Taxes in a Nutshell 2021
for Estonia, Latvia, Lithuania and Belarus
Effective 1 January 2021
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Basic tax facts
CIT system Standard CIT rate
Special rates and regimes
Loss carry forward Reporting
WHT on divided payments to non-resident parent company Pass-through dividends WHT on interest payments to non-resident companies Thin capitalisation rule
ESTONIA
LATVIA
LITHUANIA
BELARUS
Corporate income tax
Deferred (until profit distributions) 20% (gross distribution)
Deferred (until profit distributions) 20% (gross distribution)
14% (gross distribution) for regular profit distributions
14% advance CIT payments for credit institutions
Tonnage tax for shipping companies
Capital gains from sale of shares exempt if 3-year holding period met
Not relevant for taxes Monthly (10th day)
Not relevant for taxes Monthly (20th day)
Traditional (annual) 15% (from profits)
5% or 0% for micro companies. Additional 5% corporate income tax (applies to banks and credit unions when earnings exceed EUR 2 million; valid for corporate income calculation and declaration for the years 2020, 2021 and 2022)
Unlimited/5 years (subject to exemptions) Annual (15th day of the 6th month of the following tax period), unless advance reports
Traditional (annual)
18%
5% - income from self-produced high-technology goods
10% - science and technology parks and their residents, technology transfer centres
12% - dividends
25% - banks, insurance companies, forex companies
30% - microfinance organisations, certain telecom operators
10 years
Quarterly (general rule), monthly (for dividends accrued by a Belarusian company)
Profit distributions
No WHT Exemption if 10% holding
No WHT Exemption with no holding limitations
No WHT if 10% voting shares in subsidiary for 12 months; otherwise 15% WHT
Exemption if 10% holding for 12 months
12% WHT (general rule) 12% WHT (general rule)
Corporate financing and taxes
No WHT
Only for financing costs in excess of EUR 3,000,000 and EBITDA 30%; subject to specific exemptions
No WHT, unless recipient in low-tax territory
Annual financing costs in excess of EUR 3,000,000 and EBITDA 30%; subject to specific exemptions; or debt-equity ratio of 4:1
No WHT if the recipient is an EEA/ DTT company; otherwise 10% WHT
Annual financing costs in excess of EUR 3,000,000 and EBITDA 30%; subject to specific exemptions; or debt-equity ratio of 4:1
10% WHT (general rule)
Debt-to-equity ratio of 3:1 (1:1 for Belarusian companies producing excisable goods)
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Basic tax facts
Standard tax rate
Special tax rates
Withheld from gross salary
ESTONIA
LATVIA
LITHUANIA
BELARUS
Personal income tax
20%
Progressive tax rates:
20% on annual income below EUR 20,004
23% on annual income from EUR 20,004 to EUR 62,800
31% on annual income over EUR 62,800
Progressive tax rates:
20% on annual income below 60 state average
monthly salaries
13%
32% on exceeding annual income higher than 60 state average monthly salary
20% or 40% (final tax on business income under a simplified regime)
10% on forest disposals, sale of scrap metal and lease of own property
Progressive from 5% to 15% on business income.
