Solidarity surcharge.
For the transitory period of 2013-2015, the introduction of a solidarity surcharge in the amount of 7% of the annual tax base exceeding 48-times the average salary for social security purposes (currently CZK 1,206,576, i.e. approx. EUR 48,000) is being proposed with regard to personal income tax from dependent activities and entrepreneurial activity of individuals.
 
20% Personal income tax rate.
With effect from 1 January 2014, a 20% personal income tax rate should be introduced, which should be calculated from the gross salary instead of the super-gross salary which has been applied so far.

Increase of withholding tax rate for non-residents.
Pursuant to the current wording of the Income Tax Act, a 15% withholding tax applies to selected income realized by foreign tax residents in the Czech Republic. An increase in this tax rate to 35% is being proposed. However, this rate will only apply to residents of those states with which the Czech Republic has not concluded a double taxation treaty.
 
Cancellation of the basic deduction for working pensioners.
The cancellation of the basic deduction in the form of a tax relief amounting to CZK 24,840 (approx. EUR 1,000) annually for working pensioners (old-age pensioners and 3rd degree disability pensioners) is being proposed for the period from 2013 to 2015.

Tomas Seidl       
tseidl@deloittece.com

Documentation requirements.
Employers are obliged to keep copies of documents justifying the foreigner’s stay in the Czech Republic and providing evidence of the existence of the employment relationship. The documents must be stored in the workplace for the period of the employment and for an additional three years period after the foreigner’s employment is terminated.

Stricter penalties for illegal work.
The amendment to the Czech Employment Act also introduces stricter penalties for illegal work, which may range from CZK 250,000 (approx EUR 10,000) to CZK 10,000,000 (approx EUR 400,000).

Work permits for foreigners from Non-EU Countries.
With effect from 1 July 2012, the Czech Labor Office will not issue any new or extend existing work permits with respect to vacancies for which employers require qualifications lower than the completion of secondary education, including a school leaving examination (with exceptions). Employment permits that have already been granted and whose holders have at least secondary education, including a school leaving examination, will only be extended if the position cannot be re-staffed with a registered employment applicant, but always for up to six months only.

Recognition of documents confirming completed education and qualifications.
A significant new requirement in employing foreigners is the recognition of a foreign document on completed education. The Czech Labor Office has now started to require documents from all foreigners (both directly employed and assigned) confirming their education in addition to their applications for employment permits. The diplomas must contain higher verification in the form of a super-legalisation or an Apostille, and must be recognized by the Czech Ministry of Education, Youth and Sports.

Recognition of foreign university education.
A graduate from a foreign university must apply for the recognition of foreign university education and qualification either in person or through his/her representative in a Czech public university that provides an accredited educational programme with similar content. Together with the application, applicants must submit an officially-verified copy of a diploma and an officially-verified copy of a list of passed examinations or a diploma supplement to the rector’s office of the relevant Czech university. The application should be settled within 30 days, in more complicated situations within up to 60 days.

Conclusion.
The amendment of the Czech Employment Act makes the access to the Czech labor market for foreigners more difficult. The new recognition requirements for foreign university education will extend a foreigner’s waiting period for a work permit by approximately 4 to 8 weeks. In addition, Czech universities are not and, in the near future, will not, be ready for the inflow of applications for recognition. For this reason we expect that the settlement term may become even longer.

Tomas Seidl
tseidl@deloittece.com
                                                          
                                                            
                                                   

Barbara Krüglstein
bkrueglstein@deloitte.at

Threshold for VAT registration increased.
As from 1 January 2012, the threshold for an obligatory registration as VAT payer was increased from LTL 100,000 (approx EUR 29,000) to LTL 155,000 (approx EUR 45,000). The remuneration received for goods/services supplied in the territory of Lithuania will be included in calculating the threshold. VAT will be calculated from the total amount of the transaction, due to which the threshold was exceeded (and not only from that part of the amount, which exceeds the threshold, as under previous regulations).

VAT adjustment due to bad debts.
The new regulations introduce the possibility to adjust VAT due to bad debts incurred. The VAT adjustment can only be made if (i) not less than 12 months since the supply of goods or services have passed, (ii) the output VAT was calculated and declared, and (iii) the company is capable to prove the non-recoverability of debts and the efforts to recover them. The aforementioned provisions are not applicable if the supplier and the purchaser of goods (and services) are related parties or became such in the calendar year, following the calendar year, in which the debt was declared as irrecoverable and VAT was adjusted accordingly. It should be noted that the VAT adjustment will be possible only with respect to output VAT, which was calculated and declared after 1 January 2012.

