OFFICIAL TRANSLATION

OFFICIAL TRANSLATION OFFICIAL TRANSLATION REPUBLIC OF LITHUANIA LAW ON PERSONAL INCOME TAX 2 July 2002 No IX-1007 (As last amended on 10 April 2008 – X-1485) Vilnius CHAPTER ONE GENERAL PROVISIONS Article 1. Purpose and Scope of the Law 1. This Law shall establish the procedure for levying income tax on individuals. 2. This Law shall apply in the territory of the Republic of Lithuania. 3. The provisions of this Law shall be in compliance with the EU legal acts listed in the Annex. Article 2. Definitions 1. Territory of the Republic of Lithuania (hereinafter referred to as “Lithuania”) shall mean the territory of the Republic of Lithuania and any other area adjacent to the territorial waters of the Republic of Lithuania within which, under the laws of the Republic of Lithuania and in accordance with international law, the rights of the Republic of Lithuania may be exercised with respect to exploring and exploiting the sea bed and its sub-soil and their natural resources. 2. Individual shall mean any resident or non-resident of Lithuania. 3. Resident of Lithuania shall mean a natural person who is deemed to be a resident of Lithuania under the provisions of Article 4 of this Law. 4. Non-Resident of Lithuania shall mean a natural person who is not deemed to be a resident of Lithuania under the provisions of Article 4 of this Law. 5. Royalties shall mean remuneration for the right to use any work under a copyright licensing agreement, remuneration for the neighbouring rights granted, remuneration for the right to use an object of industrial property or franchise under a license agreement, remuneration for information concerning industrial, commercial or scientific experience (know-how) as well as compensations for violation of copyright or neighbouring rights. 6. Deposit shall mean the monetary funds of a depositor kept at a commercial bank, branch, credit union or any other credit institution under a deposit and/or account contract, except for other monetary funds in respect of which a depositor has claims arising from financial operations with deposits conducted by a credit institution or from investment services provided. 7. Individual activities shall mean any independent activity in pursuit whereof an individual seeks to derive income or any other economic benefit over a continuous period: 1) independent commercial or industrial activities of any nature, including those exercised under a business certificate; 2) independent creative or professional activities and other similar independent activities, including those exercised under a business certificate; 3) independent sports activities; 4) independent performing activities. 8. Sports activities shall mean the activities of a sportsman (an individual exercising a specific physical or mental activity based on certain rules and organised in a particular form specially designated for such an activity) involving preparation for and participation in competitions. 9. Performing activities shall mean the activities of a performing artist (actor, singer, musician, conductor, dancer or any other individual acting, singing, reading, reciting or otherwise performing literary, artistic, folklore works or circus acts) involving preparation for and participation in a public appearance. Individuals involved in the creation of a work or preparation for a public appearance who do not participate in the public performance of that work or in the public appearance are not deemed to be performing artists. 10. Creative activities shall mean the creation of works that may be protected by copyright as well as the transfer of property rights to such created works. 11. Derivative financial instrument shall mean a financial instrument (a futures contract, forward contract, etc.) the value or price whereof is linked to the value or price of the goods on which the instrument is based as well as a financial instrument (a futures contract, forward contract, etc.) the value or price whereof is linked to the price of securities, exchange rate, interest rate, stock exchange index, determination of creditworthiness or any other variable. 12. Permanent establishment shall mean a fixed place of activities situated in Lithuania through which the activities of a foreign entity are carried on. A foreign entity is deemed to carry on its activities through a permanent establishment in Lithuania, provided that it: permanently carries on its activities in Lithuania; or carries on its permanent activities in the Republic of Lithuania through a dependent representative (agent); or uses a building site, a construction, assembly or installation project in Lithuania; or makes continuous use of installations or structures in Lithuania for prospecting or extracting natural resources, including wells or vessels used for that purpose. 13. Fixed base shall mean a fixed place of individual activities situated in Lithuania from which the individual activities, except for sports and performing activities, (hereinafter in this paragraph referred to as the “activities”) of a non-resident of Lithuania are carried on. A non-resident of Lithuania is deemed to carry on his activities from a fixed base in Lithuania, provided that he: permanently carries on his activities in Lithuania; or carries on his permanent activities in Lithuania through a dependent representative (agent). The permanency status of activities carried on by a non-resident of Lithuania as well as the criteria for establishing the dependent or independent status of a representative (agent) of a non-resident of Lithuania shall be determined by the Government of the Republic of Lithuania or an institution authorised by it. 14. Income shall mean positive income, the attributable income of a European Economic Interest Grouping as well as remuneration received during the tax period for the work or services performed, rights transferred or granted, assets or funds sold or otherwise transferred or invested and/or any other benefit in cash and/or in kind, except for: 1) shares issued free of charge to shareholders in proportion to the number of their shares or the amount by which the nominal value of the shares issued earlier has been increased due to the increase of authorised capital, and also the amount by which the value of member shares or interests has been increased due to the increase of authorised capital in respect of the holders of member shares or interests in proportion to the value of their member shares or interests; 2) immovable property recovered under the Law of the Republic of Lithuania on the Restoration of the Rights of Ownership of Citizens to the Existing Real Property as well as savings restored under the Law of the Republic of Lithuania on the Restoration of Savings of the Population; 3) working clothes, footwear, tools, installations and other equipment that are given to an individual for use free of charge (without transferring ownership) by a person connected with the individual by employment relations or relations in their essence corresponding to employment relations, provided that such working clothes, footwear, tools, installations and other equipment are used for performing job functions; 4) the output VAT amount calculated in