• Save
Tax considerations of doing business in the Baltic States [Jānis Taukačs] on Baltic Spark
Upcoming SlideShare
Loading in...5
×
 

Like this? Share it with your network

Share

Tax considerations of doing business in the Baltic States [Jānis Taukačs] on Baltic Spark

on

  • 1,248 views

Baltic Spark, http://www.balticspark.org, 2010.04.16

Baltic Spark, http://www.balticspark.org, 2010.04.16

Statistics

Views

Total Views
1,248
Views on SlideShare
1,214
Embed Views
34

Actions

Likes
0
Downloads
0
Comments
0

3 Embeds 34

http://balticspark.org 20
http://lv2010.balticspark.org 9
http://www.slideshare.net 5

Accessibility

Categories

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Tax considerations of doing business in the Baltic States [Jānis Taukačs] on Baltic Spark Presentation Transcript

  • 1. TAX CONSIDERATIONS OF DOING BUSINESS IN THE BALTIC STATES Jānis Taukačs 16 April 2010 Baltic Spark, Riga
  • 2. Contents
      • Tax environment in the Baltic States
          • Comparison of the general tax environment
          • Comparison of the withholding tax structu re
      • Choice of the best Baltic State from taxation perspective for
          • Debt-financed acquisitions and operations
          • Equity-financed acquisitions and operations
      • Story of John
      • Tax planning examples
      • Planning example of a holding structure
  • 3. WHICH “BRIDE” FROM THREE TO CHOOSE?
  • 4. Business tax environment Baltic States, % CIT VAT Real Estate Tax RE Transfer Duty + Notary Fee PIT SSC Estonia 0, 21 0, 9, 20 0.1-2.5 land 0.5 21 37.2 (34.4/2.8) Latvia 15 0, 10, 21 1.5 / 0.1-0.3 residential 1-2 26 15 10 33.09 (24.09/9) Lithuania 5, 15 0, 5, 9, 21 0.3-1 business / 1.5 land 0.45 15 20 39.98 (30.98/9)
  • 5. Opening up abroad
    • No presence
    • Representative office
    • Licinse, franchise, IP
    • Agent
    • Dealer
    • Partnership
    • Self-employed
    • Branch, pernanent establishment
    • Company
    • Less presence = less tax to be paid in the foreign country
  • 6. SMEs – LAT
    • Fixed PIT:
          • No employees
          • Turnover – up to EUR ~14,300 a year
          • PIT lamp sum – EUR ~35 up to 700 (+7%) a year
    • ‘ Patent/Licence fee’:
          • EUR 50-100/month;
          • narrow scope of activities (who normally don’t pay PIT at all)
    • Proposed Micro-company tax:
          • 20% on turnover;
          • up to EUR ~100,000 a year
    • Self-employed:
          • 26% PIT +
          • SSC on self-chosen amount (not less than EUR ~70 a month)
    • SIA:
          • CIT 15% + 10% PIT on dividends
  • 7. SMEs – LIT
    • CIT 5%, if:
          • Income lower than EUR ~ 144,500, and
          • Less than 10 employees
    • Self-employed:
          • 15% PIT
          • 37.5% SSC from 50% of the taxable income - up to EUR 1350
    • UAB: CIT 15% + 20% PIT on dividends
  • 8. SMEs – Estonia
    • Self-employed:
          • 21% PIT
          • 33% SSC applies on the whole income, but between EUR 275 and 4,125 a quarter .
    • OU:
          • 21% on distribution
  • 9. Salary of EUR 1,000 gross a month Tax: State: PIT SSC Employer’s cost Non-taxable Net Salary Estonia 21 37.2 (34.4/2.8) 1,344 160 802 Latvia 26 33.09 (24.09+9) 1,241 50 686 Lithuania 15 39.98 (30.98+9) 1,310 0 760
  • 10. Incentives to invest – LAT
    • Deemed interest deduction on retained earnings
    • No CIT on capital gains, if sold fixed assets are replaced within a year
    • Accelerated depreciation (10-70%), declining balance; IP – straight line (5-10 y.),
    • Patents, trade marks, new production equipment - cost base increased 1.5 times
    • 2 SEZs & 2 FPs: property tax (80-100% off); CIT (5%)
    • Tonnage tax & tax concessions for sailors
  • 11. Incentives to invest – LIT
    • Tax treaty with Russia (in LAT & EST – no)
    • 2 FEZ: no CIT for 6 years, 50% off for next 10 y.
        • Investments of at least EUR 1m
        • State aid restrictions – investor responsible
    • On investment projects – CIT may be reduced by 50%
    • Patents, trade marks - cost base increased 3 times for purposes of depreciation
