European Union: Accession States Tax Guide

European Union: Accession States Tax Guide

B HU D

ROMANIA IA

A Lex Mundi Multi-Jurisdictional Survey prepared by the

Lex Mundi International Tax Practice Group

Updated April 2007

ULGARIA • CYPRUS • CZECH REPUBLIC • ESTONIANGAR OLANY • LATVIA • LITHUANIA • MALTA • P

• SLOVAK REPUBLIC • SLOVEN

2100 West Loop South, Suite 1000

Houston, Texas 77027 USA Tel: 1.713.626.9393 www.lexmundi.com

© Copyright Lex Mundi Ltd. 2007

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the other covering corporate governance and the rights of minority shareholders.

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About this Survey

On May 1st 2004, the fifth enlargement in the history of the European Union was effected, comprising the largest number of countries ever admitted at one time (i.e. Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia). On January 1st 2007, two new countries joined the EU, namely Romania and Bulgaria. This enlargement, which has inspired far-reaching legal, political and economic reforms in the twelve new member states, presents challenges and numerous opportunities in the area of taxation.

On the occasion of the recent enlargement, Lex Mundi has prepared and marketed internally a short, up dated practical guide, providing essential information on the tax systems in force of each new EU member state. The “EU Accession States Tax Guide” was initiated by Lex Mundi’s International Tax Practice Group and was coordinated by Yerassimos C. Yannopoulos and Maria Vrachatis both members of Zepos & Yannopoulos (the Lex Mundi member firm in Greece). The aim of the relevant publication is to: (i) disseminate among Lex Mundi member firms key information on the tax systems covered and (ii) constitute a valuable tool for both members and clients in assessing the tax environment in each new member state in the pursuit of business activities and opportunities. For the convenience of its users, the guide has been divided in country chapters including the tax systems in force. Each chapter has been further divided in seven sections ranging from General Information to Enforcement & Litigation procedure. Finally, the user may find an appendix outlining the basic income tax rates in each country as well as a list of the DTC agreements concluded so far.

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Author’s Guide The EU Accession States’ Tax Guide was completed thanks to the valuable contributions

om in the respective ju tions. Therefore, all the credit for this publ go to the follo omplete the relevant questionnaire and to contribute to contact the firms/colleagues below, if you ne

A

fr every member firmication should

risdicwing colleagues who took the time to c the national chapters. Please feel free ed any clarification and/or additional information.

BULGARI Svetlin Adrianov PENKOV, MARKOV & PARTNERS Tel: 359.2 .9713935 - Fax: 359.2.9711191E-mail : [email protected]

CYPRUS Chryso Pitsilli – DekaDR. K. CHRY

tris CO. SOSTOMIDES &

Tel: 357.22.777000 - Fax: 357.22.779939 E-mail : [email protected]

CZECH REPUBLIC KUBR

.450

Petr Nemec PROCHÁZKA RANDLTel : 420.221.430.111 - Fax : 420.224.235E-mail : [email protected]

ESTONIA Rolan JankelevLEPIK & LUHA

itsh

AAR

Tel : 372.6.306.460 - Fax: 372.6.306.463E-mail : [email protected]

HUNGARY Peter P. Nagy NAGY ES TROCSANYI Tel : 361.487.8787 - Fax : 361.487.8701 E-mail : [email protected]

LATVIA Zinta Jansons KLAVINS & SLAIDINS Tel : 371.781.4848 - Fax : 371.781.4849 E-mail : [email protected]

LITHUANIA IDEIKA, PETRAUSKAS, VALIUNAS ir

Gintaras Balcius LPARTNERIAI Tel : 370.5.268.18.88- Fax : 370.5.212.55.91 E-mail : [email protected]

4

mailto:[email protected]

mailto:[email protected]


MALTA tephen Attard SOCIATES ADVOCATES

.2122.5908

SGANADO & ASTel : 356.2123.5406 - Fax : 356e-mail : [email protected]

POLAND ichal Bernat TNERS

@wardynski.com.pl

MWARDYNSKI & PARTel : 4822.437.82.00 - Fax : 4822.537.82.00 E-mail : michal.bernat

ROMANIA ESTOR NESTOR DICULESCU KINGSTON PETERSEN

00 11.210

nkp.ro

Ana-Maria E. Miron NTel: 4021.20.11.2Fax : 4021.20.E-mail : Ana-Maria.Miron@n

SLOVAK REPUBLIC

ECHOVA & PARTNERS 44.41 - Fax : 421.2.544.345.98

hova.sk

Tomas Maretta Jana Borska CTel : 421.2.544.1E-mail : tomas.maretta@cec [email protected]

SLOVENIA Natasa Vidovic VIDOVIC & PARTNERS Tel : 386.1.500.73.20 - Fax : 386.1.500.73.22 E-mail: [email protected]

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Table of Contents

BULGARIA ................................................................................................................ 7 CYPRUS.................................................................................................................... 15 CZECH REPUBLIC................................................................................................ 29 ESTONIA.................................................................................................................. 36 HUNGARY ............................................................................................................... 48 LATVIA .................................................................................................................... 55 LITHUANIA............................................................................................................. 63 MALTA..................................................................................................................... 75 POLAND................................................................................................................... 84 ROMANIA................................................................................................................ 97 SLOVAK REPUBLIC ........................................................................................... 109 SLOVENIA............................................................................................................. 121

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Lex Mundi European Union: Accession States Tax Guide

BULG RIA Penkov, Markov & Partners

fast growth of investments and drop of unemployment which is due to strict fiscal olicy. According to the assessment, the financial growth is expected to continue and reach 6

e and social security. These goals are the basic rinciples in the Program for European Integration, Economic Growth and Social

portant source of income for the state budget. As far as the proportion between direct nd indirect taxes is concerned, profits from indirect taxes are bigger than profits from direct xes.

The fol ing Bulgarian law:

1. 2. ut economic activity in the Republic

5. under contracts for management and

6. tions and the contribution payment centres established

A

A. General information According to the International Monetary Fund’s May 2006 assessment, Bulgaria has registered p% a year. The main goals of the fiscal policy are: 1) maintaining macro-economic stability; 2) maintaining and stimulation of economic growth; and 3) improvement of the living standard by means of decreasing the taxation pressurpResponsibility, adopted by the Government. The State’s profits pursuant to the State Budget Act are mostly from taxes, i. e. taxes are the most imata B. Corporate income taxation 1. Which are the taxable entities?

low entities are taxable under

Resident legal persons; Non-resident legal persons which carry oof Bulgaria through a permanent establishment or which receive income from a source inside the Republic of Bulgaria;

3. Sole traders: regarding taxes withheld at the source and in the cases specified in the Income Taxes on Natural Persons Act;

4. Natural persons who are merchants within the meaning of the Commerce Act: in the cases specified in the Income Taxes on Natural Persons Act; Employers and commissioning entities control: regarding the tax on the expenses on fringe benefits provided for in the Corporate Income Tax Act (CITA). Unincorporated associaunder the Social Insurance Code are treated as legal persons and are taxable for purposes of CITA;

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7.

d manages investments, where the owner of the income cannot be identified, is a taxable person for income from sources inside the

The tax ancresult for:

2. they arise where any income or expenses are ounting for the

said income or expense; and the Corporate Income Tax Act.

tax rates?

he new Corporate Income Tax Act, effective as of 01.01.2007, introduces separate taxation

e tax financial result before deduction of the tax loss until the ate of tax control, the person is presumed to have exercised the right to election in respect of

shall be deducted successively solely om the tax profits from the source outside Bulgaria from which the said loss has been

and have not been recovered shall be

Any non-resident organizationally and economically distinct formation (trust, fund and other similar formations), which independently carries out economic activity or performs an

Republic of Bulgaria. 2. How is the taxable income determined?

fin ial result shall be determined by means of adjusting the accounting financial

1. Permanent tax differences - accounting income or expenses, which are not recognized for tax purposes; Temporary tax differences – recognized for tax purposes in a year other than the year of acc

3. Other amounts provided for in 3. What are the applicable The corporate tax rate is 10 %. 4. Are capital gains taxed separately? Tof capital gains. 5. May losses be carried back or forward and to what extent? Taxable persons have the right to carry forward the tax loss formed according to the procedure established by CITA. Where a taxable person has elected to carry forward the tax loss, the said loss shall be mandatorily carried forward successively until its depletion during the next five years. The taxable person exercise its right to election by means of deduction of the tax loss during the first year after incurrence of a tax loss, during which the person has formed a positive tax financial result, before deduction of the tax loss. Where the taxable person has not formed a positivdcarrying forward of a tax loss. Any tax loss, formed during the current year in a country with which the Republic of Bulgaria has signed a convention for the avoidance of double taxation and the method of avoidance of double taxation with respect to profits is exemption with progression, shall not be deducted from the tax profits from a source inside Bulgaria or other States during the current of succeeding years. The tax loss referred tofrincurred during the next successive five years. Upon termination of the activity of a permanent establishment in a Member State of the European Community or of the European Economic Area, any tax losses from a permanent establishment, which have not been carried forward

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carried forward according to the standard procedure established by CITA until the five-year period since the incurrence of the losses has elapsed. Where a taxable person has formed a tax loss and the loss or a part of it has its source outside Bulgaria in respect to which source the credit method for double taxation avoidance is applied, the loss which is not deducted during the current year shall be deducted during the next five successive years solely from the tax profits from the source outside Bulgaria from

hich the said loss has been incurred. Where the tax loss for the year has not been formed a hall be allocated among the

ountries from which the loss has originated.

6. The wi ldin

a) Withholding Tax on Income from Dividend and Shares in Liquidation Surplus

b) Tax Withheld on Income of Non-Resident Persons – the tax rate is 10%.

re there any preferential group taxation rules in force?

ransfer pricing and related ersons.

financial relationships under terms which

ration the tax nancial result that would be obtained upon the effecting of a customary transaction of the

relevandoes no

he quantities of raw materials used as production inputs and other production costs over the customary quantities and costs for the activity

control;

the market interest rate

applicable at the time of conclusion of the transaction, including in cases of interest-

ess debts for own account; and

wfrom single source (foreign State or Bulgaria), such loss sc

Are there any withholding taxes and at which rates?

thho g taxes pursuant to CITA are:

– the tax rate is 7%; and

7. A Group taxation is not permitted. Tax anti-avoidance rules cover tp 8. Which are the anti-avoidance rules currently in force? Where related parties enter into commercial andaffect the amount of the tax financial result and which differ from the terms between unrelated parties, the tax financial result shall be determined and taxed under the terms which would have arisen in respect of unrelated parties. Where one or more transactions, between unrelated parties, has been concluded under terms the fulfilment of which leads to tax evasion, the tax financial result shall be determined ignoring the said transactions, their terms or legal form and taking into considefi

t type at market prices and intended to achieve the same economic result, but which t lead to tax evasion. The following shall also be treated as tax evasion:

1. Any substantial excess of t

carried out by the person, where any such excess does not result from circumstances beyond the person’s

2. Any contracts for loan for use or other gratuitous provision for use of tangible and intangible benefits;

3. Any borrowing or lending at interest diverging from

free loans or other temporary gratuitous financial assistance, as well as debt write-offs or repayment of non-busin

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4. Payment of any remunerations or compensations for any services, which have not been actually performed.

Where a transaction is concealed by another, fictitious transaction, the tax liability shall be assessed under the terms of the concealed transaction.

arding the tax financial result and the annual corporate tax due. The annual tax return all be submitted on or before March 31 of the following year at the National Revenue

ny taxable person shall remit the corporate tax for the relevant year on or before March 31 f

10. With which countries have double taxation conventions already been concluded?

Interest withholding lties withholding ds withholding

9. Which are the main administrative requirements to comply with the local tax

authorities? Taxable persons, which owe corporate tax shall submit an annual tax return in a standard form regshAgency territorial directorate with jurisdiction over the place of registration of the taxable person. Aof the ollowing year after deduction of the tax prepayments remitted for the relevant year.

Countrytax rate

Royatax rate

Dividentax rate

Albania 10% 10% 5-15% Algeria 10 % 10 % 10 % Armenia 10% 10% 5-10 % Austria - - - Belarus 10 % 10 % 10 % Belgium 10% 5% 10%Canada 10 % 10 % 10 %;15 %China 10 % 7 %; 10 % 10 % Croatia 5% - 5% Cyprus 0% 7 % 10 % 5%; 1Czech Republic 10 % 10 % 10 % Denmark % - - 5%; 15Egypt

12.5% 12.5% 10%

Finland - 5 % 10 % France - 5 % 5 %; 15 % Georgia 10 % 10 % 10 % Germany - 5 % 15 % Greece 10 % 10 % 40 %; 10 % Indian Republic 0% 15% 15%; 2 15% Indonesia 10% 10% 15% Iran 5 % 5 % 7,5 %Ireland 5 % 10 % 5 %; 10 % Israil 5 %; 10 % ,5 % ,5 %; 10% 7,5-12 7,5-12

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Country Interest withholding tax

Royalties withholding tax

Dividends withholding tax

rate rate rate Italy - 5% 10% Japan 10 % 10 % 10 %; 15 %Kazakhtan 10% 10% 10% Korea 10 % 10 % 5 % 5 %; Kuwait 5 % 10 % 0 %; 5 % Latvia 5% 5%; 7% 5%; 10% Lebanon 7 % 5 % 5 % Lithuania 10% 10% 0-10 % Luxemburg 5 % 10 % 5 % 5 %; 1Macedonia 10 % 10 % 5 %; 15 % Moldova 10% 10% 5-15 % Mongolia % % 10 10 10 % Morocco 10% 10 % 7 %; 10 % Nederland - 5 % 5 %; 15 % Norway - - 15% People’s Republic of Korea

10 % 10 % 10 %

Poland 10% 5% 10% Portugal 10% % 10% 10-15Republic of Hungary

10 % 10 % 10 %

Republic of Malta - 10% 30% Republic of Slovenia 0 % 5 % 5 %; 1 5 %; 10 % Republic of Turkey 10 % 10 % 10 %; 15 % Republic of Uzbekistan 10 % 10 % 10 %Romania 15 % 15 % 10 %; 15 % Russian Federation 15 % 15 % 15 % Singapore 5% 5% 5% Slovak Republic % 10 10 % 10 % South Africa 5 % 5 %; 10 % 5 %; 15 % Spain - - 15% Sweden - 5% 10% Switzerland 10 % 5 % 5 %; 15 %Syrian Arab Republic % 18% 10 10% Thailand 10-15 % 5-15 % 10% Ukraine 10 % 10 % 5%; 15% United Kingdom of

ain and and

Great BritNorthern Irel

- - 10 %

USA 5 % 5 % 5 %; 7 %; 10 % Vietnam 10% 15% 15% Yugoslavia 10% 10% 5%; 15% Zim bwe 10% 10% 10%; 20% ba

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The tax rates pointed out above are the maximum rates, provided by the conventions. 11. Are there any special laws providing tax incentives to certain tax entities? Tax incentives are provided in the Corporate Income Tax Act and in some special laws. Such incentives are: 1) corporate tax retention (the right of any taxable person not to remit to the executive budget the amounts of corporation tax, which subsist in the patrimony of the taxable person and are spent for purposes prescribed by law); 2) any collective investment scheme, which has been admitted to public offering in the Republic of Bulgaria, and any licensed investment company of the closed-end type under the Public Offering of Securities Act, shall be exempt from corporate tax; 3) Special Purpose Investment Companies under the Special Purpose Investment Companies Act are exempt from corporate tax.; 4) tax incentives for hiring of unemployed persons and incentives for enterprises hiring people with disabilities; 5) incentives for agricultural producers: agricultural producers are allowed to

orporate tax; 6) tax relief for carrying out manufacturing activities in municipalities with unemployment rate above the national average etc.

Taxable persons under the Income Taxes on Natural Persons Act (ITNPA) are any resident and no sid and non-resident persons, who are obligat wnationality, is a

1. 2. resent within the territory of Bulgaria for a period exceeding 183 days in

3. Is sent abroad by the Bulgarian State, by bodies and/or organizations thereof,

4. Whose center of vital interests is situated in Bulgaria?

a permanent address in Bulgaria, but whose center of vital interests is not sit ia, shall not be a resident natural person.

"Non-resident natural person" shall be any person who is not a resident person within the

2. How

The typ f ta on the source, are:

3. ; Income from rent or from other gainful use of rights or property;

5. Income from transfer of rights or property;

retain 60 per cent of the c

C. Individuals

1. Which are the taxable persons?

n-re ent natural persons and any resident ed to ithhold and remit taxes under this Act. “Resident natural person," regardless of

ny person who:

Has a permanent address in Bulgaria, or Is pany twelve-month period, or

by Bulgarian enterprises, and the members of the family of any such person, or

Any person, who has

uated in Bulgar

meaning of this Act. is the taxable income specified?

es o xable income of individuals depending

1. Income from employment relationships; 2. Income from economic activity in a sole-trader capacity;

Income from other economic activity4.

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6. Income from sources referred to in Article 36 herein, as well as income where final taxes are levied under this Act.

Any income derived from sources acquired by a taxable person during the tax year shall be

axable amount are determined for each source of income separately. The aggregate annual taxable amount shall be the sum total of the annual taxable

ITNPA: tax relief for persons with reduced working capacity, tax relief for personal voluntary social and commercial insurance

trib tions for contributory service upon retirement, tax relief for children, tax relief for donations.

able tax rates?

T according to the following table (applicable to income from e relatio

hly Taxable Am

taxable, with the exception of the income which is non-taxable by virtue of law. The ITNPA provides for some non-taxable income as well. The taxable income and the t

amounts determined for each type of income depending on the income source, minus the tax relief provided for in this Act.

The following tax relief is provided under the

con utions, tax relief for personal contribu

3. What are the applic

axes are determined mployment nships):

Mont ount

Lower limit

Upper limit

Tax

0 BGN 200 Nil

BGN 200 BGN 250 20 % in excess over BGN 200

BGN 250 BGN 600 BGN 10 + 22% in excess over BGN 250

Above BGN 600 BGN 87 + 24% in excess over BGN 600

The tax amount on the ual taxable amount shall be determined according to the following table:

nual Taxable Amou

aggregate ann An nt

Lower limit Upper limit

Tax

0 BGN 2,400 Nil

BGN 2,400 BGN 3,000 20% in excess over BGN 2,400

BG 3,000 BGN 7,200 BGN 120 N + 22% in excess over BGN 3,000

Above BGN 7,200 BGN 1,044 + 24% in excess over BGN 7,200

4. Are the capital gains taxed separately?

apital gains are not taxed separately.

s may not carry back and forward losses. Sole traders only may carry losses rward through the procedure under B 5 herein.

C 5. May losses be carried forward or back? The Individualfo

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D. Capital

• •

ria or abroad when devolved by legal or testamentary succession, as well as on the estate located within Bulgaria where so devolved by any decedent foreign

1. d the children of siblings: 0.7 per cent per share in excess of

2.

• per cent: on donations between siblings and the children of siblings and 5 per

cent: on donations between any other persons. Where property is acquired for gainful purposes, the tax shall be at the rate of 2 per cent of the assessed value of the transferred

. Indirect taxes

i e excise duties and VAT.

. Other duties

nd Fees Act provides for transport vehicle tax.

G. 1.

x returns before the required deadlines; declaration of circumstances leading to reduction

2. There are two degrees of deciding tax disputes in the Bulgarian courts. The average

time required for the final resolution and completion of the litigation procedure in a tax dispute is one year.

The main taxes on capital are:

Real estate tax - the rate is set at 1.5 per mille of the assessed value of the corporeal immovables; Inheritance tax - Inheritance tax is levied on the estate of any decedent Bulgarian citizen located in Bulga

citizen. Inheritance tax is assessed separately in respect to each legal or testamentary heir as follows:

Applicable to siblings anBGN 250,000; Applicable to persons other than those referred to in Item 1: 5 per cent per portion in excess of BGN 250,000. Gift tax and tax on gainful acquisition of property – donations of property are taxed at a rate of 0.7

property. E The ndirect taxes ar F Apart from municipal fees, the Local Taxes a

Enforcement – Litigation procedure

All tax laws contain administrative penalty provisions, which provide fines mostly for violations of the respective law. Violations are considered to be the failure to submit ta

of or exemption from fee, however non-payment the tax due is not such a violation. The consequences of non-payment are calculation of interest and enforcement of the duty.

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CYPRUS Dr. K. Chrysostomides & Co.

General Information Cyprus gained independence in 1960, whereupon the underdeveloped, predominately agricultural economy of the early 1960s was rapidly transformed into a modern economy, offering dynamic services with advanced physical and social infrastructure. Today, the services sector is considered the backbone of the Cyprus economy, accounting for approximately 76.7% of the GDP in 2005, while tourism accounts for approximately 20% of GDP. The average annual rate of growth during the period 2001 to 2005 has been in the range of 3.2% and the rate of unemployment approximately 4.28%. In terms of per capita income, Cyprus is classified by the World Bank among the high income countries (£C9.834 USD 22.500 in 2005).

On 1st May 2004, Cyprus acceded to the European Union. Harmonization with the EU acquis communataire was carefully planned and so far, Cyprus has successfully faced the challenge of integration without any insurmountable difficulties. According to a recent assessment by the U.K. based Centre for European Reform (Lisbon Score Card VI) Cyprus performance against the Lisbon Criteria in 2005 compared relatively well to other new member states (ranking third in a total of 10 states).” In May 2005, the Cyprus pound, which is the legal tender in Cyprus, joined the European Exchange Rate Mechanism II (E.R.M. II), a prerequisite for joining the Euro zone which is planned for January 2008. Cyprus has already applied for membership and its economic performance will now be judged against the Maastricht criteria. As stated in a recent Report Published by Moody’s Investors Services “We are reasonably confident of Cyprus ability to meet the criteria, given its low inflation (average of 2% in 2005) stable exchange rate (which has remained within 2.25% of the central parity rate to the euro since entering the EMRII) and its declining fiscal deficit and public debt burden.” (Moody’s Investors Service, “Cyprus”, p.2, May 2006) In its fiscal policy, Cyprus has complied with the recommendations of the EU Council of Ministers for Economic and Financial Affairs (ECOFIN) in eliminating excess deficit while at the same time working towards the mid-term budgetary objective of balanced public finance until the year 2009.

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The table portrays the trend of the state’s revenue from the taxes levied in aggregate as well as the proportion between direct and indirect taxes for the period 2001-2005 (in millions of Cyprus Pounds)

Tax Revenue 2001 2002 2003 2004 2005 Direct Taxes 550,31 540,01 531,80 619,94 776,86 Indirect Taxes 675,10 766,28 990,38 1126,04 1224,75 Total Tax Revenue 1225,41 1306,29 1522,18 1745,98 2001,61

The structural changes in the taxation system which were effected by the tax reforms introduced in 2003 have broadened the tax base while reducing, the marginal tax rates. As a result, the tax burden on individuals and legal persons has been considerably reduced, thus placing Cyprus among the lowest tax jurisdictions in Europe. A. Corporate income taxation 1. Taxable entities Companies that are resident in Cyprus are subject to corporate income tax. Under the Income Tax Law No.118(I) of 2002 (“the Income Tax Law”) the term “company” means a company incorporated under the Cyprus Companies Law, Cap 113 (i.e. private, public or overseas company, either limited by shares or by guarantee) any body with or without legal personality, public corporate bodies, co-operative companies, fraternity or society of persons, with or without legal personality, as well as any comparable company incorporated or registered outside the Republic. A company is a resident of Cyprus when its management and control is exercised in the Republic. The term “company” excludes partnerships which are treated as transparent, i.e. their partners are liable to tax. Trusts are taxable in a similar way, i.e. the beneficiaries are taxed through the trustees. Income Tax Law Companies that are resident in Cyprus are taxed on their worldwide income while non-resident companies are taxed on their Cyprus source income, subject to certain exemptions. Resident companies are exempt from tax in respect of business income deriving from a permanent establishment held abroad subject to “Controlled Foreign Corporation” (CFC.) rules. (See paragraph 8 below). Non-resident companies are taxed exclusively in respect of business income realized through a permanent establishment situated in Cyprus, subject to certain exemptions. The term “permanent establishment”, as defined in Section 2 (1) (a) of the Income Tax Law, is identical to the definition given to this term in the O.E.C.D. Double Taxation Model Convention.

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Non resident persons having a permanent establishment in the Republic may elect, if it is to their benefit, to be taxed in accordance with the rules applicable to resident persons for any fiscal year. Entities taxed under special regimes International Trusts The income of an international trust established under the 1992 International Trusts Law is exempt from tax both in the hands of the trustees as well as the beneficiaries. Insurance Companies Insurance Companies are also subject to the same corporate income tax rate but benefit from certain exemptions applicable in the life insurance business sector. Shipping The profits of or dividends from a company incorporated in Cyprus which owns ships registered under the Cyprus flag and are engaged in international traffic are exempt from taxation. The exemption extends to the emoluments of the crews of Cyprus flagged ships. Ship management companies, have the option to be taxed either at 4,25% under section 19 of the Income Tax Law or pay tonnage tax at 25% of the rates used to calculate the tonnage tax imposed on ships under their management. 2. The tax base “Taxable income” is defined in s. 2 of the Income Tax Law, as “the aggregate remaining amount of income of any person from the sources specified in section 5, following deduction of such amounts as are permitted by or under this Law.” In order to arrive at the taxable income, income from all sources is added up and all expenses and charges incurred wholly and exclusively for the generation of income, as well as wear and tear allowances, where applicable, are deducted. Tax exempt income (a) profits from the disposal of “securities” (such as shares, stocks, bonds, debentures,

etc. of companies incorporated in Cyprus or abroad and options thereon). (b) dividends. (c) up to 50 per cent of the interest income of companies, with the exception of interest

income generated from or closely connected to the ordinary activities of the taxable entity.

Tax deductible expenses All expenses and outgoings wholly and exclusively incurred for the generation of income are recognized as tax deductible, including:

17


(a) Interest incurred for the acquisition of fixed assets used in the business. (b) Expenditure for repairs of premises, plant and machinery. (c) Bad debts, including provisions for bad debt provisions. (d) Expenditure on scientific research and/or patents and patent rights. (e) Donations to charitable institutions. Valuation of inventories Inventory is generally valued at the lower of cost or net realizable value. Cost must be determined under the first-in first-out method (FIFO). The last-in first-out (LIFO) method is not acceptable. Depreciation rules No investment allowances are granted. Instead, a reasonable amount is allowed as a deduction, for the exhaustion and wear and tear of fixed assets arising from their use in the business or employment. The total amount of such allowable deduction cannot exceed the capital expenditure incurred for the acquisition of the asset. The wear and tear allowances are calculated on the straight line, on the basis of the useful economic life of each asset. 3. Applicable income tax rates The taxable income of a company is taxed at the rate of 10%, while the taxable income of public utility corporate bodies is taxed at the rate of 25%. 4. Capital gains tax Companies (and individuals) are subject to capital gains tax under the Capital Gains Tax Law No. 52/80 (“the Capital Gains Tax Law”) at the rate of 20%, on gains arising solely from the disposal of: • immovable property situated in Cyprus • shares in a company which owns immovable property situated in Cyprus (excluding

shares listed in any recognized stock exchange) 5. Treatment of losses Tax losses incurred in any one year which are off set against other income may be carried forward and set off against future profits for an indefinite period of time. This provision applies for all unutilized tax losses generated as from year 1997. There are no restrictions on the set off of losses generated from different activities. Losses of an individual trader or a partnership business converted into a limited liability company may be set off against future profits of the company. Losses incurred abroad, whether from a permanent establishment or not, can be set off against the Cyprus profits of a business whether incorporated or unincorporated. However, future profits of the permanent establishment are liable to tax, to the extent of the losses allowed.