respect of the goods supplied and services provided by an individual (to an individual); 5) amounts (except for the expenses of an individual compensated by a person connected with the individual by employment relations or relations in their essence corresponding to employment relations) allocated to cover accommodation, catering, participation registration or travel expenses, provided that such expenses are related to performing job functions, including voluntary work organised in accordance with the procedure established by the Government of the Republic of Lithuania, or to individual activities pursued by an individual; 6) benefits derived by individuals during a promotional event or action or a representation event where it is impossible to determine the individual benefit derived by a separate participant of such a promotional event or action or a representation event. An event or action of an entity is deemed to be promotional if it is designated to disseminate, in any form and by any means, information relating to the activities of the entity and promoting the purchase of goods or services, and also to provide information to current or potential buyers. A representation event of an entity is an action organised by the entity at its own expense in order to establish new business relations or improve the existing relations with other entities or individuals, with the exception of employees of the entity organising such a representation event, members of that entity, as well as controlled or controlling entities or controlling individuals; 7) difference in the value of assets resulting from operations effected between the entities indicated in subparagraph 2 of paragraph 1 of Article 41 of the Law of the Republic of Lithuania on Corporate Income Tax (hereinafter referred to as the “Law on Corporate Income Tax”) in the course of reorganisations or transfers specified in paragraph 2 of Article 41 of the Law on Corporate Income Tax where the shares (interests, member shares) are acquired by means of an exchange of the shares (interests, member shares) held by members of an entity for the shares (interests, member shares) of another entity, with the exception of cash payments for the difference in the price of the shares; 8) difference in the value of assets resulting from operations effected between the entities indicated in subparagraph 1 of paragraph 1 of Article 41 of the Law on Corporate Income Tax in the course of reorganisations or transfers specified in paragraph 2 of Article 41 of the Law on Corporate Income Tax where the shares (interests, member shares) are acquired by means of an exchange of the shares (interests, member shares) held by members of an entity for the shares (interests, member shares) of another entity, with the exception of cash payments for the difference in the price of the shares; 9) profits of a European Economic Interest Grouping or part of such profits received by an individual (member of a European Economic Interest Grouping). 15. Income in kind shall mean any property received into ownership or for beneficial use (without acquiring title to property) or any services received free of charge, by means of an exchange or at preferential price (lower than the actual market price set for a particular individual due to the influence of specific interests or transactions) as well as any other benefit (if the benefit provider had the objective of providing benefit to a particular person) where the monetary equivalent of the property, services or other benefit received would be treated as income under the provisions of this Law. 16. Income sourced in Lithuania shall mean: 1) income received by a resident of Lithuania from other residents of Lithuania, Lithuanian entities, foreign entities through their permanent establishments and non-residents of Lithuania through their fixed bases; 2) royalties, interest, income from distributed profits, and income from the rent of property immovable by nature located in Lithuania, which are received by a non-resident of Lithuania from residents of Lithuania, Lithuanian entities, foreign entities through their permanent establishments and non-residents of Lithuania through their fixed bases; 3) income from any activity in Lithuania; 4) income from the sale or other transfer into ownership of movable property where such type of property is subject to legal registration under the legal acts of the Republic of Lithuania and where it is (or must be) registered in Lithuania, and also from the sale and other transfer into ownership of immovable property located in Lithuania. 17. Income sourced outside Lithuania shall mean all income, except for income specified in paragraph 16 of this Article. 18. Positive income shall mean all income received by a controlled entity, registered or otherwise organised in the countries or zones referred to in paragraph 4 of Article 39 of the Law on Corporate Income Tax, or part of such income included in the income of a resident of Lithuania, who is a controlling person, in proportion to the number of the shares (interests, member shares), votes or rights to the profits of the controlled entity held by the said person. 19. Related persons shall be treated as such if on any day of the current tax period or the tax period preceding the current tax period they are: 1) an individual, who is a member of an entity, and that entity, or 2) an individual, who is a member of the managing bodies of an entity, and that entity, or 3) an individual whose spouse, fiancé or cohabitant is a member of the managing bodies of an entity, and that entity, or 4) an individual and his spouse, fiancé, cohabitant; an individual and persons related to him by consanguinity (in the direct line up to the second degree, in the collateral line up to the fourth degree) or by marriage (an individual and the relatives of his spouse (in the direct line up to the second degree, in the collateral line up to the second degree)); an individual and the relatives of his cohabitant (in the direct line up to the second degree, in the collateral line up to the second degree); an individual and the spouses or cohabitants of his relatives (in the direct line up to the first degree, in the collateral line up to the second degree) as well as the relatives of the said spouses or cohabitants (in the direct line up to the first degree, in the collateral line up to the second degree), or 5) two individuals who are members of the same entity and each of the individuals controls directly or indirectly over 25% of the shares (interests, member shares) in that entity, or 6) two individuals who are members of the same entity and each of the individuals, together with other persons (a spouse, fiancé, cohabitant or relatives of the said cohabitant (in the direct line up to the second degree, in the collateral line up to the second degree), persons related to him by consanguinity (in the direct line up to the second degree, in the collateral line up to the fourth degree) or by marriage (an individual and the relatives of his spouse (in the direct line up to the second degree, in the collateral line up to the second degree)), also the spouses or cohabitants of his relatives (in the direct line up to the first degree, in the collateral line up to the second degree) as well as the relatives of the said spouses or cohabitants (in the direct line up to the first degree, in the collateral line up to the second degree), controls directly or indirectly over 25% of the shares (interests, member shares) in that entity, or 7) an individual and his fixed base. 20. Actual market price shall mean the amount for which assets may be exchanged or mutual obligations settled between willing independent buyers or sellers in a direct transaction. 