Taxes in nutshell 2015 for Estonia, Latvia, Lithuania and Belarus - Effective 1 March 2015

TAXES IN NUTSHELL 2015
Ef f e c t i v e 1 M a r c h 2 0 1 5
for Estonia, Latvia, Lithuania and Belarus
Balt i c TA X F i rm o f t he Year
Awarded by:
International Tax Review (2014, 2012, 2011, 2010)
ESTO NIA
LAT VIA
LITHUANIA
BELAR US
Tallinn
Riga
Vilnius
Minsk
TAXES IN NUTSHELL 2015 for Estonia, Latvia, Lithuania and Belarus
ESTONIA
CORPORATE INCOME TAX (CIT)
■■ European Court of Justice decisions in the cases of Test Claimants in the FII Group Litigation
(C-446/04), Oy AA (C-231/05), and Burda GmbH (C-284/06) confirm that the Estonian CIT
system complies with EU law.
■■ Estonia provides a unique CIT system as resident companies do not pay tax on retained
or reinvested earnings. The tax obligation is deferred to the moment of distributing profits.
CIT is levied at a gross rate of 20% on company profit distributions, dividends, gifts, fringe
benefits, non-business expenditure and excessive capital reductions.
■■ Tax is payable based on monthly declarations.
■■ Unlimited carry forward of losses and unlimited depreciation for tax purposes.
■■ Dividends (no participation requirement), interest (not exceeding market interest rate) and
royalties (payments within the EU and 25% participation) are not subject to withholding tax.
■■ Only capital gains derived by a non-resident from sale of Estonian real estate or shares in
and liquidation proceeds of “real estate companies” are subject to 20% income tax.
■■ Liquidation proceeds, capital reduction payments, and share buy-backs exceeding capital
contributions are taxable at the company level.
■■ No traditional thin capitalisation rules, i.e. substantial debt financing at market rate interest
is tax neutral.
■■ Taxation treaties with 56 countries.
■■ Transfer pricing methods in use: comparable uncontrolled price, resale price, cost plus, profit
split, transactional net margin or any other sufficiently substantiated method.
■■ Liberal participation exemption for distribution of dividends received (10% shareholding
required, if dividends received are subject to tax abroad or are received from the EU).
VALUE ADDED TAX (VAT)
■■ Standard rate – 20%. Reduced rate – 9%.
■■ Registration general threshold – EUR 16,000.
■■ Reverse charge on internal supply applicable to real estate, scrap metal and gold transactions.
LAND TA X
■■ Rate of land tax ranges from 0.1% to 2.5% of cadastral value of land excluding buildings.
Rate is set by municipalities by 31 January each year.
REAL ESTAT E TRANSFER DUTY: Notarial and state duties may be up to 0.5% of transaction value.
PERSONAL INCO ME TA X
■■ General flat rate of 20%, including capital gains.
■■ Tax deductions allowed for interest related to acquisition of personal residence.
■■ Dividends received from an Estonian company do not attract personal income tax.
SOCIAL SECURITY CO NTRIBUTIONS
■■ Employer pays social tax of 33% from gross salary.
■■ Employer pays unemployment contribution of 0.8% and withholds employee’s unemployment
contribution of 1.6% from gross salary.
CUSTO MS & EXCISE: Mainly based on EU law.
LOCAL TA XES: Insignificant local taxes, such as advertisement tax, apply.
TA X AUDITS
■■ Tax audits can be performed going back 3 years from the date tax becomes payable.
■■ Limitation period 5 years for intentional tax avoidance.
ADVANCE (BINDING) RULINGS POSSIBLE EXCEPT FOR PRICES IN TRANSFER PRICING
■■ Fee for companies – EUR 1,180.
■■ Fee for individuals – EUR 300.
LATVIA
CORPORATE INCOME TAX (CIT)
■■ Flat rate – 15%. Reduced rate on turnover applies to registered micro-enterprises (for income
below EUR 7,000 – 9%, for income from EUR 7,000.01 to EUR 100,000 – 11%) instead of CIT
and payroll taxes to employees.
■■ Capital gains on sale of shares in subsidiaries are exempt.
■■ Carry forward of losses for an unlimited period.