15% on profit distributions
16%, 10%, 6%, 4%, 0%, fixed amounts
Employment income
- Income tax (WHT) - 20%
- Employee's unemployment insurance premiums (WHT) - 1.6%
- Pension insurance (WHT) - 2% or 0%
- Personal Income Tax (WHT) - 20% (of monthly salaries up to 1667 EUR) or 23% (of monthly salaries over 1667 EUR)
- Social security contributions - 10.5%
- Personal Income Tax (WHT) - 20% or 32% (on exceeding annual income higher than 60 state average monthly salaries)
- Social security contributions - 12.52%
- Compulsory health insurance - 6.98%
Personal Income Tax (WHT) 13%
Social security contributions (WHT) 1%
On top of gross salary
- Social tax - 33%
- Employer's unemployment insurance premiums - 0.8%
- Social security contributions - 23.59%
Fringe benefits
CIT 20% Social tax 33%
Share options grant and vesting
Not subject to tax
Share options exercise
Exercise before 3y from grant is subject to fringe taxes; exercise after 3y from grant is exempt from fringe taxes
The same as the taxes applicable to salary
Not subject to tax
Exercise before 1y from grant is subject to payroll taxes; exercise after 1y from grant is exempt from payroll taxes
- Pension insurance (WHT) - 0%, 2.1% or 3%
Social security contributions - 34%
- Social security tax - 1.77%
Contributions against accidents at work and occupational diseases 0.6% (general rule)
The same as the taxes applicable to salary
The same as the taxes applicable to salary, unless a special exemption is established by law
Not subject to tax
Not subject to tax (general rule)
Exercise before 3y from grant is subject to payroll taxes; exercise after 3y from grant is exempt from payroll taxes
Not subject to tax, if shares are provided for any real payment (current practice)
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Basic tax facts
ESTONIA
Share options exercise
Exercise before 3y from grant is subject to fringe taxes; exercise after 3y from grant is exempt from fringe taxes
Standard tax rate
Special tax rates
VAT threshold general
20% 9%/0% EUR 40,000
VAT threshold distance sale
EUR 35,000
LATVIA Real estate tax
Exercise before 1y from grant is subject to payroll taxes; exercise after 1y from grant is exempt from payroll taxes
Value added tax
21%
12%/5%/0%
EUR 40,000
EUR 35,000
Reporting
Monthly (20th day)
Monthly, quarterly
Real estate tax
Standard tax rate
0.1%-2.5% (based on the cadastral value of land excluding buildings)
0.2%-3% (of the cadastral value)
Limitation periods
Binding preliminary ruling
Advanced pricing agreement (APA)
3 years or 5 years (if intentional non-payment) Yes
No
Tax compliance 3 years or 5 years (for transfer pricing) Yes
Yes
LITHUANIA
BELARUS
Exercise before 3y from grant is subject to payroll taxes; exercise after 3y from grant is exempt from payroll taxes
Not subject to tax, if shares are provided for any real payment (current practice)
21%
20%
9%/5%/0%
25%/10%/0%
EUR 45,000 EUR 35,000
-
Monthly (VAT report 25th day, invoice registers Monthly, quarterly 20th day of following month)
Depending on the municipality, 0.3%- 3% of property value (subject to exemptions)
1% for companies (0.1%, 0.2%, 0.4%, 0.6%, 0.8% in specific cases), 0.1%, 0.2% for individuals (all rates are subject to coefficients)
3 years (with certain exceptions) Yes Yes
5 years (with certain exceptions) No Yes
* CIT means corporate income tax * WHT means tax which is withheld by the payer * EEA means European Economic Area * DTT means bilateral treaty on the prevention of double taxation on income and capital taxes * PIT means personal income tax
Estonia
GENERAL OVERVIEW OF TAX SYSTEM
Estonia has a two-level tax system, comprising state taxes and local taxes. State taxes include the following:
Income tax, which covers both personal and corporate income tax. While personal income tax applies on income received or capital gains earned by natural persons, corporate income tax applies on a deferred basis upon distributing the profits of corporate taxpayers. Non-residents pay income tax only on specific Estonia-sourced income, mostly related to active income or real estate income.
Simplified tax on the business income of natural persons, which enables natural persons to apply a lower tax rate to their business income and which includes automated exchange of tax information between banks and the tax authorities.
Social tax is levied on the active income of natural persons and on fringe benefits. In addition to social tax, unemployment insurance premiums and funded pension insurance premiums are applied on certain kinds of active income.
Land tax is levied on the value of land plots.
Heavy goods vehicle tax is applied on certain trucks as a property tax, applicable in addition to road tolls for trucks. There is no tax for passenger cars.
Gambling tax is applied on gambling activities as a special consumption tax.
Value-added tax (VAT), customs duties and excise duties follow EU law in the respective areas. Excise duties are levied on alcohol, tobacco, fuel, electricity and packaging.
Local taxes are applied by each local government if so decided. The following tax bases are available under the law: advertisements, road and street closures, motor vehicles, animals, entertainment and parking. State taxes are administered by Estonian Tax and Customs Board (ETCB). All tax compliance can be done electronically through the e-Tax Board web page, accessible with an Estonian ID card (issued to Estonian residents and e-residents).