21. Target territory shall mean a foreign country or zone included in the List of Target Territories established by the Minister of Finance, which meets at least two of the criteria set out in this paragraph: 1) the corporate income tax rate or equivalent tax rates in that territory account for less than 75% of the rate set out in subparagraph 1 of paragraph 1 of Article 5 of the Law on Corporate Income Tax; 2) different rules for corporate income taxation or equivalent taxation are applied in that territory, depending on the country where the controlling person is registered or otherwise organised; 3) different rules for corporate income taxation or equivalent taxation are applied in that territory, depending on the country where activities are carried on; 4) the controlled entity has concluded an agreement with the tax administrator of that country concerning the tax rate or base; 5) there is no effective exchange of information in that territory; 6) there is no financial and administrative transparency in that territory: the rules for the administration of corporate income tax or equivalent tax are not completely clear and the procedure for the application of such rules is not communicated to the tax administrators of other countries. 22. Business certificate shall mean a document issued in accordance with the procedure laid down in this Law and the legal acts implementing it, which confirms the payment of a prescribed fixed amount of income tax where independent activities included in the list of activities established by the Government of the Republic of Lithuania are pursued. 23. Entity shall mean any Lithuanian entity and any foreign entity. 24. Member of an entity shall mean any person who has title to the assets of an entity or any person who fails to secure title to the assets of an entity, but acquires rights and/or duties arising from obligations related to the entity. 25. Lithuanian entity shall mean any legal entity established in accordance with the procedure prescribed by the legal acts of the Republic of Lithuania as well as a branch or representative office of any foreign entity established in accordance with the procedure prescribed by the laws of the Republic of Lithuania, which does not constitute a permanent establishment of the foreign entity. 26. Foreign entity shall mean any foreign legal entity or organisation having its registered office in a foreign country and established or otherwise organised under the legal acts of that foreign country as well as any other entity established, incorporated or otherwise organised abroad. 27. Controlled entity shall mean any entity deemed to be under the control of a resident of Lithuania (hereinafter referred to as the “controlling person”), provided that: 1) it is controlled by the controlling person on the last day of the tax period, and 2) the controlling person holds directly or indirectly over 50% of the shares (interests, member shares) in the controlled entity or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof, 3) the controlling person, together with related persons, holds over 50% of the shares (interests, member shares) in the controlled entity or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof, and the portion controlled by the controlling person accounts for at least 10% of the shares (interests, member shares) or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof. 28. Property shall mean any movable and immovable property, securities and derivative financial instruments as well as other intangible assets. 29. Property used for the purpose of individual activities shall mean any property used by an individual solely for his individual activities, except for individual activities exercised under a business certificate, individual sports and performing activities. 30. Permanent place of residence shall mean any place where a natural person has the possibility to reside and which is established, maintained and used by such a person. 31. Employment relations or relations in their essence corresponding to employment relations shall mean a relationship where work is performed under an employment contract, and also any other activity carried out on the basis of legal relations substantially corresponding (by agreement concerning remuneration for work, workplace and functions, work discipline, etc.) to a relationship between an employer and employee created under an employment contract. 32. Associated persons shall mean persons (entities or natural persons) where they meet at least one of the following criteria: 1) they are related persons; 2) they may have influence over each other resulting in the conditions of their mutual transactions or economic operations other than those where a maximum economic benefit is sought by each of the said persons. 33. Other terms in this Law shall be interpreted as they are defined in the Law of the Republic of Lithuania on Tax Administration (hereinafter referred to as the “Law on Tax Administration”) and the Civil Code of the Republic of Lithuania (hereinafter referred to as the “Civil Code”) to the extent that they do not contravene this Law (except for the cases explicitly stated in the Civil Code). Article 3. Income Taxpayers Income tax shall be paid by an individual who has received income. Article 4. Resident of Lithuania 1. A resident of Lithuania shall mean: 1) any natural person whose permanent place of residence is in Lithuania during the tax period, or 2) any natural person whose place of personal, social or economic interests is in Lithuania rather than in a foreign country during the tax period, or 3) any natural person who is present in Lithuania for a period or periods in the aggregate of 183 days or more during the tax period. The rules for calculating a period of 183 days shall be laid down by the Government of the Republic of Lithuania or an institution authorised by it, or 4) any natural person who is present in Lithuania for a period or periods in the aggregate of 280 days or more during successive tax periods and who stayed in Lithuania for a period or periods in the aggregate of 90 days or more in any of such tax periods, unless paragraph 3 of this Article provides otherwise. The rules for calculating a period of 90 and 280 days shall be laid down by the Government of the Republic of Lithuania or an institution authorised by it, or 5) any natural person who is a citizen of the Republic of Lithuania but does not meet the criteria set out in subparagraphs 3 and 4 of this paragraph and who receives remuneration under an employment contract or a contract in its essence corresponding to an employment contract or whose costs of living in another country are covered from the state budget or municipal budgets of Lithuania. 