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Restrictions

A loss generated by a company cannot be carried forward in the following cases: (a) if within any three year period there is a change in the ownership of the shares of a

company and a substantial change in the nature of its business. (b) if at any time since the scale of the company’s activities has diminished or has

become negligible and before any substantial reactivation of the business there is a change in the ownership of the company’s shares;

(c) up to the amount of any donation or contribution or loss, if a company is engaged in ship management services.

6. Withholding taxes Under the Income Tax Law Subject to specific provisions in the relevant tax treaties between Cyprus and the country of residence of the person concerned, the resident who makes a payment to a non tax resident is obliged to withhold and pay over to the revenue authorities tax in the following cases: (a) Although Cyprus does not impose any withholding tax on royalty payments made to

non-Cypriot resident recipients, nonetheless, the exemption applies only for royalties paid as consideration for the use of a right/asset outside Cyprus. When the royalties concern rights/assets within Cyprus and unless the recipient is an associated company in another EU Member State, a 10% withholding tax is applied.

(b) There is a 5 per cent withholding tax on film rentals, 10 per cent withholding tax on professional income and 10 per cent withholding tax on remuneration of entertainers and sportsmen.

Under Special Defence Contribution Under the Special Defence Contribution Law No.117(I) of 2002, (“SDC”) the following apply: Dividend income The dividend income of a resident company is exempt from SDC where such income is received from a non-resident company. The exemption is subject to the following conditions: (a) The Cypriot Company’s holding in the paying company is at least 1% of the share

capital, irrespective of the holding period in the foreign subsidiary. (b) Controlled Foreign Corporation (CFC.) rules are complied with (see the response

under paragraph 8 below). Interest income Cypriot holding companies are liable to a 10% per cent SDC on interest income deriving from any source, whether in Cyprus or abroad. However, SDC does not apply to interest earned by a company in the ordinary course of its business or to interest closely related to the ordinary carrying on of the business, both of which are subject to income tax. The 50% tax

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exemption on interest is not applicable in this case (see the response under paragraph 2 above). Rentals The gross income from rental income reduced by 25% is subject to SDC at the rate of 3%. This contribution is not a deductible expense for income tax purposes. 7. Taxation of Groups Group Relief Trading losses generated in the course of a year may be surrendered by a group company to another company which is member of the same group, provided both companies are resident in the Republic. Trading losses of the surrendering company may be set off against the total income of the claimant company. For the purpose of group relief, two companies are deemed to be members of the same group, if one is the subsidiary of the other (by at least 75%) or if they are both subsidiaries of a third company (by at least 75%). Company reorganizations:

For the purposes of the Income Tax Law, the Capital Gains Tax Law and the Stamp (Amendment) Law, No.121(I) of 2002 “reorganization” means either a merger, division, transfer of assets or exchange of shares.

The E.U. Merger Directive 90/434/E.E.C. has been transposed in Cyprus tax legislation so that any profits or gains made by reason of mergers, divisions, transfer and exchange of shares concerning companies resident in different EU member states or third countries or of non resident companies or companies established in other EU member states or third countries, are exempt from tax. Assets taken over are depreciated as if no change in ownership has taken place. Losses are also transferred to the new company. The exchange of shares as well as the transfer of the registered office of a European Company will not give rise to any taxation. 8. Anti-avoidance rules The general principle governing transfer pricing rules in Cyprus is the arm’s length principle. The Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (90/436/EEC) has been transposed into the Income Tax Law. The relevant provisions stipulate that the arm’s length principles should apply in certain transactions, including transactions between associated enterprises. Cyprus has no controlled foreign corporation legislation of the type introduced in some other countries. As a result, the undistributed profits of foreign subsidiaries are not assessed at the parent company level. The general principle behind the Cypriot CFC rules is that anti-avoidance measures should be used only to maintain the equity and neutrality of national tax laws in the international environment. Therefore, the Cypriot CFC rules only concern income that is genuinely passive and do not extend to active income. Their aim is to prevent non-resident companies over which domestic tax payers have a controlling or substantial influence, from converting tainted income into exempt dividend income receivable by a

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Cypriot-resident company. Thus CFC provisions will only be triggered if more than 50 per cent of the non-resident company’s activities result directly or indirectly in investment income and the foreign tax burden on the income of the non-resident company paying the dividend is substantially lower than the tax burden on the company which is tax-resident in Cyprus (substantially lower means lower than 5 per cent). If one of the conditions is not met, the dividend remains tax exempt. Investment income is defined in section 2 of the Income Tax law as being income not deriving from business, employment or pension. Cypriot tax legislation does not provide for thin capitalization rules i.e minimum debt/equity ratio requirement. 9. Administrative requirements of local tax authority The Cyprus system is a combination of the revenue-assessed and self-assessment systems. Companies fall entirely under the self-assessment system. Self-employed individuals fall under the self-assessment system only as far as provisional tax is concerned and for employees a P.A.Y.E system is in operation. Ultimately, self-employed individuals and employees are revenue assessed. It is the duty of each individual / legal entity to deliver to the Director of Inland Revenue a return of income, following deduction of tax exempt, tax deductible expenses and credits granted under the taxation laws in force. Tax returns should be filed, not later than the 30th of April of the year following the year of assessment in the case of individuals. Companies and self-employed persons pay temporary tax on estimated incomes during the year in three equal installments by submitting a temporary tax return with the first payment due on August 1st, in the case of persons (self-employed and companies) submitting accounts with the return not later than the 31st December of the year following the year of assessment. 10. Double Taxation Treaties Currently, 33 treaties are in force, covering 42 states including most European countries, the USA, Canada, China, India, South Africa, Singapore and four Arab countries (Egypt, Syria, Kuwait, Lebanon). 11. Special Incentives There are no incentive laws providing preferential tax treatment of any type of business activities. The government has, however, taken several measures with a view to enhancing the island’s competitiveness and introduced a framework of certain incentives which aim, inter alia, to the attraction of capital intensive foreign investment and the development of new high-tech industries.

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B. Individuals 1. Taxable persons Under the Income Tax Law, individuals who are residents in Cyprus are subject to tax on their worldwide income whether remitted to Cyprus or not. Individuals who are non-Cyprus tax residents are subject to tax only on their Cyprus-sourced income. An individual is a tax resident of Cyprus if in the year of assessment (calendar year), stays in the Republic of Cyprus for a period or periods exceeding in aggregate 183 days. 2. Taxable Income As regards the definition of “taxable income” please refer to our comments in paragraph 2 in Section B above. In addition to the allowances and tax exemptions granted to companies (in so far as they apply to individuals) the most important exemptions and allowances applicable to individuals are the following: Tax Exemptions (a) certain pensions, (b) investment income, such as interest and dividends, (c) income of charities, cooperatives as regards transactions with members, approved

provident and other funds, etc. Allowances (a) contributions to the social insurance fund, (b) contributions to any provident or pension fund, (c) life insurance premiums subject to certain restrictions. Dividend income The dividend income of resident individuals is subject to SDC at the rate of 15%, which is withheld at source. Dividends paid to non-resident persons will be fully tax exempted. Interest income Interest income earned by resident persons is subject to SDC at the rate of 10%, which is withheld at source. Interest income earned by non-resident persons is fully tax exempted. 3. Applicable tax rates The Income tax rates for 2005 and 2006 are:

Taxable Income in Cy£

%Rate Tax in Cy£ Cumulative taxable income in Cy£

Cumulative tax inCy£

10.000 - - 10.000 - 5.000 20 1.000 15.000 1.000 5.000 25 1.250 20.000 2.250 Over 20.000 30 Over 20.000

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4. Capital gains tax Individuals are subject to capital gains tax under the Capital Gains Tax Law No. 52/80 (“the Capital Gains Tax Law”) at the rate of 20%, on gains arising solely from the disposal of: • immovable property situated in Cyprus • shares in a company which owns immovable property situated in Cyprus (excluding

shares listed in any recognized stock exchange) 5. Treatment of losses Loses that cannot be wholly set off against an individual’s taxable income in the year of tax assessment, are set off against taxable profits arising from other sources during the same year. Furthermore, any remaining amount may be carried forward and be set off against such person’s taxable income of future years. C. Capital Immovable property Tax Immovable property is subject to tax on the market value of the property as at 1st January 1980. It is an annual tax calculated at the following rates:

Value of Property C£ Rate % Up to 100,000 NIL 100,000-250,000 0.25 250,000-500,000 0.35 Over 500,000 0.4

No inheritance tax, lottery taxation or gift (inter vivos) tax is due in Cyprus. D. Indirect taxes 1. Stamp duty Stamp duty is payable on certain transactions, including any documents which relate to property situated in Cyprus or any action to be performed or realized in Cyprus, irrespective of the place of execution. The rates are: • 0.15% for contracts of a consideration of up to CYP100,000 (about US$222,568). • 0.2% for any amount over CYP100,000. 2. Value added tax (VAT) VAT is charged on the supply of goods or the provision of services in Cyprus at the following rates: • Low rate: 5% (e.g. applicable in the case of supply of food in the course of catering;

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• Standard rate: 15% • Zero rate: (e.g. applicable in the case of supply of food other than in the course of

catering) Some supplies are exempt from tax, (e.g. insurance and financial services). 3. Customs & Excise Goods imported into Cyprus from overseas are subject to customs duty in accordance with the Common Customs Tariff (CCT). Excise taxes are imposed on a limited number of categories of goods, mainly cigarettes, petrol and motor vehicle, alcohol etc. 4. Transfer fees for immovable property These are paid on transfers of immovable property and are calculated on the market value of the property as estimated by the Land Registry department. They range from 3% to 8% depending on the value of the property. 5. Capital duty Capital contribution is subject to registration fees calculated on the basis of the authorized share capital (nominal only) and any further increases at the rate of C£ 60 (payable once upon incorporation) plus 0.6% on the authorized share capital. There are no fees payable on share premium. E. Other duties 1. Professional tax Companies operating from premises within municipal boundaries are subject to an annual professional tax, ranging from Cy£450 (about US$1,002) to Cy£3,000 (about US$6,677), depending on various factors such as their turnover, share capital, number of employees. 2. Stock exchange transaction fees A special fee is imposed in relation to transactions that take place in the Cyprus Stock Exchange or are announced to the Cyprus Stock Exchange, at the rate of 0.15% for both individuals and entities. The fee is suffered by the seller or the person who announces the transaction. Some transactions are exempt from these fees, for example share issue and share redemption by the issuer, transactions in non-convertible corporate bonds. F. Enforcement-Litigation procedure Non compliance with the deadlines for the payment of tax results in penalties and interest depending on the deadline not complied with.

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It is an offence under the law to make an inaccurate statement or return in respect of income, and furnish invalid information. Such offence is punishable on conviction of the offender by a fine not exceeding Cy£10.000 or by both a fine and imprisonment. It is also an offence under the law to fail or neglect to give any notice or to file any returns. Such offence is punishable on conviction of the offender by a fine not exceeding Cy£10,00 for each day of refusal, failure or neglect or by imprisonment not exceeding twelve months. A person who is proved to have fraudulently omitted or delayed to pay the tax under the Assessment and Collection of Taxes Law becomes liable on conviction, in the case of a company, to a monetary fine not exceeding Cy£1,000. In the case of an individual, conviction may be for a monetary fine not exceeding Cy£500 or to imprisonment not exceeding six months or to both a monetary fine and imprisonment. Taxpayers who disagree with an assessment, have the right to file an objection in writing, setting out the reasons of disagreement, while paying at the same time any amount of tax not in dispute (tax according to the tax return). On receiving the final determination, a person may either file an hierarchical recourse to the Tax Tribunal within 45 days, or apply to the Supreme Court for a revision of the decision of the director within 75 days. The burden of proof that the assessment is excessive falls on the tax payer.

Slovak Republic 10 10 5 5 9 10 10 12

Sweden 15 10 1 nil nil 10 10 12 Syria nil nil 1 15 15 16 10 10 Thailand 10 10 10 10 5/10/15 5/10/15 UK 15 nil 6 nil nil 10 10 10 USA 5 nil 7 nil nil 10 10 14 Yugoslavia 10 10 10 10 10 10

Tax Tribunal This is an independent body, which examines and decides on issues and disputes between taxpayers and the Department of Inland Revenue with regard to income tax, SDC, immovable property tax and capital gains tax. The Tax Tribunal must take a decision on a case under examination within one year at the latest from the date that the hierarchical recourse was filed. Supreme Court

The Supreme Court examines applications (otherwise known as recourses) by taxpayers on decisions taken by an administrative organ, such as the Commissioner of Income Tax or the Director of Inland Revenue or the Tax Tribunal. Appeals on the first instance judgments may be made to the Supreme Court within 42 days, either from the date of notification of the decision of the Commissioner of Income Tax or from the date of notification of the decision of the Tax Tribunal.

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APPENDIX INCOME TAX RATES FOR 2005 & 2006 FOR INDIVIDUALS

Taxable Income C£

Rate %

Tax C£

Cumulative Taxable Income C£

Cumulative Tax C£

10.000 - - 10.000 - 5.000 20 1.000 15.000 1.000 5.000 25 1.250 20.000 2.250 20.000 30 - Over 20.000 -

INCOME TAX RATES FOR 2005 & 2006 FOR CORPORATIONS

Companies Public corporate bodies 10% 25%

Appendix Continued Below

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Slovak Republic 10 10 5 5 9 10 10 12

Sweden 15 10 1 nil nil 10 10 12 Syria nil nil 1 15 15 16 10 10 Thailand 10 10 10 10 5/10/15 5/10/15 UK 15 nil 6 nil nil 10 10 10 USA 5 nil 7 nil nil 10 10 14 Yugoslavia 10 10 10 10 10 10

Dividends Royalties Interest Country Rcvd. in

Cyprus Paid from Cyprus

Rcvd. in Cyprus

Paid from Cyprus

Rcvd. in Cyprus

Paid from Cyprus

Austria 10 10 nil nil nil nil Belgium 10 10 10 10 nil nil Bulgaria nil nil nil nil nil nil Canada 15 15 10 10 8 15 15 11 China 10 10 10 10 10 10 CIS nil nil nil nil nil nil Czech Rep. 10 10 5 5 9 10 10 12 Denmark 10 10 1 nil nil 10 10 13 Egypt 15 15 10 10 15 15 France 10 10 2 nil nil 10 10 10 13 Germany 15 15 3 nil nil 10 10 10 12 Greece 25 25 nil nil 10 10 Hungary 5 1 nil nil nil 10 10 12 India 15 15 2 15 15 10 10 12 Ireland nil nil nil nil 10 nil nil Italy 15 nil nil nil 10 10 Kuwait 10 10 5 5 9 10 10 12 Malta 4 15 10 10 10 10 Mauritius nil nil nil nil nil nil Norway nil nil 5 nil nil nil nil Poland 10 10 5 5 10 10 Romania 10 10 5 5 9 10 10 12 Russia 5/10 5/10 nil nil nil nil

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1 15% if received by a company holding directly less than 25% of the capital 2 15% if received by a company holding directly less than 10% of the capital 310% if received by a company holding at least 25% of the capital of the paying company. However, if German corporation tax on distributed profits is lower than that on undistributed profits and the difference between the two rates is 15% or more, the withholding tax is increased from 10% to 27%. In all other cases it is 15%. 4 Withholding tax shall not exceed the tax chargeable on the profits out of which the dividends are paid. 5 5% if received by a company controlling less than 50% of the voting rights. 6 If received by a company controlling less than 10% of the voting rights, thus entitled to refund of excess ACT deducted in the UK (if it controls more than 10% of the voting rights, it is not entitled to the refund). 7 15% if received by a company controlling less than 10% of the voting rights. 8 Nil on literary, dramatic, musical or artistic work. 9 Nil for literary, artistic or scientific work, film, and TV royalties. 10 5% on film and TV royalties. 11 Nil if paid to a Government or for export guarantee. 12 Nil if paid to the Government of the other state. 13 Nil if paid to the Government of the other state, in respect of bank loans, in connection with the sale on credit of any industrial, commercial or scientific equipment or any merchandise. 14 Nil if paid to a Government, banks or financial institutions. 15 Nil if royalties are on literary, artistic or scientific work including films, TV films and radio broadcasting. 16 10% on copyright of literary, artistic or scientific work including cinematography films and films or tapes for TV or radio broadcasting.

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CZECH REPUBLIC Prochazka Randl Kubr

06 is 1.9%. Output growth should be strengthened by the intensified structuring among large enterprises, improvements in the financial sector, and effective use

he country’s accession to the EU opened the door to structural reforms. The Czech Republic

hly fragmented government sector. The structure of the public ector is composed of a central government, local governments, extra-budgetary funds and

st equally from direct and indirect taxes. Nevertheless, the current ndency at present is toward an increase of the direct tax portion while decreasing the direct tax portion.

te income tax; they include joint-stock companies (akciová společnost or a.s.), limited-liability companies (společnost s ručením omezeným or s.r.o.) and cooperatives (družstvo).

A. General information The Czech Republic has a democratic political system with independent legislative, executive and court powers. It has been a member of the EU since 1 May 2004 and is a signatory to a number of international treaties that take precedence over national legislation. Real GDP growth in 2006 was 6.1% (according to the Czech Statistical Office). The current account deficit has declined to around 3% of GDP, as demand for Czech products in the European Union has increased. Inflation has a downward sloping tendency; the Czech Statistical Office’s estimate for 20reof available EU funds. Talso intends to adopt the euro in the near future. The Czech Republic has a higshealth insurance companies. The tax system of the Czech Republic includes both direct taxes (i.e. income, real estate, road, inheritance and gift) and indirect taxes (i.e. value-added, excise and customs duties). The compound (non-consolidated) tax quota in 2006 amounts to 37.4% of GDP. Tax revenues arise almotein B. Corporate income taxation 1. Which are the taxable entities? Under Czech tax law, corporations (legal entities) are generally subject to corporate income taxation. Based on the legal form, we can distinguish between private companies and capital companies. Private companies, i.e. general commercial partnerships (veřejná obchodní společnost or v.o.s.) and limited partnerships (komanditní společnost or k.s.) are generally not subject to corporate income tax. Nevertheless, for limited partnerships the corporate income tax is calculated from the tax base reduced by that part of it which has been distributed to the unlimited partners. Capital companies are generally liable for corpora

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For tax purposes, Czech tax residency is essential. Companies having their seat or place of management in the Czech Republic are treated as Czech tax residents and are subject to Czech corporate income tax on their worldwide income. Foreign entities (Czech tax non-residents) are generally subject to Czech tax on the income that they generate in the Czech Republic. The extent to which a foreign entity is liable to pay Czech tax is determined by the extent of activities undertaken or related to the Czech Republic. By carrying out activities in the Czech Republic foreign companies can create a taxable presence, a so-called permanent establishment. The presence may not lead to the registration of a Czech branch, but such presence requires a foreign entity to be registered with the Tax Office for tax purposes. Czech law sets out the conditions for creation of a permanent establishment. An applicable double-taxation treaty may modify these conditions. The permanent establishment is subject to Czech income tax only on income that is attributable to this permanent establishment in the Czech Republic. Companies without a Czech permanent establishment can be subject to Czech taxation on Czech-source income, e.g. royalties, dividends, interest. Double-tax treaties may reduce or eliminate Czech taxation. 2. How is the taxable income determined? General tax base Tax liability is based on the accounting result, which is adjusted by items increasing the tax base (e.g. non-deductible tax expenses) and by items decreasing the tax base (e.g. non-taxable revenues, various deductions); afterwards, it is also adjusted by exempted income. The accounting result which has been calculated based on the Czech accounting rules is decisive. Tax-deductible expenses are generally defined as expenses incurred to generate, maintain, and/or assure taxable income. The Czech Income Taxes Act allows deductions for all normal operating expenses and most tax payments other than the corporate tax itself. Accounting depreciation charges for low-value fixed assets, as well as travel expenses up to the statutory limits and lease payments, are generally deductible. The most important non-deductible expenses include directors’ fees, representation expenses, etc. Generally, companies may deduct charitable donations of up to 5% of their tax base up to an amount of CZK 2,000. Czech legislation differentiates between depreciation for tax purposes and for depreciation for accounting purposes. Tax depreciation is calculated from the acquisition cost using either a straight-line or accelerated method over the designated period. Rates and depreciation periods are determined based on the type of asset. Under both depreciation methods, depreciation in the year of purchase is less than in the following years. A company may choose which method to apply to each new asset; but once made, the choice cannot be altered. It is possible to interrupt tax depreciation on qualifying assets, i.e. effectively defer the tax depreciation to a later period, preferably one in which a tax charge arises.

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Separate tax base A separate tax base generally includes income (revenues) in the form of dividends, shares in profits, settlement shares, liquidation shares or similar payments (in amounts which include any tax withheld abroad), if such payments are from abroad and the recipient is a Czech resident or the Czech permanent establishment of a Czech non-resident. Withholding tax base Certain income (e.g. dividends, shares in profit) is subject to withholding tax (See Section B 6). 3. What are the applicable tax rates? The general rate of corporate income tax is 24%; however, tax rate of 5% shall apply to an investment fund, a unit trust and a pension fund. Tax rate of 15% shall apply to a separate tax base (see above). Different withholding tax rates are applied on the relevant income (See Section B 6). 4. Are capital gains taxed separately? The Czech Income Taxes Act does not provide for separate taxation of capital gains. Capital gains from the sale of stocks and shares are fully taxable within the corporate income tax base, and their acquisition value (purchase price) is generally considered as a tax-deductible expense up to a value not exceeding the amount of the revenues from a sale of such stocks and shares (in some cases, the entire purchase price can be considered as a tax-deductible expense). 5. May losses be carried back or forward and to what extent? Losses incurred in one period may be carried forward against profits made within the following five taxable periods. In case of a substantial change of ownership, the carry-forward period is subject to the same activity test (it has to be proved that at least 80% of the company’s revenues in periods after the substantial change of ownership was generated by the same activity that was being carried out before the substantial change in the period for which the tax loss was assessed). 6. Are there any withholding taxes and at which rates? Withholding taxes shall apply to income arising from sources in the Czech Republic and accruing to non-resident taxpayers (except income attributable to Czech permanent establishment) in the following tax rates: • 25% on e.g. intellectual property royalties, remuneration for members of statutory

bodies, income from leasing; • 15% on e.g. dividends, parts of liquidation surpluses, income of members of companies

and certain similar income; • 1% on income (rental, lease charge) from financial leasing.

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With exception of the withholding tax rates above, the withholding tax rates shall be as follows for incomes originating from sources in the Czech Republic and accruing to taxpayers, regardless whether they are Czech tax residents or non-residents: • 15% shall apply to profit shares, dividends or certain similar income; • Special rates for specified individual’s income (10%, 15%, 20% or 25%). These withholding tax rates may be reduced or eliminated by Double-Tax Treaties, the Parent-Subsidiary Directive or by the Interest and Royalty Directive. 7. Are there any preferential group taxation rules in force? Czech implementation of the Parent-Subsidiary Directive (90/435/EEC) into the Czech Income Taxes Act provide for tax exemption of dividends paid between parent companies and their subsidiaries. Dividends paid to a parent company in the EU or in Switzerland from a subsidiary incorporated in the Czech Republic, as well as dividends received by a parent company incorporated in the Czech Republic from a subsidiary that is a tax resident in another EU member state are tax exempt, provided that the conditions stipulated by Czech implementation of the Parent-Subsidiary Directive are met (i.e. the parent company is a company which has a specified legal form and has a minimum holding of 10% in another company’s registered capital – subsidiary’s capital – for at least 12 consecutive months; however, the 12 months’ holding condition can be fulfilled subsequently). As a result of the implementation of the EC intra-company Interest and Royalty Directive (2003/49/EC), applicable to interest and royalty payments made between associated companies of different Member States, interest and royalties shall generally be exempt from withholding tax in the source state, as long as the following conditions are met: the recipient is a company established in the respective EU Member State and has a specified legal form; it has held a qualified share of 25% of the registered capital of the paying company for at least 24 months; it is a beneficial owner of the interest or royalties; the interest or royalties are not attributable to a permanent establishment of the recipient in the Czech Republic or in a third country (i.e. a non-EU Member State). Following the transitory provisions, royalties will be exempt from withholding tax as of 1 January 2011, whereas interest is exempt from taxation as of 1 May 2004, as long as the above-mentioned conditions are met. Furthermore, in compliance with the Czech Income Taxes Act, the exemption of royalties and interest from withholding tax may only be claimed if the taxpayer has obtained – in advance – a formal acknowledgement of the exemption from the relevant Czech Financial Office. 8. Which are the anti-avoidance rules currently in force? Czech tax law does not provide for controlled foreign company legislation (CFC legislation). But transactions may be challenged on the basis of general tax principles, i.e. the substance-

32


over-form principle and the economic ownership approach, as well as the arm’s length principle. In general, transactions between related parties must be at arm’s length. When the price agreed between related persons differs from the price that would be agreed in a normal business relationship, under the same or similar conditions between unrelated persons, the tax authority adjusts the tax base, unless satisfactory justification of the different pricing is given and substantiated. Such difference in prices could be treated as dividends, unless a relevant double-tax treaty provides otherwise. The Czech Republic, as an OECD member state, follows the OECD Transfer Pricing Guidelines. If a Czech entity has a loan from a related party, thin capitalization rules can limit the tax deductibility of interest costs. The maximum debt-to-equity ratio for related-parties debts is 4:1 (or 6:1 in the case of banks and insurance companies), i.e. interest payments on the portion of a related-party loan exceeding the recipient company’s equity by four times is tax non-deductible for the recipient. Interest paid to foreign related entities on loans that exceed the permitted limits could be treated as dividends, unless a relevant double tax treaty provides otherwise. 9. Which are the main administrative requirements to comply with the local tax

authorities? Generally, a calendar year, a fiscal year or an accounting period (if this period is longer than 12 months) can be considered as a tax period for companies. Corporate income tax return must be filed within three months following the end of the tax period. A three-month extension of the filing deadline is available to taxpayers represented by a registered tax advisor. This three-month extension is automatically granted to taxpayers subject to a statutory audit. At the discretion of the tax authorities, additional extensions of up to three months may be added to the deadline for the filing of the tax return, upon application of the company. Tax advances are payable quarterly or semi-annually, depending on the last known tax liability. Late payments or incorrect filings may be subject to a penalty. 10. With which countries have double taxation conventions already been concluded? (see Appendix 2) As of 9 January 2006, the Czech Republic has concluded double-taxation conventions (“DTC”) with 70 countries, and it has already signed a DTC with Jordan (10 April 2006), Georgia (23 May 2006) and updated its DTC with Austria (8 June 2006). 11. Are there any special laws providing tax incentives to certain taxable entities? The system of investment incentives in the Czech Republic is set up differently for various types of investment projects. Investment incentives are offered to Czech and foreign investors alike. Support may be granted in the form of a tax relief or as a possibility to decrease the tax base.

33


The purpose of these incentives is to support the launch or expansion of production in the manufacturing and industrial sectors, and projects in the area of business support services or research and development. There are also programmes to support smaller-scale projects in regions worst-affected by unemployment. Furthermore, financial support for the creation of new jobs and for the training and re-training of employees may also be granted. C. Individuals 1. Which are the taxable persons? In general, taxation of income depends on the tax residency of the individual. Tax residency is determined by Czech law, superseded by the provisions of any applicable double-tax treaty. An individual is resident in the Czech Republic if he has his domicile or habitual place of abode there, or if he is present in the Czech Republic for more than 183 days in a calendar year. Individuals who are resident in the Czech Republic (residents) are subject to an unlimited income tax liability for their worldwide income (i.e. income from domestic and foreign sources). Czech tax non-residents are generally taxable only on income which is considered as Czech-source income. 2. How is the taxable income specified? Resident taxpayers are taxable on income arising from the following sources:

• dependent (employment) activities • business and independent (professional) services • other (i.e. investment of capital, rentals and leasing and other income)

Basically, all income leading to an increase in the taxpayer’s property is taxable, unless it is explicitly exempt. In general, taxable income is defined as the difference between actual revenues and related expenses incurred. Deductions when computing the tax base from employment income include mandatory health insurance and social security contributions paid by the employee or withheld from his or her employment income. For other categories of income, deductions may be either a fixed (lump sum) percentage of revenues or the actual amount of expenses incurred in obtaining the revenues. Each individual is eligible to apply several tax exemptions, e.g. standard personal tax exemption, tax exemption for a dependent spouse or for each dependent child. 3. What are the applicable tax rates? Income tax is computed on the aggregate net income from all income categories at progressive rates that are established in four tax brackets and range from 12% to 32% (see Appendix 1). Tax law provides for several tax allowances and tax abatements (bonuses) depending, for example, on the taxpayer’s family or social status.