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Estonia
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
CORPORATE INCOME TAX (CIT)
Estonia is a great destination for entrepreneurs who are aiming to reinvest or retain corporate profits. Namely, there is no CIT due upon receiving, retaining or reinvesting profits, either successfully or unsuccessfully. This applies to all types of active and passive corporate income. Resident companies pay CIT on a deferred basis, meaning CIT is due only upon making profit distributions (dividends, capital reductions in excess of capital payments) or deemed profit distributions (i.e. paying non-business expenses, conferring fringe benefits and making gifts). Similar tax treatment applies to permanent establishments of foreign entities (including branches), which are in principle treated the same as local corporate taxpayers.
When distributing corporate profits, a deferred CIT of 20% (from the gross distribution) applies. As an incentive to distribute profits at least once in three years, the part of the profit distribution corresponding to one-third of the taxable profit distributions made within the last three years (i.e. the regular profit distribution) is subject to a reduced CIT rate of 14%. It is therefore common that a profit distribution consists of profits which fall under two different tax rates. Note that 14% CIT will be the effective tax rate only if regular profits are distributed to corporate entities 7% withholding tax applies in addition to this when making regular profit distributions to natural persons, levelling off the tax incentive.
Pass-through dividends fall under participation exemption if the 10% shareholding requirement is met. Namely, dividends received by a company can be distributed further without CIT or withholding tax liability, provided the company passing through the dividends holds a minimum of 10% of the shares in the subsidiary company. As an additional requirement, dividends received outside of the EU must have been subject to tax.
Loan financing of Estonian entities by non-residents is rather advantageous for the financer in terms of taxes paid. There is no withholding tax on interest payments to resident corporate lenders or non-resident lenders (either corporate and private). Interest paid to related parties in excess of the arm's length rate is subject to CIT paid by the borrower. As there is no traditional thin capitalisation rule for loan cost, Estonia enables extensive loan liabilities even if a company has little capital. However, as a result of the harmonisation of the Anti-Tax Avoidance Directive, the law provides an interest limitation rule under which excessive interest payments are subject to CIT, provided three cumulative criteria are met: 1) exceeding borrowing costs exceed EUR 3,000,000, 2) exceeding borrowing costs exceed 30% of EBITDA, and 3) the interest-paying company is profitable. Some exceptions apply to this, such as to costs for financing certain infrastructure projects, group-equity-rule and world-wide group-ration rule based on earnings. Credit institutions are not taxed under this rule.
A special regime applies to credit institutions, which are subject to quarterly advance CIT payments on corporate profits at a rate of 14%. Additionally, shipping companies are subject to a tonnage tax.
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Estonia
PROFIT DISTRIBUTIONS
Estonia applies no withholding tax on profit distributions to resident or non-resident shareholders (with the exception of regular profit distributions to resident and non-resident natural persons, to which a 7% withholding tax applies). Therefore, the final Estonian tax on profit distributions to foreign companies is either 20% CIT or 14% CIT. Note that in specific cases capital reductions not subject to CIT at the level of the company reducing its capital may lead to taxation for the shareholder (i.e. in excess of the acquisition cost of the shares based on which the capital reductions are made).
TRANSFER PRICING
As for transfer pricing, Estonian law recommends following the OECD Guidelines. Transfer pricing methods in use include comparable uncontrolled price, resale price, cost plus, profit split, transactional net margin and other sufficiently substantiated methods. Other methods can be used when justified. Transfer pricing adjustments are subject to 20% CIT (on gross adjustment). The threshold for mandatory documentation is having 250 employees, a turnover of EUR 50 million or a consolidated balance sheet of EUR 43 million.
INCOME TAX FOR NON-RESIDENTS
As already referred to above, the dividends received from Estonian companies by non-residents are not subject to additional dividend withholding tax (with the exception of natural persons receiving regular profit distributions). Loan interest payments to non-residents are not subject to withholding tax, while royalties are generally subject to a 10% withholding tax. Capital gains derived by a non-resident from the sale of Estonian real estate or shares in and liquidation proceeds from "real estate companies" (at least 50% of the assets at some point within the last two years) are subject to 20% income tax in Estonia. There is no tax applied on capital gains in Estonia if a non-resident sells a shareholding in a company which is not a Estonian real estate company. Active income earned from Estonia (either as a salary or business income through an Estonian permanent establishment) is subject to income tax in Estonia. Non-residents pay income tax only on certain kinds of income of ships' crews sourced from Estonia.
