Real Estate Values, Intended Use and Payment Procedure

 

 

The main differences in the new Law on Real Estate Tax are as follows:

Taxpayers can find out the value of commercial real estate at the Centre of Registers’ internet website at www.registrucentras.lt against the unique number of that particular real estate. If a taxpayer is not satisfied with the tax value of the property as established, they could, by February 6, 2006, file in a complaint regarding the established value and a request to use the value established by way of individual property valuation to the Centre of Registers. Later, by March 6, 2006, they must file in a report on property valuation by independent valuators to support the complaint. It is vital to emphasize that such a request can be presented and the results of individual real estate valuation are taken into consideration only if the real estate value established by the Centre of Registers differs from the property value as established in the individual property valuation by more than 20 percent. This condition has often prevented complaints from being presented and value from being contested.

 

Another possible way to cut down the real estate tax is to inquire whether the intended uses of the real estate as specified in the Centre of Registers’ database conform to the actual application of such property, as the intended use affects the value of real estate. If the uses specified in said database do not conform to the actual application of real estate, taxpayers ought to amend the intended uses of such property. The applicant should, by March 6, 2006, amend the intended use of the real estate or present the Centre of Registers with a copy of the application to amend the intended use of the building as presented to a regional office of the State Territorial Planning and Construction Inspectorate. Legal entities pay an advance real estate tax on real estate in their possession by March 31, June 30 and September 30 of the current net year. Declarations must be submitted to regional offices of district tax authorities by February 1 of the next net year. Legal entities need not pay an advance real estate tax on real estate owned by residents but used by such legal entities, nor need residents pay such a tax on property held for business purposes (other than property assigned to legal entities). In such event, the declaration for the appropriate tax period must be delivered to the local tax administrator and the tax has to be paid by February 1 of the next net year.

 

A possibility to differentiate the tax value from 0.5 percent to 1.0 percent without amending the established tax value of real estate, which directly affects the size of the real estate tax, is actually being deliberated. The establishing of the size of the tax is to be assigned to municipal institutions that will draw their budgets out of this tax. According to the law, the tax rate amounts to 1 percent of the real estate value.

 

As it had to be expected, the reaction of most real estate owners was negative and quite categorical. Only a small number of real estate owners managed to take the opportunity and appeal against the fixed rate of property tax. Being aware of a real threat to their business, the owners took the offensive by criticising the work of both the state enterprise Centre of Registers and of the Government and municipalities.

 

Sensing dissatisfaction among businesspersons with the increase in tax burden caused by the Law on Real Estate Tax, the Lithuanian Ministry of Finance and the Seimas Commission for Business and Employment adopted the guidelines, which allowed municipalities to reduce the rate of real estate tax at their own discretion. In their turn, the majority of municipalities responded immediately and made decisions allowing reduction in the real estate tax. For instance, the Vilnius City Council made the decision in 2006 to reduce the real estate tax by 50 per cent for all taxpayers, except for those whose buildings and premises are not used or are used for other than their designated purpose, are shabby or neglected. However, the real estate tax is reduced only up to the amount declared and paid in 2005. The Kaunas Municipality passed the resolution (27 April 2006) to reduce the real estate tax payable in 2006 by 20 per cent for legal and natural persons, who calculate this tax on the taxable value of the property determined using the methods indicated in sub-paragraphs 1 and 2 of paragraph 2 of Article 9 of the Law on Real Estate Tax by applying a mass or individual real estate valuation, but not exceeding the annual tax amount declared and paid for 2005.

 

Another interesting solution to this problem is not to reduce the real estate tax for polluting companies which pose a health threat to residents. This decision is aimed at making the owners fix derelict and neglected buildings, which often damage the city’s image.

 

Active discussions on the new Law on Real Estate Tax were conducted by the Lithuanian Association of Hotels and Restaurants, Vilnius Chamber of Commerce, Industry and Crafts, Lithuanian Free Market Institute, Vilnius Country State Tax Inspectorate and business representatives, which resulted in amendments made by the Seimas to Articles 10 and 12 of the Law, which extended the terms for submission of complaints regarding the taxable value and applications regarding the use of the value determined by an individual valuation method for the calculation of the tax for the period of 2006 until 7 July. In addition, the advance calculation of the real estate tax was amended to allow calculation of the advance payment on the taxable value of the property applicable in 2005.

 

It is noteworthy that the dissatisfaction with the new Law on Real Estate Tax expressed by common actions of businesspersons, the public and the government was resolved at least temporarily, for 2006. Today there are more and more inducements to introduce a universal real estate tax in Lithuania. It is believed that this tax would help to reduce the “price bubble” effect, i.e. would reduce speculations aimed at benefiting from the increasing value of the real estate tax. Furthermore, this could add the amount from 0.5 to 1 billion litas to the budget.