Taxes for Small partnership (SP) and Sole proprietorship

Juriscon Naujienos

Main taxes for small partnership are:

  1. Income tax.
  2. Value Added Tax (VAT).
  3. Social taxes.
  4. Personal income tax.
  5. Contributions to the guarantee fund.

 

  1. Income tax. Standard tariff for income tax- 15 percent. However, the SP may apply a reduced tariff of 5 percent tax rate if:
  • average number of listed employees up to 10 people and
  • tax period income does not exceed 300 000 EUR

These provisions do not apply to:

1) for units (individual (personal) enterprises) which participant or his family members and other units (individual (personal) enterprises) participants;

2) for units (individual (personal) enterprises) whose participant and (or) his family members on the last day of fiscal period, owns more than 50 percent of the shares (parts, shares) in other units, and for units where units (individual (personal) enterprises) participant and (or) his family members on the last day of the tax period, owns more than 50 percent of the shares (parts, shares);

3) for units where the same participant on the last day of the tax period, owns more than 50 percent of the shares (parts, shares);

4) for units with the same participants together on the last day of the tax period, owns more than 50 percent of the shares (parts, shares).

 

  1. Value added tax (VAT). Standard tariff for VAT- 21 percent.

Small partnership must register for VAT if the total amount of income from economic activities, of goods and (or) services rendered in the country for the year (last 12 months) has exceeded 45, 000 euros (until introduction of the euro, that is until December 31 of 2014 – 155 000 LTL).

VAT shall begin from the month when mentioned amount has been exceeded. VAT is calculated for all the goods and (or) the services for which supply (provision) the specified amount has been exceeded.

When the same person (whether alone or together with other persons who is related according to VAT law) controls several legal entities, all legal persons under its control, and himself (if he is engaged in economic activity) must submit applications to register as VAT payers, if the total amount of the consideration received or receivable for the economic activities of goods and (or) services rendered for the year (last 12 months) has exceeded EUR 45 000, regardless of the fact that any such persons or part of the consideration received or receivable amount  is less than the limit.

SP also required to register for VAT if the total SP purchased goods from other Member States (except  new vehicles or excitable goods) value (excluding VAT paid or payable in the Member State from which the goods are shipped) during the previous calendar year exceeded 14 000 or in the current calendar year is estimated to exceed that limit.

 

  1. Social taxes:

 SOCIAL taxes contributions are paid in two ways:

  • from removed amount for personal needs

or

  • from removed amount for personal needs, which may not be less than the minimum monthly wage (MMW). Since 1th of July of 2016 – 380 Eur.

In the first case for the SP members, the contributions need to be paid only if the funds are removed for personal needs. If the funds are not removable, does not have to pay contributions.

 

This contribution method is applicable to SP members if:

  • SP running the first year;
  • SP member is not older than 29 years (applicable for the period up to the end of the calendar year in which a person turns 29 years old);
  • was designated an old-age or work incapacity (disability) pension in Lithuania or another European Union Member State;
  • if the member contributions already paid (eg., an employed basis);
  • If member has paid contributions as a self-employed person (except in the business license);
  • has bankrupting or bankrupt Community status;
  • member is in prison or in specialized mental health-care facility on court decision.

 

For all other SP members, social security contributions must be paid on the amount not less than the minimum monthly wage, even if the funds for personal needs are not removable.

 

In the case where the same person is a member of few SP, obligation to pay social security contributions for him provided for SP, which was registered earliest.

 

If the SP is dormant and declared it, mentioned law does not apply, for such SP members contributions does not have to pay.

 

State social insurance (SSI) contribution tariff  30.8 percent (from 1 of July of 2017 – 30.3 percent).

In the case when a small community member is involved in the accumulation of pensions by paying an additional cumulative contributions to their pension funds by their own funds, SSI contribution tariff is 32.8 percent (From 1 of July if 2017 – 32.3 percent).

It also paid the contributions of Compulsory health insurance. Their tariff is 9 percent. They are calculated on the same basis as the SSI contributions.

