TAXES

INTRODUCTION
The law on Tax Administration and a number of specific laws on particular kinds of taxes
govern the tax system of the Republic of Lithuania. At present, the following taxes are
administered in accordance with the Law on Tax Administration:
· value-added tax
· excise tax
· individual income tax
· legal person profit tax
· real property tax for enterprise and organisation
· land tax
· State natural resources tax
· oil and gas resources tax
· pollution tax
· consular duty
· stamp duty
· market place duty
· contributions to the Road supervision and Development Programme
· inheritance and donation tax
· compulsory healthy insurance contributions
· tax for the lease of State land and water bodies
· contributions to the Guarantee Fund
· State levies
· gaming tax
· tax on registration of industrial property
During the latest several years the tax system in Lithuania has been relatively stable.
However, the reform of the tax laws is currently being implemented.
The State Tax Inspectorate administers the tax system of the Republic of Lithuania. The
State tax Inspectorate is a State institution founded by and accountable to the Ministry of
Finance and financed from the State budget and other funds. It is composed of the State
tax Inspectorate under the Ministry of Finance and regional State Tax Inspectorates.
The custom Service of the Republic of Lithuania administers VAT and Excise taxes.
The State natural resources tax, oil and gas resources tax and pollution tax are
administered by the Ministry of Environment.
Value- Added Tax
Under the Law on Value- Added Tax, the taxable object of VAT is the added value created
and sold within the course of manufacturing of goods, performance of works, provision of
services as well as import of goods.
VAT is collected from the added value created in the process of production of goods and
rendering of services and of the goods imported, with some exceptions (such as medical
and dental services, medicines, medical goods and medical equipment; social services
rendered by day-care centres and homes for the disabled and the elderly; educational,
scientific and cultural services rendered by institutions of education, scientific and cultural
services rendered by institutions of education, science and studies as well as non-profit
cultural institutions; insurance and banking services specified by the Government of the
Republic of Lithuania.

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Payers of VAT
VAT is calculated and paid into the budget by legal persons, enterprises without the rights
of a legal person, sub-divisions of foreign entities operating in Lithuania and individuals.
Persons with annual receipts from sale of goods and services (including the sale of fixed
assets, which were used for more that one year), excluding VAT less than LTL 10,000
need not register as VAT payers, nor calculate or pay VAT into the budget.
Persons whose annual receipts range from LTL 10,000 may, at their own option, register
themselves as VAT payers and calculate and pay VAT to the State budget beginning with
the next month following the registration.
If annual receipts from the sale of goods and services exceed LTL 10,000, such persons
are required to register as VAT payers and calculate and pay VAT into the budget
according to the general procedure beginning with the month the receipts exceeded the
said amount.
Persons who collect and pay VAT must register with the State Tax Inspectorate as VAT
payers.
Persons who are not VAT payers do not have a right to collect VAT from buyers of goods
or services.
Taxable Value
The Taxable value of goods and services for the purpose of VAT includes:
· the production cost of goods and the price of rendering of services
· expenses for packaging, transportation, insurance and the like (ir panašiai)
· payments for the installation of equipment
· payments for mediation, commission and auction charges
· various discounts and additional charges not entered in the invoice
· expenses for the purchase or sale of goods on credit
· various taxes related to the sale of goods (customs duties, excise duties), including VAT
· service expenses or other sums not included in the cost of production of goods or
rendering of services that the customers pays to the seller of such goods or services
When exchanging goods or services (barter) the taxable price is the value of the exchanged
goods or services.
Moment of Computing VAT
VAT on goods and services is to be computed:
· when the seller (supplier) issues an invoice or another document to the customer for the
goods sold (services rendered)
· at the point of sale, when goods or services are paid for in cash and an invoice is not
issued
· when products are imported according to the procedures for the computation of customs
duties.
The tax period for VAT is a calendar month. The government of the Republic of Lithuania
may establish the period of and procedures for the advance payment of VAT. Upon
expiration of the tax period, each taxpayer must, before the 15 th day of the month, file a
declaration of the computed and deductible sum of VAT with the local State Tax
Inspectorate.
The computed sum of VAT must be paid within 10 days from the date prescribed for filing
of the VAT declaration. Unpaid VAT may be recovered for the current year and the last 5
preceding years.
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Taxes on Corporate Income and Gains

Under the Law on Profit Tax and/or income of a Lithuanian taxable entity
(a legal person that is registered under the procedure established by the legal acts of
Lithuania)
and a foreign taxable entity (a foreign legal entity or organisation which is established
in a foreign state, or is incorporated or organised in any other way according to the
legal acts of a foreign state) is subject to the profit tax.
Lithuanian taxable entities are subject to profit tax on the world-wide income.
Foreign (non-resident) taxable entities are subject to profit tax, where applicable, only
on their Lithuanian income.
Income received by permanent establishments prescribed by law are also subject to
profit tax.

