GLOBAL INDIRECT TAX. Lithuania. Country VAT/GST Essentials. kpmg.com TAX

GLOBAL INDIRECT TAX Lithuania Country VAT/GST Essentials kpmg.com TAX

b Lithuania: Country VAT/GST Essentials

Lithuania: Country VAT/GST Essentials Contents Scope and Rates 2 What supplies are liable to VAT? 2 What is the standard rate of VAT? 2 Are there any reduced rates, zero rates, or exemptions? 2 Registration 3 Who is required to register for Lithuanian VAT? 3 Are there penalties for not registering or late registration? 4 Are there any simplifications that could avoid the need for an overseas company to register for VAT? 4 VAT Grouping 5 Is VAT grouping possible? 5 Can an overseas company be included in a VAT group? 5 Returns 5 How frequently are VAT returns submitted? 5 Are there any other returns that need to be submitted? 6 VAT Recovery 6 Can I recover VAT if I am not registered? 6 Does your country apply reciprocity rules for reclaims submitted by non-established businesses? 7 Are there any items that you cannot recover VAT on? 7 Invoices 9 What do I have to show on a tax invoice? 9 Can I issue invoices electronically? 10 Is it possible to operate self-billing? 10 Transfers of Business 10 Is there a relief from VAT for the sale of a business as a going concern? 10 Options to Tax 11 Are there any options to tax transactions? 11 Head Office and Branch Transactions 11 How are transactions between head office and branch treated? 11 Bad Debt 12 Am I able to claim relief for bad debts? 12 Anti-Avoidance 12 Is there a general anti-avoidance provision under VAT law? 12 Penalty Regime 13 What is the penalty and interest regime like? 13 International Supplies of Goods and Services 8 How are exports of goods and services treated? 8 How are goods dealt with on importation? 9 How are services which are brought in from abroad treated for VAT purposes? 9 All information reflected in this document was obtained/summarized from KPMG in Lithuania as of October 2011.

2 Lithuania: Country VAT/GST Essentials Scope and Rates What supplies are liable to VAT? Value Added Tax (VAT) is due on any supply of goods or services made in Lithuania, where it is a taxable supply made by a taxable person in the course or furtherance of a business carried on by said person. Supply includes all forms of goods supplied or services rendered. It is not restricted to the provision of goods and services by way of sale but can equally apply to other forms of transaction. Supply does not include anything done otherwise than for a consideration. However, certain actions carried out for no consideration are deemed to be supplies (for example, giving business gifts and private use of business assets). What is the standard rate of VAT? The standard rate of VAT is 21 percent. Are there any reduced rates, zero rates, or exemptions? Yes, there is a reduced rate of 5 percent for medicines and drugs, medical equipment (only if they are supplied to the persons who receive partial or full compensation for such medical treatment) (the reduced rate applicable until 31 December 2011, but could be extended). There is a reduced rate of 9 percent for: books and non-periodicals supply of heating to residential premises and the supply of heating water (applicable until 31 December 2011 but could be extended); hotel accommodation services (applicable until 31 December 2011 but could be extended). There is a compensational rate of 6 percent for supplies of goods and services made by farmers. There is an extensive list of zero-rate supplies, including: exports outside the European Union (EU) supplies of gold to the system of central European Banks and Central European Bank goods and services intended for diplomatic and consular institutions, international organizations and their representatives as well as for the staff and family members of those entities supplies to charities supply, modification, modernization, and hiring of sea-going ships and aircrafts intra-community supplies insurance and financial services related to the export of supplies services of transportation and additional or related services to it (mostly applicable to cross-border conveyances, not local) certain cases related to the international trade when special rules are being applied.

Lithuania: Country VAT/GST Essentials 3 Registration The list of exemptions includes: goods and services related to health care; welfare; education; services of sport and culture commenced by non-profit legal person; postal services; services of radio and television; insurance services; financial services; lotteries and gambling; the services commenced by political parties, professional associations, non-profit organizations, religious communities to their member(s); sale or other transfer of land (except if it is for building purposes or new buildings are located on it); rent of immovable property; sale or other transfer of immovable property excluding the sale of new buildings; certain cases when acquisitions of goods from other member country are not taxable by VAT. Note: It is not possible to recover VAT incurred in making exempt supplies. Who is required to register for Lithuanian VAT? Lithuanian Entities If your business makes taxable supplies in Lithuania over the VAT registration threshold (EUR29 000, approx. LTL100,000), you will be required to register for Lithuanian VAT. If the supplies remain below the registration threshold, registration for VAT is possible on a voluntary basis. If your business makes only exempt supplies then it is not required to register for VAT. Non-Lithuanian Entities A foreign business should register for Lithuanian VAT if its activities in Lithuania are subject to VAT (except for cases where the obligation to account for VAT transfers to the purchaser, or where the zero rate applies). If your business is not registered for VAT in Lithuania but sells and delivers goods from another EU Member State to customers in Lithuania who are not VAT registered (distance sales), your business is required to register and account for VAT in Lithuania if the threshold of LTL125,000 (appr. EUR36,000) is exceeded. To deal with its VAT affairs, an EU business may appoint a VAT representative. Note that non-eu businesses are required to appoint a VAT fiscal representative. Access the form FR0388 for registration/deregistration on the Lithuanian Tax Authority s web site (additional forms must also be completed): http://www.vmi.lt/formos/pdf/ FR0388.pdf