2. A natural person, even though he complies with the provisions laid down in subparagraphs 3, 4 and 5 of paragraph 1 of this Article, shall not be deemed to be a resident of Lithuania if he is: 1) a diplomatic agent of a foreign state, member of the administrative and technical staff or service staff of the diplomatic mission, consular post or international organisation, who is not a citizen of the Republic of Lithuania (except for stateless persons whose permanent place of residence or place of personal, social or economic interests is in Lithuania during the tax period), or 2) not a citizen of the Republic of Lithuania who receives only such income which is incidental to employment relations or relations in their essence corresponding to employment relations for performing work in Lithuania from a foreign country, its political or territorial administrative unit or its local authorities, or 3) not a citizen of the Republic of Lithuania who only carries on individual activities in Lithuania from a fixed base, which is the sole purpose of his arrival in Lithuania. 3. Where a natural person, who is deemed to be a resident of Lithuania for not less that three successive tax periods, departs permanently from Lithuania in the tax period immediately following the aforesaid periods and stays in Lithuania for less than 183 days during the tax period of departure, he shall be deemed to be a resident of Lithuania until the day of his departure. The criteria for permanent departure from Lithuania shall be set forth by the Government of the Republic of Lithuania or an institution authorised by it. 4. Where a natural person, who is deemed to be a resident of Lithuania for not less that three successive tax periods, departs permanently from Lithuania for a target territory in the tax period immediately following the aforesaid periods, the provisions of paragraph 3 of this Article shall not apply in respect of him if the said natural person is connected to Lithuania by significant commercial interests. Such a natural person shall be deemed to be a resident of Lithuania for the entire tax period of departure and two subsequent tax periods. Significant commercial interests shall be in place where: 1) a natural person is the owner of an individual (personal) enterprise in Lithuania and/or controls over 25% of the shares (interests, member shares) of a Lithuanian entity, or 2) over 30% of income received during the tax period consists of income sourced in Lithuania. 5. A natural person who is not deemed to be a resident of Lithuania under the provisions of paragraph 1 of this Article may, in accordance with the procedure established by the Government of the Republic of Lithuania, apply to the tax administrator for recognition as a resident of Lithuania, provided that his income sourced in Lithuania during the tax period (except for the income on which income tax reliefs provided by the treaties of the Republic of Lithuania for the avoidance of double taxation were applied during the said tax period) accounts for not less than 90% of the total income received during the tax period, except for income referred to in Article 17 of this Law. Article 5. Object of Income Tax 1. The object of income tax shall be the income of individuals. 2. The object of income tax of a resident of Lithuania shall be income sourced in and outside Lithuania, except for the case specified in paragraph 3 of this Article. 3. The object of income tax of a resident of Lithuania shall be income sourced in Lithuania, provided that the individual: 1) is deemed to be a resident of Lithuania under subparagraphs 3 or 4 of paragraph of Article 4 or paragraph 3 of Article 4 of this Law, and 2) is not a citizen of the Republic of Lithuania, and 3) is deemed to be, during the same tax period and for the purpose of income tax or equivalent tax, a resident of a foreign country which has concluded and brought into effect a treaty for the avoidance of double taxation if a competent person of the said country informs the tax administrator thereof. 4. The object of income tax of a non-resident of Lithuania shall be: 1) income from individual activities carried on from a fixed base as well as income received in foreign countries and attributed to the said fixed base in Lithuania in the event that such income relates to the activities of a non-resident of Lithuania carried on from a fixed base in Lithuania; 2) income sourced in Lithuania and received otherwise than through a fixed base. 5. Income sourced in Lithuania and received by a non-resident of Lithuania otherwise than through a fixed base shall include: 1) interest; *2) income from distributed profits; *Note. These provisions shall apply when calculating and declaring the income received before 2008. *2) income from distributed profits and annual bonuses to Board and Supervisory Board members; *Note. These provisions shall apply when calculating and declaring the income for 2008 and subsequent tax periods. 3) income from the rent of property immovable by nature and located in Lithuania; 4) royalties, including the cases specified in paragraph 6 of this Article; 5) income incidental to employment relations or relations in their essence corresponding to employment relations; 6) income from sports activities, including income connected directly or indirectly to those activities, irrespective of whether it is paid directly to a sportsman or a third person acting on behalf of the sportsman; 7) income from performing activities, including income connected directly or indirectly to those activities, irrespective of whether it is paid directly to a performing artist or a third person acting on behalf of the performing artist; 8) income from the sale or other transfer into ownership of movable property where such type of property is subject to legal registration under the legal acts of the Republic of Lithuania and where it is (or must be) registered in Lithuania, and also from the sale or other transfer into ownership of immovable property located in Lithuania. 6. In the case of transfer of software, the provisions laid down in subparagraph 4 of paragraph 5 of this Article shall apply where the transfer concerns copyrighted works and where the following rights are granted by the software: 1) the right to reproduce the software in copies with the purpose of distributing them to the public or otherwise transferring into ownership, renting or lending, or 2) the right to prepare derivative software based on the copyrighted software, or 3) the right to demonstrate software to the public. Article 6. Income Tax Rates 1. From 1 July 2006 to 31 December 2007, income tax rates shall be 15 and 27%; from 1 January 2008, income tax rates shall be 15 and 24%, unless this Article provides otherwise. 