Cryptocurrency Taxation in Lithuania

According to the Law on Corporate Income Tax and the Law on Personal Income Tax «Virtual currency» is a negotiable asset that can be used as a means of payment for goods and services. On the VAT side, the virtual currency is considered to be the same currency as the euro.

Since the state currency of Lithuania is the euro, therefore all transactions in virtual currency in accounting are converted into euros and recorded in euros. Since the law does not regulate the exchange rate of the virtual currency against the euro, the source of the published virtual currency rate used in accounting should be recorded in the internal accounting rules. Given the fact that the exchange rate of a virtual currency can change significantly in a short period of time, an organization’s accounting policy must record not only the source but also the time of the transaction.

EXTRACTION AND SALE OF VIRTUAL CURRENCY

From the point of view of Lithuania’s corporate income tax, at the moment of production of the virtual currency tax does not arise.

A tax arises when a virtual currency is sold.

Taxable income is calculated by subtracting the value of production/acquisition of virtual currency from the sale price.

The price of production/acquisition may consist of all actual costs incurred, for example:

• Equipment
• Software development
• Depreciation of equipment and software
• Communication

• Electricity costs
• Costs of services purchased
• Labour costs

The documents supporting the costs on which the costs are based should contain all the required accounting particulars.

Mining (meening) and selling virtual currency is subject to VAT?

According to Court of Justice other European Union in case C-264/14 the sale of a virtual currency (exchange for a traditional FIAT currency ) is regarded as a sale of services for a fee. Which means the exchange of virtual currency is subject to VAT. It should be noted that when virtual currency units are exchanged for Fiat or other virtual currencies, the taxable amount is equal to the margin, that is, the difference between the purchase/production price and the sale price.

PAYMENT FOR GOODS AND SERVICES IN VIRTUAL CURRENCY

On the tax side, there is no difference as to how the goods or services were paid (in cash, bank transfer or in virtual currency). Accounting for each transfer is mandatory. The transaction must be recorded both the payment of the purchased good or service and the purchase/sale of assets (virtual currency) at the rate of exchange at the time of the transaction.

An account for goods or services that are paid in virtual currency should not be different from an account when payment is made in traditional currency. The account must contain all required accounting details. Notwithstanding the currency in which the account will be paid, all amounts must be in euros, i.e. the virtual currency must be converted to euros at the market exchange rate prevailing at the time of accrual.

Salaries in virtual currency

According to Article 139(3) of the Labour Code of the Republic of Lithuania, the salary must be paid in money. Goods and services provided by employees are not considered part of the salary. Thus, all benefits paid to the employee in virtual currency are considered to be work-related income from which the employer must calculate,  pay and declare income tax.

VIRTUAL CURRENCY TRANSACTIONS

A virtual currency can be bought in any way, both at a virtual exchange point and at other exchange venues.

From the point of view of the law, the difference between the sale price and the purchase price of a virtual currency is the income from the sale of a virtual currency. The acquisition price may include costs incurred in acquiring assets such as commissions and fees.

According to Article 79(1) of the Law on VAT, if a VAT payer sells a virtual currency through an exchange created in Lithuania through anonymous transactions, the VAT considers that the virtual currency has been sold to the exchange, and in that case the exchange must be listed as the buyer in the invoice. If the virtual currency is sold outside the territory of the country (for example, through an exchange established in another State), the sale of such currency in Lithuania is not confirmed by the account.

TAXATION OF TOKENS

A token is an instrument that gives its owner rights established by the issuer (e.g. right to share in profits, company income, interest on investments, right to receive certain goods or services, etc.). The VAT token is not considered as a virtual currency because it does not correspond to the definition of a virtual currency, i.e. the individual issuing it clearly defines the scope of the instrument, provides for certain obligations of the instrument, etc. etc.

However, it is worth noting that there are cases where tokens do not fit the above definition of token and are treated as virtual currency or coupons.

The issuance of tokens (considered as a security) is neither a supply of goods nor a service, so VAT is not subject to. Since according to Article 3 of the Law on VAT the supply of goods and/or services is carried out in Lithuania, VAT is subject to.

If brokering services are provided for tokens considered to be securities, such brokering services provided in Lithuania pursuant to provisions of Article 28(5) of the Law on VAT, exempt from tax. If brokering services are provided for tokens considered as coupons, such brokering services provided in Lithuania are taxed using the standard VAT rate.

INCOME OF AN INDIVIDUAL

According to Republic of Lithuania Law on Personal Income Tax, virtual currency is considered property, so income from the sale of virtual currency is taxed in the same way as other income from the sale of assets. This means that taxable income is the difference between acquisition and sale.

The specialists of Company in Lithuania UAB will be happy to assist you with accounting services for your Lithuanian crypto company.

Accounting services in Lithuania

Basic Tax Rates in Lithuania

In Lithuania, taxes are levied on numerous activities and types of business sectors, however, many of them are general and therefore apply to every business operating in or from within Lithuania.

The tax year coincides with the calendar year and runs from the 1st of January until the 31st of December. However, a company can request a different tax period as long as it equals 12 calendar months.

Almost all of the taxes are collected and administered by the State Tax Inspectorate, only the State Social Insurance contributions are taken care of by the Board of the State Social Insurance Fund (aka SoDra).