4 Lithuania: Country VAT/GST Essentials Are there penalties for not registering or late registration? Where a business fails to register on time, it must account for VAT on all taxable transactions during the period it was required to be registered. The recovery of input tax incurred during this period could be decreased accordingly. In addition, a penalty of between 10 and 50 percent of the unpaid VAT plus late payment interest may be due. Are there any simplifications that could avoid the need for an overseas company to register for VAT? If your business makes supplies of goods or services in Lithuania, then it is required to register and account for Lithuanian VAT. However, it is possible to avoid registering and accounting for Lithuanian VAT when making certain supplies. In the following examples the obligation to account for the VAT due can be shifted to the customer provided that the customer is registered for VAT in Lithuania. Call-off Stock If the foreign business stores stock at a customer s premises under their control, the customer has to account for VAT on the supply as acquisition (subject to certain conditions). Supply and Install If foreign business supplies goods and installs or assembles them in Lithuania, its customer if it is registered as a VAT taxpayer in Lithuania can account for any VAT due on this transaction. In such case the foreign business would not be obliged to register as a VAT payer in Lithuania. Reverse Charge Services These services are covered in more detail at section International Supplies of Goods and Services. Bear in mind that these provisions are subject to particular requirements and so you should check carefully whether you comply with them. Triangulation If a foreign business is an intermediate supplier to a Lithuanian buyer of goods which the foreign business purchases from another business in an EU Member State other than its own and are delivered from there to Lithuania, VAT due can be accounted for by the Lithuanian customer (subject to certain conditions).

Lithuania: Country VAT/GST Essentials 5 VAT Grouping Is VAT grouping possible? Generally, no. However, notaries and advocates working together and having goods and services delivered to them as a group are entitled to receive and issue invoices on behalf of one natural person (partner). Its identification number is set using the system settled by the Ministry of Finance. VAT grouping evolves as a consequence of the fact that notary offices and law firms cannot be registered for VAT purposes as separate entities, because notaries and advocates are registered separately. Can an overseas company be included in a VAT group? Not applicable. Returns How frequently are VAT returns submitted? Most registered businesses are required to submit VAT returns on a monthly basis. However if your total taxable income in the prior calendar year is less than LTL200,000 (appr. EUR58,000) then you can apply to submit VAT returns on a half-year basis. In certain circumstances, businesses may also apply for specific VAT return periods which would be the most suitable for them, but such period can be not longer than 60 days. The tax period of a natural person who is a VAT payer is a calendar half-year (but can be changed to one month if applied). VAT return for current return period must be submitted till the 25th day of next VAT return period. If non-standard return period is applied then VAT return must be submitted during 25 days after the end of that period. Failure to submit VAT returns on time may result in an administrative penalty amounting from LTL200 (appr. EUR58) to LTL500 (appr. EUR145). The late payment of VAT attracts a late payment interest of 0.03 percent (as at third quarter 2011) per day on VAT due. Note: late payment interest rate is confirmed by the decree of Government each quarter, therefore it can change.