  • 12. Incentives to invest – EST
    • 0% CIT; 21% on:
          • distribution of profit, gifts, fringe benefits, non-business costs, excess capital reductions, liquidation quota
          • capital gains on sale of RE or RE companies
    • No thin capitalisation restrictions
    • Unlimited depreciation for tax
  • 13. Withholding tax on dividends To: From: EU/EEA Tax Treaty State Listed „ offshore ” State Default rate Estonia 0 0 0 0 Latvia 0 5, 10 10 10 Lithuania 0 5 - 15 15 15
  • 14. Withholding on interest State EU/EEA (%) Tax Treaty State (%) Listed „ Offshore” State (%) Default Rate (%) Estonia 0 0 21 0 Latvia 5 – if paid to related parties 0 – July 2013 5, 10 0 – to Lithuania 15 0 Unrelated recipient 5 Related Bank 10 Related recipient Lithuania 0 0 to Latvia 10 0, 10 0/ 10 Other states
  • 15. DEBT or EQUITY financing? Estonia Latvia Lithuania Withholding tax on interest 0 0 Unrelated recipient 10 5, 10 Related recipient Thin capitalization rules None 4:1 D/E ratio 4:1 D/E ratio 7.9 (LVL) 4.3 (EUR) 6.7 (USD) 5 (others) interest rate x1.2 – –
  • 16. DEBT or EQUITY financing? Estonia Latvia Lithuania Withholding / distribution tax on dividends 0 WHT 21 CIT 0 EU/EEA state 0 EU/EEA state 5, 10 Treaty state 5, 15 Treaty state 10 Default rate 15 Default rate Annual c orporate income tax 0 15 15
  • 17. Other withholdings – LAT
    • Royalties: 15% literature & art; 5% - other
    • Management & consulting:10%
    • Use of property in Latvia: 5%
    • Sale of real estate or shares in RE companies: 2%
    • Most payments to “Black list” offshores: 15%
    • Any payments to Lithuania : 0%
  • 18. Other withholdings – LIT
    • Royalties: 10%
    • Sale & lease of real estate: 15%
    • Performing & sports fees: 15%
    • Bonuses to supervisory board: 15%
    • Any payments to Latvia: 0%
  • 19. Other withholdings - EST
    • Royalties: 10%
    • Sale & lease of real estate: 21%
    • Performing & sports fees: 10%
  • 20. Financing with hybrid instrument : LAT
  • 21. Financing with hybrid instrument : EST
  • 22. VAT
    • Registration general thresholds:
          • LAT – EUR ~14,300
          • LIT – EUR ~29,000
          • EST – EUR ~16,000
    • In LIT (and possibly – also in LAT) – no reduced rates as of 1.1.2011
    • 2010 VAT Package implemented
    • LAT as of 1.12.2009:
          • VAT grouping
          • No VAT on imports
          • VAT reclaim on bad debts
  • 23. Summary
    • EST – good for debt-financed co’s (no annual CIT, no WHT on %, no Thin Cap.)
    • LAT & LIT – good for equity-financed co’s (low CIT effective rate, no WHT on dividends if paid to EU)
    • LAT & LIT - free ports & special economic zones
    • LAT & EST - Dutch DTT avoids transfer tax on sale of real estate companies
    • LIT – 5% CIT for SMEs
    • LAT - Notional interest deduction on retained earnings
    • LAT - Gains on sale of fixed assets not taxed, if substituted by new ones within 1 y.
    • LAT, EST – Advance rulings possible, no APAs
    • The Baltics - cross-border mergers now a ‘hot’ cost saving tool
    • The Baltics - certain instability because of rapid changes in tax systems
  • 24. Story of John
    • Setting up an on-line store
    • Where is the lowest tax jurisdiction to set up?
    • Permanent establishment in Latvia
        • Fixed place of business
        • Dependent agent concludes contracts
    • Fixed PIT, micro-company tax, SIA, self-employed?
  • 25. Tax planning examples
    • Double dip lease
    • Tax haven companies
    • Treaty shopping
  • 26. What is useful on www.sorainen.com
    • Tax blogs and articles
    • Tax newsflashes (may subscribe for)
    • www.twitter.com/Sorainen_tax - quick tax news
    • Other publications in tax:
          • T ax C ard
          • Country tax profiles
          • T ransfer pricing guide
          • T hin capitalization guide
          • Real estate taxation in CEE guide, etc.
  • 27. Thank You!
    • Jānis Taukačs
    • Partner, Regional Head of the Tax Team
    • phone +37 1 67 365 000
    • mobile +37 1 29 139 300
    • janis.taukacs @sorainen.com
    Contacts