2. An income tax rate of 15% shall be applied to the following income: 1) income from distributed profits, provided that it is received from a Lithuanian entity or from entities registered or otherwise organised in foreign countries or zones included in the list approved by the Minister of Finance under the provisions of Article 39 of the Law on Corporate Income Tax, and also interest; 2) (Repealed on 1 January 2004); 3) income received by sportsmen from sports activities, including income connected directly or indirectly to those activities, irrespective of whether it is paid directly to a sportsman or a third person acting on behalf of the sportsman; 4) income received by performing artists from performing activities, including income connected directly or indirectly to those activities, irrespective of whether it is paid directly to a performing artist or a third person acting on behalf of the performing artist; 5) royalties; 6) income from creative activities under a copyright agreement (including income from individual activities of such nature if, by the decision of an individual, no allowable deductions specified in Article 18 of this Law are made); 7) income from the rent of property (including income from individual activities of such nature if, by the decision of an individual, no allowable deductions specified in Article 18 of this Law are made); 8) income from individual activities not covered by subparagraphs 3-7 of this paragraph if, by the decision of an individual, no allowable deductions specified in Article 18 of this Law are made; 9) income from the sale or other transfer into ownership of property other than that used for the purpose of individual activities; *10) that part of pension benefits received in any manner provided for in the Law of the Republic of Lithuania on the Supplementary Voluntary Accumulation of Pensions (hereinafter referred to as the “Law on the Supplementary Voluntary Accumulation of Pensions) or in the Law of the Republic of Lithuania on the Accumulation of Occupational Pensions (hereinafter referred to as the “Law on the Accumulation of Occupational Pensions”) or in any other manner provided for in the laws of other foreign countries regulating equivalent pension accumulation provisions, which is equal to pension contributions paid, including those paid from the funds of other persons, provided that a participant in the pension scheme has the right to pension benefits under the Law on the Supplementary Voluntary Accumulation of Pensions or the Law on the Accumulation of Occupational Pensions. The provisions of this subparagraph shall not apply to pension benefits received from target territories; *Note. These provisions shall apply in respect of calculation and declaration of income for 2007 and subsequent years. *11) that part of benefits paid under a life insurance contract, at expiry, concluded before 30 April 2004, providing for the payment of insurance benefits not only in the case of an insured event but also upon the expiry of the insurance contract, which is equal to insurance premiums paid under the contract, including those paid from the funds of other persons, provided that the term of the insurance contract exceeds 10 years or the individual receiving insurance benefits has reached retirement age under the provisions of the Law on the Accumulation of Occupational Pensions or his capacity for work has been rated at 0-25% (including the disabled in group I– until 30 June 2007) or at 30-40% (including the disabled in group II– until 30 June 2007) or a disabled child receiving insurance benefits has been rated as requiring permanent nursing care (including children under 18 years of age who were rated as totally disabled before 30 June 2005); *Note. These provisions shall apply in respect of calculation and declaration of income for 2007 and subsequent years. *12) reimbursed life insurance premiums under a terminated life insurance contract concluded before 30 April 2004, which provides for the payment of insurance benefits not only in the case of an insured event but also upon the expiry of the insurance contract, provided that the contract is terminated not earlier than 10 years after the date of its conclusion or premiums are reimbursed to an individual who has reached retirement age under the provisions of the Law on the Accumulation of Occupational Pensions or his capacity for work has been rated at 0-25% (including the disabled in group I– until 30 June 2007) or at 30-40% (including the disabled in group II– until 30 June 2007); *Note. These provisions shall apply in respect of calculation and declaration of income for 2007 and subsequent years. *13) reimbursed pension contributions paid by an individual to a pension fund established under the Law on the Supplementary Voluntary Accumulation of Pensions or the Law on the Accumulation of Occupational Pensions or the laws of other foreign countries regulating equivalent pension funding provisions where a person withdraws from a pension scheme and does not join another scheme, provided that the withdrawal from the pension scheme occurs not earlier than 10 years after the date of the conclusion of a pension funding contract or contributions are reimbursed to an individual who has reached retirement age under the provisions of the Law on the Accumulation of Occupational Pensions. The provisions of this subparagraph shall not apply to pension contributions to target territories; *Note. These provisions shall apply when calculating and declaring the income for 2007. *13) reimbursed pension contributions paid to a pension fund established under the Law on the Supplementary Voluntary Accumulation of Pensions or the Law on the Accumulation of Occupational Pensions or the laws of other foreign countries regulating equivalent pension funding provisions where a person withdraws from a pension scheme and does not join another scheme, provided that the withdrawal from the pension scheme occurs not earlier than 10 years after the date of the conclusion of a pension funding contract or contributions are reimbursed to an individual who has reached retirement age under the provisions of the Law on the Accumulation of Occupational Pensions. The provisions of this subparagraph shall not apply to pension contributions to target territories; *Note. These provisions shall apply when calculating and declaring the income for 2008 and subsequent tax periods. *14) that part of benefits paid under a life insurance contract, at expiry, concluded after 1 May 2004, providing for the payment of insurance benefits not only in the case of an insured event but also upon the expiry of the insurance contract, which is equal to insurance premiums paid under the contract, including those paid from the funds of other persons, provided that the term of the insurance contract exceeds 10 years or the individual receiving insurance benefits has reached retirement age under the provisions of the Law on the Accumulation of Occupational Pensions or his capacity for work has been rated at 0-25% (including the disabled in group I– until 30 June 2007) or at 30-40% (including the disabled in group II– until 30 June 2007) or a disabled child receiving insurance benefits has been rated as requiring permanent nursing care (including children under 18 years of age who were rated as totally disabled before 30 June 2005); *Note. These provisions shall apply in respect of calculation and declaration of income for 2007 and subsequent years. *15) reimbursed life insurance premiums under a terminated life insurance contract concluded after 1 May 2004, which provides for the payment of insurance benefits not only in the case of an insured event but also upon the expiry of the insurance contract, provided that the contract is terminated not earlier than 10 years after the date of its conclusion or premiums are reimbursed to an individual who has reached retirement age under the provisions of the Law on the Accumulation of Occupational Pensions or his capacity for work has been rated at 0-25% (including the disabled in group I– until 30 June 2007) or at 30-40% (including the disabled in group II– until 30 June 2007); *Note. These provisions shall apply in respect of calculation and declaration of income for 2007 and subsequent years. 