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Estonia
PERSONAL INCOME TAX (PIT)
Income and capital gains are subject to a flat PIT rate of 20%. The tax base includes, among others, active income, interest, royalties, capital gains and dividends, as well as income of a tax haven company attributed to private person. Dividends received from an Estonian company are not taxed on a personal level, except with a 7% personal income tax when falling under a special regime for regular dividend payments. Income tax liability on capital gains on a personal level can be postponed by making a non-monetary contribution to the equity of the company and sale of the asset by the company. Profits earned by a holding company are not taxed on receipt of income. When using a registered business account (bank account), business income is subject to a 20% tax (if sales EUR 25,000), including income tax, social tax and pension payments. This provides more advantageous tax treatment for P2P services.
VALUE ADDED TAX (VAT)
Special regimes apply to travel services, immovables, scrap metal, precious metal and metal products, resale of second-hand goods, original works of art, collectors' items and antiques, electronic communication services and electronically supplied services, as well as cash accounting.
FIVE TAX REASONS TO LOOK AT ESTONIA
Deferred CIT on all corporate profits, while regular profit distributions can enjoy deferred CIT at the lowered rate of 14%. A deferred CIT system also brings lower tax compliance costs; Good loan financing environment as no withholding tax on interest payments to non-residents; Equity incentives to Estonian employees are exempt from payroll/fringe taxes, provided 3 years pass between grant and exercise or full exits take place; Shipping companies can enjoy tonnage tax and certain kinds of income of ships' crews is exempt from income taxes; Online reporting and good client support from the tax authorities.
Latvia
GENERAL OVERVIEW OF TAX SYSTEM
The Latvian tax system includes corporate and personal income taxes, social security contributions, solidarity tax, micro-enterprise tax, value-added tax, and excise tax, as well as other taxes on specific objects or activities (real estate, natural resources, transport, gambling etc.). All the taxes and duties are administered by the State Revenue Service, except from the real estate tax which is administered by local municipalities.
CORPORATE INCOME TAX (CIT)
Resident companies pay a 0% CIT rate on reinvested profit CIT is payable only when a company pays dividends, deemed dividends and/or expenses comparable to dividends with the aim of actual profit distribution. Reinvested profit is not CIT-taxable. Business income earned (including interest, royalties and inbound dividends) is not taxed on receipt. Similar tax treatment applies to permanent establishments of foreign entities. Companies can use accrued CIT losses till 2022, but only 15% of those losses for up to 5 years. Losses can be used to decrease the CIT payable on dividends, but not more than 50% of CIT payable on dividends. Share disposals are exempt from CIT if the shares are held for at least 36 months. CIT does not apply to representation expenses or costs of personnel sustainability events not exceeding 5% of total gross salaries calculated in the pre-taxation year and on which SSC has been paid. CIT discounts are available for operations in special economic zones. A special tonnage tax regime for Latvian shipping companies and tax relief for sailors are available. Pass-through dividends Dividends received by a company can be distributed without further tax liability if CIT is paid in the country of origin. There is no minimum shareholding requirement. Loan financing Latvia has introduced two thin capitalisation rules (subject to specific exemptions):
debt-equity ratio of 4:1; and
annual borrowed financing costs in excess of EUR 3,000,000 and EBITDA 30%.
Interest expenses exceeding the thin capitalisation limitations are subject to CIT.
PROFIT DISTRIBUTIONS Latvia applies no withholding tax on profit distributions to resident or non-resident shareholders.
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Latvia
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
TRANSFER PRICING
Latvian transfer pricing regulations follow the OECD standard.
Transfer pricing methods in use: comparable uncontrolled price, resale price, cost plus, profit split and transactional net margin method.
Mandatory TP documentation is required upon meeting the revenue and transaction volume criteria:
Transaction party
When is a Master File required?
