Official translation
REPUBLIC OF LITHUANIA
LAW ON VALUE ADDED TAX
5 March 2002 No IX-751
Vilnius
CHAPTER ONE
GENERAL PROVISIONS
Article 1. Purpose of the Law
This Law establishes the imposition of the value added tax (hereinafter referred to as VAT) and the obligations of taxable persons, VAT payers and other persons incidental to the payment of the tax.
Article 2. Definitions
For the purposes of this Law:
1. "Taxable person" shall mean any taxable person of the Republic of Lithuania or a foreign state.
2. "Consideration" shall mean everything which has been or is to be obtained in money or in any other form as payment for the supply of goods and services from the purchasers/customers and/or third party. Subscription fees and/or donated funds received by non-profit-making legal persons shall not be treated as consideration provided the receipt thereof cannot be linked to the supply for the benefit of a specific person of specific goods or services, i.e. the above-mentioned funds are obtained for financing the general activities of the non-profit-making legal person, linked to representation of the interests of its members and for their benefit.
3. "Disclosed agent" shall mean a taxable person acting as an intermediary in the transaction for the supply of goods or services in the name and for the account of another person.
4. "Employment" shall mean work carried out under the employment contract, also any other activity performed on the basis of legal ties creating the relationship of employer and employee (by agreement as regards remuneration for work , workplace and functions, work discipline, etc), corresponding to those created under the employment contract.
5. "Economic activities" shall mean activities (including all activities of producers, traders and persons supplying services, agricultural activities, fishing activities, mining, activities of the professions, exploitation of tangible and/or intangible property or property rights) seeking to obtain any income (regardless of whether or not the activity is aimed at making a profit). The following activities, however, shall not be considered as economic activities:
1) employment as it is defined in paragraph 4 of this Article;
2) activities of state and local government authorities as they are defined in paragraph 30 of the Article, even where they collect dues, fees or payments in connection with these activities;
3) holding of shares (interests, member shares) and other securities, even though income (interest, dividends, etc) is obtained therefrom on a continuing basis. The said exception shall not cover sale or any other transfer of shares (interests, member shares) even though income accrued from the holding thereof is obtained due to such sale or transfer;
4) keeping of a bank deposit, bank account or bank card account, even though income is obtained therefrom on a continuing basis;
5) transactions carried out on an occasional basis, i.e. not inter-connected transactions giving no grounds to believe that they are or will be carried out on a continuing basis. Where the transactions which are carried out are not uniform, this fact by itself does not give ground to treat them as being carried out on an occasional basis, where other circumstances give grounds to believe otherwise.
6. "Capital assets" shall mean tangible property and other objects of the right of ownership which are used in the economic activities of the taxable person (with the exception of natural persons) for a period exceeding one year and the price of acquisition whereof is not less than the price fixed by the taxable person (according to the groups of capital assets listed in Annex 1 to the Law on Profit Tax). Capital assets acquisition price shall be included in the costs gradually in portions during the period of depreciation or amortisation. For the purposes of this Law, tangible capital assets of a natural person shall be tangible property of the types listed by the Government of the Republic of Lithuania or an institution authorised by it, which are used in the economic activities of the natural person for a period exceeding one year.
7. "Import VAT " shall mean the amount of VAT which is calculated or must be calculated in the manner established by this Law and other legal acts on the imported goods due to which according to the Customs Code of the Republic of Lithuania customs debt on importation is incurred.
8. "Derivative " shall mean a financial instrument (future contract, forward contract, etc.) the value or price whereof is linked to the value or price of the goods on which the instrument is based as well as a financial instrument (future contract, forward contract, etc.) the value or price whereof is linked to the price of securities, exchange rate, interest rate, stock exchange index, determination of creditworthiness or any other variable.
9. "Movable" shall mean any property except for that referred to in paragraph 15 of this Article.
10. "Controlling person" shall mean any person controlling the taxable person if he:
1) directly or indirectly holds over 50% of shares (interests, member shares) in the taxable person or other rights to distributable profit or pre-emptive rights to the acquisition thereof;
2) himself being the holder of not less than 10% of shares (interests, member shares) in the taxable person or other rights to a share of distributable profit or pre-emptive rights to the acquisition thereof, holds over 50% thereof together with the related persons, or
3) has the right to elect/appoint the majority of members of the managing body of the taxable person and/or actually is in control of the decisions made by the taxable person.
11. "Transport of cargo" shall mean transport of tangible property (mail including) by all forms of transport, also transport of goods by stationary transport installations (pipelines, electricity lines, etc.).
12. "Reduced rate of the VAT" shall mean the rate of VAT fixed in this Law below the standard rate, except for the zero-rate.
13. "Taxable person of the Republic of Lithuania" shall mean a legal or natural person of the Republic of Lithuania who/which carries out economic activities of any type.
14. "Undisclosed agent" shall mean a taxable person acting as an intermediary in the transaction for the supply of goods or services in his own name but for the account of another person.
15. "Property immovable by nature" shall mean property which is immovable by nature, i.e., land or other property, that cannot be removed from one place to another without the change of its purpose and a material reduction of its value.
