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Property of an Individual Activity

Property of an individual activity is divided into a long-term property and a short-term property. A long-term property is that property which is used for an individual activity for more than a year and a price of purchasing it is not less than the price imposed by resident. A short-term property is property that is used for an individual activity in order to product income (for the economic benefit) for less than one year, and a price of purchasing it is recognized as allowable deduction, for that tax period when the property has been put into service.
 
 
The Costs of Acquisition of a Long-Term Property
 
The costs of acquisition of a long-term property are recognized as allowable deductions through its depreciation as the property is declared using Tax Return Form FR0457. The value of acquired short-term property (e.g. tools, etc.) can not be recognized as allowable deductions before the start of activity. If the raw materials, parts or other goods are purchased by the time individual activity starts, and the resident sells them while the activity is performed, their purchase price can be attributed to allowable deductions, if acquisition documents are available.
 

Example
Individual furniture manufacturing business was registered in 2010
• raw wood was purchased and used for furniture manufacturing from the start of activity (2009).
• The tools, which had been purchased for 500 LTL / 144.81 € before the activities were registered, are used.
• The resident has set the minimum cost of fixed assets of 1000 LTL / 289.62 €.
• The documents for the acquisition of wood and tools are available.
Resident will be able to assign as allowable deductions for calendar year 2010 the following:
• the purchase price or its share of raw wood (depending on how much there has been consumed for the furniture which has been already sold);
• the tools are recognized as a short-term property, because their purchase price is less than the price which is set ( 1000 LTL / 289.62 €), so the cost of their acquisition can not be attributed to allowable deductions of an individual activity.

 
Costs of acquisition of a long-term property are deducted in equal instalments over a period, which corresponds to the ratio of depreciation set out in 1 Appendix of the Law on Income Tax (hereinafter referred to as Income Tax Law) (Law No. 20-12-2001. IX-675, Official Gazette, 2001, No. 110-3992). Depreciation ratio is calculated from the month when the goods are used for individual activity.
It is important: The costs of land acquisition can not be deducted from self-employment income.
  

Example
Resident registered individual activity in 2010.
• A long-term property, furniture for 3000 LTL / 868.86 € was acquired 1 April, 2010 and from the same month it was used for individual activity..
• It was declared in form FR0457 that the furniture will be used for individual activity at a rate of 100 percent.
• A minimum price of a long-term property set by resident equals 1000 LTL / 289.62 €.
• In Appendix 1 of Income Tax Law it is set that the ratio for the depreciation of furniture is six years.
The amount of depreciation of furniture per month equals 41,67 LTL / 12.07 €.
(3000: 72 months (6 years). The annual amount of depreciation of furniture equals 375.03 LTL (41.67 x 9 months) / 108.62 € (12.07 x 9 months).

 
Acquisition costs of a long-term property must be reduced if there has been received any support in order to acquire it.
 
If a long-term property is recognized as individual activity property not at the same time when it has been acquired, then must be calculated relative depreciation by deducting the share price, which corresponds the amount of the depreciation of property during the period from acquisition of property till it has been recognized as individual activity property. This amount is calculated in accordance with the Income Tax Law Article 18, paragraph 11. If a purchased property is completely deteriorated under the guidelines set out in Appendix 1 of Income Tax Law, and the property Tax Return Form FR0457 is used, costs for exploitation and repair of property are attributed as allowable deductions.
 

Example
Farmer bought warehouse for 100,000 EUR on 3 January, 2009, which was used in activity at a rate of 100 percent from 1 January, 2010. The ratio of Income Tax Law is 15 years. Relative depreciation is calculated from the next month after the warehouse was acquired (01-02-2009) to the time it was used in the individual activities (up to 01-01-2010): 100000 LTL: 15 years: 12 months x 11 months = 611111 LTL.
12 box in Tax Return Form FR0457 is 93889 LTL.
( 100000 LTL – 6111,11 LTL = 93888,89 LTL ). Allowable deductions for calendar year 2010 include 4694,45 LTL (93888,89 LTL : 15 years : 12 months x 9 months). It is the sum of deterioration of the building.