 

If the SP is temporarily dormant and informed STI about it or are in liquidation or bankruptcy company  status, SP members pays for themselves 9 percent of MMW health insurance premiums if they do not belong to persons listed in the Health Insurance Act Article 17. 1-8 parts and 6 part of the article 4.

For SP managers, who is not the SP members according to SP Act, social security contributions are calculated according to the civil (service) contract for management activities of revenues the calculation of personal income tax under the Personal Income Tax Act.

State social insurance contributions for the SP managers, who are not those SP members according to SP , pensions for  social security is paid in the same order in which paid for persons with labor relations or their essence corresponding to labor relations, in rates provided – 26.3 percent (From 1 of July of 2017- 25.3 percent). In the case of a person involved in the accumulation of pensions by paying an additional cumulative contributions by their personal funds, the SSI contribution tariff – 28.3 percent (From 1 of July of 2017 – 27.3 percent).

 

  1. Personal income tax (PIT). Tariff of PIT – 15 percent.
  • If SP pays A class revenue, then obligation to withhold PIT, pay it to the budget and the revenues declared, declaration form FR0572, has SP.
  • If SP pays B class revenue, then obligation to withhold PIT, pay it to the budget and the revenues declared has person who receiving income to the end of the year to 1 of May, Annual tax declaration (form GPM308), SP member can choose amount to be considered as work related income which does not exceed the established “ceiling”, that is 20688 Eur., but SP also the manner prescribed by a PIT law provides a certificate FR0471,about paid Class B income (code 02 – wages, code 26 – income from distributed profit).

 

  1. Payments to the guarantee fund. Tariff – 0.2 percent.

SP contributions are paid from the gross earnings of employees (which calculated from the state social insurance contributions).

Guarantee fund contributions are not paid from the SP manager or members incomes.

 

Main taxes for Sole proprietorship are:

  1. Income tax
  2. Value Added Tax (VAT)
  3. Social taxes
  4. Personal income tax (PIT)
  5. Contributions to the guarantee fund

 

  1. Income tax.

According to the Income Tax Act, Section 7, part 1, Sole proprietorship revenue is recognized by using:

  • accrual accounting principle;
  • cash accounting principle.

For the purposes of income and expense accrual accounting principle, revenues are considered earned when the property (goods) shipped or transferred to ownership of the buyer and handed over to the asset (goods) associated benefits and risks, and services (services part) whether the work is performed, and expenses when they are incurred, regardless of the cash receipt or payment.

For the purposes of the cash accounting principle, Lithuanians unit revenue is recognized in the actual incomes receiving moment. For cash accounting principle can apply newly registered sole proprietorship, if they provide that their income during the tax period will not exceed 30 000 euros. Revenue recognition under a cash accounting basis, expense is recognized using the accrual and principles. If since the beginning of the establishment sole proprietorship was applying accrual accounting principle or the principle that crossed the ITA provisions of the law, it can not be changed from  the accrual principle to a cash accounting basis before liquidation or end, regardless of the fact that the tax periods income does not exceed EUR 30 000.

According to Article 9 of the ITA, Sole proprietorship, which provisions are entitled to the recognition of revenue cash receipt, can voluntarily itself switch to the recognition of revenue on an accrual accounting basis.

When sole proprietorships  amount of revenue recognition under cash accounting principle passes to the recognition of revenue on an accrual accounting basis, then outstanding customer debt to income are included at the time when they are paid.

If buyers fails within 3 years from the beginning of the tax period, when sole proprietorship switched to accrual accounting principles, these unpaid debts becomes included to incomes in the third year.

Income tax is declared at the end of the tax period to the next tax period that is June 15.