When is a Local File required?
Submission deadlines to tax authorities
Foreign related party or blacklisted jurisdiction company
If the transaction amount > EUR 15 m; or if turnover > EUR 50 m and the transaction amount > EUR 5 m.
If the transaction amount > EUR 5m
Mandatory submission within 12 months after the end of taxation year.
If turnover is
If the transaction amount is from EUR 250 k to EUR 5 m.
Prepared within 12 months after the end of taxation year and submitted to the tax authorities within 1 month upon request.
Latvian related party (only if transactions take place within one supply chain with a foreign related party)
N/A
If the transaction amount > EUR 250 k
Should be prepared only if required by tax authorities. Submission within 90 days after receiving a request (may be extended by 30 days).
Advance pricing agreements (APA) for transfer pricing are available for transactions over EUR 1.43 million per annum (for a charge of EUR 7,114).
INCOME TAX FOR NON-RESIDENTS
Withholding taxes:
management and consulting fees 20% (may be eliminated if the recipient is resident in a country with which Latvia has a double tax treaty);
sale price of real estate located in Latvia or shares in real estate companies 3%; 20% on payments and dividends paid to black-listed low-tax jurisdictions (except purchase
of goods and purchase of EU/EEA public securities if carried out at arm's-length prices);
5% on payments to non-residents for use of property located in Latvia (may be eliminated if the recipient is resident in a country with which Latvia has a double tax treaty).
Latvia
PERSONAL INCOME TAX (PIT)
Dividends received by Latvian tax residents are tax-exempt (with certain preconditions). As of 2018, Latvia operates a progressive personal income tax system. That is, income below EUR 20,004 a year is subject to a PIT rate of 20%. Income from EUR 20,004 to EUR 62,800 a year is subject to a rate of 23%. Income exceeding EUR 62,800 a year is subject to a PIT rate of 31%. PIT-deductible expenses, education, medical costs, donations and other items up to EUR 600 a year but not exceeding 50% of gross taxable income. Rate on income from capital 20%; rate on income from forest disposals and lease of own property 10%.
VALUE ADDED TAX (VAT)
The standard rate is 21%. Special tax rates: 12% e.g. on accommodation, medicines, baby food. As of 2018, a reduced tax rate of 5% applies for the supply of fresh fruits, berries and vegetables. Special regimes apply for the supply of construction services, including those provided separately; game console deliveries; metal and related services; timber and related services; scrap metal and related services; construction services; mobile phones, laptops, tablets and integrated circuit devices; cereal and technical crops; unprocessed precious metals, precious metal alloys and precious metal clad with metals.
FIVE TAX REASONS TO LOOK AT LATVIA
No CIT on reinvested profit; CIT applies at the moment of profit distribution. Pass-through dividends are exempt from Latvian CIT, provided that CIT is paid in the country of origin (no minimum shareholding requirement);
Share disposals are exempt from CIT if the shares are held for at least 36 months;
No WHT on royalty payments to non-residents;
Dividends received by Latvian tax residents are tax-exempt (with certain preconditions);
Share options granted to employees (possible for joint-stock companies, as well as limited liability companies) are exempt from payroll taxes, provided that a 1-year vesting period is met.
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Lithuania
GENERAL OVERVIEW OF TAX SYSTEM
Lithuania's tax system includes the following taxes: Corporate income tax (CIT), which applies to Lithuanian companies on their worldwide income. CIT also applies to Lithuanian branches or permanent establishments of companies incorporated in foreign countries. Non-resident companies in Lithuania are subject to profit tax on their Lithuanian-sourced income. Personal income tax, which applies on income, capital gains or dividends received by natural persons. Non-residents pay income tax only on specific Lithuanian sourced income such as interest income, real estate income, etc. Social tax is levied on employment relations and business income. In addition to social tax, unemployment insurance premiums and funded pension insurance premiums are applied on some kind of active income. Value-added tax (VAT), customs duties and excise duties follow the EU law in respective areas. Excise duties are levied on alcohol, tobacco, fuel, electricity and packages. Land tax: 0.01%-4% of the market value of land. The exact rate(s) of land tax are set by municipalities. Real estate tax (on real estate other than land): 0.3%-3% of property value. Exact real estate tax rate(s) are set by municipalities. Residential real estate with a total value exceeding EUR 150,000 is subject to a progressive tax rate from 0.5% to 3% applied on excess value. Natural resources tax: imposed on the use of natural resources, use of hydrocarbon resources and environmental pollution (including, but not limited to packaging materials).
