On the Approval of the Procedure for the Calculation and Inclusion of Positive Income in the Income of a Controlling Lithuanian Taxable Entity or a Resident of Lithuania and the Types of Income not Included in the Positive Income


Published: 2002-12-04

Subscribe to a Global-Regulation Premium Membership Today!

Key Benefits:

Subscribe Now for only USD$20 per month, or Get a Day Pass for only USD$4.99.
Consolidated version as of 01/01/2015
 
GOVERNMENT OF THE REPUBLIC OF LITHUANIA
 
 
RESOLUTION NO 517
 
ON
 
THE APPROVAL OF THE PROCEDURE FOR THE CALCULATION AND INCLUSION OF POSITIVE INCOME IN THE INCOME OF A CONTROLLING LITHUANIAN TAXABLE ENTITY OR A RESIDENT OF LITHUANIA AND THE TYPES OF INCOME NOT INCLUDED IN THE POSITIVE INCOME
 
 
12 April 2002
Vilnius
 
Acting pursuant to Article 39 (2) of the Law of the Republic of Lithuania on Corporate Income Tax (Valstybės žinios (Official Gazette) No 110-3992, 2001) and Article 13 (1) of the Law of the Republic of Lithuania on Personal Income Tax (Valstybės žinios (Official Gazette) No 73-3085, 2002), the Government of the Republic of Lithuania h a s  r e s o l v e d:
1. To approve the following documents (as appended):
1.1. the Procedure for the Calculation and Inclusion of Positive Income in the Income of a Controlling Lithuanian Taxable Entity or a Resident of Lithuania;
1.2. the Types of Income Not Included in the Positive Income.
2. This Resolution shall enter into force on 1 January 2003.
 
 
Minister of Finance
Substituting for the Prime Minister                                                     Dalia Grybauskaitė
__________________
 
APPROVED by
Resolution No 517 of the Government of the Republic of Lithuania
of 12 April 2002
(As amended by Resolution No 1657 of 21 October 2002)
 
 
Procedure for the Calculation AND Inclusion of Positive Income in the Income of A Controlling Lithuanian Taxable ENTITY or A Resident of Lithuania
 
I. CALCULATION OF POSITIVE INCOME
1. A controlling Lithuanian taxable entity (hereinafter referred to as the controlling Lithuanian entity) or a controlling resident of Lithuania (hereinafter referred to as the controlling person) that, on the last day of the tax period, holds, in a controlled foreign taxable entity (hereinafter referred to as the controlled foreign entity), directly or indirectly, more than 50 per cent of the shares (interests, member shares) or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof or, together with related persons, holds, in the controlled foreign entity, over 50 per cent of the shares (interests, member shares) or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof, and the portion held by the controlling Lithuanian entity or controlling person accounts for at least 10 per cent of the shares (interests, member shares) or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof, shall calculate and include positive income in its income.
2. Positive income shall mean all income or a part thereof, which is received during the relevant tax period by the controlled foreign entity registered or otherwise organised in the countries or zones other than those which are included in the List of Countries or Zones the Entities Registered or Otherwise Organised Wherein are not Subject to the Provisions of Article 39 of the Law of the Republic of Lithuania on Corporate Income Tax, or by an entity organised in any of the forms of business organisation specified in the List of Forms of Foreign Business Organisation, in Respect of which the Provisions of Article 39 of the Law of the Republic of Lithuania on Corporate Income Tax are Applicable, and which is included in the income of the controlling Lithuanian entity or controlling person in proportion to the number of the shares (interests, member shares), votes or rights to the portion of distributable profits or pre-emptive rights to the acquisition thereof held by the controlling Lithuanian entity or controlling person in the controlled foreign entity.
Positive income shall not include the income received by the controlled foreign entity, referred to in the Types of Income Not Included in the Positive Income approved by this Resolution.
3. The total positive income of the controlled foreign entity, except for the income not included in the positive income, may be reduced by the following amounts: non-taxable income, allowable deductions and allowable deductions of limited amounts related to all positive income, except for the income not included in the positive income, earned by the controlled foreign entity, in accordance with Article 11 of the Law of the Republic of Lithuania on Corporate Income Tax. The calculated amount of positive income shall be included in the income of the controlling Lithuanian entity or controlling person in the manner laid down in Chapter II of this Procedure. If the calculated amount is negative, it shall not reduce the income of the controlling Lithuanian entity or controlling person.
4. Where the controlling Lithuanian entity or controlling person controls more than one controlled foreign entity, the positive income of each of them shall be calculated separately.
 
II. INCLUSION OF POSITIVE INCOME IN THE INCOME OF A CONTROLLING LITHUANIAN ENTITY OR CONTROLLING PERSON
5. The calculated positive income must be expressed in euros, by applying the euro foreign exchange reference rates as on the day of recognition of income (the last day of the taxable period) in accordance with the Accounting Law of the Republic of Lithuania.
6. The calculated positive income shall be included in the income of the controlling Lithuanian entity or controlling person of the said tax period in proportion to the number of the shares (interests, member shares), votes or other rights to the portion of distributable profits or pre-emptive rights to the acquisition thereof held, on the last day of the tax period, by the controlling Lithuanian entity or controlling person in the controlled foreign entity.
 