Standard tariff income tax – 15 percent. However, sole proprietorship may apply the reduced tariff of 5 percent tax if:

  • average number of listed employees up to 10 people and
  • tax period incomes does not exceed 300 000 EUR

 

These provisions do not apply to:

1) for units (individual (personal) enterprises) which participant or his family members and other units (individual (personal) enterprises) participants;

2) for units (individual (personal) enterprises) whose participant and (or) his family members on the last day of fiscal period, owns more than 50 percent of the shares (parts, shares) in other units, and for units where units (individual (personal) enterprises) participant and (or) his family members on the last day of the tax period, owns more than 50 percent of the shares (parts, shares);

3) for units where the same participant on the last day of the tax period, owns more than 50 percent of the shares (parts, shares);

4) for unit, where the same participants together on the last day of the tax period, owns more than 50 percent of the shares (parts, shares).

 

  1. Value added tax (VAT). Standard tariff for VAT- 21 percent.

Small proprietorship must register for VAT if the total amount of income from economic activities, of goods and (or) services, that was rendered in the country for the year (last 12 months) has exceeded 45, 000 euros (until introduction of the euro, that is until 2014, December 31. – 155 000  LTL).

VAT shall begin from the month when mentioned amount has been exceeded. VAT is calculated for all the goods and (or) the services for which supply (provision) the specified amount has been exceeded.

When the same person (whether alone or together with other persons who is related according to VAT law) controls several legal entities, all legal persons under its control, and himself (if he is engaged in economic activity) must submit applications to register as VAT payers, if the total amount of the consideration received or receivable for the economic activities of goods and (or) services rendered for the year (last 12 months) has exceeded EUR 45 000, regardless of the fact that any such person or part of the consideration received or receivable amount  is less than the limit.

SP also required to register for VAT if the total SP purchased goods from other Member States (except  new vehicles or excisable goods) value (excluding VAT paid or payable in the Member State from which the goods are shipped) during the previous calendar year exceeded 14 000 or in the current calendar year is estimated to exceed that limit.

 

  1. SOCIAL taxes (State Social Insurance and Compulsory Health Insurance)

Contributions tariff of State Social Insurance:

30,8 percent tariff (since 1 of July of 2017 – 30,3 percent);

32,8 percent (since 1 of July of 2017 -32,3 percent), if person involved in to accumulation of pensions by paying an additional funded pension contributions with their own expense.

Contribution tariff of Compulsory Health Security:

9 percent from minimum monthly wage (MMW).

SOCIAL taxes contributions are payable from removed amount for personal needs by company owner (related to labor relations), however contributions may not be bigger or smaller than the amounts indicated below.

Over the year, contributions can be calculated from the amount, bigger than the average wage for the last 28 years, that is 20753, 60 Eur. (741, 2 x 28).

The maximum annual contribution of State Social Insurance– 6392, 11 Eur. (when tariff is 30,8 percent).

The maximum annual contributions of Compulsory Health Insurance– 1867 ,82 Eur.

Over the year, contributions can be calculated from the amount, smaller than 12 MMW.

The minimum annual contributions of State Social Insurance– 1349, 04 Eur. (when tariff is 30, 8 percent).

The minimum annual contributions of Compulsory Health Insurance– 394, 2 Eur.

 

  1. Income tax. Tariff of Income tax- 15 percent.

Sole proprietorship’s owner’s income tax payable applied with 15 percent tariff of income tax.

 

  1. Contributions to the guarantee fund. Tariff- 0, 2 percent.

Sole proprietorship pays contributions from gross earnings of employees (State Social Insurance contributions are calculated from this).

 

Comparison of payable taxes for Small partnership (SP) and Sole proprietorship:

Same taxes (profit, value added and personal income) and advantage are applicable for Small partnership and Sole proprietorship. Main difference of Small partnership taxes are only for payment to members and to manager. Small partnerships manager’s salary are calculating with 15 percent income tax, contributions of State Social Insurance and Compulsory Health Insurance are not calculating. Another one important aspect – Small partnerships members are not risking their personal assets in case of failure, because the Small partnership is a limited liability legal person.

Since essential change happened in 2015, May 28, when the entry into force alteration of Article 7 of MBI. 4 d.  (“Small partnership member cannot have labour relations with Small partnership,  also cannot enter in to a civil pact about providing services or performing services, exception- Article 22, part 2, Small partnership manager covering civil (service) contract “), Small partnership became no longer so attractive business organisation form.