Legislation in LITHUANIA
1. General Information on Electrical Supply
Lithuania has three factors that greatly affect its energy sector. First of all, the country currently depends greatly on Russia's primary energy sources. Secondly, Lithuania does not have any electric interconnection with Western Europe and thirdly, the country is now studying the complete dismantling of its nuclear power plant at Ignalina. These three facts may play a major role in the configuration of the future of Lithuania's energy sector (EREC, 2008). Electricity generation in Lithuania is predominantly nuclear, and the balance is covered by thermal energy, natural gas and diesel and co-generation (electricity and heat) plants for urban heating. Lithuania is predominantly flat, which means it has few hydroelectric resources, however, this resource is currently being taken advantage of up to 50% of its potential, which reaches 1,600 MW. In 2007 around 70 per cent of the total national production of electricity was generated by the nuclear power plant at Ignalina. Dismantling Lithuania's nuclear power plant will represent a unique opportunity for the development of renewable energies. One of the European Union's strategic objectives is its 2002 Energy Strategy, which aims to achieve that coverage of 12% of the total balance of primary energy be from renewable energies by 2010. The transportation network in Lithuania has deteriorated considerably since the fall of the former Soviet Union and currently the country is modernising and expanding the existing network.
2. The Regulatory Framework Lithuania passed its current National Energy Strategy in 2002. One of the objectives of the National Energy Strategy is to increase the use of national energy resources and renewable energy sources following the European Union's guidelines and to reduce the import of fuels, whilst creating new jobs and improving environmental regulations. The European Union's Directive on the promotion of renewable energies has set objectives for Lithuania to reach close to 23 per cent by 2020. Since the application of the National Energy Policy of 2002, Lithuania has created many support programmes for the different renewable energy producers. In 2008, the Lithuanian National Commission for Price Control and Energy approved purchase rates for electricity produced by clean energies. These rates are guaranteed until December 31, 2020. Small
hydroelectric plants have a connection rate of 7.8 cents of a Euro per/kWh for eleven years of production. Conventional and off-shore wind power as well as from biomass sources, can receive 8.6 cents of a Euro/kWh for 11 years (EREC, 2009). Renewable Energy producers are exempt from special consumer taxes and the provisions of this special consumer tax will come into effect on January 1, 2010. Lithuania also supports renewable energy producers, guaranteeing priority in the grid for both transmission and distribution. The country also offers a discounted grid-connection rate to producers of renewable energies (up to 40% of the rate).
3. Taxation Corporate Tax All corporations are considered possible taxpayers, including single-proprietor enterprises, if incorporated under Lithuanian Law, and the most common corporate types are joint-stock company (AB) and closed joint-stock company (UAB). Tax legislation distinguishes between resident and non-resident corporations, thus all companies incorporated by Lithuanian Law may be considered to be resident enterprise. In essence, the concept of resident or non-resident is comparable to that of a Lithuanian or nonLithuanian corporation, depending on its incorporation. Those enterprises considered to be Lithuanian will pay taxes on their world-wide income, whereas those companies that are not classified as Lithuanian shall only be taxed for income from Lithuanian sources. The taxable base is determined by accounting results, in other words, income minus expenses, modified by legally established provisions. The expenses incurred during the development of the economic activity of the enterprise shall be deductible. Straight-line depreciation is the normal method of calculation for the depreciation of assets and the declining balance sum-of-years' digits for new Real-estate properties, machinery and equipment, lorries, software and acquired rights is also permitted. Reserve funds and provisions shall not be fiscally deductible except for banks and insurance companies. Capital gains will be included in the tax base and reinvestment is not permitted to be used as an exemption. The general tax rate is 15% (formerly 24%), and a reduced rate of 13% for small companies, as long as they comply with the legally established requirements.
