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Dear clients and cooperation partners,
We consider it important to inform or remind you about the following issues, at first sight self-evident, but in practice often forgotten, where compliance is essential to lawful and successful activity of a Company under Lithuanian law.
Convening Annual General Meeting of Shareholders
Under the Company Law, the Management Board (if a Management Board is not formed – the Managing Director) must convene a regular (annual) General Meeting of Shareholders (AGM) for approval of the Company’s accounts, not later than within four months after the end of the financial year (three months for companies that carry out certain activities, for example, financial institutions). Thus, if the financial year of your Company coincides with the calendar year, the regular AGM for approval of accounts for 2010 should be convened by 30 April 2011.
In addition to other issues, the AGM (or the sole shareholder if all shares in the Company are owned by one person) must approve the Company accounts and adopt a resolution on profit (loss) appropriation.
The Management Board (if the Management Board is not formed – the Managing Director) must approve the annual report of the Company, which is submitted to the AGM together with the accounts and auditor’s report (if audit is mandatory by law or under the Articles of Association).
Auditing of accounts is mandatory for public limited liability companies. Private limited liability companies must audit their accounts if on the last day of the reporting period at least two of the following limits are exceeded:
- LTL 12 million (approx EUR 3.5 million) net turnover during the reporting financial year;
- LTL 6 million (approx EUR 1.7 million) value of assets in balance sheet;
- 50 pay-roll employees on average during the reporting financial year.
Please note that only Companies that prepare a full set of accounts need to prepare an annual report. Companies may prepare abridged accounts if on the last day of the reporting period at least two of the following indicators do not exceed the following limits for two consecutive years, including the reporting financial year:
- LTL 10 million (approx EUR 2.9 million) net turnover during the reporting financial year;
- LTL 6 million (approx EUR 1.7 million) value of assets in balance sheet;
- 15 pay-roll employees on average during the reporting financial year.
The AGM must be convened following the requirements established by the Company Law and the Articles of Association of the Company. Notice of the AGM must be published in the daily press as indicated in the Articles of Association, delivered against acknowledgement of receipt, or sent by registered mail to each shareholder at least 21 days before the AGM. If the Articles of Association indicate a longer term, such as 30 days, for notice of the AGM, then the longer term applies.
The approved accounts of the Company together with the annual report and the auditor’s report (if audit is mandatory) must be filed with the Register of Legal Entities within 30 days after approval by the AGM or the sole shareholder.
Monitoring of Management Board and/or Supervisory Council authorization
Before convening the AGM it is advisable to inspect the term of authorisations of the current Management Board and/or Supervisory Council members and, in case of expiry of these terms, to re-elect the members for a new term or elect new ones.
The Company must notify the Register of Legal Entities of election of new Management Board and Supervisory Council members. We also recommend inspecting whether your Company has notified the Register of Legal Entities of other changes in registration data.1
Changes in taxation of annual bonuses paid to Management Board or Supervisory Council members
We would like to inform you of an amendment to the Lithuanian Law on Corporate Income Tax (CIT) adopted on 11 December 2010. The amendment establishes that profit share allocated for annual bonuses to Management Board or Supervisory Council members does not qualify as distributed profit. Accordingly, these bonuses may be attributed to deductible expenses for corporate income taxation purposes.
Under amended Article 31.1.(12) of the Law on CIT, non-deductible expenses are “dividends or other distributed profits (profit share allocated for annual bonuses to be paid to a Management Board or Supervisory Council member <…> are not qualified as distributed profit)”. Since annual bonuses are not regarded as distributed profits under the latest amendment to the Law on CIT, payments to Management Board or Supervisory Council members may be deductible for corporate income taxation purposes by the company. Under the Law on Individual Income Tax, annual bonuses are taxed with 15% individual income tax irrespective whether received by resident or non-resident Management Board or Supervisory Council members.
Note: dividends are still regarded as a non-deductible expense for the company and are taxed with 20% individual income tax at the individual shareholder level.
Filing Shareholders’ Lists of Private Limited Liability Companies with the Register of Legal Entities
Considering changes in the Company Law which came into force last year we recommend checking if private limited liability companies have filed shareholders’ lists and their updates (if there have been any changes) with the Register of Legal Entities.
1 A Company must notify the Register of Legal Entities of changes of members and chairman of the Management Board, members and chairman of the Supervisory Council, the Managing Director of the Company, and in other cases established by law. The Company Law requires that the Register of Legal Entities be informed of sale of part of shares owned by the sole shareholder of the Company or acquisition of all shares in the Company. |