16. "Place where the person has his permanent address or usually resides" shall mean the country where he usually resides or, in the absence of such place, the country where he has a place of personal, social and economic interests.
17. "Subdivision" shall mean a branch or a representative office of the taxable person set up according to the established procedure, also the permanent establishment of the foreign taxable person through which the foreign taxable person is operating in the Republic of Lithuania. For the purposes of this Law the term "permanent establishment" shall be used as it is defined in the legislation on profit (income) taxation.
18. "Output VAT " shall mean the amount of VAT that has been or is due to be calculated on the supply of goods and/or services.
19. "Material improvement of the building/structure" shall mean construction works the value whereof exceeds 50% of the value of the building or structure before the completion of the works.
20. "Non-profit-making legal persons" shall mean legal persons established for other than profit-making purposes, whose generated profit under the legal acts regulating their activities shall not be distributable to their founders and/or members.
21. "Input VAT" shall mean the amount of VAT paid or payable on purchases of goods and/or services, also the amount of VAT calculated on the tangible capital assets specified in Article 6 of this Law, manufactured by the taxable person himself.
22. "A good" shall mean any thing (including notes and coins of numismatic interest), also electricity, gas, heat and other types of energy.
23. "VAT deduction" shall mean the proportion of input and/or import VAT , deductible under the provisions of this Law.
24. "VAT payer" shall mean a taxable person registered by the tax administrator as the VAT payer.
25. "Open market value" shall mean the amount of consideration which a purchaser would have to pay for the goods or services to a supplier thereof at arm's length where each one of them is seeking maximum economic benefit for himself.
26. "Related persons" shall mean:
1) a natural person and his spouse, fiancé or cohabitant;
2) a natural person and persons connected to him by blood relationship (up to the fourth degree) or by marriage (a natural person and the relatives of his spouse (up to the fourth degree), also natural person and the relatives (up to the second degree) of the relatives of his spouse (up to the second degree);
3) a natural person and the person connected to him by guardianship relations;
4) a taxable person and a person who holds an interest in the latter (shareholder, holder of member share, etc.);
5) a taxable person and a member of its management body;
6) a taxable person and its employees;
7) a taxable person and a natural person who is related to the person holding an interest in the taxable entity or is a member of the taxable entity's management body by the links or relationship specified in subparagraphs 1, 2 or 3 of this paragraph;
8) taxable persons that are subsidiaries of the same taxable parent entity;
9) a taxable parent entity and a person holding an interest in its taxable subsidiary;
10) a taxable subsidiary and a person holding an interest in its taxable parent entity;
11) a taxable parent entity and a member of the management body of its taxable subsidiary;
12) a taxable subsidiary and a member of the management body of the taxable parent entity;
13) a taxable parent entity and a natural person connected to a person holding an interest in its taxable subsidiary or to a member of the management body of its taxable subsidiary company by the links or relationship specified in subparagraphs 1, 2 or 3 of this paragraph;
14) a taxable subsidiary and a natural person connected to a person holding an interest in its taxable parent entity or to a member of its management body by the links or relationship specified in subparagraphs 1, 2 or 3 of this paragraph;
15) two taxable persons if one of them directly or indirectly (through one or several intermediaries) controls over 25% of shares (interest, member shares) or has a right to over 25% of decisive votes in the other person or has undertaken to co-ordinate his business decisions with that other person or has assumed liability for the performance of obligations of that other person to third persons or has undertaken to transfer to that other person all or part of the profit or has granted that other person the right to use over 25% of its assets;
16) two taxable persons if the same persons holding an interest in them (alone or together with persons connected with them by the links or relationship specified in subparagraphs 1, 2 or 3 of this paragraph) directly or indirectly hold over 25% of shares (interest, member shares) in each one of them;
17) two taxable persons if one of them has the right to elect (appoint) the majority of members of that other person's management bodies and/or actually controls the decision making of that other person.
27. "Standard rate of VAT" shall be 18 %.
28. "Territory of the country" shall mean the territory of the Republic of Lithuania and the area adjacent to the territorial waters of the Republic of Lithuania where, under the laws of the Republic of Lithuania and international law, the Republic of Lithuania has the right to carry out exploration and to exploit the sea-bed and underground natural resources.
29. "Foreign taxable person" shall mean any of the following persons engaged in any form of economic activity:
1) a legal person or organisation of a foreign state, having its seat in a foreign state and incorporated or otherwise organised in accordance with the legal acts of the foreign state, or
2) any other entity incorporated, established or otherwise organised abroad, or
3) a natural person who has a permanent address or usually resides outside the Republic of Lithuania.
30. "Activities of the state and municipalities" shall mean the activities of the state, municipalities, state or municipal institutions and offices and, in the cases specified by laws, also the activities of other public legal persons, which the said persons are obligated under laws to engage in. For the purposes of this Law the following activities engaged in by the said persons shall not be considered as state and municipality functions:
1) supply of new goods (except for the supply of seized, ownerless goods (or goods recognised as ownerless property), or goods acquired by inheritance by the state or goods or treasure taken or transferred to state income), which are or may be in competition with goods supplied by taxable persons;
2) supply of electricity, gas, heat and other forms of energy, supply of water, steam;