VAT rates.
The application of the reduced 9 % VAT rate for thermal energy and hot water supplied to residential premises as well as cold water and thermal energy consumed to prepare hot water used in residential premises was extended up to 31 December 2012. Furthermore, the application of the 5 % VAT rate for medicines and medical aid devices, for which the acquisition costs are partially or fully reimbursed, was extended up to 31 December 2012.

VAT option for immovable items.
As from 29 December 2011, VAT payers can opt to calculate VAT on the lease, sale or other transfer of immovable items if such items are leased, sold or otherwise transferred not only to VATable persons, but also to diplomatic missions, consular posts, EU institutions and their established offices as well as international organizations and their representations.

Input VAT deduction for persons that were obliged to register as VAT payers.
Taxable persons that did not register as Lithuanian VAT payers, although they were obliged to do so, and which supplied VATable goods and services in the territory of Lithuania  (with some exceptions), were granted the right to input VAT deduction. These persons will have the right to deduct input and (or) import VAT, calculated from the purchased and (or) imported goods and services actually used by for (i) the VATable supply of goods and (or) services, (ii) the supply of goods and (or) services outside the territory of Lithuania when the supply of such goods and services would not be VAT exempt if it occurred within the territory of Lithuania. These amendments will enter into force as from 1 January 2013. Currently, only registered VAT payers shall have the right to input VAT deduction.

Tatjana Vaičiulienė
tvaiciuliene@deloittece.com

Corporate income tax changes.
The concept of “notified intangible assets” will be introduced, under which income from the sale or contribution of royalty generating intangibles will be exempt from corporate income tax under certain circumstances, provided the taxpayer notifies the tax authorities within 60 days following the date the assets are acquired and records the assets in its books for at least one year. Gains from the sale/contribution of “un-notified” intangible assets may be deducted from the tax base if the taxpayer sets aside an allocated reserve up to the amount of the gain (similar to a development reserve) and uses that reserve for the purchase of intangible assets in the following three tax years.

Under amendments to the thin capitalization rules, (a) items that increase the tax base will include not only interest paid and accounted for as an expense, but also deemed interest in the form of an transfer pricing adjustment; and (b) taxpayers will be able to deduct from the liability considered for thin capitalization purposes amounts on-lent and all other cash receivables recognized within investments, receivables or securities (i.e. the daily average balance in the tax year) in the balance sheet.

The use of losses carried forward will be limited to 50% of the current year’s taxable income. The carry-forward of losses where majority control in the taxpayer has been acquired (except for a legal transformation) will be permitted only if: (i) the majority shareholder (or its legal predecessor) and the taxpayer were associated parties in the past two tax years on a continuous basis; or (ii) shares of the taxpayer or the majority shareholder are at least partly listed on the stock exchange; or (iii) the taxpayer continues its activities, which are not significantly different in nature from the activities carried out before the majority control was acquired, for the next two years and generates income from such activities in both years. In a legal transformation, the legal successor will be able to utilize losses only if (i) the direct/indirect majority shareholder of the legal predecessor as per the Civil Code remains the majority shareholder(s) of the legal successor; and (ii) in the two tax years following the transformation, the legal successor generates income from at least one of the activities carried out by the legal predecessor (except for asset management).

All businesses, other than financial enterprises, credit institutions and insurance companies, will be allowed to adopt a financial year different from the calendar year, subject to certain criteria (e.g. being able to justify the use of the different tax year and provided the company has closed three business years).

VAT changes.
The general VAT rate will increase to 27% (from 25%) as from 1 January 2012.

As from 1 January 2012, VAT charged on the lease of passenger cars will be deductible under the general VAT deduction rules (provided the taxpayer can show that the car is being used for taxable purposes).

The tax authorities are required to publish on their website whether a taxpayer opted to charge VAT on the sale of real property rather than benefit from an exemption. This provision will simplify administrative procedures for taxpayers.