■■ Accelerated depreciation (10-70%) of fixed assets using the declining-balance method, except
for concessions, patent licenses and trade marks, using the straight-line method over 5 or 10
years. For a new registered patent or trade mark and new production equipment the cost
base increases 1.5 times.
■■ Withholding taxes on
- dividends – 0% to any jurisdiction except “off-shores”;
- interest – 0% to any jurisdiction except “off-shores”;
- royalties – 0% to any jurisdiction except “off-shores”;
- management and consulting fees – 10%, can be reduced to 0% under tax treaties;
- use of property located in Latvia – 5%;
- sale price of real estate located in Latvia or shares in “real estate companies” – 2%, can be
eliminated under some tax treaties and under the new Latvian holding regime;
- payments to “Black list” “off-shore” jurisdictions – 15% to 30% – for certain payments the
State Revenue Service may grant relief.
■■ Thin capitalisation rules: debt-to-equity ratio of 1:4 or 1.57 times short-term interest rate as
provided by the Bank of Latvia; the “less favourable” of the two criteria applies. Exemption
for credit institutions established in the EU/EEA or tax treaty country.
■■ Tax treaties with 57 countries.
■■ Transfer pricing methods in use: comparable uncontrolled price, resale price, cost-plus,
transactional net margin method and profit split method. Threshold when transfer pricing
documentation is mandatory: turnover over EUR 1.43 million and transaction with a related
party – over EUR 14,300; advance pricing agreements also possible for transactions over
EUR 1.43 million per annum (for a charge of EUR 7,114).
■■ Gains from disposal of fixed assets are not taxable if the assets are substituted by similar new
ones within 12 months.
■■ Liberal participation exemption for inbound and EU/EEA dividends (no particular shareholding
required).
VALUE ADDED TAX (VAT)
■■ Standard rate – 21%; reduced – 12%.
■■ Registration threshold EUR 50,000.
PRO PERT Y TA X
■■ Municipality may set rate(s) between 0.2-3% of the cadastral value of land and buildings. If
the municipality does not use the discretion to set a particular rate, a default rate – 1.5%.
■■ Residential property is taxed at 0.2% – for cadastral value not exceeding EUR 56,915, 0.4% –
for cadastral value from EUR 56,915 to EUR 106,715, and 0.6% – for cadastral value exceeding
EUR 106,715, unless the municipality has set a different rate.
INCENTIVES TO INVEST
■■ No CIT payable up to 25% of the amount invested (minimum investment – EUR 10 million)
in specified industries. The incentive must be applied for and granted by 2020, investments
must be made in 5 years as of acceptance by the government, and tax savings must be
claimed within 16 years.
■■ In Special Economic Zones or Free Ports, tax rebates can be obtained (after investing in
production for exports) on: property tax (80-100%), CIT (80%), VAT (0%).
■■ A special tonnage tax for Latvian shipping companies and tax reliefs for sailors.
REAL ESTAT E TRANSFER DUTY
■■ 2% of the cadastral value of real estate. 1%, if invested in share capital. No duty in case of
reorganisation. No material notary fees.
PERSONAL INCO ME TA X
■■ General flat rate of 23% also includes the self-employed.
■■ A 10% tax applies to dividends, interest and rental income and 15% – to capital gains.
■■ Stock option exemption scheme introduced as of 2013.
SOCIAL SECURITY CO NTRIBUTIONS
■■ Employee rate: 10.5% of gross salary; employer rate 23.59% on top of gross salary. Annual
salary exceeding EUR 48,600 is not subject to social security contributions.
NAT URAL RESOURC ES TA X: Imposed on use of natural resources, pollution, and use of packaging
materials.
TA X AUDITS: Can be performed normally going back 3 years, except for transfer pricing – 5 years.
ADVANCE (BINDING) RULINGS POSSIBLE AT NO CHARGE
LITHUANIA
CORPORATE INCOME TAX (CIT)
■■ General flat rate – 15%. Reduced rate of 5% applies to small companies (income lower than
EUR 300,000), less than 10 employees).
■■ Unlimited carry forward of losses (losses from transfer of securities and derivative financial
instruments may be carried forward for 5 years). Intra-group transfer of losses permitted
(subject to specific requirements).
■■ Losses carried forward cannot exceed 70% of an entity’s profit received during a fiscal year.
