Lithuania T2S: Tax impact on service offering

06.11.2019

Effective

2 December 2019

Clearstream Banking S.A.1 (CBL) will deposit and settle Lithuanian securities that are T2S eligible with Clearstream Banking AG2 (CBF) in order to enable future OneClearstream service upgrades (the “Migration Date”). As indicated in Announcement C19022, CBF will activate direct access to the Baltics (Nasdaq CSD) to enable eligibility of Nasdaq CSD issued securities for settlement in T2S.

Clearstream Banking3 will access Nasdaq CSD for settlement in T2S via CBF as follows:

Country

CSD

Type of link

Eligible securities

Baltics (Estonia, Latvia, Lithuania)

Nasdaq CSD

Direct link to CBF for holding Nasdaq CSD eligible securities

Commercial papers (money market), Government bonds, Municipal bonds, Corporate bonds, Equities, Nasdaq-eligible investment funds

This is part of our ongoing efforts to harmonise our services allowing customers to benefit from advantages across multiple areas of our business.

Applicable withholding tax rates

The rates of withholding tax applicable in Clearstream Banking on income paid on Lithuanian securities are as follows:

  • 0% on interest from government bonds;
  • 15% on interest from corporate bonds;
  • 15% on dividends.

Eligible beneficial owners for tax relief

The categories of beneficial owners eligible for reduced tax rates depend on the type of security for which tax relief is required:

Corporate bonds

  • 0% for non-Lithuanian legal entities registered or otherwise established in any state of the European Economic Area (EEA) or in any country with which Lithuania has an effective Double Taxation Treaty (DTT);
  • 0% for EU pension funds4;
  • 10% for non-Lithuanian legal entities registered or otherwise established in a non-EEA/DTT country;
  • Treaty rate for non-Lithuanian individuals registered or otherwise established in any country with which Lithuania has an effective DTT in place;
  • 0% for individuals (both resident or non-resident of Lithuania) on the amount of interest (including all interest from other securities acquired after 1 January 2014 and deposits where agreement was concluded after 1 January 2014) that does not exceed 500 EUR per tax year;
  • 0% for individuals (both resident or non-resident of Lithuania) if bonds are acquired before 1 January 2014 where corporate bonds were repurchased not earlier than 366 days from their emission, except in cases where interest is received from a tax haven;
  • 0% for Lithuanian legal entities (interest is included in the taxable corporate income subject to a 15% profit tax).

Equities

  • 0% for EU pension funds4;
  • 0% for legal entities (both resident or non-resident of Lithuania) that hold 10% or more of the voting shares of its subsidiary for an uninterrupted period of at least 12 months, including the moment of the distribution of dividends, except in cases where the entity paying dividends is registered in a tax haven;
  • Treaty rate for non-Lithuanian (both legal entities and individuals) registered or otherwise established in any country with which Lithuania has an effective DTT in place.

Relief at source

No relief at source of withholding tax on Lithuanian corporate bonds or equities is available through Clearstream Banking.

Standard refund

A standard refund of withholding tax on income from Lithuanian corporate bonds and equities is available if the beneficial owner qualifies for a reduced rate in accordance with:

  • the Double Taxation Treaty (DTT) between their country of residence and Lithuania, or
  • Lithuanian domestic legislation, as described above.

To apply for a standard refund of withholding tax on income from Lithuanian securities, the following documents must be submitted to Clearstream Banking:

A DAS-2 Official Claim Form, one per reclaim application completed by each beneficial owner in two originals. The DAS-2 Form must be completed as follows:

  • First row of the form: beneficial owner country of residence to be completed.
  • Section I: to be completed by the beneficial owner, except the last four fields (that is, name of the bank, code of the bank, address of the bank and number of the bank account) that must be left blank.
  • Section V: to be completed, dated, stamped (if applicable) and signed by the beneficial owner.
  • Section VI: to be completed, dated, stamped and signed by the tax authority in the country of beneficiary’s residence. in case recipient’s country’s tax authority does not confirm such forms, recipient should alternatively obtain the tax residence certificate from its country’s tax authority confirming that recipient is treated as a resident in that country based on the provisions of DTT concluded between Lithuania and the country of residence. The obtained certificate should be attached to a pre-filled DAS-2 form. Moreover, in the field “Pridedama” it should be indicated “residence certificate is attached”.

All other sections of the DAS-2 must be left blank to be completed by the responsible entity (for example issuer).

A Power of Attorney in favour of Nasdaq CSD SE Lithuanian Branch must be provided by the beneficial owner, granting them the right to apply for standard refund, to represent the beneficiary in from of the Lithuanian Tax Authorities, to receive the refunds paid for the respective refund application. 

The Power of Attorney must be notarised (if needed with apostille) and remains valid until revoked.

A Letter of Request to Clearstream Banking for Reclaim of Lithuanian Withholding Tax, completed by the customer and authorising Clearstream Banking to reclaim withholding tax from the Lithuanian Tax Authorities on behalf the beneficial owner.

Statutory deadline for receipt of the reclaim documentation

The statutory deadline for reclaiming withholding tax using the standard procedure is five years after the relevant income payment for which tax reclaim is to be made, unless the DTT in place specifies a different deadline; for example, the DTT between Luxembourg and Lithuania defines a deadline of three years.

The deadline by which Clearstream Banking must receive the documentation for a standard refund application is, at the latest, two months before the statutory deadline. All standard refund applications received after this deadline will be processed by Clearstream Banking on a “best-efforts” basis. However, in such cases, Clearstream Banking will apply an extra charge and accepts no responsibility for forms that have not reached the Lithuanian Tax Authorities by the date considered being the statute of limitations deadline.

For tax reclaims, you are reminded that Clearstream Banking accepts no responsibility for their acceptance or rejection by the tax authorities of the respective country. It is the customer’s responsibility to determine any entitlement to a refund, to complete the forms required correctly and to calculate the amount due.

When are refunds received

The estimated time for receiving a refund is six months from the date on which Clearstream Banking receives the certified documents, although this can vary depending on when the application is filed, and the complexity of the information supplied in the reclaim form.

Capital gains tax

There is no capital gains tax withheld on Lithuanian securities.

Further information

For further information, please contact the Clearstream Banking Tax Help Desk or Clearstream Banking Client Services or your Relationship Officer.

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1. Clearstream Banking S.A. (CBL) registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248.

2. Clearstream Banking AG (CBF), registered office at Mergenthalerallee 61, 65760 Eschborn, Germany, registered with the Commercial Register of the District Court in Frankfurt am Main, Germany, under number HRB 7500.

3.Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.

4. An EU pension fund is considered a fund that is not recognised as a legal entity and established to facilitate and organise the investment of natural persons' retirement funds. The pension fund is a common asset pool meant to generate stable growth over the long term and provide pensions for natural persons when they reach the end of their working years and commence retirement. The assets of the fund are managed by a pension fund management company according the fund's rules.