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Please note that specified income may be taxed within separate tax base (tax rate of 15% or 20%) or withholding tax base (See Section B 6). 4. Are capital gains taxed separately? In general, capital gains in the Czech Republic are taxed as income from companies and individuals. Capital gains are not taxed separately. There is a tax exemption for transferring shares in a company if the shares are held for at least five years; other requirements of the Czech Income Taxes Act must be met as well. If the shares are represented by securities, this time-test is only six months. 5. May losses be carried forward or back? Generally, losses from business and independent (professional) activities and losses from rental activities may be set off against other income categories, but not against employment income. Remaining losses may be also carried forward up to five years. Nevertheless, losses incurred in other categories (i.e. dependent activities and other activities) may neither be set off nor carried forward. D. Capital In outline, which are the main taxes on capital, if any? Real estate tax is levied on Czech real property, i.e. land, including forests and lakes, as well as buildings. There are also exemptions. Rates for land tax are determined either as a percentage of the official price (0.75% for arable land and gardens or 0.25% for permanent grasslands, commercial forests and ponds) or as a CZK per square meter (CZK 1.00 in the case of building land or CZK 0.10 for built-on areas and other areas). Standard rates of building tax are determined by a set amount of CZK per square meter (from CZK 1 to CZK 10 in case of buildings for business activity) of built-up area or adjusted floor area. The standard tax rate shall be multiplied by the coefficient allocated to particular communities (city, town or village) according to their population size. Real estate transfer tax is levied on the transfer of immovable property (land and buildings) located in the Czech Republic. The tax base is the value of the consideration given for the transfer (e.g. the purchase price) or the value assessed by an expert, whichever is higher. The tax rate is 3%. Generally, transfers of immovable property within mergers are tax exempt. Contributions of immovable property into the registered capital are tax exempt provided that the participation in company is held for at least five years. Inheritance and gift tax is imposed on acquisitions of property by inheritance or on the gratuitous acquisition of property (i.e. without consideration). The taxation is unlimited if either the testator/donor or the beneficiary (or both) is a resident of the Czech Republic at the time of the transfer. Real estate located outside of the Czech Republic is not subject to inheritance tax.

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Progressive tax rates apply depending upon the recipient’s degree of relationship to the testator/donor and the value of property transferred. The tax rates range from 0.5% to 40%. For transfers by reason of death, the tax rate is reduced to one-half of the appropriate regular rate. Inheritance among persons related in a direct line and spouses is exempt from tax. E. Indirect taxes In outline, which are the main indirect taxes, if any? Value added tax (VAT) is levied at all levels of the supply of goods and services. The general VAT rate is 19%. A reduced rate of 5% applies to certain goods and services, e.g. food stuffs, pharmaceuticals, books, equipment for handicapped persons, cultural and sports activities, housing construction and scheduled passenger transport services. For VAT purposes, it is decisive that the place of taxable supply is in the Czech Republic. The Czech VAT system is fully harmonized with that of the EU legislation. Excise duties are levied on hydrocarbon fuels (mineral oils), spirits, beer, wine and on tobacco products. Excise duties are non-recurring taxes and are payable by the seller, who passes on these costs to the customer. Excise duties rates are stipulated by a fixed amount of CZK per unit, except for cigarettes, where a combination rate is stated as fixed amount and percentage of the final retail price. Customs duties apply to imports, as set out in the EU tariff schedules. There are no customs duties on exports. Stamp duties are levied on numerous legal transactions during administrative or court proceedings. Court fees vary between 1% and 4%, whereas the minimum and maximum fees are stipulated or are levied as fixed amounts. Administrative fees are usually levied as fixed amounts. F. Other duties In outline, are there any other taxes, if any? Social security and health insurance contributions As an EU member the Czech Republic’s social security and health insurance legislation is in accordance with the Coordination Rules (1408/71/EC). Participation in the social security system is generally constituted by employment, entrepreneurial activities or voluntary participation. The rates of social security insurance are 8% for an employee and 26% for an employer; the rate for an entrepreneur is 29.6%, and the tax rate for persons voluntarily participating is 28%. The assessment base is closely related to the personal income tax base for individuals (for dependent activities). Nevertheless, persons with voluntary participation can settle the amount of assessment base. For entrepreneurs the assessment base is determined as 50% of

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their tax base from independent activities. There is a maximum limit for the assessment base for entrepreneurs. Participation in the health insurance system is obligatory for employees, entrepreneurs and persons with permanent residence in the Czech Republic. Voluntary participation is not possible. The assessment base is the same as for social security contributions as stated above (including potential maximum limit for entrepreneurs). Contributions to public health insurance amount to 13.5% of the basis of assessment. One-third of these contributions are paid by the employee while two-thirds are paid by the employer. Road tax is of marginal importance. It can be significant, however, for transporters who have many cars for business activities. In respect of the implementation schedule for environmental taxes (according to EU requirements), the Czech Republic should apply coal and energy taxation with effect from 1 January 2008. G. Enforcement- Litigation procedure 1. In outline, which are the existing measures in order to ensure compliance with the tax

legislation? Procedural tax issues are regulated by the Administration of Taxes Act and other tax laws. Tax accessories are any penalties, increases of tax, costs arising from tax administrative proceedings, interest and fines imposed under any tax law. Tax accessories, except fines, follow the course of events of the tax to which they are attached (unless in his decision the tax administrator provides otherwise). If the taxpayer fails to pay the due amount of the tax by the due date, he is in arrears. In this case, a default interest and a penalty may be imposed (with effect from 1 January 2007). The default interest is calculated as the Repo Rate of the Czech National Bank plus 14 percent. This interest may be charged for a maximum of five years of default. A penalty of 20 percent (or 5 percent for a decrease of the tax loss) is imposed, if the Financial Authority makes the tax assessment. If the tax base and tax is assessed additionally on the basis of an additional tax return, this penalty is not imposed. Other late payment penalties were imposed till December 2006. Any taxpayer which fails within the prescribed time-limit to fulfil the non-monetary obligations following from any tax act, may be fined recurrently by the tax administrator up to a maximum of CZK 2 million. The fine may be imposed recurrently if a previous imposition of a fine did not lead to an improvement and the illicit situation continued. The amount of the fine imposed depends on seriousness of failure. If a tax debtor does not pay tax arrears due, including any arrears in respect of fines imposed, within the statutory time-limit, the tax administrator may commence exaction of tax arrears.

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2. What is on average the duration of the litigation procedure for the final resolution of

tax disputes? There are not many time limits stipulated by law for tax procedures. According to the practice of the courts, a tax audit should be finished within three years. Nevertheless, this time limit relates only to Financial Offices and the Financial Directory. For proceedings before the courts, the related procedures can take several years. Based on the above, it is not possible to determine an average duration for litigation procedures since it depends on a number of factors, including the complexity of the problem.

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APPENDIX

INCOME TAX RATES – general tax base Tax Base (in CZK) Individuals

Income Tax (in CZK) Individuals

Corporations

from to 12% 0 121,200 CZK 14,544 + 19% of the excess over

121,200 24%

121,200 218,400 CZK 33,012 + 25% of the excess over 218,400

218,400 331,200 CZK 61,212 + 32% of the excess over 331,200

331,200 and more

LIST of DTC AGREEMENTS as of 1 January 2007 Withholding-tax rates under Czech double-tax treaties (%) Country of recipient

Dividends Interest Royalties

Albania 5/151 5 10 Australia 5/154 10 10 Austria 10 0 0/5 Azerbaijan 15 15 25 Belarus 10 0/56 10 Belgium 5/151 10 5/1016 Brazil 15 10/158 15/2517 Bulgaria 10 0/106 10 Canada 5/152 0/106 0/1017 China 10 0/106 10 Croatia 5 0 10 Cyprus 10 0/106 0/517 Denmark 15 0 0/517 Egypt 5/151 0/156 15 Estonia 5/151 0/106 10 Finland 5/151 0 0/1/5/1012 France 10 0 0/517 Germany 5/151 0 5 Greece 15 0/106 0/1017 Hungary 5/151 0 10 Iceland 5/151 0 10 India 10 0/106 10 Indonesia 10/154 0/12.56 12.5 Ireland 5/151 0 10

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Withholding-tax rates under Czech double-tax treaties (%) Country of recipient


Israel 5/155 0/106 5 Italy 15 0 0/517 Japan 10/151 0/106 0/1017 Kazakhstan 10 0/106 10 Korea 5/101 0/106 0/1017 Kyrgyzstan 0 0 0 Labuan (IBC) 10 5/15 12 Latvia 0/101 126 10 Lebanon 5 0 5/1016 Lithuania 5/151 0/106 10 Luxembourg 5/151 0 0/1017 Macedonia 5/151 0/106 10 Madeira (IBC) 10/15 10 10 Malaysia 0/1011 0/126 12 Malta 5 0 5 Mexico 102 0/106 1017 Moldova 5/151 5 10 Mongolia 10 0/106 10 Morocco 15 15 25 Netherlands 0/1010 0 5 Nigeria 125/152 0/156 15 Norway 5/151 0 0/517 Philippines 10/15 10 10 Poland 5/14 0/106 5 Portugal 10/159 0/106 10 Romania 10 0/76 10 Russia 10 0 10 Singapore 5 0 10 Slovak Republic 5/151 0 10 Slovenia 5/151 0/56 10 South Africa 5/151 0 105 Spain 5/151 0 0/513 Sri Lanka 6/1514 0/106 0/1017 Sweden 0/101 0 0/517 Switzerland 5/151 0 1015 Tajikistan 0 0 0 Thailand 10 0/106 5/10/157

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Withholding-tax rates under Czech double-tax treaties (%) Country of recipient


Tunisia 10/151 0/126 5/1517 UAE 510 0 10 UK 5/151 0 0/1017 Ukraine 5/151 0/56 10 United States 5/15 0 0/1017 Uzbekistan 10 0/56 10 Venezuela 5/105 0/106 12 Vietnam 10 0/106 10 Yugoslavia 5/151 0 10 Non-treaty countries 15 0/153 25

1 The lower rate applies to an entity that owns at least 25% of the payer. 2 The lower rate applies to an entity that owns at least 10% of the payer. 3 Interest on mutual deposits with banks in the inter-bank market and interest on deposits of insurance companies with banks are exempt from tax. The 15% rate applies to other interest. 4 The lower rate applies if the receiving company owns at least 20% of the payer. 5 The 5% rate applies if the receiving company owns at least 20% of the payer. 6 The 0% rate applies to interest paid to (or by) the government (or stipulated institutions) subject to further conditions. 7 The 5% rate applies to royalties for copyrights; the 10% rate applies to royalties for patents and trademarks; the 15% rate applies to other royalties. 8 The 10% rate applies to loans and credits provided by a bank for a minimum period of ten years related to the sales of industrial equipment or a project, installation thereof, equipment of industrial or scientific units and/or related to public work. 9 The lower rate applies if the receiving company owns continuously for two years, preceding the payment of dividends, at least 25% of the payers and if the dividends are paid after December 31st 1996. 10 The 0% rate applies to a dividend paid to the government of the contractual state (or any governmental institution) or to a company that is at least 25% state owned by the contractual state. 11 The 0% rate applies to a dividend paid by a tax resident of Malaysia to a Czech tax resident that is the real owner of the dividend. 12 The 0% rate applies to royalties for copyrights, the 1% rate applies to royalties for finance lease of equipment, the 5% rate applies to royalties for operating lease of equipment and for the use of (or right to use) software, the 10% rate applies to other royalties. 13 The lower rate applies to copyrights exclusive of royalties for cinematographic films and films or tapes for television broadcasting. The higher rate applies to other royalties. 14 The lower rate applies to dividends paid by a tax resident of Sri Lanka to a Czech tax resident. 15 The treaty provides for a rate of 10%, but a protocol to the treaty provides that the rate is 5% until Swiss domestic law imposes withholding tax on royalties. 16 The lower rate applies to patents, trademarks, and any industrial or commercial scientific equipment of information, the higher to copyrights. 17 The lower rate applies to copyrights; the higher rate applies to patents.

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ESTONIA Lepik & Luhaaar

A. General information

Due to its successful structural reforms and open economy, Estonian business and investment climate has developed greatly over the last decade. According to the statistics published by the Ministry of Economic Affairs and Communications, Estonian Economic Growth accelerated in 2005 to 9,5 %, surpassing the mean economic growth of the past five years by 2,6 percentage points. The Ministry has also predicted 7,3%-7,7% GDP real growth for 2007-2010.

Estonia has adopted relatively low tax rates, which has promoted the foreign investment and domestic development. According to the 2007.a. state budget, the state’s profits from the taxes levied in aggregate will approximately be 60 170 millions EEK, with the indirect taxes (excises, VAT and gambling tax) amounting to approximately 28 291 million EEK (i.e. approx. 47%) and the direct taxes covering the rest. B. Corporate income taxation

1. Which are the taxable entities?

Resident legal persons are subject to income tax on worldwide income. Resident legal persons include (i) private legal persons and (ii) public legal persons. Private legal persons are legal persons founded in private interests and pursuant to a legal act concerning the corresponding type of legal persons. The state, local governments and other legal persons founded in the public interest and pursuant to a legal act concerning such legal person are public legal persons.

Non-resident legal persons not having a permanent establishment (“PE”) in Estonia are subject to income tax on particular categories of income listed in the Estonian Income Tax Act, as further limited by the applicable tax treaties. Income of non-resident associations of persons or pools of assets without the status of a legal person (i.e. trusts) is subject to taxation as the income of the shareholders or members of such association or pool in proportion to the sizes of their holdings.

2. How is the taxable income determined?

Estonia has adopted a unique corporate income tax system where only distributed profits are subject to income tax, with the retained earnings being fully exempt. Taxable distributions include dividends, fringe benefits, gifts and donations, and expenses not related to business.

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Since only distributed profits are subject to tax, there are only very few deductions available: in particular, if the dividends received from a subsidiary company are paid out further again as dividends, then if the share of the profit distributing entity in the subsidiary company is at least 15%, then no additional tax has to be paid.

PEs of non-resident entities are subject to income tax based on similar rules: assets transferred out of the PE are considered taxable distributions and taxed at the same rates as distributions made by resident companies.

3. What are the applicable tax rates?

As of 01.01.2007, profit distributions described above are subject to income tax at 22/78 of the net amount of the distribution (i.e. 22% of the gross amount). As the law currently stands, the tax rate shall decrease gradually over the coming years (21/79 as of 01.01.2008 and 20/80 as of 01.01.2009).

Please note that the above-described Estonian tax system is considered by the European Commission to be in conflict with the Parent-Subsidiary Directive and therefore Estonia has been granted a transitional period with respect to its current tax system until end 2008. At the moment, although a public discussion is in progress, there is no reliable information with regard to the changes to be introduced in 2009.

4. Are capital gains taxed separately?

No. Capital gains received by resident legal persons are not subject to taxation until they are distributed, e.g. as dividends (see above for details regarding dividend taxation).

5. May losses be carried back or forward and to what extent?

Since only distributed profits and other distributions are taxed, losses cannot be carried back or forward.

6. Are there any withholding taxes and at which rates?

Payments between resident legal persons are not subject to withholding. Various payments made by resident legal persons to non-residents are subject to withholding, including dividends payable to non-resident shareholders holding less than 15% and off-shore entities; interest paid in excess of arm’s length interest, certain royalties, etc. Rate of withholding tax is generally 22%. License fees, payments to artists and sportsmen and payments for services performed by a non-resident in Estonia are subject to withholding at 15%.

Applicable tax treaties typically reduce the withholding rate with regard to dividends down to 15%, with regard to interest down to 10% and with regard to royalties down to 5/10%.

7. Are there any preferential group taxation rules in force?

No. Please note, however, that if a resident company pays out as dividends on the account of dividend income received from a subsidiary company, then if the holding of the distributing entity in the subsidiary is at least 15%, then corporate income tax is not payable.

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8. Which are the anti-avoidance rules currently in force?

According to the general “substance-over-form” clause, if it is evident from the content of a transaction that the transaction is performed for the purposes of tax evasion, conditions which correspond to the actual economic content of the transaction apply upon taxation.

Transfer pricing rules apply to all transactions entered by resident legal persons, PEs of non-resident legal persons as well as resident sole entrepreneurs with an associated party.

According to Estonian CFC rules, income tax is charged on the income of a legal person located in a low tax rate territory and controlled by Estonian residents, irrespective of whether the legal person has distributed any profits to taxpayers or not. In order to qualify as a low tax rate territory, the jurisidction must meet several criteria, the main one being that the state or territory does not impose a tax on the profits earned or distributed by a legal person or such tax is less than one-third of the income tax which a natural person who is an Estonian resident would have to pay on a similar amount of business income, without taking into account the allowed deductions.

There are no thin capitalization rules.

9. Which are the main administrative requirements to comply with the local tax authorities?

The main administrative requirements with respect to corporate income tax are:

• by the 10th day of each month the resident legal person must file a tax return regarding taxable payments made during the previous month;

• by the 10th day of each month the resident legal person must transfer the amount of income tax payable for the previous month to the bank account of the tax authority;

• various notification requirements apply, in particular: obligation of the resident legal persons to submit annual reports to the tax authority, unless they are obligated by law to file them with the Commercial Register; obligation to notify the tax authority regarding various categories of payments, including payments to shareholders upon redemption of shares, reduction of share capital and payment of liquidation proceeds; obligation to notify of interest payments made to EU resident individuals; etc.


Please see Appendix 2.

11. Are there any special laws providing tax incentives to certain taxable entities?

There are no specific tax incentives with the aim to promote inbound investment.

C. Individuals


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Taxable persons are resident and non-resident individuals. Resident individuals are subject to income tax on their entire worldwide income less deductions exhaustively stipulated in the Income Tax Act. Non-resident individuals are subject to tax on specific categories of income exhaustively stipulated in the Income Tax Act, further subject to applicable tax treaties.

An individual is an Estonian resident if his or her place of residence is in Estonia or if he or she stays in Estonia for at least 183 days over the course of a period of 12 consecutive calendar months. A person is deemed to be a resident as of the date of his or her arrival in Estonia.

2. How is the taxable income specified?

As noted above, resident individuals are taxed on their worldwide income, subject to applicable deductions. Main categories of income are salary, business income, capital gains, rental income and license fees, interest, dividends, pensions, insurance payments, etc.

There are a number of deductions and reliefs available. In particular, the basic exemption deductible from the income of a resident individual during a calendar year is 24 000 EEK (approx. 1 534 EUR). Also, a person maintaining a child, who maintains two or more minor children may deduct increased basic exemption from his or her income for each child of up to 17 years of age, starting with the second child.

A resident natural person has the right to deduct interest payments made to, inter alia, a credit institution which is a resident of a Contracting State, for a loan or finance lease taken in order to acquire a house or apartment for him/herself. Interest payments for a loan or lease taken in order to acquire a plot of land in order to build a house may be deducted from income under the same conditions.

Payments to supplementary pension funds may also be deducted, but no more than to the extent of 15% of the taxable income, less the applicable deductions.

With respect to reliefs available for passive income, it should be mentioned that although income tax is charged on all dividends and other profit distributions received by a resident individual from a foreign legal person, such dividends are fully exempt if income tax has been paid on the share of profit on the basis of which the dividends are paid or if income tax on the dividends has been withheld in a foreign state. With respect to interest, income tax is not charged on interest paid to individuals by an EEA resident credit institution or through or on account of a PE of a foreign credit institution located within the EEA.

Note that the deductions available to resident individuals are altogether limited to 50 000 EEK per taxpayer per calendar year, and to not more than 50 per cent of thetaxpayer's income of the same period, after the deductions relating to business have been made.

The deductions available to resident individuals can be made from the income subject to taxation in Estonia also by other European Union resident individual who derived at least 75% of his or her taxable income in Estonia and who submits an income tax return of resident individual. Taxable income means income before deductions pursuant to the legislation of the state concerned.

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The general tax rate applicable to individuals is 22% (subject to decrease down to 21% as of 01.01.2008 and 20% as of 01.01.2009). Certain items of income are subject to reduced income tax rate: namely, supplementary funded pension payments meeting certain criteria are subject to income tax at 10%. Certain items of income, such as salary for working abroad, provided that the person has stayed in the foreign state for the purpose of employment for at least 183 days over the course of a period of 12 consecutive calendar months, and the specified income has been the taxable income of the person in the foreign state and if this is certified with a written certificate and the amount of income tax is indicated on the certificate (even if the amount is zero).


Capital gains are a category of income subject to individual income tax. The applicable tax rate is 22%, i.e. the generally applicable individual income tax rate.

Income tax is charged on gains from the sale or exchange of any transferable and monetarily appraisable objects, including real or movable property, securities, registered shares, etc. Please note that payments to shareholders upon reduction of share capital and redemption of shares, and liquidation proceeds are also taxable as capital gains.

Certain capital gains are exempt from income tax, such as property returned in the course of ownership reform, gain from transfer of properry in personal use, gain from the exchange of a holding (shares, contributions) in the course of a merger, division or transformation of companies or non-profit co-operatives, gain from the increase or acquisition of a holding (shares, contributions) in a company by way of a non-monetary contribution, etc.

5. May losses be carried forward or back?

With respect to sole entrepreneurs, losses may be carried forward for seven calendar years.

With respect to all resident individuals, losses from sale of securities may be carried forward and deducted from future capital gains received from sale of securities. Such losses may be carried forward indefinitely. D. Capital

In outline, which are the main taxes on capital, if any?

There are no capital, inheritance or gift taxes under Estonian tax laws.

The only property tax imposed in Estonia is land tax, the rate of which generally varies between 0,1% and 2,5% of the taxable value of the land per year. Subject to certain specific exceptions, the owner of the land is liable for land tax.

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E. Indirect taxes

In outline, which are the main indirect taxes, if any?

Indirect taxes introduced in Estonia are VAT and excise duties (alcohol, tobacco, fuel and package excise duties).

Estonian VAT rules are generally in line with the Sixth VAT Directive and other VAT Directives. Tax is charged on supplies of goods and services in the course of business activities and self-supply of goods and services. The threshold for obligatory registration as a taxable person is 250 000 EEK (approx. 15 978 EUR).

The standard rate of VAT is 18%, in certain cases reduced rates of 5% and 0% (i.e. exemption with the right to deduct input VAT) apply. Supplies taxable with 5% VAT includes books (except books for education), medicinal products, funeral requisites and services, etc. The VAT rate is 0% for exports, intra-Community supply, Community goods placed under tax warehousing arrangements, etc. Exempted goods and services are postal, health and social services, as well as supplies of immovables (the latter subject to certain exceptions).

Alcohol excise rates meet EU minimum levels. Tobacco excise rates do not correspond to EU minimum rates, and therefore Estonia has been granted a transitional period for reaching the EU minimum levels by 2008. With regard to fuel products, Estonia has been granted various transitional periods to meet the EU minimum levels as set forth in the Energy Taxation Directive.

Excise on packaging is imposed on packaging filled in Estonia, acquired from another Member State or imported into Estonia. Excise is paid by the importer of packages, by the user of packages, i.e. who fills packages with goods or by the person, who acquired packaging from another Member State upon the sale, exchange, free transfer or use for self-consumption of packaging. F. Other duties

In outline, are there any other taxes, if any?

An important source of state revenue is, besides individual and corporate income tax and VAT, social tax. Social tax is charged on employers' payments to natural persons (wage income) in cash as well as in kind (fringe benefits), and is a tax payable by employers. Minimum and maximum thresholds are set for social tax payable by sole proprietors.

Social tax rate is generally 33%, and in certain specific cases 13% of the taxable amount. Taxes are due monthly; the tax is paid by the 10th day of the following month. Taxable period for business income of sole proprietors is a calendar year.

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G. Enforcement- Litigation procedure

1. In outline, which are the existing measures in order to ensure compliance with the tax legislation?

If a taxpayer fails to pay tax by the due date prescribed by law, the taxpayer is required to calculate and pay interest on the amount of tax outstanding by the due date. Interest shall be calculated as of the day following the day on which payment of the tax was due pursuant to law until the date of payment or set-off, inclusive of the latter. The rate of the interest is 0,06% per day of delay, or approx. 21,9% per annum.

Failure to perform non-monetary obligations of the taxpayer is secured by penalty payments and substitutive enforcement. In particular, in case of failure to submit documents or information, the tax authority may charge a penalty payment. Penalty payments imposed to enforce the performance of the same obligation must not exceed 40 000 EEK (approx. 2 556 EUR) in total. Substantive enforcement may be applied if, for example, the taxpayer fails to install meters on storage facilities or equipment according to the instructions of the tax authority.

Failure to comply with tax laws may trigger misdemeanour or, in certain cases, criminal liability. In particular, miscalculation of tax or failure to withhold tax amounts to a misdemeanour offence, punishable, in case of a legal person, with a fine of 50 000 EEK (approx. 3 196 EUR). Fraudulent miscalculation of tax, if a punishment for a misdemeanour has been imposed on the offender for the same act, or if such act results in a tax underpayment, or tax return, set-off or compensation without legal basis in the amount of 500 000 kroons or more, may trigger criminal liability. Punishment for such offence, in case of a legal person, may amount up to 250 000 000 EEK (approx. 16 000 000 EUR). In practice, however, the fines imposed have so far been significantly lower than the above upper limit.

2. What is on average the duration of the litigation procedure for the final resolution of tax disputes?

A tax assessment may be disputed by submitting a challenge with the Tax and Customs Board. Alternatively, a tax assessment may be disputed directly by filing an action with the administrative court. A ruling on the challenge by the tax authority may also be disputed by filing an action with the administrative court. The court system consists of three stages, i.e. ruling by the administrative court may be disputed in the District Court, which is the appellate court instance, the decisions of which may, in turn, be disputed by appealing to the Supreme Court.

The duration of the litigation procedure may vary and depends greatly on the nature of the case. However, a dispute typically takes approximately six months to one year to pass all possible court instances and reach a final non-appealable decision.