Most state taxes are administered by the State Tax Inspectorate of Lithuania (STI). All tax compliance can be done electronically through the E-Tax system https://deklaravimas.vmi.lt/ webpage, which is accessible via Smart ID, E-signature or E-Government. Social tax is administered by the State Social Insurance Fund Board. Social tax compliance can be done electronically through the self-portal system https://sodra.lt/ Custom duties are administered by Customs of the Republic of Lithuania. Custom duties compliance can be done electronically through the self-portal system https://lrmuitine.lt
Lithuania
CORPORATE INCOME TAX (CIT)
A general flat rate of 15%. A reduced rate of 5% applies to small companies (with annual income not exceeding EUR 300,000; no more than 10 employees; shareholders in a small company own no more than 50% shares in other companies). Newly established small companies, owned by natural persons, are exempt from paying CIT for their 1st year. An additional 5% CIT rate applies to banks and credit unions when their profit exceeds EUR 2 million, and is valid for CIT calculation and declaration for the years 2020, 2021 and 2022.
A new regulation has been introduced that the reduced CIT rate shall not apply when the related companies meet at least one of the conditions i) their total average number of employees on their books exceeds 10; ii) and/or the total income for the tax period exceeds EUR 300,000.
Unlimited carry forward of losses, except losses from transfer of securities and derivative financial instruments, which may only be carried forward for 5 years. Intra-group transfer of losses permitted (subject to specific requirements). Losses carried forward cannot exceed 70% of profit during a fiscal year. Small companies which are entitled to a reduced CIT rate of 5% may carry forward full losses incurred in previous years of profit during a fiscal year.
Fixed assets depreciated using straight-line method; for some groups of fixed assets, the double-declining method may also be used; the production method is used in very limited cases.
Interest limitation rules: Companies will be able to deduct only interest expenses that:
do not exceed interest income; and exceed interest income but the excess does not exceed the following thresholds:
30% unit EBITDA (profit before interest, taxes, depreciation and amortisation); or
EUR 3 000 000.
Companies whose financial statements are included in group-consolidated financial statements and whose equity-to-total-assets ratio is not more than 2% lower than the corresponding group of companies' ratio as determined by the consolidated financial statements of the group, will be able without restriction to deduct all interest expenses exceeding interest income.
debt-to-equity ratio 4:1. Interest-free loans not included in controlled debt.
PROFIT DISTRIBUTIONS
Profit distributions are generally subject to participation exemption (if 10% voting shares in subsidiary for 12 months); otherwise 15% WHT.
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Lithuania
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
TRANSFER PRICING
With regard to transfer pricing, Lithuanian law recommends following the OECD Guidelines. Transfer pricing methods in use: comparable uncontrolled price, resale price and cost-plus, transaction net margin and profit split methods. Threshold for mandatory documentation turnover of EUR 3 million. The threshold does not apply for financial/credit institutions and insurance companies.
Lithuanian entities must prepare the following: A return reporting transactions entered into with associated parties, together with their profit tax returns if the total value of the transactions exceeds EUR 90,000; A local file, if revenues exceed EUR 3 million for the tax year preceding the tax year during which transactions exceeding EUR 90,000 with related parties are undertaken; A master file, if revenues exceed EUR 15 million for the tax year preceding the tax year during which transactions exceeding EUR 90,000 with related parties are undertaken.
New transfer pricing requirements were introduced in 2020:
A simplified approach for low value-adding group services, by allowing taxpayers to apply a markup of 5% of the allocated costs without the need to perform a benchmarking study. Simplified tax administration processes with regard to controlled transactions related to hard-tovalue intangibles and provisions allowing tax administrator to retroactively adjust the price of the controlled transaction on the basis of information received after the transaction.