6 Lithuania: Country VAT/GST Essentials VAT Recovery Are there any other returns that need to be submitted? European Sales Listing If your business supplies goods which are shipped from Lithuania or provides services to VAT registered businesses in other EU Member States and you wish to apply the zero rate on the supply (see section International Supplies of Goods and Services), it is required to complete European Sales List. European Sales List must be filled on a monthly basis within 25 days following the end of each quarter. It is also possible to fill an electronic version of EU sales listings. Access the European Sales List form on the Lithuanian Tax Authority s web site: http://www.vmi.lt/formos/pdf/fr0564. pdf Intrastat Supplementary Declarations VAT registered businesses with a value of dispatches or arrivals to or from other EU Member States, which exceed a threshold (LTL550,000/appr. EUR160,000 for arrivals and LTL600,000/ appr. EUR174,000 for dispatches per calendar year for 2011) must complete supplementary declarations each month. Can I recover VAT if I am not registered? Yes. If your business is established in another EU Member State then you should make a claim under Directive 2008/9/ EEC. If your business is a non-eu business you should recover the VAT under the 13th Directive. Under both of these provisions there are strict time limits for making claims. Access the claim form on the Lithuanian Tax Authority s web site: http://www.vmi.lt/formos/pildomos_formos/fr0445p. doc Note: this claim form is applicable for business from non- EU countries while the claim of VAT recovery for business established in EU is carried by the tax authorities of the member state concerned. For non-filling of Intrastat statements, the administrative penalties amounting from LTL200 (appr. EUR58) to LTL500 (appr. EUR145) are applied. Intrastat statements must be filled with the customs authorities on a monthly basis within 10 working days after the end of each month. Intrastat statements can also be filled electronically. The authorities have indicated a preference for filling of electronic versions and the customs authorities provide the software to facilitate such process. Access the forms UPS-01 for dispatches and UPS-02 for arrivals on the Lithuanian Department of Statistics web site: http://www.stat.gov.lt/uploads/1107433076_ups_01_2005. pdf http://www.stat.gov.lt/uploads/1107433194_ups_02_2005. pdf

Lithuania: Country VAT/GST Essentials 7 Does your country apply reciprocity rules for reclaims submitted by non-established businesses? Yes, Lithuania has reciprocity agreements. Foreign taxable entities established in these countries are able to refund VAT in Lithuania: Armenia Iceland Canada Croatia Norway Switzerland This list of countries is subject to adjustments in cases of changes in VAT refund practices. The claim form FR0445 should be submitted to the tax authorities. Access to the form FR0445 may be found on the Lithuanian Tax Authority s Web site http://www.vmi.lt/formos/ pdf/fr0445.pdf Are there any items that you cannot recover VAT on? Yes. There are certain items that you cannot recover VAT on. For example: Exempt supplies: where VAT relates to both taxable and exempt supplies, you need to make an apportionment. Non-business (including private) activities: where VAT relates to both business and non-business activities, an apportionment is required. Items on which VAT cannot be deducted (refunded) by Lithuanian VAT payer: non-commercial vehicles (cars), lease of non-commercial vehicles (cars), taxi services. Items on which VAT can be partially deducted (refunded) by Lithuanian VAT payer: items of representation and entertainment (except EU taxable persons). EU taxable persons may get refund of 75 percent VAT on the respective items of representation and entertainment. Purchases falling within the Tour Operators Margin Scheme: the VAT on goods and services which fall under this scheme cannot be reclaimed. Goods sold under one of the margin schemes for second hand goods: there are a number of schemes which provide for VAT to be accounted for on the goods sales margin, but do not allow VAT recovery on the purchase of those goods.

8 Lithuania: Country VAT/GST Essentials International Supplies of Goods and Services How are exports of goods and services treated? Goods If you sell goods to a customer who is registered for VAT in another EU Member State and the sale involves the dispatch of those goods from Lithuania (either by you or your customer) to that Member State, then you do not need to charge VAT and may zero rate the supply as an intra-eu supply of goods. You must obtain your customer s VAT number and quote it on your invoice. You should also obtain evidence of the goods dispatch out from the territory of Lithuania. If you sell goods to a customer who is not registered for VAT in another EU Member State, you will have to charge Lithuanian VAT. If your sales exceed a certain threshold for that Member State you may have to register in the Member State under what is known as the Distance Selling Scheme. If you export goods to a customer (business or private) outside of the EU then you do not need to charge VAT but, as for intra-community sales, you should make sure that in all cases you keep proof of dispatch/delivery to support your zero rating. Services Services to business (B2B) The general rule for business to business supplies is that the service is taxable in the country where the recipient of the service is established. The following exceptions are made to the general rule: The place of supply of services in relation to real estate is the place where the real estate is located. The place of supply of short term hiring of transport (less than 30 days, or 90 days when it is a vessel) is the place where the transport is made available. The place of supply of restaurant and catering services is the place where the restaurant is or where the catering services are provided. The place of supply of passenger transportation is the place where the transportation takes place, based on the distance covered. The place of supply of cultural, artistic, sporting, scientific, educational and similar services. Services to private consumers (B2C) The general rule regarding the place of supply of services to private consumer is in the country of supplier, with certain exceptions as: long term hiring of transport for more than 30 days (or 90 days if it is a vessel), transportation services, services involving real estate, catering, services related to cultural and educational events and services on movable goods.

