CURRENT ISUES ON LOW
The year 2015 brought significant new legislative developments in the real estate sector. The year started with the coming into force of amendments obligating to obtain notarial certification for most of securities transactions that are also relevant in the context of RE transfers. The year saw an update to the PPP Rules, granting a right to persons to initiate partnership projects; the amendments to the Law on Investments have introduced the concept of industry parks. In addition, a review of VAT and RE taxes resulted in the introduction of reverse charging of VAT on construction operations, and amendments to the Law on Immovable Property Tax introduced a new rate of tax of 0.5 per cent chargeable on the value of real estate properties owned by individuals which is in excess of the non-taxable amount of EUR 220 000. The legal framework adopted in 2015 imposed new obligations on developers to register incomplete buildings, and the residential housing market was “frozen” due to the Responsible Lending Regulations adopted in November.
Finally, in compliance with the European Union requirements, a set of provisions was enacted, obligating construction of buildings having no lower than Class A energy efficiency ranking. Although such provisions were initially scheduled to take effect yet in January 2016, by decision of the Minister of Environment that date was postponed to November this year.
Real estate law taxes news
The obligation to construct buildings having no lower than Class A energy efficiency ranking was scheduled to take effect from the beginning of 2016; however, the situation on the market dictated the postponement of the effective date to 1 November 2016. As of that date, Class A energy efficiency requirement will apply to newly constructed buildings in respect of which an application for a building permit for new construction or for a written approval of the building design by an authorised public official was submitted, or, where documents authorising construction are not mandatory, construction operations were started, after 1 November 2016.
At the end of 2015, the updated Responsible Lending Regulations came into force, imposing more stringent requirements on credit institutions when granting residential loans, and in the spring of 2016 the Law on Credit Agreements Related to Immovable Property is scheduled to take effect, transposing the Housing Directive which sets forth the main conditions of granting credits related to residential property.
As of 1 November 2015, a large number of legislative amendments relating to the registration of real estate data, including amendments providing for the obligation to register incomplete buildings, came into force.
At the beginning of 2016 we should also see an update to the Law on Protected Areas, aimed at loosening currently applicable excessive restrictions on real estate development in protected areas, and in the second half-year the revised solutions of the Curonian Spit National Park Management Plan, covering, among other things, territories that we know from the high-profile court disputes should see the daylight.
Although initial materials were developed as early as in 2015, the Law on the Acquisition of Agricultural Land was adopted only in January 2016; consequently, it can only be expected to take effect no earlier than in summer this year.
The year 2015 also brought some other important changes in the real estate sector: amendments providing for the obligation to obtain notarial certification for RE acquisitions structured as share deals entered into force; the PPP Rules were updated to enable persons to initiate partnership projects; provisions on industry parks were enacted into legislation.
In 2015 there were some changes in taxation relevant for the RE market. From the middle of 2015, amendments to the Law on Value Added Tax came into force providing for reverse charging of VAT. Whereas on account of reverse charging of VAT increasingly higher amounts accumulated monthly in the national budget due to VAT difference, but construction companies were able to reclaim such amounts only twice per year, on 1 January 2016, an amendment to the Law on VAT was enacted to enable construction companies to recover VAT difference on a monthly basis.
In 2015, updated provisions of the Law on Immovable Property Tax providing for a rate of 0.5 per cent for natural persons chargeable on the value of real estate properties exceeding the non-taxable amount of EUR 220 000 entered into force. By the ruling of 22 September 2015 of the Constitutional Court of the Republic of Lithuania, the provisions of the Law on Immovable Property Tax under which tax was charged on the whole immovable property of the family members by applying the same non-taxable value which is applied to one natural person who is not considered a family member were repealed.
2016 is the last year when the coefficients of the transitional period are applied to land tax. A 5-year transitional period set for the calculation of the tax value of land expires namely in 2016, the year during which a 20 per cent discount is applied.
Amendments to the Law on the Fundamentals of Free Economic Zones
As of 1 January 2015, amendments to the Law on the Fundamentals of Free Economic Zones entered into force, creating more favourable conditions for investors
In accordance with the amendments, in the cases where a FEZ management company in not yet in place, territories of free economic zones (“FEZ”), except for land parcels intended for infrastructure, may be leased to investors. Later, when the land parcels within the FEZ territory are leased, in whole or in part, to the FEZ management company, the investors having become a FEZ company must be offered no less favourable terms of land lease than those that had existed before the land parcels within the FEZ territory were leased, in whole or in part, to the FEZ management company.
It is also provided that the structures and infrastructure facilities that are owned by the state (municipality) may be leased, given as loan for use or sold namely to the FEZ management company, which was not provided in the previous wording of the Law.
Amendments related to legislation governing public and private partnership
As of 1 January 2015, amendments to Government Resolution No. 1480 “Regarding Public and Private Partnership” took effect by which changes were introduced in the Rules for the Preparation and Implementation of PPP projects. The amendments are basically intended to address the main procedural problem areas of PPP project implementation – lengthy duration and slow progress, complicated, unclear and not smooth PPP procedures.
The amendments provide for involvement by the Central Project Management Agency (CPMA) and the Department of Statistics of Lithuania in the development of PPP projects and for changes to PPP project development procedures. They also state that the implementation of a partnership project must be envisaged in the existing strategic action plans and/or inter-institutional action plans and/or municipal medium or short-term strategic planning documentation.
As of 1 February 2015, an amendment to the Republic of Lithuania Law on Investments entered into force by virtue of which private entities are entitled to initiate (propose implementing) public and private partnership projects following the procedure determined by the Government of the Republic of Lithuania, while authorised public sector authorities will have to make decisions regarding the proposed initiatives.
As of 1 November 2015, amendments to the Law on Investments of the Republic of Lithuania entered into force, regulating the establishment of an industry park, the operation of undertakings within an industry park, and investing. Such amendments are aimed at promoting competitiveness of the country’s economy and creating new jobs, while creating at the same time an industry which in line with the European Union standards.
Amendments to the Law on Immovable Property Tax
As of 1 January 2015, amendments to the Republic of Lithuania Law on Immovable Property Tax entered into force pursuant to which as of 1 January 2015 natural persons are subject to tax at a rate of 0.5 per cent.
Natural persons are required to pay immovable property tax on the value of real properties owned by them which is in excess of the tax-free threshold of EUR 220,000. Meanwhile, families raising three and more children (adopted children) under the age of 18, and families raising a disabled child (adopted child) under the age of 18, as well as a disabled child above the age of 18 (adopted child) with special regular care needs, are eligible to a 30 per cent higher tax-free threshold of real property, i.e. EUR 286,000.
By the ruling of 22 September 2015 the Constitutional Court of the Republic of Lithuania held that the provision of the Law on Immovable Property Tax under which the tax is charged on the whole immovable property of the family members by applying the same non-taxable value which is applied to the property of one natural person who is not deemed a family member for the purposes of the Law, contradicts the principle of equality of individuals established in Article 29 of the Constitution and the provisions of Article 38 of the Constitution, ensuring protection and care of the State for the family, motherhood, fatherhood, and childhood.