraph 4 of Article 42 shall enter into force on 1 January 2004.
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4.Provisions of Article 40 shall apply as of the tax period beginning in 2004.
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5.Provisions of paragraph 3 of Article 58 shall apply until the tax period beginning in 2003.
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6.This Law shall apply to entities the tax period beginning in 2002.
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7.The Law of the Republic of Lithuania on Taxes on Profits of Legal Persons shall apply to entities the tax period of which does not coincide with the calendar year until the tax period ending in 2002, except where such entities calculate taxes and pay them to the budget as withholding agents.
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8.To propose that the Government of the Republic of Lithuania prepare the legal acts necessary to comply with this Law.
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9.Any arrears in payments discharged by or recovered from individual (personal) enterprises and partnerships as of July 1 2002 in respect of personal income tax, advance personal income tax and personal income tax withheld at source (except for personal income tax withheld from the amounts paid to natural persons) shall be entered in accordance with the same procedure as corporate income tax, advance corporate income tax and corporate income tax withheld at source.
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Article 60Repealed Legal Acts
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The following legal acts shall be repealed on 1 January 2003:
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1)Republic of Lithuania Law on Taxes on Profits of Legal Persons (Valstybės Žinios (Official Gazette) No 24-601, No 30-715, 1990; No 16-426, No 20-520, 1991; No 6-110, 1992; No 16-404, No 30-682, No 70-1306, 1993; No 15-251, No 55-1052, No 100-1999, 1994; No 34-813, 1995; No 1-3, No 35-862, No 46-1105, No 62-1463, No 66-1577, No 71-1715, No 73-1746, 1996; No 28-661, No 61-1442, No 63-1473, No 69-1745, 1997; No 68-1977, 1998; No 33-948, No 55-1771, No 64-2072, No 98-2812, No 113-3291, 1999; No 36-988, No 45-1291, No 61-1819, No 64-1912, 2000; No 45-1572, No 56-1979, No 62-2235, 2001);
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2)Republic of Lithuania Law on the Exemption of Undertakings Engaged in Agricultural Production and Agricultural Services from Profit Tax of Legal Persons (Valstybės žinios (Official Gazette) No 117-2998, 1997);
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3)Law of the Republic of Lithuania on the Exemption of Partnerships and Individual (Personal) Enterprises Engaged in Agricultural Production and Agricultural Services from Profit Tax of Legal Persons (Valstybės žinios (Official Gazette) No 117-2999, 1997);
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I promulgate this Law passed by the Seimas of the Republic of Lithuania.
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PRESIDENT OF THE REPUBLIC VALDAS ADAMKUS Appendix 1 To the Republic of Lithuania Law No IX-675 of 20 December 2001 DEPRECIATION OR AMORTISATION RATES (IN YEARS) FOR FIXED ASSETS Class of fixed assets Method Rate (in years) TANGIBLE ASSETS New buildings used for business and renovations of buildings listed in the Register of Immovable Cultural Property of the Republic of Lithuania where such buildings were constructed or renovated after 1 January 2002. linear or double declining balance 8 Residential buildings linear 20 Buildings other than listed above linear 15 Plant and machinery linear or double declining balance 5 Installations (structures, wells, etc.) linear 8 Power transmission and communications facilities (except for computer networks) linear 8 Rolling stock (locomotives, rail wagons, rail tankers) linear 8 Pipe installations, aeroplanes, weapons linear 15 Furniture (other than used for hotel business) linear 6 Inventory, furniture used for hotel business linear or double declining balance 6 Computer and communications equipment (computers, computer networks and software) linear or double declining balance 3 Passenger cars
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1)used for short-term car rentals, driving school services or transport services, not older than 5 years linear or double declining balance 4
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2)other passenger cars, not older than 5 years linear 6
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3)other passenger cars linear 10 Goods vehicles, trailers and semi-trailers, busses, not older than 5 years linear or double declining balance 4 Other goods vehicles, trailers and semi-trailers, busses linear 4 *Tangible assets other than listed above *Note. The provisions shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods. linear or production 4 (except when applying the production method) INTANGIBLE ASSETS Software linear or double declining balance 3 Rights acquired linear or double declining balance 3 Other intangible assets linear 4 VALUE OF PRESTIGE Value of prestige linear 15 *Note. The provisions of Appendix 1 shall apply for the purpose of calculating taxable profits for the tax period beginning before 2008.