16) insurance premiums paid by an entity for the benefit of its employees in respect of additional (voluntary) health insurance where such premiums cover the payment of health care services provided in respect of the insured person. 3. From 1 July 2006 to 31 December 2007, income not covered by paragraph 2 of this Article shall be subject to an income tax rate of 27%; from 1 January 2008, it shall be subject to an income tax rate of 24%. *4. Income from activities exercised under a business certificate shall be subject to a fixed amount of income tax determined by municipality councils. *Note. Version of paragraph 4 before 1 July 2008: *4. A fixed amount of income tax established by municipal councils, which cannot be less than the amount of income tax calculated by deducting twelve basic tax-exempt amount of income to be valid on 1 January of the tax period for which business certificates are acquired from twelve minimum monthly wages valid on 1 October of the tax period preceding the tax period for which business certificates are acquired and by applying the tax rate referred to in paragraph 3 of this Article and to be valid on 1 January of the tax period for which business certificates are acquired  shall be paid for income derived from activity exercised under a business certificate during the tax period.  The municipal councils shall have the right to reduce the fixed amount of income tax on income derived from activities exercised under a business certificate. 1) the disabled, persons who have attained the pensionable age, a single parent (adoptive parent) raising children (adopted children) under 18 years of age and older if they study at full-time general education schools, for persons (parents or adoptive parents) with 3 and more children (adopted children) under 18 years of age and older if they study at full-time general education schools, or an older disabled child (adopted child) rated as requiring permanent special nursing care, full-time pupils and students of general education schools, vocational and higher education institutions as well as the unemployed registered at a local labour exchange office in accordance with the prescribed procedure; 2) persons who have acquired a business certificate to engage in activity specified in the business certificate in the whole territory of the Republic of Lithuania except for the towns of Alytus, Kaunas, Klaipėda, Marijampolė, Neringa, Palanga, Panevėžys, Šiauliai and Vilnius or within the territory of a specific municipality except for the territories of municipalities of the towns of Alytus, Kaunas, Klaipėda, Marijampolė, Neringa, Palanga, Panevėžys, Šiauliai and Vilnius; 3) the persons engaged in individual activities and holding a business certificate; 4) income incidental to employment relations or relations in their essence corresponding to employment relations; *Note. Version of paragraph 4 after 1 July 2008: The specific amounts of the fixed amount of income tax on income derived from activities exercised under a business certificate that will be applied for acquisition of business certificates during the tax period of 2008 starting from 1 July shall be established by municipal councils by 1 June 2008 pursuant to the provisions of paragraph 4 and applying the minimum monthly wage valid on 1 October 2007, the basic tax-exempt amount of income valid on 1 January 2008 and  a 24% income tax rate. Article 7. Tax Period 1. The income tax period shall be a calendar year. 2. The first tax period in respect of income received by a non-resident of Lithuania from a fixed base situated in Lithuania shall be the calendar year during which the fixed base was or had to be registered. CHAPTER TWO RECOGNITION OF INCOME Article 8. Recognition of Income 1. Income shall be recognised at the moment of its receipt. 2. The moment of receipt of income, except for positive income and the attributable income of a European Economic Interest Grouping, shall be the moment when: 1) income in any form is actually received. If income is received in a foreign country, the total amount of income shall be treated as the income actually received, irrespective of the amount of income tax or equivalent tax withheld from such income and/or paid in that country, or 2) benefits and other such payments are made in any form if, in accordance with this Law, the obligation to withhold income tax from personal income lies with a withholding agent. 3. The moment of receipt of positive income during the tax period shall be 31 December of the relevant tax period. 4. The moment of receipt of the attributable income of a European Economic Interest Grouping shall be the last day of the grouping’s financial period in which the income was earned and/or received. CHAPTER THREE SPECIAL PROVISIONS FOR DETERMINING CERTAIN INCOME Article 9. Article 9. Income in Kind The procedure for the recognition and evaluation of income in kind shall be established by the Government of the Republic of Lithuania or an institution authorised by it. Article 10. Article 10. Income from Individual Activities 1. Income from individual activities shall comprise all income received from individual activities, including income from the sale or other transfer into ownership of property used for the purpose of individual activities. 2. The list of individual activities exercised under a business certificate shall be established by the Government of the Republic of Lithuania. Article 11. Income Received in the Case of Liquidation of Entity 1. In the case of liquidation of an entity, it shall be deemed that an individual (member of an entity) sells his shares (interests, member shares). 2. Where, in the case of liquidation of an entity, property is transferred to its member, income shall be the actual market price of such property on the day of transfer to the member of that entity of ownership rights to such property. Article 12. Income from Distributed Profits; Income from distributed profits shall be: 1) dividends. Dividends shall also include the funds received by a member of an entity due to the distribution of the entity’s profits or the reduction of its authorised capital, and/or the actual market price of the property transferred to a member of an entity on the day of transfer to such a member of ownership rights to the said property; 2) income received by a member of an unlimited civil liability entity from the entity’s taxed profits. Article 13. Determination of Positive Income 1. Positive income shall be calculated and included in the income of a resident of Lithuania in accordance with the same procedure as it is calculated and included in the income of the controlling Lithuanian entity under the provisions of the Law on Corporate Income Tax. 2. The same income of a controlled foreign entity shall be taxable in Lithuania only once. 3. 