New tax reform and NGOs

On 1 January 2009 a range of legal amendments came in force changing many of the tax rates and exemptions: there were so many changes that only a few would have managed to keep track of all of them. Therefore we have decided to make a brief overview of essential amendments of the laws related to non-governmental organizations, spike several rumours and discuss the things that were left unchanged during this reform.

Corporate income tax

Probably the hottest and most important amendment, not only to the non-governmental organizations but to other legal persons as well, was the change of corporate income tax rate; from January 1 the profit is taxed 20 percent instead of the previous 15 percent. On the other hand, the exemptions of non-profit entities and the income beyond 25 thousand litas were left intact; they will be taxed 0 percent as it used to be.

We are excited to inform that the non-governmental organizations and other non-profit entities were granted one additional exemption; it is provided in Article 5 of the Law on Corporate Income Tax that from now on "the income received from activities benefiting public interests and used in funding of such activity shall not be considered the income from commercial activities of non-profit entities." The IST was inquired about the actual meaning of the amendment; we expect to comment on the reply in the near future.

Finally, as concerns the regulation of corporate income tax, we assure that all exemptions concerning charity and sponsorship were left intact during the recent tax reform.

Personal income tax

The amendments of the tax are most important to organizations which have or are planning to have employees. The tariff of personal income from employment relationships will be 15 percent - the same as the author fee and individual activity fee. Please note! The amendment does not concern the amount of social contributions on behalf of the employee which remain unchanged. The new amendments have left the natural persons' possibility to give 2 percent of their taxed income to non-profit entities intact.

Value added tax

As most of NGOs are not VAT payers themselves, the amendments of the tax have more to do with them as consumers rather than providers of services. We are excited to inform that the amendments have nothing to do with such VAT-exempt services (goods) as healthcare, cultural services provide by non-profit entities, etc. The rate has increased by one percent, from 18 to 19, for the organizations which had to pay the tax and will continue to do that.

The proposed tax on vehicles owned by legal persons was postponed for three months; we will be discussing the issues of its application and relationship with NGOs in the near future.