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APPENDIX INCOME TAX RATES Corporations Partnerships Individuals Other entities 22/78 of the net amount (i.e. 22% of the gross amount)

22/78 of the net amount (i.e. 22% of the gross amount)

22% 22/78 of the net amount (i.e. 22% of the gross amount)

10% (supplementary pension fund payments)

LIST of DTC AGREEMENTS Country Interest withholding

tax rate Royalties withholding tax rate

Dividends Withholding tax rate

Armenia 10% 10% 5% (at least 10% holding)/15%

Austria 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)

10% (all the other cases)

5% (at least 25% holding)/15%

Belarus 10% 10% 10% Belgium 10% 5% (the royalties paid

for the use of industrial, commercial or scientific equipment)



Canada 10% 10% 5% (at least 25% holding)/15%

China 10% 10% 5% (at least 25% holding)/10%

Croatia 10% 10% 5% (at least 10% holding)/15%

Czech Republic 10% 10% 5% (at least 25% holding)/15%

Denmark 10% 5% (the royalties paid for the use of industrial, commercial or


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Country Interest withholding tax rate

Royalties withholding tax rate


scientific equipment)


Finland 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



France 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



Germany 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



Hungary 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



Iceland 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)


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Ireland 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



Italy 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



Kazakhstan 10% 15% 5% (at least 25% holding)/15%

Latvia 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



Lithuania 10% 10% 5% (at least 20% holding)/15%

Luxembourg 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



Malta 10% 10% 5% (at least 25% holding)/15%

Moldova 10% 10% 10% Netherlands 10% 5% (the royalties paid

for the use of industrial, commercial or scientific


45





equipment)


Norway 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



Poland 10% 10% 5% (at least 25% holding)/15%

Portugal 10% 10% 10% Romania 10% 10% 10% Slovak Republic 10% 10% 10% Slovenia 10% 10% 5% (at least 25%

holding)/15% Spain 10% 5% (the royalties paid

for the use of industrial, commercial or scientific equipment)



Sweden 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



Switzerland 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



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Turkey 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)


10%

Ukraine 10% 10% 5% (at least 25% holding)/15%

United Kingdom 10% 5% (the royalties paid for the use of industrial, commercial or scientific equipment)



United States 10 % 5 % (the royalties paid for the use of industrial, commercial or scientific equipment)

10 % (all the other cases)


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HUNGARY Nagy es Trocsanyi

A. General information The Republic of Hungary, a Central-European country with a population of over 10 million, is a member to the European Union since May 1, 2004. Pursuant to OECD statistics1 the per apita gdp in Hungary was US$15,946 in 2004 and the gdp growth rate between 2000-2006

te step to cut deficit, the newly elected ocialist government raised taxes and social security contributions in 2006 which are hoped

caveraged at 4.14% p.a. The consumer price index was 3.6% in 2005 and 3.9% in 2006. Notwithstanding a robust economy, fiscal imbalance is however, somewhat alarming as it was around 10% of the gdp in 2006. As an immediasto be reversed as structural financial reforms permit. Pursuant to data from the European Commission2 the overall taxation level (including social security contribution) is 39.1% of the GDP compared to 39.3% for the EU weighted average. In terms of the tax mix, implicit tax rates on consumption and labor (including vat, excise tax and customs) are 3% and 5.2% respectively higher than the EU average. There is no tax on apital as opposed to the 29.9% average of the old member states and the 14% average of the

therwise the tax system is typical EU. Government income (including social security) in 2 05, in

cnew (which includes the Hungarian 0 rate) member states. O

0 proportion of the source, was as below3: TAXES IN PROPORTION OF GOVERNMENT INCOME corporate tax 4,6% special tax of financial institutions 0,4% simplified entrepreneurship tax 1,0% energy tax 0,1% mining tax 0,3% game tax 0,7% o yments ther pa 1% 0, other centralized payments 1,8% Taxes and payments from companies total 1% 9, VAT 19,0% e axxcise t 2% 7,

1 http://stats.oecd.org 2 TAXUD E4/2006/DOC/3201 3 act 2006: XCIX on financial closure of the 2005 budget

48


car registration and consumption tax 0,7% Consumer type taxes total ,9% 26 personal income tax 10,6% inherit ance and procedural dues 1,2%

Ain

s may well be seen from the distribution of the revenue sources, instead of corporate me ption.

e taxation

This includes companies of any form,

general and limited partnerships alike (including law firms, notaries’ s if

resident taxpayers if their place of management is in Hungary.

nds from

ax base is the pre-tax result, i.e. income less the expenses directly related to the business nd other deductibles such as dividend.

l ,9% Direct taxes from individuals tota 11 Diverse budget incomes 21.0% C E N T R A L B U D G E T T O T A L 68,7% Health care contribution 11,7% Pension plan contribution 19.4% S O C I A L S E C U R I T Y T O T A L 31,1% GRAND TOTAL 100.0%

co and capital, the overall tax burden is on labor and consum B. Corporate incom 1. Taxable entities In general, practically any entity carrying out business activity within the territory of Hungary s subject to corporate tax, notwithstanding residency. i

business partnerships, cooperatives and, in terms of their for profit activity, even not for profit entities, foundations, associations and churches. It is worth noting thatoffices, patent attorney offices), lack of legal personality, notwithstanding, are treated ahey were companies t

Foreign entities qualify as 2. Taxable income Resident taxpayers are taxed on their worldwide income, while non-resident entities only on income from their Hungarian branches. It is worth mentioning however, that dividends received from a domestic source are exempt rom the tax base, i.e. dividend received is not subject to corporate tax. Dividef

abroad are exempt also, except if there is no corporate tax at the place of business of the dividend payer or if its rate is below 2/3 of the Hungarian tax rate (i.e. 2/3 of 16%). Ta

49


3. Tax rates The general tax rate is 16%. For small businesses with a yearly income less than HUF 5

sen government deficit, since Sept. 1, 2006, ere is a 4% surtax (with minor exceptions, it may be considered as an extra corporate tax)

urden 20%.

apital gains are included in general income and are taxed as such. Some exceptions apply in transactions.

owever, om the 3rd year of operation only upon the permission of the tax authority. Carry backward

ltural entities against the profits in the 2 preceding years.

e tax residence certificate, tax will be withheld at e reduced treaty rate. There is no tax on dividends and interests payable to entities,

seq g is not an issue.

force until xpiration not later than 2011. The off-shore regime has been revoked prior to EU accession

mall and medium size entities are entitled to a tax credit of up to HUF 6 million per year in

, development tax incentives are available in the total amount of the tax otherwise payable after; Investments of at least HUF 3 billion (apr. € 12 m

resulting in at least 75 new jobs;

− € 400,000) into environment

ns, film or video production,

million (apr. € 20,000) it is only 10%. As part of an austerity package purported to lesthmaking the effective corporate tax b 4. Capital gains taxation Cconnection with mergers and stock exchange 5. Loss carry forward and backward Except by financial institutions, loss incurred may be carried forward indefinitely. Hfris available only for agricu 6. Withholding tax In general, taxes on payables to individuals including tax on interest (20%) and dividend (25% or 35%) are withheld at source. In cases where treaty rate applies and the recipient proves his foreign domicile through its homthcon uently, withholdin 7. Preferential tax Pre-EU tax incentives formerly granted, if not already unavailable, are yet ineand companies formerly qualified may have applied these incentives until 2005. Sthe amount of 40% of the interests paid on loans financing purchase of assets. By resolution of the Ministry of Finance decree

illion) resulting in at least 150 new jobs;

− Investments of at least HUF 1 billion (apr. € 4 million) in the territories of privileged municipalities

− Investments into food production hygiene of production facilities of value of at least HUF 100 million; Investments of at least HUF 100 million (apr. protection, broadband internet service, basic or applied research or development by scientific institutio

50


− Investments resulting in certain number of new jobs, provided 20% will be taken by school graduates.

Entrepreneurs, partnerships and limited liability companies may qualify under the simplified epreneu , besides certain other conditions, their annual income does not

€100,000). The tax is 25% of income (inclusive vat) with

nsfer pricing rules follow the oecd

rwise exempt from corporate tax) from an affiliate resident

t – erest on debt (except to banks) in excess of three s t l rules apply between affiliates, i.e. the 50% of

th following ax tax advances are to be filled up to the pre-la 20th of the tax year. Final tax return is to be filed and id y 31st of the year following tax year.

social organizations, public bodies, churches, ondominiums, mutual insurance savings, universities, schools and other not-for-profit ooperatives and companies enjoy special privileges which vary from reduced rates to tax olidays for purpose bound incomes.

entr rship tax regime ifexceed HUF 25 million (apr.deductions permitted. 8. Anti-avoidance rules In general, the tax authority has the power to re-qualify contracts and transactions according to their underlying real substance and if their sole purpose was to avoid tax obligations. Transfer pricing rules apply on transactions between affiliates in case where one has a majority control of any form over the other. The traguidelines and, pursuant to a court ruling, the oecd guidelines and principles serve even as primary source of interpretation of laws. Transfer price ruling may be applied for and granted. Said transfer price ruling will then be binding. Dividend received (which is othein a jurisdiction where corporate type tax is less than 2/3 of the Hungarian rate (16%) will add to the general tax base, except if it is substantiated that the dividend payer company carries out real business activity. Deb equity ratio, in general, is 3:1, i.e. inttime he equity will add to tax base. Speciathe negative balance of interest paid and received adds to tax base. 9. Main administrative requirements Quarterly (in cases where the annual tax is apparently over HUF 5 million monthly) tax advance returns are to be filed and tax advance be paid until the 20th on the monthe t advance return period. The interimcalcu ted level of tax until December unpa balance of tax shall be paid until Ma 10. For tax treaties see appendix 11. Tax incentives for special entities Foundations, public foundations, cch

51


C. Individuals

sidents if present in Hungary for an aggregate period of 183 days or longer during a nda ationals are subject to Hungarian income tax if they derive

ertain types of income from Hungarian sources.

thstanding its source, unless pecifically exempted. There exists a mushrooming and overcomplicated system of

diplomatic and other international related incomes.

and dividend are taxed ifferently from regular income.

x returns.

me n artistic and other cultural professions is taxed at 11% together with a 4% ocial security contribution (making it altogether 15%).

ividend received is taxed at a 25% rate, except dividend paid in excess of 30% of the equity he end payer, in which case the rate is 35%. Dividend paid on securities

sted or traded on an established European stock exchange is taxed at 10%.

. Capital gains

come from selling securities is taxed at 25%, from other stock exchange transaction at 20%.

ntrepreneurs may carry forward their losses, however from the third year of operation only ion of the tax authority.

. Capital

1. Taxable persons Hungarian citizens and individuals resident in the territory of the Republic of Hungary are subject to taxation on their worldwide income. Foreign nationals are treated as Hungarian recale r year. Otherwise, foreign nc 2. Taxable income specified In general, any income except for pension is taxable notwisexemptions, e.g. governmental social, child and educational supports, housing aids, certain donations, The personal income tax law distinguishes between income from dependent and independent services. The income of entrepreneurs, from selling properties, interestd Family members are taxed separately and file separate ta Inco from certais 3. Tax rates Tax rate is set as percentage of the taxable income. The general scheme is 18% up to HUF 1,700,000 (apr. € 6,800) of annual income and 36% above. Dof t Hungarian dividli 4 In 5. Loss carry forward Eupon the permiss D Tax on income from selling movable property is 25%, on interest 20%.

52


Tax on income from selling real property is 25%, however, according to a time scale, it is reduced up to technically 0% after having the property owned for over 15 years. Depending on value and grade of relation, gift and inheritance tax, in general, varies between

gift tax rate is between 5-0%, that of inheritance is between 2,5-21%.

ery and other similar games are taxed at 25%.

he implicit tax burden on consumption 10-15 years ago used to be about 150% of the EU

em. The Hungarian vat system is based on and rictly follows the EU Sixth Directive. The general vat rate has been reduced from 25% to

um products the tax is between HUF 90,000 – 111,800 per 1000 liters, on alcohols iverse amounts on spirit, beer and wine measured in alcohol content. Cigarettes are taxed at UF 7,240 per 1,000 pieces (apr. 60 € cent a pack), other tobacco products between 32,5 –

ransfer tax on purchase of real properties (and certain immovables) is in general 10%,

irst registration of passenger cars fall under registration tax of between HUF 190,000 – 60 – 35,500), that of for motorcycles and trailers is lower.

ution may be sued again before county ourts and rulings at that level -- which may be expected within a year -- is final with no

11-40%, except in case of dwelling property, in which case the3 Prizes from the lott E. Indirect taxes Taverage. Since then, however, the implicit tax rates have been gradually lowered to around the EU average. As 19% of overall budget revenues come from value added taxation (vat), so like in other EU countries, vat is the centrepiece of the tax systst20% in 2006, however, applicability of preferential rates of 0 and 5% have been simultaneously reduced. Export is free of vat. Excise tax is levied on petroleum products, alcoholic beverages and tobacco products. On petroledH52%. F. Other taxes Texcept in case of dwelling properties 2-6%, for real property businesses when buying for re-sale only 2%. F9,622,000 (apr. € 7 G. Enforcement The Hungarian tax authority, APEH, is evidently tough. From the resolution of the first instance tax administration one may apply to the second instance, the resolution of which is already enforceable. The second instance tax resolcremedy other than supervision by the Supreme Court, the availability of which is, however, limited. Courts show minimal sympathy to evaders.

53


Late payment interest is the double of the prime interest rate applied by the National Bank of ungary. Tax administration fine is 50% of unpaid taxes. H

54


APPENDIX

TAX RATES Corporations and Partnerships Individ

INCOME

uals less than € 20income

,000 10% up to €6,800 18 %

general rate 16% above t 36 hat % surtax on top of

4%

10/16% LIST OF DTC AGREEME S

thholding tax rates (%) NT

wiDividends Country Interest alties

viduals, panies

alified mpanies

Royindicom

Quco

Albania 0 5 10 5 Australia 10 10 15 15 Austria 0 0 10 10 Belarus 5 5 15 5 Belgium 15 0 10 10 Bosnia-Herzegovina 0 10 10 10 Brazil 10/15 5 15/2 15 15 Bulgaria 10 10 10 10 Canada 10 0/10 15 5 China (People’s Rep.) 10 10 10 10 Croatia 0 0 10 5 Cyprus 10 0 15 5 Czech Republic 0 10 15 5 Denmark 0 0 15 5 Egypt 15 15 20 15Estonia 0 10 5/1 15 5 Finland 0 0/5 15 5 France 0 0 15 5 Germany 0 0 15 5 Greece 10 0/10 10 10 India 10 10 10 10 Indonesia 15 15 15 15Ireland 0 0 15 5 Israel 0 0 15 5 Italy 0 0 10 10 Japan 10 0/10 10 10

55


withholding tax rates (%) Dividends Country Interest Royalties individuals, Qualified

anies companies compKazakhstan 10 10 15 5 Korea (Rep.) 0 10 5 0 Kuwait 0 0 10 0Latvia 10 5/10 10 5 Lithuania 10 5/10 15 5 Luxembourg 0 0 15 5 Macedonia 0 0 15 5 Malaysia 15 15 10 10 Malta 10 10 15 5 Moldova 10 0 15 5 Mongolia 10 5 15 5 Morocco 10 10 12 12 Netherlands 0 0 15 5 Norway 0 0 10 10 Pakistan 15 15 20 15 Philippines 15 10 20 15 Poland 10 10 10 10 Por gal 10 tu 10 15 10 Romania 15 10 15 5 Russia 0 0 10 10 Serbia and Montenegro 10 10 15 5 Singapore 5 5 10 5 Slovak Republic 0 10 15 5 Slovenia 5 5 15 5 South Africa 0 0 15 5 Spain 0 0 15 5 Sweden 0 0 15 5 Switzerland 10 0 10 10 Tha n 15 ila d 10/25 15 20 Tunisia 12 10 12 12 Tur y 10 ke 10 10 15 Ukraine 10 5 15 5 United Kingdom 0 0 15 5 Uni d 5 te 0 15 States 0 Uru agu y 15 15 15 15 Vietna 10 m 10 10 10

56



aidins

A. G

Latvia has one of the fastest growing economies in the European Union. Since 2001 the GDP rate 8% per year. It is estimated that the GDP growth rate rrate of 0 effective treaties). The gov thetaken t he quality and effectiveness of the administration of the taxation system. The ntary tax revenues, imp bating fraud. Tax revenues have consistently increased in recen pared to

pal financed institutions, and non-residents are ed on their world-wide

.

Tax depreciation expenses; • r organizing goods or services

lotteries;

ome recorded in relation to the privatization of enterprises • Reductions in reserves which previously were included in taxable income;

ents made into employee pension funds (subject to certain limitations.)

LATVIA Klavins & Sl

eneral information

has grown on average by more than fo 2006 exceeded 10%. Latvia has a competitive tax system, with a low corporate tax

15% and a broad tax treaty network (more than 4ernment encourages foreign investment and is continuously working towards improving

investment climate, including improving the taxation system. Significant steps have been o improve t

State Revenue Service is actively working to increase the rate of volurove taxpayer services and increase controls for com

t years. In 2006 the revenues increased by 29.3% com2005 reaching LVL 3.44 billion. B. Corporate income taxation


Resident companies, certain state and municisubject to Latvian corporate income tax. Resident companies are taxincome while non-residents are taxed on their Latvian source income


Taxable income is determined based on the taxpayers financial income for the given period subject to certain adjustments. Companies can reduce taxable income by the following:

•Real estate tax, lottery and gambling tax, state fees fo

• Certain EU or state subsidies paid for agriculture development; • Bad debts (subject to certain restrictions) • Certain inc

• The book value of computer equipment (including printers) donated to educational institutions for no consideration;

• Income from the sale of publicly traded securities; • Premiums paid to Latvian or EU registered insurance companies and paym

55


Companies must increase their taxable income by the following:

− Expenses incurred for the maintenance of the company's social infrastructure, i.e. housing, educational, sports, catering and health care institutions if their services are provided below market value or if they are not directly linked to the business of the

bject to withholding tax for which withholding tax was not charged;

−

− cluding non-capitalized interest paid on in reserves;

− natural resources or excessive pollution; − blicly ed securities (excluding losses carried

− of publicly traded securities; − Interest payments in excess of allowable amounts.


ital gains taxed separately?

of a

carry ccrued losses is lost. Losses from the sale of securities (other than period of five years

traded securities.)


eaties may reduce or eliminate the withholding tax.

0% from 2009) of the capital and voting shares in the Latvian resident company making the payments.

company; − Depreciation and amortization expenses as calculated for the financial accounts; − Penalties, fines and late-payment interest; − Uncompensated amounts arising from deficits and theft in companies with more than

50% state or municipal ownership; − Payments to non-residents su

40% of representation expenses; Acquisition costs of long-term investmentlong-term debt and on repayable debt; certaFines paid for the excessive exploitation of

s, ex

Losses arising from the sale of pu tradforward); Expenses incurred on the acquisition

There is a flat rate of 15%.

4. Are cap

Capital gains are taxed as ordinary income.


Tax losses can be carried forward (chronologically) for a period of five years. In case change of control and a change in the main operating profile of a company, the ability to

forward any apublicly traded securities) can be brought forward chronologically for a but can only be used to offset income from the sale of securities (other than publicly

The following payments made to non-residents are subject to withholding tax according to domestic law. In some cases effective double tax tr

Dividends paid to non-residents are subject to 10% withholding tax. Withholding tax is not applicable in case the recipient is located in a European Union member state or European Economic Area and has held continuously for two years at least 15% (1

56


Withholding tax at a rate of 10% (5% for Latvian registered banks) is applicable to interest payments made to non-resident associated persons. From 2009 the rate will be reduced to 5% and from 2013 no withholding tax will be applicable for interest payments made between

Royalties paid to non-residents are subject to withholding tax at a rate of 15% for copyrights operty. Until 30 June 2009

the rate is reduced to 10%, from 1 July 2009 until 30 June 2013 the rate will be 5% and from 1 J the European Union for copyrights to literary and art works. The 5% rate will remain for all oth y

Paym

e?

ame

) The companies are members of the group for the entire period when the losses were

e tax periods ending on the same date (financial year); from corporate income tax or utilizes a reduced rate

press permission is obtained from the tax the tax.

related parties located in the European Union.

to literary and art works or 5% for all other types of intellectual pr

uly 2013 no withholding tax will be applicable to payments made to a company located in

er t pes of intellectual property.

Management and consulting fees 10% ents for the use of property 5%

located in Latvia (moveable and immoveable)

Proceeds from the sale of real estate 2% Partnership distributions 15% Payments to statutory low tax zones 15%

7. Are there any preferential group taxation rules in forc

According to Latvian law it is possible to transfer losses between companies in the sgroup subject to certain requirements and restrictions. The general requirement is 90% direct or indirect ownership. In order to be able to transfer the losses the following criteria must also be met:

1) The companies are resident in Latvia or an EU member state or country with which Latvia has concluded a double tax treaty;

2incurred;

) The companies have the sam34) None of the companies are exempt

of income tax; 5) None of the companies have any outstanding tax liabilities (debts); 6) The companies have their annual accounts audited/certified by a sworn auditor.


Withholding tax of 15% is applicable to payments (subject to limited exceptions) made to statutory designated offshore zones unless exauthorities to make payments without charging

Transfer pricing rules are applicable to transactions carried out between related parties. If goods or services are sold between related parties at prices above or below fair market value, the State Revenue Service could require that taxable income is adjusted by the difference between the actual value of the transactions and the fair market value.

Thin capitalization rules are applicable to companies that incur interest expenses limiting the amount that can be deducted for corporate tax purposes. Effectively a 4:1 debt/equity ratio is

57


applied according to a specified formula. The thin capitalization rules are not applicable to interest expenses incurred for loans issued by Latvian or EU registered credit institutions.

e requirements to comply with the local tax authorities?

• Annual corporate income tax return within 4 months (or 7 months) after the end of the

• Report of payments to non-residents by the 15th date of the month after the tax period

ented, and the relevant supporting ust be carried out in accordance with the

requirements of Latvian law and should be available in the Latvian language.

ble taxation conventions already been concluded?

se ched schedule for effective double tax treaties.

p to 80% of corporate income tax, real estate tax as well as special rules applicable certain transactions for VAT purposes.

C. Individuals


me while non-residents are taxed on their Latvian source income or income received with respect to certain activities carried out in Latvia or on behalf of a Latvian

year.

Taxable income includes income from employment, professional activities, business

al and education expenses, donations to approved organizations, health and life insurance premiums and social insurance contributions paid.

gistered banks,

9. Which are the main administrativ

Taxpayers should ensure that filing deadlines are complied with.

financial year

• Report of payments to related parties by the 15th date of the month after the tax period • Other types of returns are generally due on the 15th date of the following month.

It is important that all transactions are properly documdocuments are available in Latvia. Accounting m

10. With which countries have dou

Plea see atta


Companies that carry on certain agricultural activity are eligible to receive limited tax relief. Companies operating in special economic zones or freeports may be eligible to receive tax breaks of uto

Residents and non-residents are subject to taxation in Latvia. Residents are taxed on their worldwide inco

company. Individuals are deemed to be residents if they permanently reside in Latvia or if they spend more than 183 days during any twelve month period which begins or ends within the taxation


activities, real estate, intellectual property, benefits received from an employment relationship, and other income which is not exempt. Individuals are entitled to claim certain allowances for dependents including, medic

Certain types of income (subject to certain limitations) are exempt including dividends from Latvian or EU resident companies, income from deposits in Latvian or EU re

58


life or health insurance benefits, alimony, certain stipends, inheritances, income from investments in private pensions funds and gifts from natural persons.


is charged at a rate of 25%. From 2008 there will be two rates, the 25% ate will remain but income from business activity carried out by individuals will be subject

s ordinary income. As a general rule capital gains incurred by dividuals are exempt from tax (subject to limited exceptions) provided the gains were not curred from business activity.


Losses incurred by individuals from business activity can be carried forward chronologically for a maximum period of three years.

Real estate is subject to real estate tax at a rate of 1.5% of the cadastral value of land and

xes, if any?

reduced rate of 5% and 0%. Latvian VAT legislation generally follows EU requirements.

Excise tax – Certain excised goods are subject to excise tax including tobacco, alcohol and oil products. The rates of excise tax vary depending on the particular type, content and form of

Import duties - Latvia applies EU customs law and goods imported into Latvia are subject to EU customs requirements and tariffs.

Natural resource tax – Persons that carry on polluting activity, use natural resources or use packaging are subject to natural resource tax. The rates of tax depend on the particular type of activity and the extent of such activity.

Light automobile and motorcycle tax – Tax is payable upon the registration of a light automobile or motorcycle. The rates of tax depend on the age of the vehicle.

Personal income taxrto a 15% rate.


Capital gains are treated ainin

D. Capital

There are no separate taxes on gifts, capital or inheritances.

buildings. E. Indirect taxes

In outline, which are the main indirect ta

Value added tax- The supply of goods and services are subject to VAT. The general rate of VAT is 18%,

the goods.

59


Transfer taxes – There are no transfer taxes on the transfer of assets, shares or capital. owever, there is a state fee payable for the registration of title to real estate. The fee for the

the transaction value subject to a cap of LVL 30,000.

Other dutie State fees – Various activities and services carried oupayment of state fees. The fees are applied to such activities as company registration,

ation from public registers, filing documents with public ry depending on the type of activity to be carried out but

generally are not material.

cement- Lit n procedure

outline, which e existing measu ith the egislation?

Revenue Ser given relatively broad powers to ensure taxpayer compliance carry out vario pes of inspections audits, as well as uest information,

nd explanations from taxpayers. In tain cases the State Revenue Service can the operations mpany, freeze its ts and bank accoun ailure to comply

ons ca lt in fines and pen es of up to 200% o x liability due in ees and st.

, the State R e Service enforces tax compliance through the issuance of rative acts. A ion issued by the ate Revenue Servic he form of an

trative act must first be appealed through the general director a ly then can the ocess continu e court process. I ost circumstances a tax dispute would be n the administrative court system which consists of two levels. There are no

ax courts that hear tax disputes.

certain restric Latvian law also provides for a settlement procedure to resolve es.

hat is on avera duration of the litigation procedure for the final resolution f tax disputes?

of the litig process to obtain final resolution of a dispute can take al months up to two or even three years.

Hsale of real estate is 2% of F. s

t by state institutions are subject to the

obtaining certain types of informregisters and others. The fees va

G. Enfor igatio

1. Ιn are th res in order to ensure compliance wtax l

The Statand can

e vice isus ty and req

documents a cersuspend of a co asse ts. Fwith tax regulati

late fn resu alti f ta

addition to intere

Formally evenuadminist decis St e in tadminis nd onappeals prresolved i

e in th n m

specific t

Subject tot

tions tax dispu

2. W ge theo

The duratiofrom sever

n ation the tax

60


APPENDIX

TAX RATEations Partnerships Individuals Other entities

INCOME S Corpor 15% Not taxed at

partnelevel

25% Other types of entities which carry out business activity would generally be subject to corporate income tax at a rate of 15%.

rship

LIST of DTC AGREE TS

nds1% Interest %2 Royalties 3%

MEN

Country DivideArmenia 15/5 10 10 Azerbaijan 10/5 10 5/10 Belarus 10/10 10 10 Belgium 15/5 10 5/10 Bulgaria 5/10 5 7/5 4

Canada 15/5 10 10 China 10/5 10 10 Croatia 10/5 10 10 Czech Republic 15/5 10 10 Denmark 15/5 10 5/10 Estonia 15/5 10 5/10 Finland 15/5 10 5/10 France 15/5 10 10/5 Germany 15/5 10 5/10 Georgia 5/105 10 10 Greece 5/10 10 5/10 Hungary 5/10 10 5/10 Iceland 15/5 10 5/10 Ireland 15/5 10 5/10 Israel 10/15 5/10 5 Kazakhstan 15/5 10 10 Lithuania 15/0 0 0 Luxembourg 10/5 10 5/10 Malta 10/5 10 10 Moldova 10/10 10 10 Netherlands 15/5 10 5/10 Norway 5/5 10 5/10 Poland 15/5 10 10 Portugal 10/10 10 10

61


Country Dividends1% Interest %2 Royalties 3% Romania 10/10 10 10 Serbia 5/10 10 5/10 Singapore 10/5 7.5 10 Slovak Republic 10 10/10 10 Slovenia 15/5 10 10 Spain 5/10 10 5/10 Sweden 15/5 10 5/10 Switzerland 15/5 10 5/10 Turkey 10/10 10 5/10 Ukraine 15/5 10 10 United Kingdom 15/5 10 5/10 USA 15/5 10 5/10 Uzbekistan 10/10 10 10

1 Under most treaties the rates differ accord whether vidends ar to a company/person or not. The first rate is for a non-qualifying company/person and rate is for a qualifying company. l rul be

company under the treaties a company must h least 25 e Latvian any’s or share capital as the case may be. In the case of France and Israel the holding

ding on interest apply is paid to certain e

s for royalties generally apply to equipment le

f royalty be

nimum nt equiv SD 75

ing to the di e paidqualifyingthe second As a genera

ave ate in order to% of th

a qualifying comp

voting requirement is 10%. 2 In some cases the withhol may not if interestgovernment or institutions or government back d loans. 3 The reduced rate asing. 4 Rate varies according to the type o ing paid. 5 a miQualifying company requires also investme alent to U ,000.