Capital gains are included in taxable profit and are subject to tax at the regular profit
tax rate.

Administration
The taxable year for taxable entities is the calendar year, however, a different tax period
may be established for tax payers whose activity is seasonal, upon their request,
provided that such period is stable ( unchangeable) and is equal to 12 months.
Profit tax must be paid in advance, except as provided in the Law on Profit Tax. The
actual sum of the profit tax advance payment must be calculated by the taxpayer in the
following way:
according to the results of the last year activity:
· the profit tax advance payment for the first nine months of taxable period is based on
the profit tax actually calculated for the tax period preceding the last taxable
period.
· the profit tax advance payment for the tenth to twelfth months of taxable period is
based on the profit tax actually calculated for the tax period preceding the last
taxable period.
according to the implicit profit tax for taxable period:
· the tax payers may choose to pay tax advance payment each quarter - ¼ implicit
profit tax of taxable period.
· profit tax advance payments calculated on the implicit profit tax for taxable period
my not be less than 80 % of actual annual profit tax.
· if the calculated profit tax in the tax advance return is less than 80 % of profit tax
calculated in the annual profit tax return, the default interest will be calculated for
the non paid profit tax advance payment of each quarter.
· the tax payer may specify the profit tax advance payment in equal parts from the
beginning of a taxable period.

Newly registered companies are discharged from profit tax advance payments in their
first taxable year, but in the second taxable period the taxpayers who chose to pay tax
advance payments according to the results of the last year activity start paying the profit
tax advance payments from the tenth month of a taxable year.

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 TAXES

If gross income during the previous taxable year does not exceed LTL 10,000, the
company is not required to make profit tax advance payments in the present taxable
year.

Tax returns must be filled in the following ways:

· if a taxpayer chooses to make profit tax advance payments according to the calculated
profit tax amount of the last year activity, the profit tax advance payment return for
the first nine months of a taxable period must be filled by the last day of the first
month of a taxable period. The profit tax advance payment return for the tenth to
twelfth months of a taxable period must be filled by the last day of the tenth month
of a taxable period.
· if a taxpayer chooses to make profit tax advance payments according to the implicit
profit tax for a taxable period, the profit tax advance payment return must be filled by
the last day of the first month of a taxable period.
The advance tax profit shall be paid by the last day of each taxable period, but for the last
quarter of a taxable period - by 25th day of the last month of that quarter.
Taxpayers must file profit tax returns for the last calendar year (taxable period) prior to the
1st day of October of the following year (the 1 st day of the tenth month of the next taxable
period).
If the tax amount calculated in the profit tax return exceeds the amount paid during the
taxable period, the taxpayer must, not later than the last day of the term for filing a profit
tax return, pay the additional tax amount.
If the tax amount calculated in the profit tax return is less than the amount paid during the
taxable period tax, the overpayment will be refunded.
When the income of a foreign taxable entity is subject to withholding tax in the manner
prescribed by the Law on Profit Tax, the profit tax must be withheld and paid by a
Lithuanian taxable entity or permanent establishment of a foreign entity that pays out the
income and the profit tax return must be filled not later than within 15 days after the end
of the month in which the income was paid.
Personal Income Tax
Individuals are considered to be permanent residents in they stay in Lithuania for more
than 183 days in a twelve-month period commencing or ending in the tax year concerned,
or if their permanent place is within Lithuania.
All permanent residents are subject to different rates of income tax, depending on the type
of income earned.
Non-residents are subject to tax on income earned in Lithuania.
Income Tax on Employment
All individuals employed by Lithuanian companies are subject to income tax on income
earned from employment in Lithuania and abroad. Permanent residents of Lithuania
employed by foreign companies as well as non-residents who are employed by foreign
companies for work in Lithuania, are subject to income tax.
The taxable income is the total income in cash and in kind: wages and salaries,
bonuses and fringe benefits (such as free lodging, use of car and other incentive
payments).
Income earned at the principle place of employment in a Lithuanian company is calculated
monthly and taxed at a flat rate of 33%, after deducting non-taxable minimum income as
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established by the government. Income earned from extra employment in a Lithuanian

company is taxed progressively at rates varying from 10% to 35%. Income derived from
employment with a foreign company is taxed at the rate of 20%.
Specific groups of taxpayers (disabled persons, single parents) are granted a higher
minimum non-taxable income.