Gabor Koka
gkoka@deloittece.com

Slowakische Banken.
Summe der Passiva vermindert um folgende Positionen:

• Eigenkapital soweit positiv,
• nachrangige Schulden gem Sondervorschrift,
• von der Bank auf dem Gebiet der Slowakischen Republik übernommene Einlagen, welche der Einlagensicherung unterliegen

Zweigstellen von ausländischen Banken.
Summe der Passiva vermindert um folgende Positionen:

• Finanzmittel, welche der Zweigstelle langfristig gewährt werden,
• Einlagen, die von der Bank auf dem Gebiet der Slowakischen Republik übernommen wurden und in einem anderen EU/EWR-Mitgliedsstaat der Einlagensicherung unterliegen.

Fälligkeit.
Die Bankenabgabe ist jeweils am 20. Tag des Kalenderquartals, basierend auf der Bemessungsgrundlage für das vorangehende Kalenderquartal zu entrichten, wobei die Berechnungsgrundlagen offenzulegen sind. Die Bankenabgabe ist erstmals zum 20. Januar 2012 basierend auf dem Jahresabschluss zum 31.12.2011 zu entrichten; danach ist jeweils der Quartalsabschluss maßgebend.

Säumnisfolgen.
Bei nicht fristgerechter Entrichtung der Bankenabgabe werden Verzugszinsen sowie uU eine Geldstrafe von bis zu EUR 15.000 für die Verletzung von Offenlegungspflichten verhängt.

Fazit.
Mit der Einführung einer Bankenabgabe liegt die Slowakische Republik im internationalen Trend, wobei die Bestimmungen jenem Teil der österreichischen Stabilitätsabgabe ähneln, welcher auf der Bilanzsumme des Kreditinstitutes basiert.

Adham Hafoudh
ahafoudh@deloittece.com
                                                               
                                                                 
                                                               

Silvia Hallová
shallova@deloittece.com

Adjustment of calculated VAT.
Suppliers of goods may adjust (reduce) the amount of calculated VAT if the acquirer is informed in writing about the VAT amount, which he is not entitled to deduct (eg credit note is sent to the acquirer). Prior to that amendment, the supplier was required to obtain a written confirmation from the acquirer that he corrected (reduced) the amount of input VAT in his VAT ledgers. This change was highly anticipated and shall reduce the administrative burden.

Errors in the calculation of VAT and late submission.
The VAT Act now explicitly states that VAT payers can include corrections regarding past tax periods in the current VAT return or submit a VAT return, which was not submitted in the prescribed deadline. This may be done until the VAT assessment or until the start of a tax audit or criminal proceeding. VAT payers are obliged to calculate late payment interest on the amount of corrected VAT using the EURIBOR for one year maturity. The changes also affect the adjustment of calculated VAT in the case of a compulsory settlement or bankruptcy. Under the new amendment a taxable person, may adjust (reduce) the amount of calculated and unpaid VAT from all recognized claims for which the decision on the start of the respective proceeding was issued after 1 January 2011.

Replacement of submitted VAT returns.
VAT payers who have already submitted a VAT return, may, until the end of the deadline for submission, replace the original return with a new return, unless they requested a reimbursement of the realized VAT surplus.

No submission of “nil” EC sales list.
VAT payers do not have to submit “nil” recapitulative statements (EC sales list) or reports on supply of goods or services subject to local reverse charge mechanism anymore. Also the obligation to report the start and termination of supplies of goods and services subject to local reverse charge mechanism has been abolished.

Electronic Portal.
The amended VAT Act also simplifies certain procedures, which will now be performed electronically via an electronic portal of the tax authority. Some of the most important changes are:

• After 1 July 2012, a refund claim for VAT payers established in a third country should be submitted electronically with all the required attachments. After that date the paper form will no longer be in use.
• A request for the termination of identification for VAT purposes will have to be submitted to the tax authority electronically. The provision shall apply from 1 January 2012.

Alenka Gorenčič
agorencic@deloitte.com

Introduction of electronic invoicing.
Invoices may now be issued in print or electronic format. Enterprises are not required to issue invoices for VAT exempt services (financial services) except upon request by the service recipient. The invoice recipient must confirm, electronically or in printed format, its consent to receive electronic invoices before it receives the first electronic invoice. Electronic invoices must be saved in their original electronic format in which they were submitted.

Registration of foreign enterprises.
VAT registration of foreign enterprises (done by the fiscal representative) can be supported not only by tax registration certificates but also by any other official registration certificate issued by an official authority of the enterprise’s country of residence.