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 be the calendar year. Article 13(1). Determination and Taxation of European Economic Interest Grouping’s Attributable Income and Allowable Deductions, Including the Costs Incurred 1. A European Economic Interest Grouping’s income and costs, which are attributed to income received by an individual from individual activities and allowable deductions relating to income derived from individual activities, shall be calculated in accordance with the same procedure as they are calculated in respect of an entity under the provisions of subparagraph 1 and 4 of Article 39(1) of the Law on Corporate Income Tax. 2. An individual (member of a European Economic Interest Grouping) shall attribute his share of income of a European Economic Interest Grouping 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. 3. Where, by the decision of an individual, deductions allowed under Article 18 of this Law are made from income derived from individual activities, the costs incurred by a European Economic Interest Grouping and attributed to allowable deductions under the provisions of this Law shall be attributed to allowable deductions relating to income derived from individual activities. 4. 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. Article 14. Determination of Income Received by Seafarers for the Work Performed during a Voyage Income received by seafarers for the work performed during a voyage shall be determined in accordance with the procedure established by the Government of the Republic of Lithuania or an institution authorised by it. Article 15. Adjustment of Transaction or Economic Operation Value and Revaluation of Income or Benefits 1. For the purpose of calculating taxable income in accordance with the procedure laid down in this Law, individuals 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. 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. 3. For the purpose of calculating taxable income in accordance with the procedure laid down in this Law, individuals 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. CHAPTER FOUR PROCEDURE FOR THE CALCULATION OF TAXABLE INCOME Article 16. Procedure for the Calculation of Taxable Income 1. Unless this Article provides otherwise, for the purpose of calculating taxable income the following shall be deducted from income in accordance with the procedure laid down this Law: 1) non-taxable income; 2) income from activities exercised under a business certificate; 3) allowable deductions related to income derived from individual activities – in accordance with the procedure laid down in Article 18 of this Law; 4) the acquisition price of property other than that used for the purpose of individual activities, which was sold or otherwise transferred into ownership during the tax period, as well as expenses incurred by the sale or other transfer into ownership of the said property – in accordance with the procedure laid down in Article 19 of this Law; 5) tax-exempt amount of income and additional tax-exempt amount of income, for the purpose of calculating the monthly taxable income for the tax period, or annual tax-exempt amount of income and annual additional tax-exempt amount of income, for the purpose of calculating taxable income for the tax period, or any part thereof (in the cases specified in Article 29 of this Law) – in accordance with the procedure laid down in Article 20 of this Law; 6) expenses incurred by a resident of Lithuania (for the purpose of calculating taxable income for the tax period) – in accordance with the procedure laid down in Article 21 of this Law. 2. For the purpose of calculating taxable income received by a non-resident of Lithuania from individual activities carried on from a fixed base, the following shall be deducted from the total income received through the fixed base 1) non-taxable income from individual activities carried on from the fixed base, and/or 2) allowable deductions related to such income derived from individual activities carried on from the fixed base. 3. An individual shall have the right to decide not to make allowable deductions and/or deduct the expenses referred to in subparagraphs 3 and/or 4 of paragraph 1 of this Article. The decision of an individual to make or not to make the allowable deductions referred to in subparagraph 3 of paragraph 1 of this Article shall apply to his income from any type of individual activity. Article 17. Non-Taxable Income 1. Non-taxable income shall include the following: 1) allowances paid in the event of the death of an individual to his or her spouse, children (adopted children) or parents (adoptive parents) by a person connected with the individual by employment relations or relations in their essence corresponding to employment relations, and also allowances paid in the event of the death of an individual’s spouse, children (adopted children) or parents (adoptive parents) to the individual by a person connected with the said individual by employment relations or relations in their essence corresponding to employment relations; 2) allowances paid from the state budget, municipal and State Social Insurance Fund budgets, except for sickness, maternity and maternity/paternity allowances; 3) allowances paid by non-profit entities to their members from the funds accumulated from membership fees, except for allowances received by individuals connected with such entities by employment relations or relations in their essence corresponding to employment relations, which are not indicated in the other subparagraphs of this paragraph; 4) allowances paid in the case of natural disasters, provided that they are paid on the basis of decisions by state or municipal institutions; 5) compensations in the amounts established by the laws and other legal acts of the Republic of Lithuania as well as compensations in the amounts which are not established but the payment whereof is regulated by the laws of the Republic of Lithuania and resolutions of the Government of the Republic of Lithuania, including compensations for violation of copyright or neighbouring rights, except for compensations paid to an individual in the event that his employment contract or a contract in its essence corresponding to an employment contract is terminated by the employer and monetary compensations for unused leave; 6) compensations paid for damages or losses incurred by war actions or previous political persecution; 7) non-life insurance benefits paid to compensate in full or in part for expenses, damages or losses, and also insurance premiums reimbursed to an individual in the event of a terminated non-life insurance contract, except for that part of premiums reimbursed in the event of a terminated accident or sickness insurance contract concluded before 1 January 2003 which was subject to income tax reliefs applied to natural persons; 8) benefits under life insurance contracts with a term exceeding 10 years, which were concluded before 1 January 