Simplified procedures for documenting controlled transactions with the elimination of a requirement to prepare transfer pricing documentation for transactions between Lithuanian taxpayers. Clarification of the procedure for applying the transactional profit-split method.
The updated requirements relating to documentation of low value-adding intra-group services and transactions between Lithuanian taxpayers will apply with regard to the calculation of corporate income tax for 2020 and for subsequent tax periods.
In a related development, the Lithuanian tax authorities have announced there will be increased focus on controlled international transactions, with special attention to financing and services transactions.
Lithuania
INCOME TAX FOR NON-RESIDENTS
Withholding taxes:
dividends 0%, if recipient owns no less than 10% of voting shares for 12 months and is not established in a black-listed country, otherwise 15%,
interest 0%, if paid to EU entities or DTT tax residents, otherwise 10%, royalties 0% if paid to EU entities qualifying under the EU Interests and Royalties
Directive; otherwise 10%.
PERSONAL INCOME TAX
Employment and employment-related (e.g. remuneration to board members) income is taxed with PIT at a rate of 20% of annual income (i.e. employment income or other income) not exceeding 60 state monthly average salaries (SAMS), while the excess is subject to a PIT rate of 32%.
Annual income not relating to employment or substantially equivalent relations is taxed with PIT at a rate of 15% or 20%, depending on whether the threshold of SAMSs has been reached.
Exemption of employees' stock option from PIT has been introduced, allowing non-taxation of employee's benefits deriving from stock options, provided that certain requirements are satisfied.
Life insurance contributions, additional (voluntary) health insurance contributions and pension contributions paid by an employer on behalf of an employee are not considered taxable benefits if certain conditions are met, provided that the total amount of such contributions does not exceed 25% of the employee's annual employment-related income and the recipient of such contributions is resident in an EEA country.
VALUE ADDED TAX (VAT)
Standard rate 21%. A reduced rate of 9% applies to heating energy, some books and periodical and non-periodical publications, passenger transportation services (on scheduled routes) and on some types of accommodation. A reduced rate of 5% applies to certain compensated pharmaceuticals, means of medical aid, and technical assistance equipment for disabled individuals. General VAT payer registration threshold EUR 45,000.
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Lithuania
FIVE TAX REASONS TO LOOK AT LITHUANIA
Lowest rate of CIT in Baltic states. Also, intra-group transfer of losses permitted (subject to specific requirements). Companies established in Free Economic Zones (FEZ) after 31 December 2017 that satisfy investment requirements enjoy a CIT rate of 0% for the first 10 tax periods and for the next 6 tax pe-
riods a 50% reduction in the CIT rate. For entities running technology investment projects (under defined conditions) taxable profit is reduced up to 100%. Companies carrying out Research and Development (R&D) are granted triple deduction of expenses incurred during these activities. As of 1 January 2018 a reduced CIT rate of 5% applies to
profit deriving from the use, sale or other transfer of assets created while executing R&D activity. Large project relief. An entity carrying out a large investment project may be exempt from CIT for a period of 20 years. The entity should meet certain requirements for relief to be applied.
Belarus
GENERAL OVERVIEW OF TAX SYSTEM
Belarus has a general two-level tax system, comprising of republican and local taxes. Besides general tax system, Belarus provides for special tax regimes for companies and individuals (incl. individual entrepreneurs).
CORPORATE INCOME TAX (CIT)
General flat rate 18%; income from self-produced high-technology goods 5%; science and technology parks and their residents, technology transfer centres 10%; dividends 12%; banks, insurance companies, forex companies 25%; microfinance organisations, certain telecom operators 30%.
Thin capitalisation rules: debt-to-equity ratio of 3:1 (1:1 for Belarusian companies producing excisable goods).
Investment deduction up to 15% of the initial value of buildings and constructions and up to 30% of the initial value of machines and equipment used in entrepreneurial activity may be applied to decrease the CIT tax base. Investment deduction applies once, together with the start of charging of amortisation on the respective objects. Deduction of certain expenses is limited to 1% of the tax revenue.
Fixed assets are subject to amortisation at the discretion of the company according to 1 of 3 methods: the straight-line method, reducing balance method (direct or indirect sum-of-theyears'-digits or declining balance method) or productive method.