62




d by the second

o LTL 81,554 million (approx. EUR 23,620 the structural

summary of the General Government Budget :

LITHUANIA Lideika, Petrauskas, Valiunas ir Partneriai

Lithuania has been experiencing rapid economic growth since 1996, supportehighest labour productivity growth rate in the EU. Over the period 2001 - 2006 real GDP growth averaged 7.6%. In 2006 GDP amounted tmillion) at current prices. The key goal of fiscal policy is the reduction ofdeficit below or to 1% of GDP.

Set out below is a 1

Revenue

2004

(Thousand LTL)

2005

(Thousand LTL)

2006

(Thousand LTL)

Taxes Income and profit taxes 4223131 5074006 6349255 Taxes on property 247914 251491 278425 Taxes on goods and services 6467811 7415339 8794754 Ta s on international tradexe and transactions 147487 158396 182944 Other Revenue Property income 402497 468917 383089 Revenue from goods and services 652651 705302 779973 Revenue from fines and forfeiture 68403 84343 109274 Other revenue not elsewhere classified 75531 103395 91195 Revenue from sales of fixed assets 101116 138613 202210 Transactions in financial assets 28209 59720 28986 Total revenue: 12414749 14459520 17200106 EU assistance 1389794 2020716 2162284 Total revenue: 13804543 16480236 19362390 1 All the data is taken from the official website of the Ministry of Finance of The Republic of Lithuania B. Corporate income taxation

The Lithuanian Law on Profits tax establishes two types of corporate taxpayers – Lithuanian and foreign entities.


63


Enterprises registered in Lithuania must pay the corporate income tax on profits earned both in Lithuania and abroad. Withholding taxes paid abroad and not exceeding the tax payable in Lithuania on foreign income may be credited. Moreover, relieves may be applied according to applicable international treaties. Partnerships and personal enterprises are considered as

companies. Non-profit organizations are entitled to certain tax relieves.

The tax liability of foreign entities is limited to the income sourced in Lithuania, including hment (PE). Permanent establishments of foreign

entities must be registered with the local tax authorities as payers of the Lithuanian corporate

rough their PE in Lithuania are subject to the withholding tax (please see question 6 on Withholding taxes).


The tax base for foreign entities (i.e. those registered in foreign countries) comprises income hments in Lithuania and other

income sourced in Lithuania, such as: interest, dividends, royalties, proceeds from rent/sale of

ity or of a PE of a foreign entity, the following is deducted from the income:

, etc.

or may allow the taxpayer to account for inventories based on other method.

taxpayers and are taxed at the same rates as

income earned through a permanent establis

income tax. No tax is applied on repatriated profit of branches (permanent establishments).

Certain types of income received by foreign entities not th

The tax base for local entities (i.e. those registered in Lithuania) comprises all income sourced inside and outside Lithuania and all or part of the positive income of the controlled foreign entities.

received from activities carried out through permanent establis

immovable property, etc.

For the purpose of computing the taxable profit of a Lithuanian ent

• non-taxable income; • allowable deductions; • limited allowable deductions.

Non-taxable income includes insurance indemnity received (with certain limitations), income derived from revaluation of fixed assets and securities, default interest (forfeit) received, as well as certain other income.

Allowable deductions are all expenses actually incurred in the ordinary course of business of the entity and necessary for that entity to earn income or derive economic benefit.

Limited allowable deductions include: depreciation expenses, maintenance, repair and reconstruction expenses of fixed assets, business travel expenses, advertising and representation expenses, natural losses, taxes, bad debts, contributions for the benefit of employees, losses within the tax period

Under the tax legislation inventories are accounted for on FIFO (first-in first-out) basis. Upon a taxpayer’s request and taking account of the nature of the entity’s business, the local tax administrat

64


Depreciation of fixed assets should be computed using directly proportional (straight-line) method or a double-declining-balance method and applying the depreciation rates not exceeding the maximum rates (in years) set in the law.


Capital gains earned by Lithuanian entities or permanent establishment of foreign entities are s and taxed accordingly, i.e.

at a standard 15% tax rate, unless 13% rate may be applied.


withholding taxes and at which rates?

t to withholding tax. This relief is not applied if the payer of dividends is not subject to taxation at the 15% or 13% tax rate in

es when the payer of dividends is established in free economic zone) or recipient of dividends is registered or otherwise organised in an offshore territory

ment under the licensing contract of the right to use an object of industrial property or a franchise; income received in consideration for information provided about industrial,

tablishments in Lithuania that make the payments.



included in the taxable income for corporate income tax purpose

Tax losses may be carried forward for 5 consecutive years (ordinary losses). Losses incurred as a result of disposal of securities or derivative financial instruments are calculated separately and may be carried forward for 3 years by deducting them only from the future gains from disposals of securities and/or derivative financial instruments. Tax losses may not be carried back.

6. Are there any

There are two rates of withholding tax established in Lithuania – 15% (applicable only to dividends) and 10% (applicable to other types of income). The domestic withholding tax rate can be lowered under the tax treaties to which Lithuania is a party.

Dividends paid out are subject to withholding tax at a rate of 15%. However, dividends received by a foreign/Lithuanian entity wherein the recipient has been controlling over 10% of voting shares (ownership interests) for a continuous period of at least 12 successive months including the moment of distribution are not subjec

Lithuania (except for the cas

included in the specific list approved by the Ministry of Finance.

The following income sourced in Lithuania and received by a foreign entity is subject to withholding tax at a rate of 10%: interest; royalties; income received from transfer or assign

commercial or scientific know-how; proceeds from the sale, transfer (with a title) or lease of immovable property located in Lithuania; indemnities received for the infringement of copyrights or neighbouring rights, etc.

Withholding tax on the income sourced in Lithuania must be withheld and paid to the state budget by both Lithuanian entities and permanent es

65


The EC Interest & Royalty Directive has been implemented in the Lithuanian domestic tax law. Lithuanian withholding tax on interest and royalties paid to related parties, EU tax residents, will be 10% until 30 June 2009. From 1 July 2009 to 30 June 2011 withholding tax on interest will be 5% and on royalties - 10%, and from 1 July 2011 the tax rate will be



es, the annual revenue of which exceeds LTL10 million (approx. EUR 2.9 million), as well as all banks, insurance

p

tion exceeding the proportion 4:1 of the lent capital and fixed capital is deemed to be the

or the Lithuanian entity. The interest paid for the use of controlled lent capital is not considered to be related to the earning of income, thus, it is non-deductible. The

pany in which another company (or individual): (i) directly or indirectly holds more than 50% of shares or rights

or (ii) together with related parties, holds more than 50% of shares or rights (options) to dividends, and the holding of the controlling company is not less than

ithuanian controlling party on prorate basis. The positive income does not include the payments that are non-deductible for the Lithuanian

reduced to zero.

Neither group consolidation nor transfer of losses within a group of companies is possible for corporate income tax purposes.

Transfer pricing

All the transactions between the related parties should be effected at arm’s length. In other words, transactions should be made under such conditions, as if the affiliated companies were not related (“third parties”). If the transactions are not effected at arm’s length, the tax authorities have the right to adjust the prices of transactions. All entiti

com anies and credit institutions are required to have transfer pricing documentation.

Thin capitalization

The part of the capital lent by a controlling lender to a Lithuanian entity for remunera

controlled lent capital f

above provision will not apply, if the Lithuanian entity proves that the same loan would be provided under the same conditions between independent (not related) persons. The fixed capital of the Lithuanian entity means its equity capital on the last day of the tax period, excluding the financial results of that period (profit/loss).

Controlled foreign company

A controlled foreign company (CFC) is defined as a foreign com

(options) to dividends;

10%.

The positive income of a CFC is attributed to a L

controlling company. The CFC’s active business income and non-distributed dividends (subject to certain conditions) are also not attributed. The CFC regime does not apply if the CFC’s income is comprised only of dividends from the Lithuanian controlling company or is less than 5% of the Lithuanian controlling company.

66


The Lithuanian controlling company is entitled to deduct the corporate income tax paid on the positive income abroad from the corporate income tax payable on the positive income in Lithuania.

9. Which are the main administrative requirements to comply with the local tax authorities?

ies may allow a taxpayer to use a tax year (financial year) at is different from the calendar year, subject to the condition that the taxable period is

qual to 12 months.

Annual financial statements and annual corporate income tax return must be filed with the tax endar year following the tax year. Companies must

make (with some exceptions) quarterly advance payments of corporate income tax during the



Significant tax incentives apply to companies in the free economic zones (FEZ). A company

(iii) at least 75% of the income in the tax year is comprised of income from production, manufacturing, processing or

In the case of sole proprietorships and partnerships where the average number of employees

Generally the taxable period is the tax year, which normally coincides with a calendar year. Upon request, the local tax authoritthe

authorities by the 10th month of the cal

current tax year. The advance payments are credited against the final corporate income tax liability for the year. Any excess of advance payments is refunded. The final corporate income tax is due by the deadline for the annual tax return. For other taxes and tax returns different deadlines for payment and return submission are established.


Free economic zones

registered in a FEZ, except for credit institutions and insurance companies, is exempt from the corporate income tax for 6 years, and for the 10 following tax years the corporate income tax rate applicable to the company is reduced by 50%, if all the following conditions are met: (i) the capital investment in company is at least EUR 1 million; (ii) the company possess the auditor’s report proving the said amount of capital investment; and

warehousing activities performed within a FEZ.

Small company relief

A small company is subject to a reduced corporate income tax rate of 13% if its average number of employees does not exceed 10 and its taxable income during the taxable period is less than LTL 500,000 (approx. EUR 144,810).

does not exceed 10 persons and the income during the taxable period is less than LTL 1 million (approx. EUR 289,620), the profit up to LTL 25,000 (approx. EUR 7,240) is taxed at a 0% rate and the remaining profit is taxed at a 15% rate.

However, the aforementioned incentives are applicable with certain limitations established in the law.

67


In t e case of non-profit organizations whh ere their business income does not exceed LTL 1,000,000 (approx. EUR 289,620), the amount of LTL 25,000 (approx. EUR 7,240) is taxed

ing amount by 15% (certain restrictions apply).

capital, agricultural producers, credit unions and companies employing disabled, unemployed or convicted persons.

. Which are the taxable persons?

of personal income tax in Lithuania are distinguishable according to their residence, i.e. resident and non-resident individuals. Resident taxpayers are subject to income

taxed on their Lithuanian source income only, except that foreign-source income derived through a fixed base in Lithuania is


The Lithuanian individual income tax system is a scheduler tax system in which personal

The categories of taxable income are as follows: employment income, income from

A basic personal allowance (tax exempt amount) of LTL 320 (approx. EUR 93) per month is calculating the taxable income of residents. For non-residents, this allowance is

granted only in respect of their Lithuanian-source employment income. An additional

ect of each child). Special basic personal monthly allowances are granted to certain categories of taxpayers, e.g. to parents with three or more children, to single mothers

The total amount of deductible expenses listed above may not exceed 25% of taxable income received during the calendar year.

at 0% tax rate, the remain

Other

Certain tax incentives are established for insurance companies, investment companies with variable

C. Individuals

1

The taxpayers

tax on their worldwide income, whilst non-residents are

also included in the taxable base of non-residents.

income tax is imposed separately on different categories of taxable income. However, the taxpayer may choose to aggregate the income of all categories, except for business income subject to the lump-sum taxation, in order to take into consideration the personal deductions and allowances in calculating the final tax liability.

individual business activities, distributed profits, including dividends, interest, royalties, income from leasing of immovable property, income from sports and entertainment activities, capital gains from the disposal of movable or immovable property, or securities, positive income imputed from controlled foreign companies (CFC income).

applied in

personal allowance (additional tax-exempt amount), equal to 1/10 of the basic personal allowance, is granted to resident taxpayers (parents or adoptive parents raising one or two children in resp

and fathers, etc.

The following expenses may be deducted from taxable income: life insurance premiums; pension contributions paid to pension funds; interest paid on the loan taken out for the building or acquisition of housing; payments for studies; payments for one personal computer unit with software acquired during the period of 2004-2009 and/or for the installation of Internet access.

68



ed separately in Lithuania. A 15% rate of personal income tax applies.

y-back or carry-forward is not possible for personal income tax purposes. Offsetting f one type of loss with other types of income is not allowed.

D. Capital


related taxes in Lithuania are as follows: real estate tax, land tax, state-owned land lease tax, tax on inherited property.

Real estate tax

entities for a period longer than 1 month. When the real estate is transferred to a legal entity for its use, the

The annual rate of the tax is set every year by the local municipalities in the range of 0.3%-The taxable value is deemed a market value

determined during the massive evaluation by the Lithuanian Real Estate Register. Corporate

sed on the land owned by the legal entities and individuals. The annual rate of the tax in question is 1.5% of the taxable value of the land determined by the Lithuanian

he annual rate of the state-owned land lease tax varies from 1.5% to 4% of the taxable value f the land, which is calculated according to the methodology approved by the Lithuanian overnment. The particular annual rate of this tax and the terms of its payment are being

stablished by the councils of respective municipalities within the territory whereof the land lot is located.



Capital gains are not tax


Loss carro

Capital

Real estate tax is imposed on the real estate (except for land) located in Lithuania and owned by (i) Lithuanian or foreign entities or (ii) Lithuanian or foreign individuals and used by the latter for their business or individual activities, or transferred for use by legal

obligation to pay and declare the real estate tax arises for that legal entity.

1% of the taxable value of the real estate.

tax payers have to pay advance instalments on a quarterly basis. Individuals have to pay the tax by the 1st of February following the tax year.

Land tax

Land tax is impo

tax authorities.

State-owned land lease tax

ToGep

69


Tax n inherited pro o perty

e basis, whereas non-residents are subject to inheritance tax only on movable property subject to legal registration in Lithuania and on

here are some exemptions from the tax which include (i) property inherited by a spouse, nship, guardians, grandparents, grandchildren,

brothers, sisters; (ii) property with taxable value not exceeding LTL 10,000 (approx. EUR

VAT

The L stem is made compliant with the Sixth VAT directive with effect as of 1 May 2004. Taxable persons include both residents and non-residents. It is obligatory to

onths exceeds LTL 100,000 (approx. EUR 28,962).

The standard VAT rate is 18%. There are 5%, 9% and 0% reduced rates set forth in the Lithuanian Law on VAT.

Excise duties

Excise duties are imposed on the following goods produced in or imported into Lithuania: ethyl alcohol and alcoholic drinks, including beer and wine; cigarettes, cigars, cigarillos and smoking tobacco; fuel, including petrol, kerosene, gasoline, fuel oil and their substitutes and additives; electric power (as of 2010); coal, coke and lignite (as of 2007).

Customs duties

Customs duties have to be calculated and paid only for the imported goods from the non-Community countries by the importing company after the import of goods is effected. Customs duties established in the territory of the Community should be applied.

Residents are subject to this tax on a worldwid

immovable property located in Lithuania. The tax rate is 5% for inherited property up to LTL 0.5 million (approx. EUR 0.14 million). If the value exceeds the said limit, the whole amount is subject to a 10% rate.

Tchildren, parents, persons under guardia

2,896).

E. Indirect taxes

In outline, which are the main indirect taxes, if any?

The main indirect taxes in Lithuania are Value Added Tax (VAT), excise duties, and customs duties.

ithuanian VAT sy

register as a VAT payer for residents (both legal entities and individuals) if VAT taxable income within the last 12 m

70


F. Other duties

other taxes, if any?

blished in Lithuani : s contributions, paymra il a lution tax,

x.

n pr

ex res in order to ensure compliance with the

ssessment and payment of taxes and other contributions that funds. The tax authorities are entitled to charge the default

nd to impose a fine equal to 10-50% of the underpaid tax amount. ine imposed shall be conditional on the type of violation, on

rated with the tax authorities, on the acknowledgment of on of tax laws and on other circumstances which the tax

hen imposing a sma

duration of the litiga solution

litigation procedure fo disputes is

In outline, are there any

Other taxes esta a are as follows ocial security ents to the Guarantee Fund, tax on natutax, lottery and gambling ta G. Enforcement- Litigatio

l resources, o

ocedure

isting measu

nd gas resource tax, pol sugar

1. In outline, which are the tax legislation?

The tax authorities administer aare paid to the state budged andinterest of 0.04% per day aThe amount of the actual fwhether the taxpayer has coopehaving committed a violatiauthorities deem to be relevant w

2. What is on average the of tax disputes?

The average duration of the approximately 9 months.

ller or larger fine.

tion procedure for the final re

r the final resolution of tax

71


APPENDIX

TAXCorporations Partnership Individuals ntities

INCOME RATES

s Other eStandard tis applicab

ax rat 15%, which le to the taxable

Lithuan entities and stab ments of

ntities ithuania.

om 1 ary 2006 a socia is

ed. In e t it nts a surc ge of 4% in

3% in 7 on top of rate income tax, e taxa base for social tax is the same orate me tax.

A 27% incom(starting from nuary 200824%) applies to employment-related income g. salary, bonuses), benefits-in-kind, income from individual business activities if allowablexpenses are deducted, etc.

e is

profit of ian permanent e lishforeign e in L

Starting fr Janutemporary l taxestablish ffecreprese har2006 andthe corpo

200

because thtemporary

ble

as for corp inco

e tax 1 Ja

rate –

(e.

e

13% rate is appl le if entity's umber of employees

exceed nd the

approx R certai strictions

icabaverage n

tdoes noincome does not exceed LTL

10 a

500,000 ( . EU144,800) ( n reapply). 10% rate i

is appl le to certain

ncome rced in a and received by ntities hrough

ermanent blishments.

Partnerships are co ered as taxpayers and are taxed at the same rates comp

15% rate is applied to incomefrom distribut rofit; intereincome; royalties, remuneration r copyrightagreements; sale or other transfer of assets not used in individual business activity; income from lease of assets; income from individual activities, if the individual chooses not to deduct allowable deductions there from; etc.

enterprises are taxed at the same rates as companies.

icabtypes of Lithuani

sou

foreign e not ttheir p esta

nsid

as anies.

ed p st

unde

Personal

Non-taxable income includes:income from s of property it was acquire re than threyears before it le; income from sale of securities if they were acquireddays before their sale and the individual has n the ownerof not more than 10% of securities for three years preceding the tax year during which the securities are sold; non-life insurance benefits to compensate for expenses, etc.

ale if d mos sa

e

more than 366

bee

72


Dividends /wit rate hholding taxCountry Interest/withholding rate

Royalties/withholding rate ividuals,

companies lifying

companies tax tax Ind Qua

Armenia 10 10 15 5 Austria 10 5/10 15 5 Azerbaijan 10 10 10 5 Belarus 10 10 10 10 Belgium 10 5/10 15 5 Bulgaria 10 10 10 0 Canada 10 10 15 5 China 10 10 10 5 Croatia 10 10 10 5 Czech 10 10 15 5 Republic Denmark 10 5/10 15 5 Estonia 10 10 15 5 Finland 10 5/10 15 10 France 10 5/10 15 5 Georgia 10 10 15 5 Germany 10 5/10 15 5 Greece 10 5/10 15 5 Hungary 10 5/10 15 5 Iceland 10 5/10 15 5 Ireland 10 5/10 15 5 Italy 10 5/10 15 5 Israel 10 5/10 10 5 Kazakhstan 10 5/10 15 5 Latvia 0 0 15 0 Luxemburg 10 5/10 15 5 Malta 10 10 15 5 Moldova 10 10 10 10 Netherlands 10 5/10 15 5 Norway 10 5/10 15 5 Poland 10 10 15 5 Portugal 10 10 10 10 Romania 10 10 10 10 Russian Federation

10 5/10 10 5

Singapore 10 7.5 10 5

73


Dividends /withholding tax rate Country Interest/withholding tax rate

Royalties/withholding tax rate

ompanies Qualifying companies

Individuals, c

Slovak epublic

10 10 10 10 RSlovenia 10 15 5 10 Spain 10 5 5/10 15 Sweden 10 5/10 15 5 Switzerland 10 5/10 15 5 Turkey 10 5/10 10 10 Ukraine 10 10 15 5 United Kingdom

10 5/10 15 5

United States 10 5/10 15 5 Uzbekistan 10 10 10 10

74



a p indicates that Malta's real GDP increased by

egate revenue of Lm537.3 million from irect taxation.4

s?

alta7. A branch of a foreign entity is taxable in Malta at the

business is exercised in Malta.

er b , and other persons are

Chargeable income is made up of any gains or profits mentioned in Section C, 2 hereunder. In order to determine the total income of any person, any outgoings and expenses that were

MALTA

Ganado & Associates Advocates

. General Information A

at ublished by the European CommissionD0.8% in 2004 and by a further 2.2% in 2005. Real GDP is forecast to increase by a further 2.3% in 2006 and by 2.1% in 2007. The current government fiscal policy is geared at reducing the deficit; this has led to positive results during 2006 with a reduction by September of Lm13m to a current position of Lm72.9m. This was achieved mainly by reigning in capital expenditure and increasing evenue from taxes. The government received an aggrr

taxation out of which Lm287.5 resulted from d B. Corporate income taxation

. Which are the taxable entitie1 The entities taxable under the Income Tax Act5 (hereinafter “ITA”) are limited liability companies and partnerships en commandite whose capital is divided into shares which are constituted in Malta6; body of persons similar to these but constituted outside Malta, and co-

perative societies registered in Monormal corporate tax rate only on those profits arising from the activities of its permanent establishment in Malta. Non-Maltese entities are deemed to be resident in Malta for tax purposes when the control nd ma agement of theira n

th odies of persons not being corporate entities, trusts, foundationsO

subject to specific tax rules in terms of the ITA. 2. How is the taxable income determined?

4 “Economic Survey – October 2006” issued by the Ministry of Finance. It is available in softcopy at http://www.mfin.gov.mt. 5 Chapter 123 of the Laws of Malta 6 Maltese companies are deemed to be resident in Malta for tax purposes, irrespective of control and management (Article 2 ITA definition of “resident in Malta”). 7 Article 2 ITA definition of “company”

75


wholly and exclusively incurred in the production of the income by such person during the year preceding 8 the year of assessment are deductible. These include interest on loans, xpenses made on repairs and replacement of equipment, bad debts, wear and tear of plant

ions.

stem, the hareholders will then be able to claim a tax credit for the said tax deducted by the

ansf settlement on trust, istribution/reversion of property settled on trust, alienation under any title, the redemption,

s are treated as not giving rise to a taxable gain. There are number of exemptions relating to non-residents16, and the transfer of securities listed on the

es. Under Maltese law, trading losses may be carried forward. This applies to any loss ess, profession or vocation

eand machinery, expenditure on R&D, promotion of trade, and royalties paid for the use of a licence. There are certain entities whose income is exempt9 from tax (such as income of the University of Malta, collective investment schemes10 other institutions of a public character, political parties, trade unions and co-operative societies). Shipping Organisations (whether Maltese registered or foreign) having tonnage tax ships registered in Malta are regulated by an ad hoc regime11 in respect to the income arising from their operat 3. What are the applicable tax rates? A company or other body corporate established at law is taxable at the rate of 35%12. Companies resident in Malta are to deduct (from the taxable profits of the company distributed as dividend) tax at a flat rate of 35%13 . Through the full imputation sy

14 scompany. Hence, there is no double taxation at the level of the company and the shareholders in relation to the same profits made by the company. 4. Are capital gains taxed separately? Malta does not have a separate tax on capital gains. Capital gains tax is limited to the gains arising on the transfer of certain assets15. The tax payable under the capital gains provisions is the same as that payable on income. “Tr er” is defined widely and includes any partitions, dliquidation or cancellation of units or shares in a fund, and the maturity/surrender of linked long term policies of insurance. Transmissions causa mortis are not considered as transfers for capital gains purposes. Transfers between group companieaMalta Stock Exchange. 5. May losses be carried back or forward and to what extent? Yincurred by any person, solely or in partnership, in any trade, busin

8 Article 14(1) ITA et seq. 9 Article 12 ITA 10 Article 12(1)(s) 11 Part III of the Merchant Shipping Act – Chapter 234 of the Laws of Malta. 12 Article 56(6) ITA 13 Article 59(1)a ITA 14 Article 60 ITA 15 Article 5 ITA:- ownership or usufruct over immovable property; securities; business goodwill; intellectual property rights; beneficial interests in trusts. 16 Article 4(1)g(ii) ITA

76


during the year preceding the year of assessment which, would have been taxable 17, if it had een a profit.

from other sources for the year preceding the

ear of assessment, it shall, to the extent to which it cannot be wholly set off against capital

e been the total income for subsequent years in succession. However, this oesn’t apply to the set off of any loss incurred outside Malta which, if it had been a profit

t which rates?

ases where withholding taxes apply. For example, dividends paid to a Maltese resident

certain vestment income, which includes interest paid on deposits with Maltese licensed banks;

st, iscounts or premiums payable by any entity following a public issue in Malta; capital gains

. Are there any preferential group taxation rules in force?

IT up relief provisions which are restricted to companies resident in Malta or tax purposes. To qualify, two companies have to be 51% subsidiaries of another company,

rcentages include thresholds of holding of rdinary shares, voting rights, entitlement to profits available for distribution and any

ing the ear of assessment for which the relief is claimed) may pass that to another company within

its total income for the ame or subsequent years of assessment.

. Which are the anti-avoidance rules currently in force?

e “CIR”) is of the opinion that a resident art of its profits by way of dividends in order to

holders, a “deemed distribution order” may med to have been

b In computing such loss, account will be taken of all other allowable deductions, except the ones dealing with plant and machinery. Where the amount of a loss incurred is such that itcannot be set off against capital gains or incomeygains or income for the said year, be carried forward and set off against what would otherwise havdand had been retained outside Malta, would not have been taxable. 6. Are there any withholding taxes and a Malta does not have a general system of withholding taxes though there are some limited cindividual from a company’s Untaxed Account is subject to 15% withholding tax. A 15% final withholding tax regime had been introduced in 1994 in respect ofininterest, discounts or premiums payable by Government or public corporations; interedarising from the disposal of units in a collective investment scheme; capital gains arising on the surrender or maturity of unit-linked insurance policies; profits distributed by a non-Maltese collective investment scheme through an authorised financial intermediary; and interest paid by a non-Maltese bank through an authorised financial intermediary. 7 The A contains grofor one is a 50% subsidiary of the other18. Such peoremaining assets on a winding up. A member of a group company incurring a deductible loss (throughout the year precedythe group so that the latter can claim it as its own deduction froms 8 Where the Commissioner of Inland Revenue (thMaltese company has not distributed all or pavoid or reduce tax otherwise payable by the sharebe issued19. The shareholders would then be assessed on such profits deedistributed by the CIR.

