On 5 July 2002 the Parliament adopted Law No IX-1040 On

      Ratification of the Protocol Concerning Evaluation of Compliance

      and Recognition of Industrial Products to the European Treaty

      Establishing Association Among European Communities and

      Their Member States, from one side, and the Republic of Lithuania,

      from the other side. Implementing the mutual recognition of

      industrial products, which meet the requirements set in respect of

      the products legally supplied to the market of one country, may be

      supplied to the market of another country without any additional

      non-tariff restrictions. The parties agreed to recognise the results of

      the evaluation procedures, carried out according to the Community

      and national legal acts, and not to demand the repetitive evaluation

      procedures.

      On 27 June 2002 the Parliament adopted Law on

      Amendment of Article 45 of the Law on Employees’ Safety and

      Health. The law establishes that collective arrangements or

      collective agreements may contain the provision that in

      enterprises with uninterrupted work regime the working time

      of the night shift employees may exceed 8 hours per day, however

      it may not exceed 8 hours per day on the average within 4 months.

      If this limitation is exceeded, the night shift employees, within 4

      weeks, should be provided with the rest time of the duration

      corresponding to the number of hours exceeding the above

      mentioned norm within successive 4 weeks.

      On 25 June 2002 the Parliament adopted Law on State

      Reserves of Oil Products and Oil No IX-986. The reserves must be

      accumulated by oil manufacturing and importing enterprises, energy

      manufacturing enterprises (only reserves of liquid fuel (boiler oil)),

      as well as the enterprises engaged in import and manufacture of

      liquefied oil gas. 50 % of all reserves are accumulated and handled

      using the state funds. The expenses of accumulation and handling

      of reserves, incurred by the enterprises that are obliged to accumulate

      reserves, are included in the costs of the goods sold and services

      rendered. The reserves sufficient for at least 90 days must be

      accumulated until 31 July 2009.

      On 2 July 2002 the Parliament adopted Law on Income

      Tax of Individuals No IX-1007. The law will come into effect

      as of 1 January 2003, will supersede the Provisional Law on

      Income Tax of Natural Persons, which is in effect from 1990,

      and will regulate anew the taxation of individuals’ income. The

      object of the income tax shall be the income of an individual,

      however the law establishes that the following will not be

      deemed the income of an individual: 1) shares gratuitously

      issued to shareholders due to increase of the authorised capital,

      in proportion to the number of shares held by such shareholders,

      or the amount of increase of the par value of previously issued

      shares, as well as the amount of increase in the value of the

      stake, due to increase of the capital assets, for the stakeholders

      and members in proportion to the value of the stake or part of

      the stake held; 2) the calculated amount of the value added tax

      on sales by an individual, registered as a taxpayer, in respect of

      the goods delivered and services rendered; 3) amounts meant

      for covering of the lodging, board, registration to participate in

      an event and transport expenses, provided such expenses are

      related to the employment functions of an individual, including

      voluntary work, or individual activities (except for cases

      established by laws), and other income set forth in the law.

      The payers of the individuals’ income tax shall be permanent

      residents of Lithuania who pay tax on all income the source of

      which is in Lithuania and outside Lithuania, as well as

      temporary residents of Lithuania. Temporary residents of

      Lithuania shall pay tax on income received from individual

      activity carried out through a permanent base and income

      received not through a permanent base in Lithuania, i.e. income

      from interest; income from distributable profit; income from

      lease of a property located in Lithuania which is immovable in

      its nature; royalty; income incidental to employment relations

      or relations corresponding to employment relations in their

      essence for activity in Lithuania; income from sports activity;

      income from activity of artists; income received for a sold or

      otherwise transferred into ownership movable property, which

      must be legally registered, as well as an immovable property

      located in Lithuania.

      The law provides for two tariff rates of income tax - 33 and

      15 percent. 15 percent tariff rate will be applied to the following

      income of individuals: 1) income from distributable profit

      (shareholders‘ dividends and income received by a partner of

      an unlimited civil liability unit from the taxed profit of such

      unit) if the income is received from a Lithuanian unit or from

      units registered or otherwise organised in determined foreign

      states or zones, as well as income from interest; 2) income

      received for the work of sailors during a vessel’ voyage, 3)

      income of sportsmen; 4) income of artists; 5) royalties; 6) income

      received in accordance with a copyright agreement from creative

      activity; 7) income received from the lease of property (including

      income received from performance of such type of individual

      activity unless the permitted deductions are made from such

      income by an individual’s decision); 8) income received from

      individual activity unless the permitted deductions are made

      from such income by an individual’s decision; 9) income from

      sales or other transfer into ownership of property of nonindividual

      activity; 10) certain pension benefits; 11) certain

      indemnities under a life insurance agreement; 12) certain

      refundable life insurance premiums paid by an individual

      according to a terminated life insurance agreement, and 13)

      certain refundable pension contributions made by an individual

      to the pension fund. 33 percent tax rate of income tax shall be

      applicable for all other income, including income incidental to

      employment relations or relations corresponding to

      employment relations in their essence, and income received from

      individual activity, if the permitted deductions are made from

      such income by an individual’s decision. Thus, from 1 January

      2003 the individuals who carry out individual activity will be

      free to choose whether to pay 15 percent income tax (without

      making permitted deductions), or 33 percent tax (after making

      permitted deductions), or to engage in activity upon acquisition

      of a business certificate, having paid a fixed amount of the

      income tax.