Lithuania: Country VAT/GST Essentials 9 Invoices How are goods dealt with on importation? When goods are imported into Lithuania from outside the EU, import VAT and customs duty may be due. This has to be paid or secured before the goods will be released from customs control. However, the term of payment of import VAT may be postponed if the guarantee is submitted. How are services which are brought in from abroad treated for VAT purposes? If you buy services from outside Lithuania, you will be required to apply the reverse charge. This is intended to take away any VAT advantage of buying those services from outside Lithuania. Under the reverse charge, you are required to account for a notional amount of VAT as output tax on your VAT return covering the period in which you made the payment and you recover this VAT as input tax on the same return if you have a full right of input VAT deduction. If you are able to recover all of your VAT the reverse charge has no cost effect and is a VAT compliance matter only. However, if you are partly exempt there is likely to be a VAT cost depending on the level of recovery allowed under your partial exemption method. The reverse charge rule applies even if the supplier has a permanent establishment in the country where the VAT is levied provided that the permanent establishment does not intervene in the supply of services. Note: refer to the section above about how exports of goods and services are treated. What do I have to show on a tax invoice? If you have to issue a tax invoice it should contain the following data: the date of issue a sequential number, based on one or more series, which uniquely identifies the invoice the date of supply (if it does not coincide with the date of issue) the VAT number under which the taxable person supplied the goods or services (LTxxxxxxxxx) the customer VAT number under which the customer received a supply of goods or services the full name and address of taxable person the full name and address of the customer the quantity and nature of the goods supplied or the extent and nature of services rendered the unit price (excluding VAT) and discounts not included in the unit price the taxable amount per rate Value-added Tax rate applicable Value-added Tax amount in national currency (at the moment Litas (LTL)) where an exemption or supplies taxable at 0 percent VAT rate are involved or where the customer is liable to pay tax, the free form reference has to be made fiscal agent s information, if appointed.

10 Lithuania: Country VAT/GST Essentials Transfers of Business Can I issue invoices electronically? Yes. Electronic invoicing shall be made by Electronic Data Interchange (EDI), using an electronic signature or the software in line with EDIFACT requirements. If electronic invoices are issued, the requirements of the tax authorities to ensure the authenticity and integrity of the contents of invoices must be followed. Is there a relief from VAT for the sale of a business as a going concern? Yes. Is it possible to operate self-billing? Yes, provided you have the agreement of your customer before doing so. Self-billed invoices must be included in the registration journal for received invoices. If you show the incorrect amount of VAT on the self billed invoice, you can be made liable for the tax due.

Lithuania: Country VAT/GST Essentials 11 Options to Tax Are there any options to tax transactions? There is an option to tax certain types of transactions in immovable property and financial services. The rent of immovable property and sale thereof (if this property is not new) is not subject to VAT. However, a business may elect to charge VAT if the property is rented or sold to another VAT payer. The same applies for financial services such as lending, issuing guarantees, controlling loans, and guarantees issued, payment and currency operations, and other financial services set in decree of Minister of Finance. The option cannot be revoked for 24 months. Head Office and Branch Transactions How are transactions between head office and branch treated? If the head office and branch are both located in Lithuania and have the same VAT registration number then transactions between them are not treated as a supply for Lithuanian VAT purposes. The transactions between head office and branch in another country are not treated as supply of services for VAT. The transfer of goods for business purposes as well as transfer of goods out of Lithuania is considered as intra-community transaction.

12 Lithuania: Country VAT/GST Essentials Bad Debt Am I able to claim relief for bad debts? There are no provisions for relief from bad debts in the Lithuanian legislation. Anti-Avoidance Is there a general anti-avoidance provision under VAT law? No. General anti-avoidance rules are applicable (substance over form principle) set by the Law on Tax Administration. According to the principle, if during a tax inspection suspicion arises that the taxable amount has been increased/ decreased, the tax inspector is entitled to recalculate and adjust the taxable value due. If there are any doubts regarding performance of the tax payer s obligations, then the guarantee or collateral acceptance by the tax administrator may be required. The tax administrator is entitled to apply other anti-avoidance provisions such as assets arrest, designation to the bank on cancellation of money delivery, compulsory ingathering of arrears, etc.

Lithuania: Country VAT/GST Essentials 13 Penalty Regime What is the penalty and interest regime like? Where the tax authorities discover an error, a penalty between 10 and 50 percent of the VAT due is charged. Interest is charged for late VAT payment as well. Currently, the late payment interest rate is 0.03 percent per day.

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