17 Article 14(1)g 18 Article 16 ITA 19 Article 43 ITA

77


Any fictitious scheme or any scheme which has the sole or main purpose that of avoiding,

. Which are the main administrative requirements to comply with the local tax authoritie Tax Retu e submitted on an annual basis by all taxpayers. A system of self-assessmen ced in 1 virtue of which taxpayers calculate their own tax liability and pay when submitting turn. 10. W ries have double taxation conventions already been concluded?

alta has tified double taxation conventions with 44 different countries. A list

Ar al law iding tax incentives to certain taxable entities? The Busin tion Act21 m rovision for incentiv ays and lower tax regimes) a the prom of business in Malta. The incentives and benefits are granted by promote certain areas of trade which are beneficial to the economy, raise emp and in injections of incom s Malta. Companies receiving his Act m rry on such trade or business in Malta.

e is made up of any gains or profits made by persons, including22:

for as long as it was exercised;

ts; ny pension, charge, annuity or annual payment; ents, royalties, premiums and any other profits arising from property; or ny sum realised under any insurance policy covering the risk of loss of profits.

reducing or postponing tax, then the CIR may issue an order (determining the tax payable and by whom) which has the effect of nullifying any advantages brought about by such scheme. Malta does not have any transfer pricing rules. 9

s?

rns must bt20 was introdu 999 in

their re

ith which count

M signed and rais provided in Appendix 2. (see also http://www.mfsa.com.mt/mfsa/default.asp for updates). 11. e there any speci s prov

ess Promo akes p es (tax-holidnd schemes for otion government toloyment levels crease e towardbenefits under t ust ca

C. Individuals 1. Which are the taxable persons? Persons who are domiciled and ordinarily resident in Malta are chargeable to tax on a world-wide basis. Persons who are either not ordinarily resident or not domiciled in Malta are subject to Maltese tax on a remittance basis only and on any income arising in Malta. 2. How is the taxable income specified? Chargeable incom Gains or profits from trade, business or profession Gains or profits from any employment or office; Dividends , premiums, interest or discounARA

Article 10 Income Tax Management Act (“ITMA”) Chapter 372 of the laws of Malta Chapter 325 of the Laws of Malta and the Business Promotion Regulations

22 Article 4 ITA provides a more detailed list which is not exclusive

20

21

78



gressive rate of tax depending on eir taxable income, and the rates vary between 15 – 35%. A distinction is drawn between

ta:

Individuals who are resident in Malta are subject to a prothmarried couples and any other individual resident: In the case of a married couple resident in Mal

Taxable Income Tax Lm Rate Cumulative 0 – 4,300 0% Lm 0 4,301 – 6,000 15% Lm 255 6,001 – 7,250 20% Lm 505 7,251 – 8,500 25% Lm 817 8,501 – 10,000 30% Lm 1,267 Over 10,000 35%

In the case of any other individual resident in Malta including eachresponsible spouse has opted for a separate computation:

spouse where the

Taxable Income Tax Lm Rate Cumulative 0 – 3,100 0% Lm 0 3,101 – 4,100 15% Lm 150 4,101 – 5,000 20% Lm 330 5,001 – 6,000 25% Lm 580 6,001 – 6,750 30% Lm 805 Over 6,750 35%

. Are capital gains taxed separately? 4

(vide supra Corporations: answer no. 4)

here are certain exemptions from tax on capital gains realised by individuals. Thus, whereT e property is assigned between spouses consequent to a (judicial or consensual) separation,

he formed part of the community of acquests between the spouses (or was rwi ommon between them) and is assigned to one of the spouses on the

ed) between the spouses, or between the ouse, any capital gains arising there from are

thor w re the property

the se owned in codissolution of the community (or is partition

rviving spouse and the heirs of the deceased spsuexempt from tax. 5. May losses be carried forward or back?

supra Corporations: answer no. 5) (vide

79


D. Capital In outline, which are the main taxes on capital, if any? A Final Withholding Tax23 is chargeable on certain transfers of immovables and rights thereon at a rate of 12% on the market price. Malta has no capital or wealth taxes, no inheritance taxes, estate duties, probate duties or similar taxes. However, upon the death of an individual, duty at the rate of 5% is payable on

e value of any immovable property transmitted to the heirs or at the rate of 2% on the value f any shares transmitted24.

outline, which are the main indirect taxes, if any?

ts or similar accommodation which is licensable.

import levies are charged at varying rates on the importation of roducts from outside the EU.

Most of the duties are in respect of transfers of immovables and securities with the only dutiable documents being insurance policies and endorsements thereof. Insurance policies suffer duty at the rate of 10% of the annual premium with a minimum duty of LM5. Duty is also chargeable on the following transfers:

tho E. Indirect taxes In The main indirect taxes are VAT and Customs Duties and Import Levies: (a) Value-Added Tax is charged at the following rates: 18% on every supply of goods and services made for consideration in the course or furtherance of an economic activity, excluding exempt supplies and supplies made by exempt persons; 18% on all imports other than exempt imports; 5% on the supply of accommodation in any licensed hotels, guest houses, holiday furnished apartmen (b) Customs Duties and Import Levies25 Various customs duties and p (c) Eco Contribution26 - the contribution is a fixed amount established in a Schedule paid by persons manufacturing or importing products which are identified in the law. F. Other duties In outline, are there any other taxes, if any? Malta has a duty which is payable on certain transfers of assets or on certain documents.

23 Article 5A ITA 24 Duty on Documents and Transfers Act – Chapter 364 of the Laws of Malta 25 Chapter 395 of the Laws of Malta 26 Chapter 473 of the Laws of Malta

80


(a) Immovable Property: 5% on transfers effected to residents of Malta. The standard rate is reduced to 3.5% on the first Lm30,000 when the property is being acquired for the purpose of stablishing a person’s sole ordinary residence by persons not requiring permits to purchase

movables. Transfers between group companies are exempt from the payment of duty. le Securities: 2% calculated on the higher of the nominal value or the real

arket value of the securities. No duty is payable where foreign marketable securities are n in Malta if the transfer is made through a Maltese licensed bank

stment se Transfers bonds listed Exchange as well a group are exempt from the payment y.

forcem

In outline e easures in order to ensure compliance wthe tax legislation? There are a number of sanctions contemplated under the ITA and the ITMA to ensure that

ere is full comp ce with their isions. There are penalties established for the non-bservance of adm istrative formalities of up to Lm nalties of up to Lm200 for not

filing an correct return, and penalties am ting to triple the tax due by the or any on who wilful eks to evade assist another in doing so o omits rom his return or does not f ch a return is liable to addit l

ulated as rcentage of the due28 and a further penalty depending on the tim ayment terest is also a ays due on tax w

hat is average the ration of the litigation procedure for the final n of tax utes?

ent ted by the taxpayer which the tests, he y send an objec n (within 30 days from receipt of notice32. If the CIR

he taxpayer’s objection33, h ay appeal to th issione . peal must be filed within days from the of such re al35. The Board

the app l and, if the taxp till feels aggrieved, he has a final right to appeal f law to Court of Appe 36.

rage, the duration of the litigation procedure starting from the date when a return was ld be ar d 2 years if case is not appealed from the Board of Special ioners (“ ”) and 4 – 6 years if this case r es the Court o ppeal. Refo s,

eim(b) Marketabmtransferred to or by a persoor licensed inve rvice provider. of shares or on the Malta Stockof dut

s transfers between companies

G. En ent- Litigation procedure 1. , which are the xisting m ith

tho

lianin

prov50, pe

filing or in ountaxpayer f

hpers ly se tax or 27. A

person wtax, calc

amounts fa pe

ile su ionae he tax

takes for p 29. In lw hich is not paid punctually at the rate of 1%30 2. W on duresolutio disp Where the CIR mlatter con

akes an assessmma

31 different to that presentio

refuses t e m e Board of Special Comm rs34

The apdetermines

30 ayers s

date fusea

on points o

the al

On avedue wou oun theCommiss BSC each f A rm

52 ITMA

12)c ITMATA – Table A and Table B (2A) ITMA ITMA

e 33(2) ITMA e 33(5) ITMA 34 ITMA

TMA 36 Article 37(1) ITMA

27 Articles 49-28 Article 56(29 Schedule I

30 Article 4431 Article 3132 Articl33 Articl34 Article35 Article 35(1) I

81


aiming at reducing time, are under way for an “administrative review tri take the functions of the Court of Appeal37. APPENDIX INCOME TAX RATES

Partnerships Individuals Other entities

bunal” to over

Corporations35% 35% 15 – 35% LIST of DTC AGREEMENTS Country Dividends Interest Royalties Ra

Shte for Minor areholding

te for jor reholding

ntage ed to y for

or reholding

es es RaMaSha

PercerequirqualifMajSha

Rat Rat

% % % % % Albania 15 5 25 5 5 Australia 15 15 N/A 15 10 Austria 15 15 N/A 5 10 Barbados 15 5 5 5 5 Belgium 15 15 N/A 10 10 Bulgaria 0 0 N/A - 10 Canada 15 15 N/A 15 10 China 10 10 N/A 10 10Croatia 5 5 N/A 0 0 Cyprus 15 15 N/A 10 10Czech Republic

5 5 N/A 0 5

Denmark 15 0 25 0 0 Egypt 10 10 N/A 10 12 Estonia 15 5 25 10 10 Finland 15 5 10 0 0 France 15 5 10 10 10 Germany 15 5 10 0 0 Hungary 15 5 25 10 10 Iceland 15 5 10 0 5 I 10 25 10 15 ndia 15 Italy 15 15 N/A 10 10 37 Administrative Justice Bill – Bill no. 82 of 2006; an appeal to this court would still be available.

82


Country Dividends Interest Royalties Rate for Minor

Shareholding Rate for Major Shareholding

Percentage required to qualify for Major

Rates Rates

Shareholding Korea (Republic of)

15 5 25 10 0

Kuwait 0 0 N/A 0 10

Latvia 10 5 25 10 10 Lebanon 5 5 N/A 0 5 Libya 15 15 N/A 15 15 Lithuania 15 5 25 10 10 Luxembour 10 g 15 5 25 0 Malaysia - - N/A 15 15 Netherlands 15 10 10 5 25 Norway 15 15 N/A 10 10 Pakistan - 15 20 10 10 Poland 15 5 20 10 10 Portugal 15 10 25 10 10 Romania 5 5 N/A 5 5 San Marino 10 5 25 0 0 Slovak Republic

5 5 N/A 0 5

Slovenia 15 5 25 5 5 Spain 5 0 25 - - South Africa 5 5 N/A 10 10 Sweden 15 0 10 0 0 Syria 0 0 N/A 10 18 Tunisia 10 10 N/A 12

Agreements have also been concluded with the following countries in relation only to profits derived from the operation of ships and/or aircraft in international traffic: Swiss Federation United States of America

12 UK - - N/A 10 10

83


Double Taxation Agreements with the following countries have been signed but are not yet in

Morocco force:

Russia United Arab Emirates (U.A.E.)

Agreements are in the process of being concluded with the following countries but the relative Agreements have not been signed (though some may have been initiated): Greece Ireland Jordan Singapore Thailand Turkey Ukraine


POLAND Wardynski & Partners

omy, the new legislation on corporate and personal income taxes, as well as on VAT, has been

The introduction, on 1 January 1998, of new general regulations on tax obligations and the

xcise duty laws and significant amendments in income tax acts, designed to fully implement respective EC directives.

As far as public finance is concerned, most of the tax revenues are derived from indirect

e recent rapid economic growth (with the increase of the GDP around 5,8%), fiscal revenues considerably


Most of the basic rules of the Polish tax system, especially in the area of income taxation, date back to the early 1990s when, in order to meet the requirements of free market econ

introduced. Along with the new developments in other areas of law, internationalization of economy and new developments in the business practice, tax provisions have likewise been amended on numerous occasions, including the introduction of rules such as transfer pricing, thin capitalization and M&A taxation. Furthermore, legislators have repeatedly updated the list of exemptions, allowances and (non-)deductible costs.

tax procedure, including measures such as advance tax rulings, increased legal certainty and enhanced protection of taxpayers. Further changes have been brought about by the Polish accession to the EU on 1 May 2004, including new VAT and e

taxes, such as VAT and excise duty, which generate budgetary revenues a few times in excess of those from income taxes. It is also important to note that, due to th

exceed the targets provided for in the budgetary estimates. It was also announced that public debt remains at the level of approx. 48% of the GDP and the budgetary deficit has been

84


limited to 25,1% bln PLN. Economic growth has also been reflected in the international ratings, including an upgrade in the ratings of Moody’s and of Fitch.

Corporate income tax is levied upon capital companies (limited liability companies and joint

per legal personality, save for partnerships, which are transparent for income tax purposes.

Furthermore, Polish tax laws allow tax consolidation of capital companies, in which case a

nal rules and exceptions.

ually being levied upon revenue, i.e. without deduction of any costs or expenditures. That is especially the case for

s a double test provided for in the applicable tax laws. First, under the general clause, there must be a sufficient causal link

For instance, abandoned investments, although probably could be linked to potential the black list contained in the

tax legislation. Also, reserves, even when made in accordance with accounting provisions,

ipally required that costs must be deducted in a year in which the corresponding revenues have also been obtained.

B. Corporate income taxation


stock companies), including companies under organization, and all other corporate bodies (funds, foundations, cooperatives, certain entities from within the public sector etc.).Corporate income tax also applies to entities without pro

tax group, and not its particular members, will be deemed, for corporate income tax purposes, as a taxable entity.


In principle, taxable income is calculated as a surplus of taxable revenues over tax-deductible costs, subject to a number of additio

However, in specific cases provided in the legislation, the tax is act

withholding taxes on interest and royalties distributed abroad, as well as the withholding tax on dividends, whether distributed abroad or to a domestic shareholder.

Expenditures will qualify as tax-deductible costs if they pas

between costs suffered and actual, or expected, revenues of an enterprise. Secondly, even if this criterion is met, specific costs will not be available for deduction if they are included in the exhaustive list of expenditures automatically disqualified from tax-deductible costs.

revenues, are expressly excluded from deduction, according to

will not generally be tax-deductible, unless straightforward tax provisions provide otherwise. Expenses incurred of fixed assets, as well as certain intangibles, will not generally be directly deductible otherwise then through depreciation.

Notwithstanding, it is also vital to allocate expenditures, once qualified as tax-deductible, to a proper tax year. In that respect, it is princ


The general corporate income tax rate used to be gradually lowered from one year to another during the preceding years, but since 1 January 2004 it has been fixed at 19%.

85


Notwithstanding, withholding tax on interest and royalties distributed abroad is charged at the rate of 20% rate (subject to provisions of double tax treaties, to be decreased - for EU companies qualifying for the Interest Royalties Directive - to 5%, from 1 July 2009, and down to 0% from 1 July 2013), whereas the 19% withholding tax is generally charged on dividends, whether distributed abroad (subject to provisions of double tax treaties and separate rules implementing the Parent Subsidiary Directive) or to a domestic shareholder.

ell as on income earned by foreign shipping companies for carriage of passengers and goods taken aboard in Polish ports.

In general, Polish laws do not provide for a separate regime of taxation for all capital gains. indeed recognized as a

different category. That includes, inter alia, income from redemption of shares, from the sale

e share capital or additional payments received by shareholders in case of a merger. The tax is levied

No carry-back is allowed. Losses may only be carried forward, for five tax years, but the

.

ing its lifetime.

As mentioned, withholding tax on interest and royalties distributed abroad is charged at the

thholding tax. Starting from 1 July 2009, the 5% withholding tax will be collected and, eventually, the xemption will apply from 1 July 2013.

distributed abroad or to a domestic shareholder. However, Poland has also implemented the Parent Subsidiary Directive and thus dividends, as well as other profits from participation in capital companies

A separate 20% withholding tax rate also applies, subject to tax treaties, to certain income of non-residents from the organization of entertainment, artistic and sports events in Poland, as well as from certain intangible services, including legal assistance, marketing, consulting, accounting, advertising, data processing, staff recruitment and alike.

Moreover, 10% withholding tax is collected at source on income earned within the Polish territory by foreign airlines, as w


However, certain gains, which attract also special tax rules, are

of shares in a company to that company, effected in order to allow redemption of those shares by the company, the value of liquidation proceeds, income used for the increase of th

on those profits at the rate of 19%.


deduction made in a given year may not exceed 50% of the tax loss available from a preceding year. Furthermore, in case of a merger, acquiring companies may not carry forward any losses previously incurred by the acquired companies

Special rules apply in a tax group, which may immediately consolidate profits and losses at the group level but is not able to utilize losses suffered by the participating companies prior to the establishment of the group. Similarly, after the group is dissolved, none of the former members may claim deduction for losses suffered by the group dur


rate of 20%. Following the Directive 2004/76, Poland applies a transitional period as regards the implementation of the Interest Royalties Directive whereby, for cases falling within the scope of the Directive, interest and royalties are currently subject 10% wi

e

Also, 19% withholding tax is charged on dividends, whether

86


(such as liquidation or redemption proceeds) distributed by Polish companies to qualified shareholders from within the EU, EEA or from Switzerland will be exempted from any withholding tax whatsoever.

ertificate confirming that the beneficiary is indeed considered as resident, for tax purposes, in the treaty jurisdiction.

s, including legal assistance, marketing, consulting, accounting, advertising, data processing, staff recruitment and alike. Non-residents will be

ncome earned by foreign shipping companies for carriage of passengers and goods taken aboard in Polish ports.

up taxation scheme, although – due to restrictive conditions and legal framework – it has been used extremely rarely.

ck companies) resident in Poland with the average share capital of at least PLN 1.000.000. It is also required that one of the companies, appointed as the leader of the group,

up. The duration of the scheme may not be less then 3 tax years.

Further conditions apply after the group has been created. Specifically, members of the group may not benefit from exemptions in corporate income tax and may not be related, within the

tax arrears of the group as a whole, arising during the lifetime of the group.

had been dissolved.

Notwithstanding, especially in situations outside the scope of EU directives, the actual rate of the withholding tax applicable remains subject to provisions of double tax treaties, which may provide for a reduced rate or for an exemption. Those treaty benefits are available if the Polish company distributing dividends, interest or royalties to a foreign beneficiary has obtained from the beneficiary a tax c

It must also be mentioned, although this may appear to have less practical importance, that a separate 20% withholding tax rate also applies, subject to tax treaties, to certain income of non-residents from the organization of entertainment, artistic and sports events in Poland, as well as from certain intangible service

shielded from the withholding tax if they are able to provide the entity paying the fees with their certificate of tax residence.

Moreover, 10% withholding tax is collected at source on income earned within the Polish territory by foreign airlines, as well as on i


As mentioned, Polish corporate tax laws do provide for a gro

A tax group may be established by a group of capital companies (limited liability companies and joint sto

should hold at least 95% of the shares in other participants.

The tax group comes into being after the participants enter a respective agreement, made in the form of a notarial deed, and notify tax authorities of the creation of the gro

meaning of separate provisions, to entities remaining outside the group. Moreover, the group as such must maintain the profits to revenues ratio of at least 3%.

All the members of the group are jointly and severally liable for

If the group no longer meets the criteria for preferential group taxation and is dissolved by sole operation of law, none of the members may adhere to another tax group unless after a year from the end of the year in which the previous group

87



Polish tax laws used to incorporate an extensive general anti-abuse clause, but this has been partly quashed by the Constitutional Tribunal and partly removed by legislators.

Currently, according to the laws applicable, tax authorities are principally allowed to adopt the “substance over form” approach to transactions entered into by taxpayers, thus seeking for the actual intention of the parties and setting aside the literal wording of an agreement.

t should be re-qualified as another type of a contract, they must, in order to do so, enforce

aintain special transfer pricing documentation, so as to demonstrate and substantiate that the fees or remuneration, and other conditions of a transaction, have

ve.

uthorities, if and when they request so. A failure to present the documentation within 7 days rom request may trigger considerable tax exposure if it is found that income has been

n effect of transactional values being below proper market value.

tive requirements to comply with the local tax authorities?

mstances covered by the registration form. Accordingly, when a company is wound up or otherwise removed from the register of

pondingly, file quarterly tax returns.

However, if tax authorities choose to claim that a transaction was non-existent at all, or that i

formal litigation before a court of law.

Furthermore, separate tax laws include specific anti-avoidance provisions. That includes rules on transfer pricing, thin capitalization and an anti-abuse clause applicable to mergers and other restructuring operations. Moreover, specific tax provisions enable tax authorities to examine and re-assess the value of transactions when it has bearing on the taxable base. No CFC rules have been introduced so far.

As far as transfer pricing is concerned, if a Polish corporation pays prices or remuneration for services or intangibles to a related entity in excess of EUR 30.000, per tax year, it will be required to produce and m

been established on an arm’s length basis.

Notwithstanding, if a Polish corporation pays prices for goods to a related entity in excess of 20% of the Polish company’s share capital and the aggregate amount of those prices remain above EUR 100.000, per tax year, the Polish company will also be required to produce and maintain transfer pricing documentation, as specified abo

Moreover, whenever a Polish corporation pays prices, fees or remuneration to a tax haven in excess of EUR 20.000, per tax year, the transfer pricing documentation will also be obligatory.

In all the cases referred to above, transfer pricing documentation must be provided to tax afunderestimated as a

9. Which are the main administra

Corporate taxpayers commencing activities must register themselves with tax authorities, as well as notify them of any changes in the circu

companies, de-registration from tax registers may be necessary.

Corporate taxpayers must also calculate and pay monthly tax advances, by the 20th of the following month, due on the profits acquired during the tax year. Accordingly, they are required to file monthly tax returns. Certain taxpayers may elect to pay quarterly tax advances and, corres

88


After a tax year, corporate taxpayers are required, within 3 months, to submit to tax authorities the annual tax return and pay the resulting tax, in case of a surplus of tax due for

s already been concluded?

, South Korea, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mexico, Moldova, Mongolia, Morocco,

way, Pakistan, Philippines, Portugal, Romania, Russian Federation, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka,

s providing tax incentives to certain taxable entities?

tive tax incentives may qualify as state aid and thus would only be legitimate if compatible with the rules of the common market. For those

to bring the scheme in line with the Community state aid laws, Poland has maintained, as regional aid, special economic

xemption up to certain proportion of the investment made. The intensity of aid so available amount to, during the period 2007 -2013,

. Which are the taxable persons?

Personal income tax is levied upon individuals. Therefore, it is also imposed upon individual egistered partnership, professional

partnership and a limited joint-stock partnership.

gardless of whether it was earned in Poland or abroad. Non-resident individuals are subject limited tax liability and thus may only be taxed in Poland on the income earned within the

territory of Poland.

that year over the tax advances paid throughout the year. Moreover, taxpayers required to produce annual statements must file them with tax authorities, within 10 days from the approval by the general shareholders’ meeting, together with an opinion and a report from a chartered accountant (unless separate laws do not require such examination), and with the resolution approving the annual statement attached thereto.

10. With which countries have double taxation convention

Poland have concluded double taxation conventions with Albania, Algeria, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Bulgaria, Canada, Chile, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan

Netherlands, New Zealand, Nigeria, Nor

Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Vietnam, Yugoslavia, Zambia and Zimbabwe.

11. Are there any special law

According to the applicable EC laws, selec

reasons, most of the schemes offering fiscal incentives to be applied must be structured so as not to constitute aid or be approved by the Commission.

In that respect, subject to the amendments which were necessary

zones which enable investors to obtain tax e

50%, 40% or 30% of the qualified expenses, depending on the region of the country involved. C. Individuals

1

partners in a partnership, including a civil partnership, a r

Individuals resident in Poland tax purposes (i.e. having usual place of abode in Poland, or residing in Poland for more then 183 days during a year) are subject in Poland to unlimited tax liability, which implies that they are taxed in Poland on their world-wide income, i.e. reto

89



As a matter of principle, any income of an individual is subject to personal income tax. gories, major sources of income,

including employment, business activities (as a sole trader, or as a partner in a partnership)

etc. It may be important to properly qualify income of an individual into one of the categories above since they may attract different tax treatment, including rules on tax-

f the categories are subject to single flat tax and are not aggregated with other income.

the surplus over PLN 43.405. Finally, taxpayers with annual income over PLN 85.528 would be required to pay PLN 20.311,31 plus 40% of the excess

gains taxed separately?

hich include interest and discount on securities, as well as dividends and other income from participation in legal

may not exceed 50% of the tax loss available from a preceding year.

D. Capital

apital gains are generally subject to income tax, both for corporations and individuals. In ddition, taxes on capital include tax on inheritance and gifts and, to some extent, tax on civil

law transactions. Real property is also subject to separate real estate tax, but that is usually harged with respect to the surface of the property, and not its actual value.

However, tax legislation recognizes, as separate cate

directors’ fees, real estate, capital income, savings, dividends, royalties, personal services, social benefits

deductible costs, applicable tax rate or settlement procedures.

Furthermore, costs and losses may only be deducted from revenues, or profits, within the same income category. Also, whereas most of the categories of taxable income are eventually aggregated, for the purpose of the annual tax return, and taxable at progressive rates of 19%, 30% and 40%, some o


In 2007, profits of up to 43.405 are taxed at 19%, minus the basic allowance of PLN 572,54. Profits between PLN 43.405 and PLN 85.528 would be subject to personal income tax of PLN 7.674,41 plus 30% of

over PLN 85.528.

4. Are capital

Polish regulations on personal income tax do not recognize capital gains as a separate category. Instead, they recognize the notion of capital income, w

entities. Such capital income is subject to flat income tax at 19%.


Individuals with business activities are covered by loss deduction rules similar to those applicable to corporations. Therefore, no carry-back is allowed and losses may only be carried forward, for five subsequent tax years. In any event, deduction made in a given year


Ca

c

90


E. Indirect taxes

if any?

specific national rules, such as ose concerning taxation of cars, penalties for improper calculation of VAT, limitations posed upon deductibility of input VAT, real estate transactions, recovery of input VAT or

from ounts of input VAT incurred in the prices of goods and services purchased. If a surplus of input VAT occurs, it may either be carried forward for deduction

electr cs, cars, weapons or gambling equipment.

By way of exception, real estate transactions, even when not VAT-taxable, trigger PCC (at 2%).

Furthermore, PCC is charged on loans, save for loans expressly exempted and for the bank loans which, as financial services, are generally exempted from VAT and thus also outside the scope of PCC.

In outline, which are the main indirect taxes,

Main indirect taxes include Value Added Tax (VAT), excise duty and tax on civil law transactions.

VAT is imposed on the sale of goods and provisions of services, generally at the rate of 22%, save when reduced rates (7%, 3%, 0%) or exemptions apply. Although Polish VAT laws are generally based on the EC Directives, Poland applies somethimchargeability of VAT.

In accordance with the general notion of value added tax, businesses are allowed to deduct their output VAT the am

later on, or, subject to conditions, reimbursed in cash directly to a taxpayer’s account. Therefore, VAT is designed to be neutral for business operators and is deemed to be incurred primarily by end consumers.

Poland continues to benefit from some transitional measures in the area of VAT. For instance, supply of new residential buildings is still subject, until 31 December 2007, to the VAT rate of 7%.

Excise duty is imposed on harmonized goods, such as fuels, alcohol and tobacco, as well as ic energy, cosmeti

Tax on civil law transactions, commonly abbreviated as “PCC”, is imposed upon a number of transactions, which are exhaustively enlisted in the relevant legislation, both when made between businesses and between private entities and individuals.

Most of all, PCC is charged on the sale of goods and rights, as long as at least one of the parties is not subject to VAT or is not exempted from that tax. As a consequence, the sale of shares in a company, which is principally outside VAT, is subject to PCC (at the rate of 1%).

91


F. Other duties

n

tax laws provide ber of local ta on the income of, by, unicipalities acti ta ities. These x n most cases charged on the surface, and not n the value of real

, transport tax (levied on lorries), forest tax (imposed on those lands which qualify as woods) and rural tax (charged on real estate in agricultural areas). A new tonnage tax has

ed on recently in the shippin

utine checks and ents, co s being ensu tax and ections. Findings of those inspections m al tax proceedings where

x authorities assess tax ar if any, and issue a declaratory decision obliging the taxpayer cover outstanding liabilities. Substantive tax laws do provide for certain sanctions for

reach of tax provisions, but in case of a major breach penal fiscal liability (usually fines) posed upon individuals held responsible for the breach (directors, CFOs, chief

ts, financial directors or alike).

at is on average duration of the liti on procedure for the final resolution x disputes?

on made by a local tax office (urząd skarbowy), if challenged by a taxpayer, will be reviewed by th llate body, which tax chamber (izba skarbowa), within a

onths. The decision of the tax chamber ma appealed throug plaint to the dministrative C czelny Sąd Administracyjny) where litigation may take up ars, depending se. In order to set aside a judgment of the Regional

nistrative Court, taxpayers may, subject to e conditions, bring a case, solely on a aw, before the Supreme Administrative Court (Naczelny Sąd Administracyjny) in

rule on the case within a year.