III. CALCULATION AND PAYMENT OF CORPORATE AND PERSONAL INCOME TAX
7. The positive income included in the income of the controlling Lithuanian entity shall be subject to corporate income tax, in accordance with the procedure laid down in the Law of the Republic of Lithuania on Corporate Income Tax, and the positive income included in the income of the controlling person, to personal income tax, in accordance with the procedure laid down in the Law of the Republic of Lithuania on Personal Income Tax.
8. Pursuant to Article 39(3) of the Law of the Republic of Lithuania on Corporate Income Tax and Article 13(2) of the Law of the Republic of Lithuania on Personal Income Tax, dividends paid out by the controlled foreign entity to the controlling Lithuanian entity or controlling person shall not be subject to tax, provided that the income, on the basis of which the dividends were paid out, was included in the income of the said controlling Lithuanian entity or controlling person in the tax period preceding the tax period of the controlling Lithuanian entity or controlling person, in which the dividends were received from the controlled foreign entity, as positive income. However, where the dividends paid out by the controlled foreign entity to the controlling Lithuanian entity or controlling person exceed the income, which was included in the income of the controlling Lithuanian entity or controlling person as positive income, the amount of the dividends above the positive income of the controlling Lithuanian entity shall be subject to tax in accordance with Article 35 of the Law of the Republic of Lithuania on Corporate Income Tax, and the amount of the dividends above the positive income of the controlling person, in accordance with Article 6(2)(1) of the Law of the Republic of Lithuania on Personal Income Tax.
9. Where the corporate income tax or a corresponding tax on the positive income of the controlled foreign entity, included in the income of the controlling Lithuanian entity has been paid in a foreign country or zone wherein the controlled foreign entity is registered or otherwise organised, the corporate income tax paid in the foreign country shall be deductible in accordance with the procedure laid down in Article 39(6) of the Law of the Republic of Lithuania on Corporate Income Tax.
This provision shall not apply to controlling persons.
10. Where the corporate or personal income tax or a corresponding tax on the positive income of the controlled foreign entity, included in the income of the controlling Lithuanian entity or controlling person has been paid in a foreign country, with which the Republic of Lithuania has concluded an agreement on the avoidance of double taxation and the prevention of fiscal evasion and under the relevant law whereof the positive income of the controlled foreign entity is included in the income of the entity or person of that country and is taxed, the corporate or personal income tax paid in the foreign country shall be deductible in accordance with the procedure laid down in Article 39(7) of the Law of the Republic of Lithuania on Corporate Income Tax or in Article 37(2) of the Law of the Republic of Lithuania on Personal Income Tax.
11. The calculated corporate income tax shall be paid by the controlling Lithuanian entity in accordance with the procedure laid down in the Law of the Republic of Lithuania on Corporate Income Tax. The calculated personal income tax shall be paid by the controlling person in accordance with the procedure laid down in the Law of the Republic of Lithuania on Personal Income Tax.
––––––––––––––––
 
APPROVED by
Resolution No 517 of the Government of the Republic of Lithuania
of 12 April 2002
(as amended by Resolution No 1657 of 21 October 2002)
 
 
Types of Income NOT INcluded In the Positive Income
 
 
1. The positive income of a controlling Lithuanian taxable entity (hereinafter referred to as the controlling Lithuanian entity) shall not include income which is considered non-allowable deductions according to Article 31(1) of the Law of the Republic of Lithuania on Corporate Income Tax and which has been received by a controlled foreign entity from the controlling Lithuanian entity.
The positive income of a controlling resident of Lithuania (hereinafter referred to as the controlling person) shall not include income which is not considered allowable deductions or actual expenses deductible from income pursuant to the Law of the Republic of Lithuania on Personal Income Tax, and which a controlled foreign entity has received from the controlling person.
2. The positive income shall not include income of the controlled foreign entity from active activities (i.e. the income of the controlled foreign entity other than interest received, royalties, income from lease (financial leasing) or capital gain, distributed profits, including dividends (dividends received from other entities and dividends distributed but not paid out to the controlling Lithuanian entity or controlling person)) provided that:
the number of employees in the controlled foreign entity is such that is usually necessary to ensure the activities of the controlled foreign entity in the country or zone wherein the entity is registered or otherwise organised, and
not more than 10 per cent of the income of the controlled foreign entity is earned or received over the tax period from the sources outside the country or zone wherein the controlled foreign entity is registered or otherwise organised, and
the income earned or received by the controlled foreign entity from transactions with independent (unrelated) persons amounts to more than 50 per cent of the total income of the controlled foreign entity over the tax period.
3. The positive income shall not include dividends calculated in proportion to the number of the shares (interests, member shares), votes or other rights to the portion of distributable profits or pre-emptive rights to the acquisition thereof held by the controlling Lithuanian entity or controlling person, distributed but not paid out to the controlling Lithuanian entity or controlling person, provided that the dividends:
do not exceed the amount of positive income of the preceding tax period, calculated in accordance with Paragraph 3 of the Procedure for the Calculation and Inclusion of Positive Income in the Income of a Controlling Lithuanian Taxable Entity or a Resident of Lithuania approved by this Resolution; and
are paid out within five successive tax periods.
4. Where the dividends calculated in proportion to the number of the shares (interests, member shares), votes or other rights to the portion of distributable profits or pre-emptive rights to the acquisition thereof held by the controlling Lithuanian entity or controlling person, distributed but not paid out to the controlling Lithuanian entity or controlling person, are not paid within the period (five successive tax periods) set in the third subparagraph of Paragraph 3 above, all dividends calculated over that period shall be included in the positive income.
––––––––––––––––––