TAXATION AND HOW TO AVOID IT

A) The primary function of taxation is to raise revenue to finance

government expenditure, but taxes can also have other purposes.
Indirect excise duties, for example, can be designed to dissuade people
from smoking, drinking alcohol, and so on. Government can also
encourage capital investment by permitting various methods of
accelerated depreciation accounting that allow companies to deduct more
of the cost of investments from their profits, and consequently reduce
their tax bills.
B) There is always a lot of debate as to the fairness of tax systems. Business profits, for
example, are generally taxed twice:
· companies pay tax on their profits (corporation tax in Britain, income tax in the USA)
· shareholders pay income tax on dividends.
Income taxes in most countries are progressive, and are one of the ways in which
governments can redistribute wealth. The problem with progressive taxes is that the
marginal rate - the tax people pay on any additional income- is always high, which is
generally a disincentive to both working and investing. On the other hand, most sales taxes
are slightly regressive, because poorer people need to spend a larger proportion of their
income on consumption than the rich.
C) The higher the tax rates, the more people are tempted to cheat, but there is a
substantial ‘black’ or ‘underground’ economy nearly everywhere. In Italy, for example,
self-employed people - whose income is more difficult to control than that of company
employees - account for more than half of national income. Lots of people also have
undeclared, part-time evening jobs with small and medium-sized family firms, on which
no one pays any tax or national insurance.
D) To reduce income tax liability, some employers give highly-paid employees lots of
‘perks’ (short for perquisites) instead of taxable money, such as company cars, free health
insurance, and subsidised lunches. Legal ways of avoiding tax, such as these, are known as
loopholes in tax laws.
Life insurance policies, pension plans and other investments by which individuals can
postpone the payment of tax, are known as tax shelters.
Donations to charities that can be subtracted from the income on which tax is calculated
are described as tax-deductible.
E) Companies have a variety of ways of avoiding tax on profits. They can bring capital
expenditure (on new factories, machines, and so on) so that at the end of the year all the
profits have been used up. This is known as making tax loss. Multinational companies
often set up their head offices in the countries such as Liechtenstein, Monaco, the Cayman
Island and the Bahamas, where taxes are low. Such countries are known as tax havens.
Criminal organisations, meanwhile, tend to pass money through a series of companies in
very complicated transactions in order to disguise its origin from tax inspectors - and the
police. This is known as laundering money.

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 TAXES

Read the text again. Decide which paragraphs could be given the following headings
___________________Advantages and disadvantages of different tax systems
___________________Avoiding tax on profits
___________________Avoiding tax on salaries
___________________Tax evasion
___________________The functions of taxation

According to the text, are the following statements TRUE or FALSE?

1. Taxes can be designed both to discourage and to encourage spending.
2. The same amount of money can be taxed more than once.
3. Progressive taxes may discourage people from working extra hours.
4. Sales taxes are unfair because poor people spend more than the rich.
5. ‘Loopholes’ are a common form of tax evasion.
6. If you pay a lot of your income into a pension fund or a life insurance policy you never
have to pay tax on it.
7. A company that makes an unusually large profit during a tax year might quickly decide
to spend to spend if, for example, on a new factory or equipment.

Find words in the text that mean the following:

1. reducing the value of a fixed asset, by charging it against profits;
2. something which discourages an action;
3. an adjective describing a tax that is proportionally higher for people with less money;
4. spending money to buy things, rather than saving it;
5. working for yourself, being your own boss;
6. a tax on incomes that pays for sickness benefit, unemployment benefit, old-age
pensions;
7. non-financial benefits or advantages of a job;
8. a way to delay the payment of tax to a later time;
9. an adjective describing expenditures that can be taken away from taxable income or
profit;
10. a country offering very low tax rates to foreign businesses.

Which terms do the following sentences define?