The ratio of depreciation may be used shorter than it is determined in the 1 Appendix of Income Tax Law if the acquired long-term property:
- is unused and produced no earlier than two years (calculating from the beginning of production of long-term property) and;
- it will be used for activity for at least 36 months and;
- it is included in the following categories of a long-term property: „machinery and equipment“, „facilities“ (buildings, wells, etc.).
If the acquired long-term property is included in the following categories: „computer and communication technology (computers, networks and software)“, „software“, „acquired rights“, it is possible not to comply with standards of depreciation (amortization) set in Appendix 1 of Income Tax Law only if the property is necessary for exploitation of other material property. 

If a long-term property of individual activity is sold or disposed, only that share of the acquisition price is attributed to allowable deductions, which has not been deducted from self-employment income. In any case, the acquisition price of a long-term property is deducted only from the income from sale or other transfer of ownership.
 
 
Exploitation Costs of Fixed Assets

The following are cases when exploitation costs are attributed to allowable deductions:
• without limitation, if the property is acquired on behalf of residents and is used for activity at a rate of 100 percent;
• according to the actual use of the property for the activity, if the property:
- is purchased on behalf of a resident, but it is not used only for individual activity;
- it is used for individual activity under the lease or use agreement.

 
Important! The property must be declared using the same property Tax Return form FR0457 as for the property of individual activity.
 

Example
The value of long-term property set by resident equals 1000 LTL / 289.62 €.
These were used in activities from 1 April, 2009:
1. Rented apartment for office. This apartment is used at a rate of 90 percent for activity; therefore, 90 percent of exploitation costs are attributed to allowable deductions.
2. Machine-tool, which is used only for an individual activity, and, therefore, 100 percent of the amount indicated in the account of exploitation costs are attributed to allowable deductions. 

 
Only the amount of fuel for the actual travelled distance (associated with the production of income (receiving)), which is not exceeding the amount of proven prescriptive, can be attributed to allowable deductions. Fuel consumption rates are proven by a resident in regard to the vehicle manufacturer‘s technical data or controlled (the base) fuel consumption rates approved by Car Fuel methodologies. Car Fuel methodologies approved by the order No. 405 (Official Gazette, 1995, No. 85- 1933) adopted by the Lithuanian Minister of Transport on 12 October, 1995.
 
 
The costs of maintenance and reconstruction of long-term property 

The following are the costs of maintenance of material long-term property (which is indicated in the Tax Return form FR0457) which are assigned to allowable deductions:
• without restrictions (regardless of whether the acquisition costs of the property (or their portions) were assigned to allowable deduction or not), when property is purchased on behalf of resident and it is used for activity at a rate of 100 percent;
• according to the actual use of the property for activity when the property:
- is purchased on behalf of a resident, but it is used not only for individual activity;
- it is used for individual activity under the lease or use agreement.

If the maintenance of the long-term property used for activities is carried out and it extends the time of its use or improves its useful properties, the value of the maintenance is increased to the property purchase price.
Notable. If the maintenance of the owned or leased cars or residential facilities is carried out, and it extends the time of their use or improves their useful properties, the value of the maintenance or reconstruction is not assigned to allowable deductions.

  
As the costs of the maintenance or reconstruction of the rented long-term property increase the time of property use, the costs of the maintenance and reconstruction are deducted from income in equal instalments over the contracted period of the use of that property. If it is made an indefinite contract, the costs of the maintenance and reconstruction are deducted from income in equal instalments during the period, which is indicated in the Income Tax Law, 1 Appendix for corresponding property categories, but not later than 36 months. When the contract is terminated before its maturity, the remainder costs of the repairement or reconstruction, which have not been included in the allowable deductions yet, can not be deducted from incomes.

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