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.