Taxation of interest related to delivery of goods and services.
Taxpayers that occasionally grant loans related to deliveries of goods and services may treat a loan sourced from their own financial assets as a VAT exempt service, if the lending service is reported separately from the value of the related goods and services.

Adrian Hammer
ahammer@deloittece.com

Corporate income tax changes.
As of 1 August 2011, the useful life of intangible assets is deemed to be 10 years if no other useful life is specified in the title document. Furthermore, sale and repurchase agreements (REPO) will be subject to CIT in accordance with a special procedure.

Changes to VAT rules.

• Business entities are entitled to a voluntary registration as VAT payers immediately after the state registration provided that their authorized capital or book value of assets (fixed assets, intangible assets, inventories) exceeds the threshold of UAH 300,000 (approx EUR 27,000). Thereby a 12 months waiting period may be avoided.
•  The date of input VAT deductibility in case of importation of services is specified. Thus, in case of the supply of services by a non-resident within the customs territory of Ukraine, input VAT is deductible by the service recipient at the time, when the reverse charge VAT liability is paid / accrued (ie in the reporting period following that in which the respective output VAT was reported, thus creating a cash flow gap).

Excise tax changes.
As of 1 January 2012, a zero excise tax rate for oil products produced in Ukraine and used as raw material in the chemical industry will be introduced. The chemical industry manufacturers will issue a tax promissory note for the amount of excise tax prior to the receipt of the raw material. The procedure for applying this tax benefit is described as well.

Land fee changes.
Effective 1 January 2012, the tax on land plots within communities (cities, towns, etc) on which small airports are situated shall amount to 25% of the base tax rate (which varies depending on the community).

Introduction of tax guidelines.
The Law introduces tax guidelines which shall summarize the joint stance of the tax authorities on controversial tax legislation. The guidelines will be based on tax consultations that concern a considerable number of taxpayers or a significant amount of tax liabilities.

Andriy Servetnyk
aservetnyk@deloitte.ua
                                                            
                                                             
                                                        
                                                            
                                                                                 

Barbara Krüglstein
bkrueglstein@deloitte.at

Withholding tax changes.
As from 1 January 2011, a lower withholding tax rate of 5% (instead of before 10%) applies to interest and royalties accrued by Bulgarian legal entities (or Bulgarian permanent establishments of non-residents) to EU based related parties subject to certain conditions (eg affiliation threshold, beneficial ownership, etc).  The withholding tax rate on interest and royalties might be further reduced or eliminated under an applicable tax treaty between Bulgaria and the country of tax residence of the recipient.

Effective from 1 January 2011, a 10% withholding tax applies to service fees, remuneration for the use of rights and penalty or damages payments (except for insurance compensation) accrued by Bulgarian resident entities (or Bulgarian permanent establishments of non-residents) to foreign legal entities based in low tax jurisdictions. No withholding tax applies if the payer can prove that “services or rights have in fact been provided” by the income recipient (“fake” payments are subject to withholding tax and non-deductible for corporate income tax purposes). Countries considered low tax jurisdictions include Liechtenstein, Monaco, the Dutch Antilles, the Cayman Islands, the Bahamas, the British Virgin Islands, Gibraltar, etc.

Definition of beneficial owner introduced.
As from 1 January 2011, the definition of beneficial owner for the purposes of obtaining withholding tax relief was introduced in the Bulgarian tax legislation. Generally, a foreign entity is considered the beneficial owner of income if it has the right to freely dispose about the income and bears the full or a significant part of the risk related to the activity, and is not a conduit company.

Changes to VAT rules.
Effective as of 1 April 2011, the single reduced VAT rate of 9% applies to hotel accommodation services regardless of whether they are a part of a tourist package or bought individually. Previously, the reduced VAT rate of 7% applied only to hotel accommodation if it was a part of a tourist package.

New tax on insurance premiums.
As from 1 January 2011 a new tax on insurance premiums was introduced in Bulgaria, which is determined by multiplying the insurance premium by 2% and born by the insured persons. Insurance premiums for reinsurance and retrocession contracts as well as “Life” insurance contracts, permanent health insurance, the insurance of airplanes and ships and the insurance of cargo in international transport are exempt from the tax.

Dinko Dinev
ddinev@deloittece.com