      It should be noted that while calculating the taxable

      income of a permanent resident, the following may be deducted

      from the total income received by such an individual over a

      calendar year: 1) non-taxable income; 2) income received from

      activity performed holding a business certificate, 3) a non-taxable

      amount of income and an additional non-taxable amount of

      income; 4) permitted deductions related to the receipt of income

      from individual activity (provided that individual pays 33

      percent income tax on such income) and certain expenses

      incurred by an individual as established by law: i.e. life insurance

      premiums paid for oneself, for the benefit of a spouse or underage

      children; pension contributions paid for oneself and for the

      benefit of a spouse; interest on the credit taken for construction

      of housing; amounts paid for the studies. Pursuant to the

      provisions of the law, the income of a permanent resident of

      Lithuania will also include the positive income of a controlled

      foreign unit, i.e. the total income or part of the income of a

      controlled taxable unit registered or otherwise organised in

      determined states or zones, which is proportionate to the

      number of shares (interests, stakes), votes or rights to the profit

      of a controlled taxable unit held by a permanent resident of

      Lithuania. The law provides for a possibility for a tax

      administrator to adjust the prices specified by related persons

      in a transaction or transactions where such prices fail to comply

      with fair market prices, taking into account the peculiarities of

      an economic operation fixed in such transactions, or newly

      define the income or payments.

      For more information please contact: Ramûnas Petravièius, tel. 681 888

      LIDEIKA, PETRAUSKAS, VALIÛNAS AND PARTNERS

      On 2 July 2002 the Parliament adopted the Law No IX-

      1008 on Amending and Appending of Articles 33, 58 and 59 of

      the Law on Profit Tax. By this law it is established that the

      Lithuanian units will not be allowed to reduce the amount of

      the profit tax payable to the budget by the amount of the tax

      deducted from the dividends paid to the individuals.

      On 1 July 2002 the Minister of Finance by Order No 211

      established the terms and procedure for advance payments of

      VAT.

      On 1 July 2002 the Government by Resolution No 1022

      approved the Procedure for Restoration of Lost, Fully or Partly

      Damaged Accounting Documents and Accounting Registers.

      On 5 July 2002 the Parliament adopted Law on

      Telecommunications No IX-1053. This law will come into effect

      as of 1 January 2003 and will supersede the Law on

      Telecommunications effective since 1 August 1998. The

      regulation of competition in the telecommunications market shall

      be changed: the Communications Regulatory Authority

      (hereinafter - CRA) will be entitled to investigate whether

      effective competition in an appropriate market exists, to identify

      the undertakings with significant market power and assign them

      one or several obligations; after expiration of the exclusive rights

      of AB Lietuvos telekomas to render fixed communication

      services and to operate the common fixed telecommunication

      network, the above mentioned norms regulating competition

      will be applied to all operators acting in the telecommunications

      market. The law shall newly regulate a status of

      telecommunications regulatory institutions: the powers of CRA

      shall be considerably broadened; CRA shall protect the consumer

      rights; the possibilities of CRA to impose economic sanctions

      shall be increased. The law shall change the procedure for

      regulation of performance of telecommunications activity: the

      licenses for telecommunications activity and the permits to use

      radio frequencies or telephone numbers shall not be applied;

      the issue of licences by way of tender will be replaced by the

      issue of permits to use radio frequencies or telephone numbers

      upon direct application, by way of tender or auction; the currently

      applied requirement to obtain a licence or a separate permit for

      non-licensed activity will be replaced by an obligation to notify

      CRA about the commencement and termination of the activity

      included in the list established by CRA. The law contains a list

      of universal services and obligates the Government to approve

      the list of operators having duty to render such services. The

      operators with significant market power shall be obliged to justify

      the network connection prices by costs and to manage the

      accounting of such costs separately. The operators of public

      telecommunications network and leased lines as well as the

      providers of services, having significant market power, will have

      to satisfy the requests of other telecommunication operators to

      connect public telecommunication networks. The law sets forth

      new provisions concerning an unbundled access to local loop

      and leased lines, the procedure for provision of which, as well

      as restrictions, will be determined by CRA. The law broadens

      the regulation for protection of information transmitted through

      telecommunications network and a list of a subscriber’s rights.

      On 11 June 2002 the Parliament adopted the Law on

      Amending and Supplementing of Articles 1, 6, 8, 9, 10, 11, 18,

      21 and 29 of the Law on Tobacco Control. This law partially

      amends the rules of licensing of tobacco business: the licences to

      manufacture tobacco products, import tobacco products and the

      licences for wholesale of tobacco products will be issued for an

      indefinite term without annual re-registration. The law newly

      regulates the prohibition of advertising of tobacco products. The

      prohibition of advertising shall not be applied to information

      about tobacco products in the places of sale of such products,

      informative announcements meant for tobacco business

      specialists, and to the names of enterprises manufacturing or

      selling tobacco products as well as the trademarks where such

      names and trademarks are recorded on the plate fixed to the

      building of the office or division of such enterprises and the

      specialised transport of the enterprises. Manufacturers and/or

      importers of tobacco products will annually, until May 1, have

      to submit to an institution authorised by the Government a

      written report specifying the constituent parts from which the

      tobacco products meant for sale in Lithuania are manufactured,

      a general list of the kinds of tobacco products to be sold as well

      as their constituent parts and the parts included in other

      constituent parts than tobacco, used for any kind of tobacco

      products, also information about all kinds of tobacco products

      sold in Lithuania, indicating all constituent parts included in

      tobacco, except for information about the composition of a

      specific product which is deemed a commercial secret.