This restriction does not apply to legal entities entitled to apply the reduced corporate tax
rate of 5%.
■■ Fixed assets depreciated using straight-line method; for certain groups of fixed assets, the
double-declining method may also be used.
■■ Withholding taxes: on dividends (0% to foreign residents owning at least 10% shares for 12
months; in other cases – 15%), interest (0% if paid to the European Economic Area, or to a
country with which Lithuania has an effective tax treaty; in other cases – 10%), royalties (0%
if paid to a company resident in the EU and qualifying under the EU Interest and Royalties
Directive, in other cases – 10%), capital gains from sale and lease of Lithuanian real estate
(15%), income from performing and sports activities (15%), annual bonuses to supervisory
board members (15%); 0% for all payments to Latvia.
■■ Thin capitalisation rules: debt-to-equity ratio 1:4. Interest-free loans not included in controlled
debt.
■■ Taxation treaties with 56 countries.
■■ Transfer pricing methods in use: comparable uncontrolled price, resale price and cost-plus,
transaction net margin and profit split methods (the last two are supplementary methods).
VALUE ADDED TAX (VAT)
■■ Standard rate – 21%. Reduced rate of 9% applies to heating energy, hot and cold water intended
for heating residential premises (applies until 1 July 2015), as well as on books, periodical and
non-periodical press and passenger transportation (on scheduled routes) services, which apply
indefinitely. A reduced rate of 9% is also applicable as of 1 January 2015 to accommodation at
hotels and other special accommodation services. Reduced rate of 5% applies to fully or partially
compensated pharmaceuticals and means of medical aid, as well as on technical assistance
equipment for disabled individuals, which applies indefinitely.
■■ General VAT payer registration threshold – EUR 45,000.
PRO PERT Y TA X
■■ Land tax: 0.01-4% of the market value of the land. Exact rate(s) of land tax are set by
municipalities.
■■ Real estate tax (on real estate other than land): 0.3-3% of the market value of real estate. Exact
real estate tax rate(s) are set by municipalities. Individuals owning residential real estate with
a total value exceeding EUR 220,000 (or exceeding EUR 286,000, if individuals raise three or
more children or a disabled child) are taxed at 0.5% real estate tax on the excess.
INCENTIVES TO INVEST
■■ Free Economic Zones (FEZ) in Klaipeda and Kaunas. A company with investments of
EUR 1 million or more operating in FEZ is exempt from CIT for 6 years and enjoys a
50% reduction of CIT in the next 10 years.
■■ For entities running investment projects (under defined conditions) taxable profit is
reduced by up to 50%.
REAL ESTAT E TRANSFER DUTY
■■ No transfer duty; notary fees apply (0.45% of transaction value, but no less than EUR 28.96
and no more than EUR 5,792.40 or EUR 14,481 in case of transfer of multiple objects).
PERSONAL INCO ME TA X
■■ General flat rate – 15%; reduced 5% applies to certain activities carried out by self-employed
individuals.
■■ Dividends taxed at a rate of 15%.
CO MPULSORY HEALTH INSURANCE CO NTRIBUTIONS: Employee rate – 6% withheld from gross
salary; for employer 3% on top of gross salary.
SOCIAL SECURITY CO NTRIBUTIONS: Employee rate – 3% withheld from gross salary; for employer
27.98% on top of gross salary.
NAT URAL RESOURC ES TA X: Imposed on use of natural resources, pollution, and use of packaging
materials.
TA X AUDITS: Tax audits can be performed going back 5 years.
ADVANCE (BINDING) RULINGS: Binding tax rulings and advance transfer pricing agreements
available at no charge.
BELARUS
CORPORATE INCOME TAX (CIT)
■■ General flat rate – 18%; dividends – 12%; banks and insurance companies – 25%.
■■ Withholding taxes on income of foreign residents from Belarusian sources: dividends and
income from sale of shares – 12%; royalties – 15%; interest – 10%; freight forwarding services –
6%; other income (eg sale of real estate, securities, services (eg consulting, audit, management,
insurance, advertising), agency contracts, contractual penalties) – 15%.
■■ Losses can be carried forward for 10 years.