As a general rule, all dividends received by a Lithuanian corporation will be taxed at 15%. However, an exemption has been established for the withholding applied to distributed dividends, as long as the profits that are distributed as dividends have been taxed normally in the headquarters of the corporation that is distributing them, (whether at the 13% or 15 % rate), if the company receiving the dividend has held more than 10% of voting stock for at least 12 months. Interest paid by Lithuanian corporations is generally deductible, except for interest on fines or late payment. Fees or royalties paid for the use of patents, brands, secret formulas, copyrights, know-how are all deductible. However, for the aforesaid, excessive payments paid in fees to the mother company or shareholders shall be considered dividends and not be deductible. Services received are deductible expenses. Should these services have been rendered by the mother company, they will be considered a deductible expense corresponding to the market value of the services received, be considered as dividends and the excess amounts shall not be deductible. With regards to groups of companies, according to Lithuanian legislation, it is not possible to neither consolidate fiscally nor compensate losses with group companies. There is a Free Port Zone in which companies incorporated there, excepting credit institutions, will enjoy a tax grace period for the initial six years, as well as rates reduced by 50% for the following 10 years, as long as they fulfil the legally established requirements. The tax year is twelve months and generally coincides with the calendar year.
Non-residents Non-resident companies in Lithuania are subject to Corporate Tax for income generated in Lithuania. According to internal Lithuanian legislation, a corporation is considered to have a permanent presence in Lithuania if it carries out activities permanently in this country, if it has an agent, a building, construction or facilities or if it uses equipment or construction for prospecting or extraction of natural resources in Lithuania. Income obtained by non-resident permanent establishments or by non-resident corporations without permanent establishment in Lithuania is subject to general tax rates, paid by means of withholding. The tax base will consist of profits obtained in Lithuania by the non-resident corporation as well as profits abroad attributable to the permanent establishment.
Dividends obtained by a non-resident company shall be exempt from taxation in Lithuania if the same requirements are fulfilled as for resident corporations. Should said requirements not be fulfilled, or the receiving corporation be located in a territory classified as a tax haven, dividends shall be subject to withholding at a general tax rate of 15%. Payments made by a Lithuanian company to a non-resident one as interest or fees, shall be subject to a final 10% withholding. Capital gains shall be exempt as long as they fulfil the requirements established in the Parent Company/Subsidiary Directive. The Lithuanian tax regime established special regulations for transfer prices of intra-group operations, thus the Lithuanian Tax Administration is entitled to adjustments to operations carried out between related parties that have not been carried out according to market rates. Different calculation methods have been established to calculate market rates and the Administration's preferred method is that of comparable free rates. Should it not be possible to use said method, one can choose between increased costing methods or resale prices. The rules governing transfer pricing must be interpreted according to the comments made by the OECD regarding it. Currently, Lithuania has signed a total of 45 conventions to prevent international double taxation, amongst which is one with Spain.
Indirect Taxation The delivery of goods and rendering of services within Lithuania shall be subject to VAT, according to internal legislation. Currently, Lithuania has implemented the EU Directive regarding VAT. A general rate of 21% has been set. The Property Transfer Tax and Stamp Duty are not applied in Lithuania.
EMISSIONS TRADING Lithuania, as a signatory of the Kyoto Protocol, may benefit from the Joint Implementation Mechanism since it is included in Annex B (the Parties included in Annex I are listed in Annex B of the Kyoto Protocol), regulated in Article 6 of the Kyoto Protocol, which permits that a country listed in Annex I of the Convention (developed countries and countries transitioning to a market economy) may invest in projects aimed at reducing emissions of man-made greenhouse gases in another country listed on Annex I. This type of project will permit a reduction in emissions by sources and removal by sinks of all greenhouse gases. The investing country shall obtain Emission Reduction Unit allowances (URE) which are discounted from the emission allowance units assigned to the receiving country and in this manner the country financing the project will earn UREs at a lesser price that what it would
have cost in the original country and the receiving country will benefit from the investment made in it. As a member state of the European Union, Lithuania participates in the “EU Emissions Trading Scheme� (EU ETS), which is the main pillar of Climate Policy in the European Union. This Scheme began in January of 2005 with an initial phase from 2005 to 2007 and a second phase that will reach from 2008 to 2012 (this Scheme has been defined in European Directive 2003/87/EC).