PROFIT DISTRIBUTIONS
Distribution of dividends is subject to a CIT rate of 6% if shareholders did not distribute dividends for 3 years, but rather reinvested the profits. If shareholders did not distribute dividends for 5 years and reinvested the profits, a CIT rate of 0% applies to dividends. There is no such withholding tax incentive for foreign companies.
INCOME TAX FOR NON-RESIDENTS
In general: withholding taxes on income of foreign legal entities from Belarusian sources: dividends and income from sale of shares 12%; royalties 15%; interest 10%; freight forwarding services 6%; other income (e.g. sale of real estate, services (e.g. intermediary, consulting, audit, management, insurance, advertising), contractual penalties) 15%.
TRANSFER PRICING
In general transfer pricing threshold (i.e. the sum of all sales to one party net of indirect taxes or the sum of all purchases from one party net of indirect taxes) for transactions with one related party or an offshore zone resident is BYN 400,000 (approx. EUR 128,000) per year, and for large taxpayers BYN 2,000,000 (approx. EUR 640,000) per year, net of indirect taxes. Transfer pricing methods in use: comparable uncontrolled price, resale price, cost plus, transactional net margin profit and profit split method.
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Belarus
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
PERSONAL INCOME TAX
General flat rate 13% (including dividends). Other rates apply to specific income: 16% on income from entrepreneurial, private notarial and advocacy activities; 4% on income in the form of gains (returned unplayed entries) received from Belarusian legal entities that organise gambling games. Distribution of dividends is subject to a PIT rate of 6% if shareholders did not distribute dividends for 3 years, but rather reinvested the profits. If shareholders did not distribute dividends for 5 years and reinvested the profits, a PIT rate of 0% applies to dividends. These benefits apply only to individual shareholders who are Belarusian tax residents.
VALUE ADDED TAX (VAT)
Standard rate 20%. Other rates 0%, 10%, 25%. Generally, a single registration applies for all taxes so no special VAT registration except for foreign companies paying digital VAT.
GAAR
In 2019, a general anti-abuse rule (GAAR) was for the first time introduced into the Belarus Tax Code (article 33). According to the GAAR controlling authorities are allowed to correct the taxes payable and tax base on the following grounds: distortion of information about the facts of the business operations performed or about the
objects of taxation; performance of business operations with the main aim of tax avoidance; lack of real performance of a business operation.
FIVE TAX REASONS TO LOOK AT BELARUS
Six Free Economic Zones. Generally a company must invest EUR 1 million. Exemption from some taxes and duties.
High Technology Park. Residents exempt from almost all taxes and duties. China-Belarus Industrial Park. Residents a wide range of tax benefits. Beneficial tax regime if a production business operates in rural areas and small town centres. Simplified Taxation System. Unified tax imposed on gross revenue. There are two types
of Simplified Taxation System. The tax rates are: 3% with payment of VAT (1st type) or 5% without payment of VAT (2nd type). A special 16% rate applies to certain kinds of non-operating income. The law establishes thresholds for personnel numbers and gross revenues for the application of the Simplified Taxation System (different for legal entities and individual entrepreneurs).
Sorainen Tax Team:
Estonia
Latvia
Lithuania
Taxes in a Nutshell 2021 for Estonia, Latvia, Lithuania and Belarus
Belarus
Allar Jks
Partner
[email protected] Prnu mnt 15 10141 Tallinn Phone +372 6 400 900
Jnis Taukacs
Partner
[email protected] Kr. Valdemra iela 21 LV-1010 Riga Phone +371 67 365 000
Saul Dagilyt
Partner
[email protected] Gedimino pr. 44A LT-01400 Vilnius Phone +370 52 685 040
Alexey Anischenko
Partner
[email protected] ul Internatsionalnaya 36-1 220004 Minsk Phone +375 17 306 2102
Please note that Sorainen Taxes in a Nutshell is compiled for general information only, free of obligation and free of legal responsibility and liability. It was prepared on the basis of information publicly available on 1 January 2021. The publication does not cover laws or reflect all changes in legislation, nor are the explanations provided exhaustive or free from exceptions. Therefore, we recommend that you contact Sorainen or another legal adviser for further information.
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