In outline, are there a y other taxes, if any?

Polishand are administered

for a num local m

xes which generally cng in their capacity of

stitutex author

include real estate taproperty)

(i o

also been introduc ly g industry.

G. Enforcement- Litigation procedure

1. In outline, which are the existing measures in order to ensure compliance with the tax legislation?

Save for rofiscal insp

filing requirem

rears,

mpliance iay be used in form

red through

tatobmay be imaccountan

2. Wh the gatiof ta

A decisinormally e appe thefew m y be h a comRegional Ato two ye

ourt (Naon ca

Admi sompoint of lWarsaw, which should be able to

92


APPENDIX INCOME TAX RATES

Corporations Partnerships Individuals Other entities

19% 19% ) 19%, 30% and 40% 19% (1

20% - royalties and interest

19% - dividends 19% - dividends, capital income

1. (profits are taxable at t ds of partners. Partners which are ca ompanies are tically a rule, qualify for the flat 19%

licable to business profits of individuals bject to certain conditions. Otherwise, partners will be t the progressive rates of 19%, 30% and 40%).

TC AGREEME

he han pital ctaxed at 19%. Individual partnrate app

ers may, which is prac, su

individual taxed a

LIST of D NTS

Country

Interest withholding tax rate


Dividends withholding tax rate

Germany protocol

0/5 5 5/15

Greece 10 10 19

Hungary protocol

0/10 10 10

Iceland 0/10 10 5/15

India 0/15 20 15

Indonesia 0/10 15 10/15

Iran protocol

0/10 10

7

Ireland 0/10 0/10 (t) 0/15

Israel 5 5/10 () 5/10

Italy 0/10 10 10

Japan 0/10 0/10 (i) 10

Jordan 0/10 10 10

Kazakhstan 0/10 10 10/15

Kuwait 0/5 15 0/5

Kyrgyzstan 0/10 10 (u) 10

Latvia 0/10 10 5/15

93


Country




Lebanon 5 5 5

Lithuania 0/10 10 5/15

Luxembourg 0/10 10 5/15

Macedonia 0/10 10 5/15

Malaysia 15 15 0

Malta 0/10 10 5/15

Mexico 0/5/15 10 5/15

Moldova 0/10 10 5/15

Mongolia 0/10 5 10

Morocco 10 10 7/15

Nigeria 0/10 10 10

Norway 0 0/10 5/15

Pakistan 0/20 15/20 15

Philippines 0/10 15 10/15

Portugal 0/10 10 10/15

Romania 0/10 10 5/15

Russian Federation 0/10 10 10

Singapore 0/10 10 0/10

Slovak Republic 0/10 5 5/10

Slovenia 0/10 10 5/15

South Africa 0/10 10 5/15

Spain 0 0/10 5/15

Sri Lanka 0/10 0/10 15

Sweden 0 5 5/15

Switzerland 10 0 5/15

Syria 0/10 18 10

Tajikistan 10 10 5/15

Thailand 0/10/20 5/15 19

Tunisia 12 12 5/10

94


Country




Turkey 0/10 10 10/15

Ukraine 0/10 10 5/15

United Arab Emirates 0/5 5 0/5

United Kingdom 5 5 0/10

United States 0 10 5/15

Uruguay 0/15 15 15

Uzbekistan 0/10 10 5/15

Vietnam 10 10/15 10/15

Yugoslavia 10 10 5/15

Zambia 10

Zimbabwe 10 10 10/15

95



etersen A. Gene Accord g ’s GDP stood at roughly 230 billion lei (almos 6 year, registering a 7.8% rise as compa e most significant growth rate of 8.3 percent was reporte n Economic contributio th. Others believe it is the introduction of the 16 percent flat

x in early 2005 that underlies all these economic developments. Some western pundits say s appreciated in 2006 more than any other

uropean currency, becoming the most dynamic in the world. The Leu might continue its

cording to the new EU8+2 Regular Economic Report, GDP growth strengthened Romania in 2006, but is likely to ease in 2007. Moreover, World Bank specialists believe

te income taxation

) foreign legal persons and non-resident natural persons that carry out activity in g legal personality;

) foreign legal persons incurring incomes from/or in connection with immovable property ipation titles in a Romanian

legal person;

ROMANIA Nestor Nestor Diculescu Kingston P

ral Information

in to the National Statistics Institute, Romaniat 6 billion euros) in the first nine months of thered to the same period in 2005. Thd i the third quarter of 2006.

experts say that consumption also stands at high levels, with a significant n to economic grow

tathat Romania’s national currency, the Leu, haEappreciation, as foreign investment could double, with the country’s EU accession, on January 1st, 2007. However, acinthat 2007 will bring another round of regulated price increases for most EU8+2 countries, with the impact on inflation likely to be most pronounced in Hungary, the Czech Republic, Estonia, Lithuania, an, to some extent in Romania. At the same time, the recent sharp decline in oil prices could help dampen inflationary pressures in 2007. The region’s fiscal policies were generally pro-cyclical in 2006, and the picture is not likely to change much in 2007, as per the World Bank specialists. B. Corpora 1. Which are the taxable entities? The following persons are liable to pay Romanian corporate income tax: a) Romanian legal persons; b) foreign legal persons that carry out activity through a permanent establishment in

Romania; c

Romania through an association lackind

located in Romania or from the sale-assignment of partic

97


e) resident natural persons associated with Romanian legal persons, for incomes incurred both in Romania and abroad, through associations lacking legal personality.

The Tax Code expressly exempts from the payment of the corporate income tax certain

tities / institutions, such as:

- the state treasury;

ious cults, in general; - the accredited /authorized private education institutions, with respect to the

- the Fund for the guarantee of bank deposits, constituted according to law;

- the ownership associations in certain cases; f incomes and

with respect to the revenues incurred out of economic activities up to the ceiling of

The taxable profit is to be computed as the difference between incomes incurred from any source d s made for the purpose of incurring taxable incomes during a given fiscal year, from n-taxable incomes are deducted and to which non-deductible expenses are add . In dete i eserves for

hich deductions were previously taken) and expenses (such as the foreign exchange s / liabilities recorded as retained

arnings from applying IAS for the first time) must be taken into account.

urrently the taxpayers may record separately the accounting depreciation and the tax

puted by applying coefficient between 1.5 and 2.5 to the straight-line depreciation rates, depending on the

. What are the applicable tax rates?

he general profit tax rate applicable to taxable profit is 16%.

en

- the public institutions, with respect to the public funds; - the micro-enterprises (these pay a tax on turnover); - the relig

revenues utilized for education activities purposes;

- the Fund for the investors indemnification; - the Fund for the guarantee of private pensions; - the National Bank of Romania;

- the not-for-profit organizations with respect to certain categories o

EUR 15,000/year. 2. How is the taxable income determined?

an expense which no

ed

rm ning the taxable profit, other elements similar to incomes (such as the rwexpenses resulted from the revaluation of the receivablee With respect to depreciable assets, the depreciation rates will be treated as deductible expenses and not the acquisition price paid in this respect. Cdepreciation. The depreciation methods available are: straight line (i.e. equal monthly installments during the useful life of the asset), digressive (in this case the depreciation is comauseful life of the asset) and accelerated (50% of the asset value depreciated during first 12 months of utilization, while the rest is spread in equal monthly installments during the remaining useful life). 3 T

98


The taxpayers performing entertainment activities such as those related to night-clubs, disco, casinos, sport bets for which the related profit tax would not exceed 5% of their similar revenues, then they must pay a 5% tax applied to these revenues (this would be a turnover

x).

. Are capital gains taxed separately?

. May losses be carried back or forward and to what extent?

isage the tax losses carry back concept.

he following types of income derived from Romania by non-residents are subject to the

- dividends

tive of their place of supply).

WithmadepayerDirec

case that similar criteria are cumulatively met (i.e. minimum holding of 25% of the payer

paymwill b The d ted in cases when a treaty

r the avoidance of double taxation applies, provided that a certificate of fiscal residence is e

Appendix 2 for the list of tax treaties concluded by Romania.

here is no tax consolidation available for corporate income tax purposes.

ta 4 The capital gains are not taxed separately in case incurred by companies, but they are included into the taxable incomes and subject to the corporate income tax (i.e. taxed as business profits). 5 Generally, yearly fiscal losses may be recovered from the taxable profits obtained during the following five consecutive years. The recovery of losses shall be made in the same chronological sequence as they were recorded. The Romanian Tax Code does not env 6. Are there any withholding taxes and at which rates? Tgeneral 16% withholding tax:

- interest - royalties - capital gains - service fees (provided services are effectively performed in Romania) - consulting and management fees (irrespec

The gambling gains are subject to a 20% withholding tax.

respect to dividend distributions, such are exempted from any withholding tax in case to a foreign or Romanian company owning at least 15% (10% starting 2009) of the for a period of at least 2 years prior to the payment date (the Parent Subsidiary tive principles transposed in the Romanian legislation).

Infor a period of at least 2 years prior to the payment date), then the interest and royalty

ents are subject to a reduced withholding tax rate of 10% until 2011, starting when they e fully exempted from the Romanian withholding tax.

omestic withholding tax rate may be reduced or even eliminafomad available, in original, by the person claiming the benefits of the tax treaty. Please see

7. Are there any preferential group taxation rules in force? T

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Starting with January 2007 the Romanian Tax Code introduced the “Fiscal Group” concept, but only for VAT purposes. However, to the best of our knowledge, presently, this concept

e ie

he Tax Code further mentions that for transactions performed between related parties, the ary,

order to reflect the market price for the goods or services provided in the transaction. The

rom a corporate income tax perspective, under the current Romanian’s thin capitalization

Debt-equity ratio

was not tested yet in practice. 8. Which are the anti-avoidance rules currently in force? Under the provisions of the Tax Code, the transactions between related parties must barr d on according to the arm’s length principle (i.e. transactions should be performed at the c

same price levels as those which could be reasonably expected from transactions conducted between non-related parties). The holding threshold relevant in order to determine that the parties are related is of 25%. Tfiscal authorities may adjust the amount of income or expense of either person as necessinreassessment does not affect the financials of the Romanian company (but only the tax position) and would not be applied in case the transactions between the related parties are performed on an arm’s length basis. Thus, in respect of intra-group financing transactions, the transfer pricing regulation should be observed as well with regard to the interest rate level. The Romanian legislation does not address the issue of controlled foreign corporations. Frules, there are certain restrictions on the deductibility of interest expenses and the related foreign exchange losses. Generally, interest and foreign exchange expenses incurred by companies in relation to loans obtained from other entities than banks and financial institutions, are subject to the following limitations: i) : Interest expenses are deductible only if the debt-equity ratio is

In case such ratio is higher than the aforementioned limit, or is a ductible for corporate income tax purposes

hey are fully deductible under the same conditions. n exchange losses and foreign exchange revenues

he debt-equity

ii)

maximum 3:1. negative value, interest expenses are non-deand can be carried forward until tAlso, the difference between foreigrelating to long-term loans is treated as interest expense and is subject to tratio limitation.

Interest rate: Interest rate related to loans granted by companies other than financial

e for loans 007 has not

interest rate test ebt-equity ratio test.

irements imposed by the law in respect of corporate income tax r

institutions is deductible within the limit of a specific annual interest ratte applicable for 2denominated in foreign currencies. The annual interest ra

been published yet (the rate valid for 2006 was of 6%). Note that the adjustment should be made prior to the d

9. Which are the main administrative requirements to comply with the local tax

authorities? The current compliance requrefe to the following:

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• Quarterly submission of certain tax return(s) containing, among others taxes due, the

ts;

te income tax return.

omania has an extensive network of countries with which double taxation treaties have been cl as: USA, UK, France, Spain, Germany, The

entities?

ne

are, in

we could be determined if there are instances where

National Company “Nuclearelectrica” SA, hich is exempted from the payment of the corporate income tax by December 31, 2010, to

t ofit inc for the purpose of financing the investment works for t tric po a – Unit 2, according C. Individuals 1 e taxable p The following categories of ind tax in Romania: resident natural persons; a) non-resident natural pers ctivities through a fixed base

in Romania; b) non-resident natu rs iv Ro ; c) non-resident natural pers 2 ble incom The categories of incomes tha as provided by the law are the following: a) incomes from ind enb) incomes from salaries; c) incomes from the grant od) incomes from investment

quarterly corporate income tax due; • Mid-year submission of financial statemen• Yearly submission of financial statements; • Yearly submission of corpora 10. With which countries have double taxation conventions already been concluded? Rcon uded (i.e. over 75 countries), suchNetherlands, Cyprus, Luxembourg, Finland, Denmark, Sweden, Malta, Poland, Israel, Turkey etc. (see Appendix 2). 11. Are there any special laws providing tax incentives to certain taxable

rally, the corporate income tax incGe entives regulated by past special legislation (i.e. foreign investments, significant investment of major impact, disfavored areas, free zones etc.)

principle, no longer applicable. Ho ver, on a case by case basis analysis itformer tax incentives would still be available. For example, according to the Tax Code, the taxpayers which have obtained, prior to July 1st, 2003, the permanent certificate of investor in a disfavored area will benefit of the corporate profit tax exemption related to new investments until the disfavored area will cease to exist. Another incentive is provided in relation to the whe extent the prhe Nuclear-elec

urred is utilizedtwer sta ion Cernavod to law.

. Which are th ersons?

ividuals are subject to income

ependent aons who carry out ind

ons who carry out dependent actons who obtain other incomes.

ral pe ity in mania

. How is the taxa e specified?

ome taxt are subject to the inc

t activities;

f the use of goods; s;

epend

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e) incomes from pensions; f s from agr ag s from priz h me from the t r i es from oth rc

e shall be d d according to the rules provided by each category of

le income, except for the llowing:

m investments (i.e. please see answer to Question 4 below); m prizes and from gambling (i.e. 16%, 20% or 25% depending on the

2% or 3% depending on the

Romania, the capital gains incurred by natural persons – tax residents in Romania, and tion in Romania, are taxed separately, as they belong to the taxable stment incomes”.

) income) income

icultures and

l activities; from gambling; of immovable properties; es.

etermine

) inco ransfe) incom er sou

The taxable incomincome aforementioned. 3. What are the applicable tax rates? Generally, the income tax rate is of 16% applied to the taxabfoa) incomes fro) incomes frob

recurrence and the amount gained); c) incomes from the transfer of immovable properties (1%,

value of the property; it is applied to the property’s value, not to the gain realized). 4. Are capital gains taxed separately? Inwhich are subject to taxancome category of “invei

Below is a table containing the relevant tax rates:

Non-residents Residents Income from investments Rate Comments Rate Comments

Shares held in closed companies

Based on the relevant certificate of fiscal r

and shares held in limited liabilities companies

16% rate decreased or eliminated in accordance with relevant tax treaty

16% - esidence,

1% certificate of fisca

Domestic rate applies in case of holding exceeding 365 days. Based on the relevant

l residence, rate decreased or eliminated in

treaty.

1% Holdings exceeding 365 days

accordance with relevant tax Shares held in open

m rate applies in case of holding less than 365 days.

co panies Domestic

16% Based on the relevant certificate of fiscal residence, rate decreased or eliminated in accordance with relevant tax treaty.

16% Holdings less than 365days

102


d or carry back sses concepts in relation to the incomes incurred by individuals.

estate sale, the Romanian legislation does not rovide for specific taxes on capital (the stamp duties in this respect were eliminated starting anuary 1st, 2007).

n outline, which are the main indirect taxes, if any?

s are VAT and excise duties. Starting January 1, 2007 the new VAT ystem in Romania was implemented based on the principles set out in the VIth EU Directive

er duties

nia are:

Dividends 16% 16% - Interest 16% 16% -

Based on the relevant

Royalties 16% rate decreased or eliminated in accordance with relevant tax tre

16% -

certificate of fiscal residence,

aty.

5. May losses be carried forward or back? No. The Romanian legislation in force does not envisage the carry forwarlo D. Capital 1. In outline, which are the main taxes on capital, if any? Beside the tax payable in relation to the realpJ E. Indirect taxes

I The main indirect taxeson the harmonization of the laws of the Member States relating to turnover taxes. In addition, the Romanian VAT transposed the provisions of the 8th Directive and 13th EU Directive on VAT refunds to EU and non-EU taxable persons. The Romanian Tax Code provides a regular VAT rate of 19% and a reduced one of 9%, applicable for certain specific activities. F. Oth In outline, are there any other taxes, if any? Besides the taxes enumerated above, other taxes levied in Roma

Local taxes (municipality taxes): • building tax:

- natural persons pay 0.1% of the taxable value of the buildings, such being established based on certain criteria indicated by law; in case several buildings are owned, the local tax is increased by 15% - 100% for each subsequent property; in case of dwellings exceeding a built area of 150sq.m., the local tax is increased as well by 5% for each 50 sq.m. or fraction thereof;

103


- legal persons pay 0.25% - 1.5% of net book value, or between 5% - 10% in case the respective building was not revalued during 3 prior consecutive years;

nt per sq.m. established based on certain criteria); n mea ount depending on cylindrical ca e);

certificates, approvals and authorizations tax (depending on surface or on value of

• outdoor publicity tax (fixed fee depending on place/dimension) • hotel tax (0.5% - 5% of tariffs levied; show tax (between 2% - 5% of tickets sold or fixed amount per sq.m.)

ith Januar ent 00 legal persons, certain ince ated to the tax on buildings / land may be

for a period p to 5 years.

or vehicles

• land tax (fixed amou• transportatio ns tax (fixed am pacity of vehicl•

investment, or fixed fees); • advertising tax (between 1% - 3% of contractual value);

• Starting w y 1, 2007, for investm

ntives rels exceeding EUR 500, 0 made by

granted by local councils

of u

Special tax f , levieda sp

for vehicles registered for the first time in R tax is d based on ecial formula whose e ents are represented by the cylindrical nd certain a ent coefficients .

ent-

tline, whi re the existing measur n order to ensure com e egislation?

nsure the compliance with the tax litigations, the tax authoriti ed to conduct tax audits.

The bar time for claiming taxes and special contributions to various state budgets is of five years, starting January 1st of the year following the year during which the tax obligation was

ept for case fraud, when the bar tim s ten years). During thi he ay verify the calculation, recording and payment of taxes and contributions.

Once a tax audit has been completed and adjustments, where applicable, were made by tax inspectors, the respective tax year is considered as closed for further audits. However, in some cases (e.g. litigation in progress, tax evasion, supplementary information that the tax authorities become aware of) a tax audit can cover periods already assessed in other tax audit reports. 2. What is on average the duration of the litigation? A tax dispute generally undergoes two degrees of jurisdictions. Note that the duration of a litigation procedure for the final resolution of tax disputes may vary significantly from case to case. However, please note that such procedure usually lasts not less than one calendar year.

omania. The calculate lemcapacity a djustm

G. Enforcem Litigation procedure

1. In outax l

ch a

es i pliance with th

In order to e es are empower

born (exctax authorities m

s of e i s time interval, t

104


APPENDIX INCOME TAX RATES Corporations Partnerships Individuals Other entities Note that Romanian Tax Code provides for a flat tax rate of 16%, however, applied to taxable basis which are determined differently for corporations vs. individuals.

LIST OF TAX TREATIES CONCLUDED BY ROMANIA Country Interest withholding



Albania 10 15 10 (at least 25% holding)/15

Algeria 15 15 15 Armenia 10 10 5(at least 25%

holding)/10 Austria (new) 3/0 (for bank loans or

loans concluded for more than 2 years)

3 0 (at least 25% holding)/5

Australia 10 10 5 (at least 10% holding)/15

Azerbaijan 8 10 5 (at least 25% holding)/10

Bangladesh 10 10 10 (at least 10% holding) 15

Belgium 10 5 5(at least 25% holding)/15

Belarus 10 15 10 Bulgaria 15 15 10 (at least 25%

holding)/15 Canada 10 5/10(depending of

royalties nature) 10 (at least 25% holding)/15

Costa Rica 10 10 5 (at least 10% holding)/15

Croatia 10 10 5 China 10 7 10 Czech Republic 7 10 10 Cyprus 10 5 10/0 (if paid from

Cyprus) Denmark 10 10 10 (at least 25%

holding)/15 Ecuador 10 10 15

105





Egypt 15 15 10 Estonia 10 10 10 Finland 5 2.5/5 (depending of

royalties nature) 5

France 10 10 10 FYROM 5 10 10 Georgia 10 5 8 Germany 0 3 5 (at least 10%

holding)/15 Greece 10 5/7 45 (if paid from

Greece) 20(if paid from Romania)

Hungary 15 10 5 (at least 40% holding)/15

India 15 22.5 15 (at least 25% holding)/ 20

Indonesia 12.5 12.5/15(depending of royalties nature)

12.5 at least 25% holding)/15

Israel 10/5 (depending on interests nature)

10 15

Italy 10 10 10 Ireland 3/0 (sale on credit of

certain goods/beneficiary is a financial institution)/loans concluded for more than 2 years

3 3

Japan 10 10/15 (industrial royalties)

10

Jordan 12.5 15 15 Kazakhstan 10 10 10 Kuwait 1 20 1 Lebanon 5 5 5 Latvia 10 10 10 Lithuania 10 10 10 Luxembourg 10 0 (for bank loans)/10 5(at least 25%

holding)/15 Malaysia 15/0(for interest related

to long terms loans and 12/0(if paid from Malaysia)

10/0 (if paid from Malaysia)

106





paid from Malaysian) Malta 5 5 5/30 (if paid from

Malta) Mexico 15 15 10 Moldova 10 10/15(depending on

royalties nature) 10

Morocco 10 10 15 Namibia 15 15 15 Netherlands 0 0 0(at least 25%

holding)/5 (holding between 10% and 25%)/15

Nigeria 12.5 12.5 12.5 North Korea 10 10 10 Norway 10 10 10 Pakistan 10 12.5 10 Philippines 10/15 (depending on

interests nature) 10/15/25 (depending on royalties nature)

10(at least 25% holding)/15

Poland 10 10 5 (at least 25% holding)/15

Portugal 10 10 10(at least 25% holding)/15

Russia 15 10 15 Singapore 5 5 5/0 (for profits

distributed by a resident of Singapore)

Slovak Republic 10 10/15(depending on royalties nature)

10

Slovenia 5 5 5 South Africa 15 15 15 South Korea 10 7/10(depending on

royalties nature) 7(at least 25% holding)/10

Spain 10 10 10(at least 25% holding)/15

Sri Lanka 10 10 12.5 Sudan 10 10 15 Sweden 10 10 10 Switzerland 10 0 10 Syria 7.5 10/15 0 Thailand 10 (beneficiary is a 15 10 (for residents

107





financial institution)/20 (for credit sale)/25

activating in certain fields and at least 25% holding)/20

Tunisia 10 11 12 Turkey 10 10 15 UAE 3 3/0(industrial

royalties) 3

United Kingdom 10 10/15(industrial royalties)

10 (at least 25% holding)/15

Ukraine 10 10/15 (depending on royalties nature)

10(at least 25%

holding)/15

United States 10 10/15 (industrial royalties)

10

Uzbekistan 10 10 10 Vietnam 10 15 15 Yugoslavia 10 10 10 Zambia 10 15 10

108



SLOVAK REPUBLIC Cechova & Partners

A. General information The tax system in the Slovak Republic is compliant with the tax systems in other EU Member States. It comprises of the corporate and personal income tax, standard value added tax (VAT), special taxes imposed on certain assets (such as real estates, vehicle-road tax) as well as a system of excise taxes levied on specific goods such as alcohol or tobacco products. In 2007, the main short-term goal of The Slovak Republic in the area of fiscal and monetary policy is to reduce the public finance deficit below the level of 3% of GDP. The fiscal policy aims at ensuring long-term sustainability, macroeconomic stability, support of economic growth and efficiency of the spending of public resources. The Slovak Republic’s goal for 2007 is to satisfy the Maastricht convergence criteria and adopt the common currency euro in 2009. There have been slight changes in the tax system since January 2007, e.g. a reduced 10% VAT rate for drugs and selected health care goods (a uniform 19% rate applied before) and a digressive deductible item when calculating the personal income tax have been introduced. The basic deductible item according to the predefined formula decreases for taxpayers with higher income, which increases the progressivism of their taxation compared to the previous situation. Increasing the excise duty on tobacco products in accordance with the EU legislation is another change planned at the beginning of 2008 and 2009. In result of the implementation of Directive 2003/30/EC on the promotion of the use of bio-fuels, alternative sources of fuels (bio-fuels) will be granted a tax benefit. The tax reform will bring along long-term benefits consisting in the increased production of the economy. B. Corporate income taxation 1. Which are the taxable entities? Legal entities having their registered seat, residence or place of management of business in The Slovak Republic are subject to income tax. Foreign entities may become subject to taxation for the performance of their business activities in The Slovak Republic provided that they have established permanent business or employed employees in The Slovak Republic for at least 183 days during the period of 12 consecutive calendar months. Taxation under a special regime was cancelled by the tax reform which took place in The Slovak Republic in 2004.

109


2. How is the taxable income determined? Income coming from sources situated in the territory of The Slovak Republic and from sources situated abroad represents the subject of the income tax. The subject of taxation with taxpayers established for the purposes of doing business is the income from

business activities; with taxpayers that have not been established for the purpose of doing business (such as associations of legal persons, professional associations, political parties, churches recognized by the state, civic associations and religious communities, municipalities, state funds, colleges and universities, selected public entities, non-investment funds, foundations, non-profit organizations providing generally beneficial services, etc.) the income by which they generate profit or may generate profit. Certain deductible items may be deducted from the tax base of a business. The law specifies the types of expenses that are considered as tax deductible expenses which may influence the tax base and also specifies the amount up to which the expenses can be acknowledged as tax deductible. Tax deductible items are e.g. costs of the taxpayer’s activities, costs of the operation of an environment protection facility, costs of working and social conditions of employees, boarding, business trips, costs amounting to the acquisition price of shares and other securities, costs of the sale of a business share and drafts, costs of advertising, consumed fuel, expenses covered by subsidies and contributions provided from the state budget. Tax expenses also include

a) depreciation of tangible and intangible assets and net book value of tangible and intangible assets,

b) initial price at the sale of tangible assets c) creation of reserves and provisions d) damage not caused by the taxpayer e) insurance premium and contributions f) contributions to supplementary pension insurance, g) membership fees h) interest on loans for procurement of non-current tangible assets and rent.

