As Lithuania boosts VAT from 19 to 21 percent (18 percent last year), many major transactions between various businesses were set to be advanced till the first of September. According to the Law on Value Added Tax of the Republic of Lithuania, the scope of VAT is the supply of goods or services when following conditions are satisfied:
1) the supply of goods and/or services is effected for consideration;
2) the supply of goods and/or services is considered to be effected within the territory of the country;
3) the goods and/or services are supplied by a taxable person in the performance of his/its economic activities, i.e. acting as such.
A natural person shall not be considered a taxable person in respect of the supply of goods and/or services if the transactions concluded by the natural person are not related to the economic activities carried out by him. The condition specified above shall not apply with respect to supplies for consideration of new means of transport dispatched or transported by the supplier, purchaser or the third party on behalf of any one of them out of the territory of the country but within the European Community.
Even considering the specific situation in the real estate market as in the general market either, a bigger movement can be felt there too. After all, one must clearly comprehend which type of real estate or land sale is considered to be the subject of VAT. According to the Commission on Tax Disputes under the Government of the Republic of Lithuania, the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania and the Supreme Administrative Court of Lithuania, the sale of property immovable by its nature, is one of the most frequent attempts of embezzlement, mainly with the sale of land.
The general rule is formed as follows - The sale or other transfer of buildings, structures or sections thereof (with the exception of new buildings and structures, new sections of buildings and structures) shall be exempt from VAT where under the conditions of the contract the person to whom the property is transferred or a third party acquires the right to dispose thereof as its owner. Exemption from VAT shall be granted to the sale or any other transfer of land where under the contract conditions the person to whom the land is transferred or a third party acquires the right to dispose thereof as its owner, with the exception of the land transferred together with a new building or structures or sections thereof as well as building land. Building land hereinafter means a plot of land assigned for construction works regardless of whether or not any development of the plot has been undertaken.
A new building or structure is an unfinished building or structure, also a finished building or structure for a period of 24 months following its completion (after it has been found fit for use) or following its material improvement. A new section of a building or structure is a section of a new building, also a newly built section of an old building or structure - for a period of 24 months following its completion.
Disputes arise when economic activity of the person selling immovable property is questioned. Economic activities are the activities seeking to obtain any income (regardless of whether or not the activity is aimed at making a profit). Meaning that, if the new buildings, structures or building land is sold for example by the natural person, he must show that it was not his economic activity.
Otherwise it will be considered as VAT subject.
When selling land with the old buildings it must be clearly dissociated from the building land. Clearance order, building plans and explicit land plans can be the grounds to calculate VAT. To conclude it must be said that firstly one must know what he plans to do with the immovable property before buying it and make the right decision whose name (natural or legal person) will be used to form the transaction. Secondly, when selling the immovable property, one must keep in mind all the specific conditions stated in the Law on Value Added Tax of the Republic of Lithuania, clarifications of the State Tax Inspectorate and the case-law of the Supreme Administrative Court of Lithuania, for the correct implementation and avoidance of the precarious rush.www.ecovis.lt