Tax changes

Taxes 2024: What should business expect?

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As 2023 came to a close, collapsed efforts to formalize tax reform within the current term of the Lithuanian parliament (Seimas) initially provided businesses with a sense of relief, allowing them to usher in the new year with a greater sense of calm. Despite ongoing discussions in the media about future isolated tax changes, such as the introduction of a defence tax, the reality is that such significant changes are unlikely to take effect until 2025.

In this election year of 2024, it might appear that entrepreneurs should no longer anticipate any changes or surprises. However, the current realities compel a more cautious outlook even for the immediate future. The potential unrealized tax burden increase could prompt the Ministry of Finance (along with State Tax Inspectorate - VMI) to address budgetary gaps through alternative means.

Ongoing discussions in the public sphere revolve around the challenging geopolitical landscape, the imperative to enhance national defence capabilities, a healthcare system teetering on burnout, inadequate compensation for educators, insufficient progress in promoting sustainable energy policies, and various other challenging aspects within the country. Addressing these issues could be achieved, at least in part, by securing a larger portion of the budget. However, what happens when the budget is insufficient or already allocated? Examining the macroeconomic landscape reveals that obtaining additional funds for the government will be challenging and costly this year. This is attributed to anticipated high interest rates, and general fiscal policy induced borrowing constraints. The absence of a new tax reform means that filling the budget without a wider tax net will be challenging. What steps should businesses take in response?

To enhance budget collection, the Ministry of Finance is likely to aim for more effective utilization of available measures through the VMI and will try to exercise stricter control over taxpayers. In essence, in the absence of a wider tax net, VMI is expected to concentrate on tightening the existing one. Official comments from the VMI already indicate a somewhat more stringent approach to various control areas. This includes increased and vigilant scrutiny of in-kind income, such as actively checking the usage of company cars. Additionally, there is heightened scrutiny on whether and how additional employee benefits are taxed, stricter control over self-employed individuals, especially through more closely monitored taxi and food delivery platforms, etc. These developments indicate that corporate finance departments should remain vigilant this year. It could be beneficial to use the temporary break from changes in tax legislation to reassess current daily processes and their potential tax implications. It is vital to periodically perform routine "hygiene" of processes to ensure the proper implementation of tax legislation. This year, such routine checks will be particularly crucial.

Following a thorough review and reinforcement of processes, it is crucial to prepare comprehensive documentation by proactively creating defence files for potential future tax audits. Comprehensive process documentation serves as a paramount tool during tax audits and proves especially valuable for knowledge transfer when there are changes in responsible employees. It's important to note that tax statutes of limitations can extend up to 5 years in many areas. An often overlooked yet crucial aspect in terms of documentation is transfer pricing in transactions between related parties, especially when the prevailing legislation mandates the company to maintain specific transfer pricing documentation. There are instances where processes appear well-established, but a more thorough analysis based on specific empirical data during documentation reveals that the current situation still presents a noteworthy tax risk. Swift identification and rectification of such tax risks are crucial in preventing complications during tax audits. Consequences of not doing the homework may include not only adjustments to the tax amount, along with fines and late fees, but also the undesirable label of being an "untrustworthy" taxpayer.

On the other hand, it's important to note that tax compliance reviews provide an excellent opportunity not only to identify and address tax risks but also to identify potential savings. The opportunity to leverage tax reliefs is frequently overlooked in the daily flow of work. It would go untapped unless a timely and systematic tax review uncovered the possibility of reducing tax liability through avenues such as investment projects and/or film production reliefs. It's noteworthy that the utilization of these tax reliefs has been extended until 2028.

If there are uncertainties regarding the interpretation of legal acts, the application of tax reliefs, or the documentation of business processes and transactions, it is advisable to seek assistance from tax professionals.

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