■■ Fixed assets can be depreciated according to 1 of 3 methods at the discretion of the company:
straight-line method, reducing balance method (direct or indirect sum-of-years’ digits or
declining balance method) or productive method.
■■ Taxation treaties in force with 62 countries.
■■ Transfer pricing methods in use: comparable uncontrolled price, resale price, cost plus,
transactional net margin profit (the last three are supplementary methods).
■■ Thin capitalisation rules: debt-to-equity ratio 1:3 (1:1 – for Belarusian companies which
produce excisable goods).
VALUE ADDED TAX (VAT)
■■ Standard rate – 20%. Reduced rates – 0%, 10%, 9.09%, 16.67%.
■■ No special registration for VAT purposes.
■■ Delay for 90 days in VAT recovery for goods imported from non-Eurasian Economic Union
countries and sold without any change.
PRO PERT Y TA X
■■ Land tax: by default, tax base is cadastral value of land. Rates vary significantly depending on
the functional use of land.
■■ Real estate tax: general tax rate – 1% of the residual value of real estate (buildings, constructions,
car parking spaces); 2% may apply to objects of incomplete construction. For individuals – 0.1%
(tax is calculated by tax authorities based on the assessed value of the real estate object).
■■ Local Councils of Deputies may increase or decrease the tax rate for certain categories of
taxpayers but by no more than two and a half times.
INCENTIVES TO INVEST
■■ Six Free Economic Zones. A company has to invest at least EUR 1 million. Exemption from
some taxes and duties, certain taxes at reduced rates.
■■ 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 is operating in rural areas and small town centres.
■■ Simplified Taxation System. Companies that meet certain requirements on number of
personnel and amount of gross revenue may pay a unified tax imposed on gross revenue.
Depending on VAT payment, tax rates are: 3% or 5%.
PERSONAL INCO ME TA X
■■ General flat rate – 13% (including dividends).
■■ Other rates apply to specific income: 16% on income from entrepreneurial, private notarial
and advocacy activities; 9% on income received from High Technology Park residents under
labour agreements.
SOCIAL SECURITY CO NTRIBUTIONS
■■ Employee rate is 1% of gross salary; for employer – generally 34% on top of gross salary.
CUSTO MS & EXCISE
■■ Excise duties are imposed on both import and manufacture of a list of goods. Customs are
imposed on imports to the customs territory of the Eurasian Economic Union; a limited number
of goods are subject to export duties.
ECOLOGICAL TAX AND NATURAL RESOURCES TAX
■■ Ecological tax is imposed on volume of waste, emissions, waste-water discharges, and
ozone-depleting substances imported to Belarus.
■■ Natural resources tax is imposed on volume of used natural resources (eg water, oil,
sand, clay, salt).
TA X AUDITS: Tax audits are performed normally going back 3 years.
ADVANCE (BINDING) RULINGS NOT POSSIBLE
SORAINEN offers expertise in all key tax and customs areas in the Baltic States and Belarus,
including:
■■ tax and customs advice and optimisation:
- advance advance ruling requests;
- transfer pricing compliance;
- local and cross-border mergers;
- managing the “effective tax rate”;
- market entry strategies and structuring, focusing on the new Baltic holding opportunities;
- permanent establishment risks;
- input VAT deductibility optimisation;
- special economic zones and free ports;
■■ tax and customs disputes at all levels;
■■ tax due diligence and local tax compliance reviews.
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ESTONIA
Allar Jõks
Partner
Pärnu mnt 15
10141 Tallinn
phone +372 6 400 900
estonia@sorainen.com
LATVIA
Jānis Taukačs
Partner, Regional Head
Kr. Valdemāra iela 21
LV-1010 Riga
phone +371 67 365 000
latvia@sorainen.com
BELARUS
Alexey Anischenko
Partner
ul Nemiga 40
220004 Minsk
phone +375 17 306 2102
belarus@sorainen.com
LITHUANIA
Saulė Dagilytė
Senior Associate
Jogailos 4
LT-01116 Vilnius
phone +370 52 685 040
lithuania@sorainen.com
© SORAINEN 2015
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Please note that the 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 March 2015. The publication does not cover laws or reflect all
changes in legislation, nor are the explanations provided exhaustive. Therefore, we recommend that you contact SORAINEN or your legal adviser
for further information.