1. The tax people pay on their wages and salaries is called
a) capital transfer b) income tax c) wealth tax
2. A tax on wages and salaries or on company profits is a
a) direct tax b) indirect tax c) value-added tax
3. A tax levied at a higher rate on higher income is called a
a) progressive tax b) regressive tax c) wealth tax
4. a tax paid on property, sales transactions, imports, and so on is a/an
a) direct tax b) indirect tax c) value-added tax
5. Profits made by selling assets are generally liable to a

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a) capital gains tax b) capital transfer tax c) wealth tax

6. Gifts and inheritances over a certain value are often liable to a
a) capital gains tax b) capital transfer tax c) wealth tax
7. The annual tax imposed on people’s fortunes (in some countries) is a/an
a) added-value tax b) capital gains tax c) wealth tax
8. Making false declarations to the tax authorities is called
a) fiscal policy b) tax avoidance c) tax evasion
9. Reducing the amount of tax you pay to a legal minimum is called
a) creative accounting b) tax avoidance c) tax evasion

The primary function of taxation is

to raise revenue to finance government
expenditures.
Taxes can also have other purposes.
· Indirect excise duties
can dissuade people from smoking, drinking alcohol and so on.
· various methods of accelerated depreciation accounting allow companies to deduct
more of cost of investments from their profits and consequently reduce their tax
bills.
There is always a lot of debate as to fairness of tax systems.
Business profits are generally taxed twice:
· company pays tax on their profits ( corporation tax / income tax )
· shareholders pay income tax on dividends
Income taxes
Income taxes in most countries are progressive.
Income taxes allow the government to redistribute wealth.
The problem with progressive taxes is that the marginal rate is always high.
(marginal rate - the tax people pay on any additional income)
The marginal rate is disincentive to both working
and investing
Sales taxes are slightly regressive
Poorer people need to spend a larger proportion of their income on consumption than the rich.
Tax evasion
The higher the tax rate the more people are tempted to cheat
· Self-employed people whose income is more difficult to control account for more or
less than half of national income.
· People who have undeclared, part-time evening jobs on which they do not pay any tax
or national insurance.
Avoiding tax on salaries
Legal ways of avoiding tax are known as loopholes in tax law.
To reduce tax income liability, some employers give highly-paid employees lots of
perks instead of taxable money.
Life insurance policies, pension plans and other investments by which individuals
can postpone the payment of the tax, are known as tax shelters.

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Donations to charities that can be subtracted from the income on which tax is calculated
are described as tax-deductible.
Avoiding taxes on profits.
Companies have a variety of ways of avoiding tax on profits.
· Making a tax loss: they can bring forward capital expenditure( on new factories,
machines) so that at the end of the year all the profits have been used up.
· Tax havens: multinational companies often set up their head offices in the countries
where taxes are low.
· Money laundering: organisations (usually criminal) tend to pass money through a
series of companies in very complicated transactions in order to disguise its origin
from tax inspectors.

Task 1. What do the words/ terms given below mean?

1. depreciation accounting 14. income tax

2. tax haven 15. sales tax
3. making tax shelter 16. marginal rate
4. making tax loss 17. progressive taxes
5. loopholes in tax law 18. non-progressive taxes
6. laundering money 19. undeclared jobs
7. income tax liability 20. self-employed people
8. to reduce income tax liability 21. donations to charity
9. national income 22. national insurance
10.wealth tax 23. perks (perquisite)
11.avoiding tax on salaries 24. avoiding tax on profits
12.tax evasion 25. tax-deductible
13.bring forward capital expenditure 26. disguise the origin of money

VOCABULARY

levy Mokesčių rinkliava, apmokęstinimas; apmokestinti imti mokesčius.

to evade (to dodge) vengti mokečių
to impose įvesti, uždėti
to raise taxes rinkti mokesčius
accrued taxes susikaupusios mokesčių skolos
capital gain gautas pelnas
liable priklausantis
liable for atsakingas
liable to įpareigotas, privaląs
revenue metinės pajamos, pelnas
inland revenue vidaus biudžeto įplaukos
marginal ribotos pajamos
cost išlaidos, kaštai, savikaina
persuade įkalbėti, įtikinti
dissuade atkalbėti,
consumption suvartojimas
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 TAXES

haven prieglauda, uostas

incentive paskatinimas
incentive wages premijinė darbo užmokesčio sistema
loophole in a law system spraga įstatyme
disguise slėptim maskuoti
launder money pinigų plovimas

sales taxes apyvartos mokestis

tax bills mokesčių paskola
accelerated depreciation accounting amortizacinis buhalterinės apskaitos
metodas

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