2003, and also amounts paid to an individual if the said life insurance contracts are terminated, except for that part of premiums reimbursed under contracts terminated earlier than 10 years after the date of their conclusion, which was subject to income tax reliefs applied to natural persons or which was deducted from income in accordance with the procedure laid down in this Law; benefits under life insurance contracts with a term not exceeding 10 years, which were concluded before 1 January 2003, and amounts paid to an individual if the said life insurance contracts are terminated in the event that the premiums paid under such contracts were not deducted from income in accordance with the procedure laid down in this Law; benefits under life insurance contracts which provide for the payment of insurance benefits only in the case of an insured event (other than the expiry of the insurance contract), and also amounts paid to an individual if the said life insurance contracts are terminated; benefits paid in the case of an insured event (other than the expiry of the insurance contract or its termination before expiry) under life insurance contracts which provide for the payment of insurance benefits not only in the case of an insured event but also upon the expiry of the insurance contract; *9) that part of pension benefits received from a pension fund which is in excess of pension contributions paid to the fund, provided that the term of a pension funding contract exceeds 10 years or a participant in the pension scheme has the right to pension benefits under the Law on the Accumulation of Occupational Pensions, and also that part of the amount paid to an individual where he withdraws from a pension scheme and does not join another pension scheme, provided that the withdrawal from the pension scheme occurs not earlier than 10 years after the date of the conclusion of a pension funding contract or the individual has reached retirement age under the provisions of the Law on the Accumulation of Occupational Pensions, which is in excess of pension contributions paid; *Note. These provisions shall apply in respect of calculation and declaration of income for 2007 and subsequent years. *10) that part of benefits received under a life insurance contract, at expiry, which is in excess of life insurance premiums paid under life insurance contracts concluded before 30 April 2004, providing for the payment of insurance benefits not only in the case of an insured event but also upon the expiry of the insurance contract, provided that the term of the insurance contract exceeds 10 years or the recipient has reached, at the moment of receipt of the payment, retirement age under the provisions of the Law on the Accumulation of Occupational Pensions or his capacity for work has been rated, at the moment of receipt of the payment, at 0-25% (including the disabled in group I– until 30 June 2007) or at 30-40% (including the disabled in group II– until 30 June 2007) or a disabled child receiving insurance benefits has been rated as requiring permanent nursing care (including children under 18 years of age who were rated as totally disabled before 30 June 2005); also that part of the amount paid under a terminated contract, which is in excess of life insurance premiums paid under the contract, provided that it is terminated not earlier than 10 years after the date of its conclusion or the individual has reached retirement age under the provisions of the Law on the Accumulation of Occupational Pensions or his capacity for work has been rated at 0-25% (including the disabled in group I– until 30 June 2007) or at 30-40% (including the disabled in group II– until 30 June 2007); *Note. These provisions shall apply in respect of calculation and declaration of income for 2007 and subsequent years. 11) pensions and annuity payments received from the Lithuanian state budget, municipal and State Social Insurance Fund budgets as well as from international organisations and foreign state funds; 12) pension annuities received from a life insurance undertaking; 13) interest on loans granted (except for loans granted by a member of an entity to that entity or by an individual to a person connected with the individual by employment relations or relations in their essence corresponding to employment relations where the entity or the person connected with the individual by employment relations or relations in their essence corresponding to employment relations pays interest on loans to the member of the entity or the individual in excess of its actual market price) if repayment commences not earlier than 366 days after the date of the loan; 14) interest on securities (except for securities issued by a person connected with an individual by employment relations or relations in their essence corresponding to employment relations where the interest paid by the person connected with the individual concerned by employment relations or relations in their essence corresponding to employment relations is higher than the interest paid by the same person to other holders of such securities) if the redemption of the securities in question commences not earlier than 366 days after the date of their issue; *15) (repealed on 6 May 2006); *Note. These provisions shall apply in respect of calculation and declaration of income for 2007 and subsequent years. *16) interest on securities issued by the governments of the EEA Member States and political or territorial administrative units of the EEA Member States; *Note. These provisions shall apply in respect of calculation and declaration of income for 2007 and subsequent years. *17) interest on deposits held in banks and other credit institutions received in the EEA Member States; *Note. These provisions shall apply in respect of calculation and declaration of income for 2007 and subsequent years. 18) income received as charity in accordance with the procedure laid down in the Law of the Republic of Lithuania on Charity and Sponsorship (hereinafter referred to as the “Law on Charity and Sponsorship”); 19) income received by way of inheritance, which is subject to tax under the legal acts of the Republic of Lithuania regulating inheritance tax; income received by way of gift from spouses, children (adopted children), parents (adoptive parents) and grandparents; also the total amount (value) of income received by way of gift from other individuals during the tax period, which shall not exceed 24 basic tax-exempt amounts (TEA); 20) the difference between the income from the sale or other transfer into ownership of property other than that used for the purpose of individual activities, which is received from the sale or other transfer into ownership of property not covered by subparagraphs 21 and 23 of this paragraph, and the acquisition price of the said property as well as other expenses referred to in Article 19 of this Law incurred by the sale or other transfer into ownership of that property, which shall not exceed 24 basic TEA during the tax period; *21) income from the sale or other transfer into ownership of property other than that used for the purpose of individual activities, where such income is received from the sale or other trans …