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DEPRECIATION OR AMORTISATION RATES (IN YEARS) FOR FIXED ASSETS Class of fixed assets Method Rate (in years) Rate (in years) if the assets are intended for use and are used for scientific research and experimental development TANGIBLE ASSETS New buildings used for business and renovations of buildings listed in the Register of Immovable Cultural Property of the Republic of Lithuania where such buildings were constructed or renovated after 1 January 2002. linear or double declining balance 8 8 Residential buildings linear 20 20 Buildings other than listed above linear 15 15 Plant and machinery linear or double declining balance 5 2 (except when applying the double declining balance method) Installations (structures, wells, etc.) linear 8 2 Power transmission and communications facilities (except for computer networks) linear 8 8 Rolling stock (locomotives, rail wagons, rail tankers) linear 8 8 Pipe installations, aeroplanes, weapons linear 15 15 Furniture (other than used for hotel business) linear 6 6 Inventory, furniture used for hotel business linear or double declining balance 6 6 Computer and communications equipment (computers, computer networks and software) linear or double declining balance 3 2 (except when applying the double declining balance method) Passenger cars
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1)used for short-term car rentals, driving school services or transport services, not older than 5 years linear or double declining balance 4 4
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2)other passenger cars, not older than 5 years linear 6 6
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3)other passenger cars linear 10 10 Goods vehicles, trailers and semi-trailers, busses, not older than 5 years linear or double declining balance 4 4 Other goods vehicles, trailers and semi-trailers, busses linear 4 4 Tangible assets other than listed above linear or production 4 (except when applying the production method) 2 (except when applying the production method) INTANGIBLE ASSETS Software linear or double declining balance 3 2 (except when applying the double declining balance method) Rights acquired linear or double declining balance 3 2 (except when applying the double declining balance method) Other intangible assets linear 4 2 VALUE OF PRESTIGE Value of prestige linear 15 15 *Note. The provisions of Appendix 1 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2008 and subsequent tax periods.
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Appendix 2 To the Republic of Lithuania Law No IX-675 of 20 December 2001 Appendix 2 was repealed on 2 September 2004.
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Appendix 3 To the Republic of Lithuania Law on Corporate Income Tax LEGAL ACTS OF THE EUROPEAN UNION IMPLEMENTED BY THIS LAW 1. Council Regulation (EEC) No 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG).
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2.Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.
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3.Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States.
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4.Act concerning the conditions of accession under the treaty between the Kingdom of Belgium, the Kingdom of Denmark, the Federal Republic of Germany, the Hellenic Republic, the Kingdom of Spain, the French Republic, Ireland, the Italian Republic, the Grand Duchy of Luxembourg, the Kingdom of the Netherlands, the Republic of Austria, the Portuguese Republic, the Republic of Finland, the Kingdom of Sweden, the United Kingdom of Great Britain and Northern Ireland (Member States of the European Union) and the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia, the Slovak Republic, concerning the Accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic to the European Union Act concerning the conditions of accession of the Kingdom of Belgium, the Kingdom of Denmark, the Federal Republic of Germany, the Republic of Greece, the Kingdom of Spain, the Republic of France, Ireland, the Republic of Italy, Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is founded.
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5.Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
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6.Council Directive 2003/123/EC of 22 December 2003 amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.
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7.Council Directive 2004/66/EC of 26 April 2004 adapting Directives 1999/45/EC, 2002/83/EC, 2003/37/EC and 2003/59/EC of the European Parliament and of the Council and Council Directives 77/388/EEC, 91/414/EEC, 96/26/EC, 2003/48/EC and 2003/49/EC, in the fields of free movement of goods, freedom to provide services, agriculture, transport policy and taxation, by reason of the accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia.
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8.Council Directive 2004/76/EC of 29 April 2004 amending Directive 2003/49/EC as regards the possibility for certain Member States to apply transitional periods for the application of a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
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9.Council Directive 2005/19/EC of 17 February 2005 amending Directive 90/434/EEC 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States.
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10.Council Directive 2006/98/EC of 20 November 2006 adapting certain Directives in the field of taxation, by reason of the accession of Bulgaria and Romania (OJ 2006, L 363, p. 129).