For example, acquisition of a share in a company (except for shares in a joint-stock company subject to a different regime) is not a tax deductible expense in the year of its acquisition but only in the year of its sale (only up to the amount of the income received from such a sale). Any “bad” (unrecoverable) debts may be written off only under the conditions stipulated by the law, especially in the case of insolvency proceedings of the debtor; debts with the value below SKK 1,000 (approx. EUR 27) may be written off if the costs of their recovery exceed the value of the debt. Marketing expenses spent for the purpose of presentation of business activities of an entrepreneur are also tax deductible. For the purposes of depreciation, the Slovak Income Tax Act divides assets into 4 categories. The period of depreciation ranges from 4 to 20 years (for example real estates are subject to 20-year depreciation). Two methods are available for spreading tax depreciation: straight-line

110


method and accelerated method. The choice of method must be made on asset-by-asset basis and, once made, cannot be changed. 3. What are the applicable tax rates? In 2004, The Slovak Republic considerably simplified its tax system and introduced a flat 19% rate for both the income tax of individuals and income tax of legal entities, irrespective of the amount of their income. 4. Are capital gains taxed separately? Dividends as capital gains of a shareholder in a Slovak company are exempted from taxation. The profit acquired by a legal entity and taxed with a corporate income tax is no more subject to taxation at the moment of profit distribution to the shareholders or members/partners of the entity. Other capital gains are also subject to the 19% tax rate. 5. May losses be carried back or forward and to what extent? A tax loss (defined as the difference by which the tax expenses exceed taxable income) may be deducted from the tax base, however in five consecutive taxation periods at the most. A tax loss may also be deducted irregularly, that means also one-off, depending on the amount of the reported tax base. 6. Are there any withholding taxes and at which rates? Withholding taxes apply to the income coming from the sources situated in the Slovak Republic, (for example interest, profits or other revenues generated from deposits on savings-books, from cash on current accounts, revenues from mutual fund certificates, deposit certificates, pecuniary winnings in lotteries and other similar games and pecuniary winnings from advertising contests, pecuniary winnings from public contests, benefits from supplementary pension insurance, benefits from endowment insurance, author’s income from contributions to newspapers, magazines, radio or television, revenues from bonds and treasury bills etc.). A 19% uniform tax rate is applied, which replaced six different tax rates applied until 2004. 7. Are there any preferential group taxation rules in force? The Slovak Republic acceded to the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises 90/436/EEC dated 20 August 1990 (Official bulletin of the EC L 225, 20/08/1990); otherwise there are currently no preferential group taxation rules in force in the Slovak Republic. 8. Which are the anti-avoidance rules currently in force? Slovak tax legislation stipulates transfer pricing rules according to which any company in The Slovak Republic engaged in foreign intra-group transactions must be able to support prices agreed between related parties in order to meet the condition of arms-length price. In general the transfer pricing rules are largely based on OECD principles. There is a different approach to transactions between Slovak and foreign related parties and Slovak related

111


parties. The Slovak Income Tax Act stipulates various methods derived from price comparison and profit comparison; based on the principle of independent relation, these methods, combination thereof or also other methods not explicitly stipulated by this Act may be used to detect the difference between the prices agreed between related parties and the arm’s length price. There are no thin capitalization rules currently in force that would limit interest tax deduction to the extent that a company’s debt/equity ratio exceeds a certain level. Such thin capitalization rules have already been abolished. They were limiting the deductibility of interest on loans from associated entities where the sum of such loans exceeded the company’s equity by more than 4:1. 9. Which are the main administrative requirements to comply with the local tax

authorities? Tax returns are to be submitted to the local tax office. The tax office for selected taxpayers, seated in Bratislava, is the relevant tax office for all companies situated in the region of Bratislava with annual turnover over 1,000 million Slovak koruna and all banks, insurance companies and branches of foreign banks and insurance companies regardless of the annual turnover. A tax payer is obliged to lodge a tax return in the period of three months after the end of the taxation period and pay the tax liability in the same period. Taxpayers have the following obligations: Obligation to register; an entity that obtains a license or authorisation for doing business in the Slovak Republic or starts performing any other income-generating activity in the territory of the Slovak Republic is obliged to register at the tax office with local jurisdiction within 30 days; if the entity is an employer who pays taxes on dependent activities and starts to pay out income from dependent activities, the registration at the tax office with local jurisdiction must be carried out not later than within 15 days. A person with the seat or residence abroad being a tax entity that has no permanent operations or immovable assets in the territory of the Slovak Republic is obliged to register on the date it commenced the activities subject to taxation, at the latest. A taxpayer has a notification duty when commencing an activity subject to taxation and when establishing operations in the territory of the Slovak Republic (obligation to notify the tax office within 30 days from the commencement, or before ceasing the performance of the activity); in the case of a change of important data and other facts, the taxpayer is obliged to notify such changes within 15 days from their occurrence. A taxpayer is obliged to pay tax advances, on a quarterly or monthly basis, in dependence on the amount of the last known tax liability (a taxpayer whose last known tax liability exceeded SKK 20,000 (SKK 50,000 with legal persons) and was below SKK 500,000, pays quarterly tax advances. If the taxpayer’s tax for the preceding taxation period exceeded SKK 500,000, the taxpayer is obliged to pay monthly tax advances). 10. With which countries have double taxation conventions already been concluded? For the list of the countries having DTC concluded with the Slovak Republic, please, see the Annex 2.

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11. Are there any special laws providing tax incentives to certain taxable entities? The Slovak Republic has harmonized the rules on providing state aid with the European Community (EC) legislation after its accession to the European Union. For this reason, the Slovak Republic may provide state aid only in accordance with the rules laid down at the level of the European Union. State aid may be provided on an individual basis or within a scheme of state aid. Generally, state aid is subject to the approval by the European Commission pursuant to Articles 87 and 88 of the EC Treaty. The Slovak government also provides a specific type of individual state aid in accordance with the rules laid down by the Act on Investment Incentives. Investment incentives are provided for new investments and workplaces created in connection with such investments. There is no legal title to the provision of state aid or to the provisions of investment incentives to the investors and it is solely upon the discretion of the relevant authorities if they do so. It is possible to provide tax exemptions (in a form of a tax credit) for the purposes of investment incentives with the consent of the government of the Slovak Republic, however the possibility exists only until 31 December 2007. C. Individuals 1. Which are the taxable persons? Natural persons having their residence in The Slovak Republic or staying in The Slovak Republic for at least 183 days during the period of 12 consecutive calendar months is subject to the income tax. 2. How is the taxable income specified? The types of income taxed by personal income tax are as follows: • income from dependent activity (for instance income from labour and similar legal

relations, service relationship, income of a proxy holder, salary and fringe benefits of constitutional officers, public defender of rights, member of Parliament, prosecutor, remuneration for the performance of a function in state bodies and public bodies of the Slovak Republic, etc.);

• income from business activities and other independent gainful activities; • income derived from capital (for example interest and other proceeds from securities,

from deposits on savings books, from provided loans and advances, proceeds from bills of exchange, income from mutual funds certificates and from endowment insurance etc., but not income from dividends, which are exempted from taxation);

• other income (such as income from occasional activities and occasional rental of movable items, from transfer of real estate ownership, from the sale of movable items, income from the transfer of options and securities, income from the transfer of a share in a business company, income from inherited industrial and other intellectual property rights, pensions, winnings in lotteries and other similar games and winnings from advertising contests).

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The following types of income are not subject to tax: • income from the acquisition of securities, or income from the inherited, restituted or

donated immovable or movable property or the property right other than the income generated by the above and other than gifts, profit share (dividend) paid from the company’s profit , credits and loans.

The following types of income are exempt from tax: • income from the sale of flat or house, if the flat or house had been the seller’s

permanent residence for at least two years preceding the year of sale, • income from the sale of other real estates after the lapse of five years from the date of

their acquisition, • income from the sale of an inherited real estate, if at least five years have elapsed from

the date of its acquisition, • income from the sale of a movable property (other than securities), • income from the sale of bankruptcy assets, • income received within the fulfillment of child support, public health insurance

benefits, social insurance benefits and benefits from the mandatory foreign insurance of the same type, social benefits to those in need, insurance benefits other than benefits from endowment insurance or supplementary pension savings, damage compensations received, scholarships, wins in lotteries and other similar games, prizes received or wins not exceeding SKK 5,000, tax benefit on a dependant child living with the taxpayer in one household,

• income from the sale of a mutual fund certificate other than income from the sale of a mutual fund certificate to a person residing or domiciled abroad,

• income from the treasury bonds of the Slovak Republic issued and registered abroad, funds from grants, etc.

Certain deductible items may be deducted from the tax base of individuals thus lowering their tax liabilities (e.g. their tax base is reduced by personal allowances of approximately EUR 2,400/person per year; spouse allowances of approximately EUR 2,400 per year, monthly tax bonuses for children, etc.). Contributions to supplementary pension savings, funds for special purpose savings and life insurance premium are non-taxable items. 3. What are the applicable tax rates? The tax rate is 19% of the tax base reduced by the tax loss and non-taxable items. 4. Are capital gains taxed separately? The capital gains are not taxed separately. The flat tax 19% applies also for the capital gains of natural entities. 5. May losses be carried forward or back? The tax loss may be deducted from the tax base over no more than five consecutive taxation periods. The tax loss may also be deducted non-proportionally, i.e. at once, depending on the reported tax base.

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D. Capital In outline, which are the main taxes on capital, if any? Real Estate Tax Each owner of a real estate located in The Slovak Republic is obliged to pay real estate tax, in case of land at a basic rate of 0.25% of the value of land determined in the expert’s appraisal, in case of buildings at a basic rate of SKK 1 per 1 sqm of a built-up area and in case of apartments at a basic rate of SKK 1 per 1 sqm of a floor area. The tax is payable annually to municipal authorities and its actual rate may be subject to changes upon the decision of the municipal authorities. Only the transfers of real estate for consideration performed before 1 January 2005 were subject to real estate transfer tax; no real estate transfer tax is payable for transfers performed after that date. Inheritance tax and gift tax were cancelled as at 1 January 2004. E. Indirect taxes In outline, which are the main indirect taxes, if any?

Value Added Tax The VAT registration duty is imposed on the persons performing business activities and (i) having their seat, place of business or establishment in The Slovak Republic, and (ii) having a turnover exceeding SKK 1,500,000 (approx. EUR 40,000) during previous

twelve consecutive calendar months. The same applies to the persons having their seat, place of business or establishment in The Slovak Republic and performing their business activities jointly on the basis of an association or similar agreement. Supplies subject to VAT may be divided into four categories: (a) supply of goods for consideration performed in The Slovak Republic by VAT liable

entities, (b) provision of services for consideration performed in The Slovak Republic by VAT

liable entities, (c) acquisition of goods for consideration performed in The Slovak Republic from other

EU Member States, and (d) import of goods to The Slovak Republic (from outside the EU territory). Certain types of supplies are exempt from VAT, including postal services, financial services or insurance services. All taxable supplies are subject to a flat 19% VAT. Excise Taxes In The Slovak Republic, there is the standard system of excise taxes imposed on certain types of goods such as mineral oils, spirits, liqueurs, beer, wine and tobacco products. The excise tax is due by the producers and importers of such goods usually in monthly one-off payment depending on the volume of goods.

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F. Other duties In outline, are there any other taxes, if any? Road Tax Vehicles used for business purposes are subject to progressive road tax depending on a type of vehicle. The tax rates range from SKK 1,600 to 6,160 for personal motor vehicles, and from SKK 1,800 to 75,400 for utility vehicles and buses per each year when the vehicle has been used for business purposes. Local taxes Local taxes may be levied by a municipality. They include real estate tax, dog tax, tax on using public area, accommodation tax, tax on vending machines, tax on gambling machines (only machines not providing financial wins), tax on entering the old city in a motor vehicle and tax on nuclear facilities. G. Enforcement – Litigation procedure 1. Ιn outline, which is the existing measures in order to ensure compliance with the

tax legislation? According to the Slovak Act on Tax and Fee Administration, the tax office is authorized to carry out a tax audit. The purpose of the tax audit is to verify the amount of the tax base and other facts decisive for determining the tax liability. The tax office is entitled to repeat the tax audit. Banks and other financial institutions, insurance companies, the post, municipalities, public authorities and also certain legal and natural persons are obliged to interoperate with the tax office and provide information needed to determine the tax liability of other entities. The tax office is authorized to make tax inspections in order to check the amount of the tax base or other facts decisive for determining the tax liability. The tax office is also entitled to register a tax payer which failed to do so. It is authorized to impose fines and penalties (penalty interest) for violation of the tax law (such as the failure to register, provide a notification or fulfil other obligation, incorrect determination of the tax liability in the tax return, failure to submit the tax return by the deadline stipulated by the law, failure to pay the tax and to comply with other financial or non-financial obligations stipulated by the law). The tax office imposes sanctions depending on the gravity, duration and consequences of the breach of law. If a taxable entity repeatedly violates a non-pecuniary obligation for which it had already been imposed a penalty, the tax office is entitled to suspend the performance of activities subject to taxation by the taxable entity for 30 days.

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To secure the tax, in particular when there are doubts as to whether or not the tax could become unenforceable when due, the tax office is, under the law, authorised to decide upon the establishment of a tax mortgage to an object of the mortgage owned by the tax debtor, as well as upon the issuance of a tax security order commanding the taxpayer to remit the not-yet-due amount of the tax to the account of the tax office within 3 days. The tax office is also authorised to enforce tax debts in the tax execution proceedings by applying different execution measures, e. g. by salary deductions, by garnishment, by selling movable and immovable assets, securities etc. The failure to pay the tax is recognised by the Slovak Criminal Code as a crime. For committing this crime, the court may impose the imprisonment up to the 12 years. 2. What is on average the duration of a litigation procedure for the final resolution of

tax disputes? The tax office is obliged to decide without delay in simple cases, within 30 days from the day of commencement of the proceedings in other cases. The taxable entity may challenge the first-instance tax office decision by filing an appeal within 15 days from the delivery of the decision. The taxable entity may also object or complain in the tax proceedings when having doubts about the accuracy of the tax liability stated by the tax office or other facts in the tax proceedings. The appeal tax office is obliged to decide within 30 days, in especially complicated cases within 60 days. If it is necessary to prolong this deadline, the appeal tax office is obliged to request the approval from the superior authority. There are also extraordinary remedies available. The taxable entity may demand new proceedings or review of the lawfulness of the tax office’s decision or the tax proceedings themselves if the law or rights and interests of the taxable entity protected under the law were violated, if the tax decision was made based on a committed crime or false evidence, etc. The tax decision may be reviewed by a court. The proceedings in tax disputes may take one year or several years depending on the complexity of the matter.

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APPENDIX INCOME TAX RATES Corporations Partnerships Individuals Other entities 19% 19% 19% 19%

LIST of DTC AGREEMENTS Country Interest withholding

tax rate



Australia 10% - 15%

Austria 10% - -

Belgium 10% - 5%, 15%

Belarus 10% - 10%, 15%

Brazil - 15%

Bulgaria 10% - 10%

Canada 10% - 5%, 15%

Czech Republic. - - 5%, 15%

China 10% - -

Croatia - - 5%, 10%

Cyprus 10% - -

Denmark - - 15%

Estonia 10% - 10%

Egypt*

Finland - - 5%, 15%

France 10% - -

Germany - - 5%, 15%

Great Britain - - 5%, 15%

Greece 19% - -

Hungary - - 5%, 15%

India - - 15%, 25%

Indonesia 10% - 10%

Ireland - - 10%

Iceland - - 5%, 10%

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Italy - - 15%

Israel 2%, 5%, 10% - 5%, 10%

Japan - - 10%, 15%

Korea 10% - 5%, 10%

Latvia 10% - 10%

Lithuania 10% - 10%

Luxembourg - - 5%, 15%

Malta - - 5%

Macedonia, Bosnia - Herzegovina

10% - 5%, 10%

Moldova 10% - 5%, 15%

Mexico*

Mongolia 0% - -

Netherlands - - 0%, 10%

Nigeria - - 12,5%, 15%

Norway - - 5%, 15%

Poland - - 5%, 10%

Portugal 10% - 15%

Republic of South Africa

- - 5%, 10%

Romania 10% - -

Russian Federation 10% - -

Serbia & Montenegro

10% - 5%, 15%

Singapore - - 5%, 10%

Slovenia 10% - 5%, 15%

Spain - - 5%, 15%

Sri Lanka - - 15%

Sweden - - 0%, 10%

Switzerland - - 5%, 15%

Tunisia - - 10%, 15%

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Turkey 10% - 5%, 10%

Turkmenistan 10% - 10%

Ukraine 10% - -

Uzbekistan 10% - 10%

USA - - 5%, 15%

* The DTC agreements with Egypt and Mexico have not come into effect yet.

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SLOVENIA Vidovic & Partners

A. General information Due to the relatively strong growth in the EU in the past year, which lasted through the last quarter of the year 2006, the growth of Slovenian trade in goods continued, amounting to 16% in comparison to the same period in the year 2005. However, there was a great deficit in the current account of the balance of payments because of the extremely high amounts of payments of dividends and undistributed profits to foreign investors. The lowering of tax rate on the paid wage -unique in the world- has lowered average burden from 5,1% in the year 2004 to 4,2% in the year 2006. General government revenue (GGM) has rose by real 5,8%, and the biggest contribution to this was made by the tax on income of legal persons, which has grown for more than one half compared to the year before. GGM from VAT have increased by 4,5%. Real growth of the GGM from excise duties was 1,1%. GGM from the direct taxes and social security contributions on wages rose by real 2,3 %, while the social security contributions, it rose by real 3,4 %. GGM from personal income tax rose by real 6,1%. Table 1: Structure of taxes.

Type of tax Share (in %) Personal income tax 14,9 Tax on income of legal persons 7,9 Turnover (sales tax), VAT, excises 32,7 Customs duties and import charges 0,4 Social security contributions 34,8 Other income 9,3 Sum 100

As shown above, the real tax burden has grown notably in the past year. New tax legislation was adopted this year, which is supposed to increase the competitiveness of Slovenian economy. However analysis show that there will be no significant improvement and that

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these are actually ''cosmetic'' corrections, such as tax on income of legal persons being lowered by one percentage point and the slightly decreased tax rate on the paid wage, which is specific for. B. Corporate income taxation 1. Which are the taxable entities? All legal entities are taxable entities. The forms of business entities which are subject to Corporate Income tax are the following:

1. Commercial companies (general partnership, limited partnership, joint stock company, Limited Liability Company and economic interest grouping) and other legal entities which perform for profit activities. Commercial companies acquire the status of a legal entity by registration in the Slovene Court Register. 2. Resident permanent business entity (the headquarters of the management, branch office, agency, workroom, mine, quarry, construction place, where building or fitting activities are performed for more than 12 months) of non-resident entrepreneur. If the business entity in the Avoidance of Double Taxation Treaty with the specific country is defined differently, then the legislation of the Avoidance of Double Taxation Treaty has to be directly used. 3. Representative office of non-resident entrepreneur for agencies business within air traffic and other traffic (pursuant to the International Agreements).

2. How is the taxable income determined? The taxable income is determined as the difference between income and tax deductible costs. The taxable profit is the difference between income and expenses defined pursuant to stated Profit Tax Act and expenses which should be declared in Tax Applications of companies and are also stated at the Profit Tax Act. The Taxable Base represents the profit that is reduced for the profits from the foreign county if from that profit the appropriate tax was paid in that foreign country. 3. What are the applicable tax rates? The applicable tax rate is 23%. The rate is going to decrease in the following years: In particular, in 2008 the applicable tax rate is going to be 22%, in 2009 21% and in 2009 onwards the applicable tax rate will be 20%.38 4. Are capital gains taxed separately? The capital gains according to Corporate Income Tax Act are not taxed separately. 5. May losses be carried back or forward and to what extent?

38 According to the article 36 of new Profit Tax Act (“ZDDPO-2”; Official Gazette of the RS, No. 117/06 which came into force on 1 January 2007). According to article 29 of the old Profit Tax Act the Tax Loss could be transferred for 7 years (Official Gazette of the RS, No. 33/06 which came into force on 1 January 2006) under the condition that the capital structure hasn’t been changed for more than 25%.

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Losses may only be carried forward. They may be carried forward fully. The Tax Losses could be transferred in the following years for undefined period of time39 under the following conditions: (i) the capital structure directly or indirectly hasn’t been changed for more than 50% , (ii) the Taxpayer hasn’t been active for already two years before the change of the capital structure or (iii) the Taxpayer has essentially changed the main activity in two years before or after the capital structure has been changed. Losses may not be carried back. 6. Are there any withholding taxes and at which rates? Yes. The rate is 15% (on dividends, royalties, interest, some rents, taking account of EU directives). Taking into account the Double Tax Convention (DTC) treaties, the withholding tax could be decreased. 7. Are there any preferential group taxation rules in force? No. There are no preferential group taxation rules in force. 8. Which are the anti-avoidance rules currently in force? Transfer pricing rules based on OECD model (all OECD methods of transfer pricing and the combination of them are permitted), 25% threshold for their application. 9. Which are the main administrative requirements to comply with the local tax

authorities? Yearly submission of corporate income tax return. 10. With which countries have double taxation conventions already been concluded? Slovenia has already concluded double taxation conventions with the following countries: Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Greece, Croatia, India, Ireland, Italy, Canada, China, Latvia, Lithuania, Luxemburg, Hungary, Macedonia, Malta, Moldova, Germany, Netherlands, Norway, Poland, Portugal, Republic of Korea, Romania, Russian Federation, Slovak Republic, Spain, Serbia/Montenegro, Sweden, Switzerland, Taiwan, Turkey, Great Britain and North Ireland, USA. 11. Are there any special laws providing tax incentives to certain taxable entities? We have no special laws providing tax incentives to certain taxable entities.

39 According to the article 36 of new Profit Tax Act (“ZDDPO-2”; Official Gazette of the RS, No. 117/06 which came into force on 1 January 2007). According to article 29 of the old Profit Tax Act the Tax Loss could be transferred for 7 years (Official Gazette of the RS, No. 33/06 which came into force on 1 January 2006) under the condition that the capital structure hasn’t been changed for more than 25%

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C. Individuals 1. Which are the taxable persons? The taxable persons are (i) residents who are taxed according to their worldwide income and (ii) non residents who are taxed only for their Slovenian-sourced income. The Taxpayer is a natural person that has his permanent address in the Republic of Slovenia and has revenues generated in the Republic of Slovenia (RS) or in a foreign country. The Taxpayer is also a non-resident natural person, if he/she on the territory of RS reaches the investment incomes that are specified in the Law. 2. How is the taxable income specified? Income from employment, capital gains, distributed earnings, interests, rents, other income. 3. What are the applicable tax rates? The applicable tax rates are: 16%, 27%, 41% In the Slovenian Income Tax Act there is a separate chapter about dividends (distributed earnings) and other incomes which are reached on basis profit participation40 The Tax basis is the dividend. The tax rate is 25%. Interests on loans, given to natural or legal persons are taxable at a rate of 25% (received interest from positive state of bank account or from life insurance are excepted; by long-term saving in banks the Taxpayer has the possibility to decide whether he will pay the income on a yearly basis or in the end; the sum of all interests which is received by bank deposits is decreased for EUR 1.000 at the end of the year41). The rents are also taxable at rate of 25% (incomes from land-leasing, lease of apartments and business room, parking places and other places for recreation, the lease of equipment, vehicles and other property; the tax base could be lowered for 40% of standardized costs42). 4. Are capital gains taxed separately? The capital gains are taxed separately. The tax rate for capital gains is 20%. After 20 years of ownership, no income tax on capital has to be paid43. As capital we can define: real, stocks and shares in companies, cooperative societies and other forms of organizations, investment coupons44. The tax is paid as final withholding tax when the capital is expropriated.

40 Income Tax Act (“ZDoh-2”; Official Gazette of the RS, No. 117/06). 41 Article 133, Income Tax Act (“ZDoh-2”; Official Gazette of the RS, No. 117/06) 42 Article 77, Income Tax Act (“ZDoh-2”; Official Gazette of the RS, No. 117/06). 43 Article 96, Income Tax Act (“ZDoh-2”; Official Gazette of the RS, No. 117/06). According to Art. 125 of Income Tax Act (“ZDoh-1-UPB1”; Official Gazette of the RS, No. 54/04 ; in force as of 1 st of May 2004) the Capital Gain Tax was paid at the tax rate 25% as payment on account and it was increasing also the tax base in the yearly Income Tax Statement but for instance according to article 89 the Capital Gain was not taxable if you were the owner of the real estate for at least 3 years and you were leaving there or use it for business activities. Before the 1 st of May 2004 the Capital Gain Tax was paid at the tax rate 30%. (Art. 62, “ZDoh”; Official Gazette of the RS, No. 71/93). 44 Article 93, Income Tax Act (“ZDoh-2”; Official Gazette of the RS, No. 117/06).


Application for the assessment of the Capital Gain Tax has to be sent to Slovene Tax Authorities in 15 days after the Capital has been sold. The Capital Gain Tax Rate decreases after each completed five years of capital ownership as follows: a. after five years of ownership the Tax Rate is 15% b. after ten years of ownership the Tax Rate is 10% c. after fifteen years of ownership the Tax Rate is 5%. 5. May losses be carried forward or back? Losses can not be carried forward or back. D. Capital In outline, which are the main taxes on capital, if any? The capital gains tax at 20%, decreasing for 5% every 5 years. After 20 years no capital gains tax is due. Gifts are also taxed under certain conditions. Tax rates vary according to the value of gift and the kind of relation between donor and recipient. E. Indirect taxes In outline, which are the main indirect taxes, if any? The main indirect taxes are: VAT, excise duties, customs duties. F. Other duties In outline, are there any other taxes, if any? There are also such taxes as 6, 5% insurance business tax45, Motor vehicles tax46, Ecology tax47. G. Enforcement- Litigation procedure 1. In outline, which are the existing measures in order to ensure compliance with the

tax legislation? 45 Insurance Business Turnover Tax Act(“Zakon o davku od prometa zavarovalnih poslov – ZDPZP”; Official Gazette of the RS, No. 57/99). 46 Motor vehicles Tax Act (“ZDMV-UPB1”; Official Gazette of the RS, No. 97/04). According to the article 6 it is paid at the tax rate 1% if the tax basis (selling price inkl. VAT) is till 1 mio SIT/ca. EUR 4.173 and it increases with the tax basis. Max. tax rate is 13% if the tax basis is over 6 mio SIT/ca. EUR 25.038. For the used vehicles the tax rate is 5%. 47 Ecology Tax Ordinance for environment pollution because of formation of used cars (“Uredba o okoljski dajatvi za onesnaževanje okolja zaradi nastajanja izrabljenih motornih vozil”; Official Gazette of the RS, No. 87/05).

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The existing measures in order to ensure compliance with the tax legislation are penalties, fines and legal action. 2. What is on average the duration of the litigation procedure for the final resolution

of tax disputes? Slovenia has two different degrees of deciding a certain tax dispute in the courts. The average time required for final resolution of each case before each court is 3 to 5 years.


APPENDIX INCOME TAX RATES Corporations Partnerships Individuals Other entities 23% As individuals 16%,27%,41% None LIST of DTC AGREEMENTS Country Interest withholding



Austria (not effective yet)

5% 5%

10% 5%

5% 5%

Belgium 10% 5% 5%, 15% Bosnia And Herzegovina

7% 5% 5%, 10%

Bulgaria 5% 5% 5%, 10% Canada 10% 10% 5%, 15% Croatia 5% 5% 5% Cyprus 10% 10% 10% Czech Republic 5% 10% 5%, 15% Denmark 5% 5% 5%, 15% Estonia 10% 10% 5%, 15% Finland 5% 5% 5%, 15% France (effective 1.1.2008)

0% 5%

0% 5%

5%, 15% 15%

Germany 5% 5% 5%, 15% Greece 10% 10% 10% Hungary 5% 5% 5%, 15% India 10% 10% 5%, 15% Ireland 5% 5% 5%, 15% Italy (not effective yet)

10% 10%

10% 5%

10% 5%, 15%

Latvia 10% 10% 5%, 15% Lithuania 10% 10% 5%, 15% Luxembourg 5% 5% 5%, 15% Macedonia 10% 10% 5%, 15% Malta 5% 5% 5%, 15% Moldova 5% 5% 5%, 10% Netherlands 5% 5% 5%, 15% Norway 0% 10% 15%

People's Republic Of China

10% 10% 5%

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Country Interest withholding



Poland 10% 10% 5%, 15% Portugal 10% 5% 5%, 15% Republic Of Korea 5% 5% 5%, 15% Romania 5% 5% 5% Russian Federation 10% 10% 10% Serbia / Montenegro 10% 5%, 10% 5%, 10 % Slovak Republic 10% 10% 5%, 15% Spain 5% 5% 5%, 15% Sweden 0% 0% 5%, 15% Switzerland 5% 5% 5%, 15% Thailand 10%, 15% 10%, 15% 10% Turkey 10% 10% 10% Great Britain And Northern Ireland

10% 10% 5%, 15%

Usa 5% 5% 5%, 15% Ukraine 5% 10%, 5% 5%, 15%