Standard tax rates in Lithuania are as follows:

• Corporate Income Tax – 15%
• Personal Income Tax – 20%
• Value Added Tax – 21%
• State Social Insurance – 21%
• Withholding Tax – 15%
• Inheritance Tax – 5%

Corporate Income Tax

It’s definitely worth emphasising that the Lithuanian Corporate Income Tax is among the lowest in the EU, which makes Lithuania an attractive jurisdiction for businesses looking to optimise their tax payments. It’s generally paid by Lithuanian and foreign companies.

Depending on the tax residence status of a company, the Corporate Income Tax is levied either on income sourced in Lithuania and abroad or only on income sourced in Lithuania.

Resident companies are required to pay the Corporate Income Tax on all income, whether it’s sourced inside or outside of Lithuania. A company is treated as a tax resident of Lithuania if it’s incorporated in Lithuania under Lithuanian law.

Non-resident companies are required to pay the Corporate Income Tax in the following instances:

• When the income is sourced from economic activities performed through permanent establishments located in Lithuania
• When the income is sourced in foreign countries attributable to the economic activities performed by a foreign company through permanent establishments located in Lithuania
• When the income is sourced in Lithuania and received by a non-resident company in a way other than through permanent establishments located in Lithuania

Cryptocurrency companies should note that in the context of the Corporate Income Tax application, cryptocurrencies are considered short-term assets that can be used to pay for products and services or held for sale.

Another notable aspect is the varied application of the Corporate Income Tax. Not every crypto-related activity is taxed. For instance, mining, security tokens, and funds possessing the characteristics of securities raised during the Initial Coin Offering (ICO) are exempt from tax.

If you’re keen to understand which crypto-related activities are taxable for your company, our team of legal experts is more than happy to consult you. We can help you navigate the maze of the Lithuanian tax system so that you can pay taxes with ease and focus on the development of your business instead.

When it comes to managing your company’s Corporate Income Tax contributions, you should pay attention to the most important deadlines and processes. Annual Corporate Income Tax returns are submitted within five months and 15 days after the end of a taxable period. Moreover, every company is required to prepay Corporate Income Tax instalments based on the results of the previous taxable periods or the expected result of the current period, except for those companies whose annual taxable income of the previous period was less than 300,000 EUR.

Corporate Income Tax Allowances

In addition to the favourable standard tax rate, Lithuanian taxpayers can avail of a number of deductions and allowances. One of the most relevant ones for crypto businesses is the rate of 5%, applied to profits generated from the commercialisation of R&D projects, i.e. commercial use of technological inventions.

New companies, or startups, don’t have to pay Corporate Income Tax for the first taxable period. After that, they’re taxed at a rate of 5% as long as the following requirements are met:

• The shareholders of the company are only natural persons
• The average number of employees is no more than 10
• The income during the tax period is no more than 300,000 EUR
• The economic activities of the company aren’t suspended, and the company isn’t liquidated or reorganised
• The shares of the company aren’t transferred to new shareholders for three consecutive tax periods, including the first tax period

When it comes to allowances linked to the tax residence status, a resident company will have an exception if the following conditions are met:

• Income is sourced from economic activities performed by a Lithuanian company through permanent establishments located in an EEA country or in a country with which Lithuania has signed an agreement on the elimination of double taxation
• Such income is subject to an equivalent tax in the respective country

Personal Income Tax

In Lithuania, if personal income is received through employment, the Personal Income Tax is then part of the salary structure, which means an employer is responsible for deducting the tax from the salary. A standard tax rate of 20% is applied when the annual income doesn’t exceed 8,1162 EUR. If the employee’s annual income exceeds 8,1162 EUR, he/she is subject to paying the tax at the rate of 32%.

The employee’s residence status determines what income is taxable. Permanent residents of Lithuania are subject to paying Personal Income Tax contributions for all income received in Lithuania and abroad.

Non-permanent residents are only required to pay the Personal Income Tax for income sourced in Lithuania. This includes income sourced from employment relations, self-employment on a fixed base, distributions, and payments to the members of the management board and supervisory board and other.

To determine residence status, an individual should take the following conditions into consideration:

• He/she is present in Lithuania for at least 183 days during the tax period
• He/she is present in Lithuania for at least 280 days during two successive tax periods and he/she stays in Lithuania for at least 90 days in any of such tax periods

Value Added Tax

If a Lithuanian cryptocurrency company sells taxable products or services in Lithuania, it should register as a VAT payer as soon as its taxable annual turnover exceeds 45,000 EUR. On the other hand, not every crypto-related product or activity is subject to VAT.

For the purpose of VAT application, cryptocurrencies are considered a means of payment equally with legal tender in spite of the different opinions of the Bank of Lithuania.

Payments involving cryptocurrencies must be treated as financial transactions for VAT purposes so long as counterparties accept cryptocurrencies as a means of payment. Accordingly, cryptocurrencies may not be considered short-term assets when it comes to VAT.

Due to this treatment and other factors, the majority of crypto products and services are exempt from VAT. The exemption usually applies to mining, revenues received from the provision of cryptocurrency exchange services and tokens issued during the Initial Coin Offering (ICO). Basically, only such secondary activities as sales of crypto-related services (e.g. paid referrals or consultations) are subject to VAT.

Although the standard taxable period coincides with a calendar month, a company whose turnover from economic activities didn’t exceed 300,000 EUR during the previous calendar year can request the taxable period to coincide with a calendar quarter.

State Social Insurance

Whenever a cryptocurrency company employs people, it’s liable for paying the State Social Insurance contributions since they’re part of the salary structure. An employer is usually obligated to pay 1.61% which is calculated on top of an agreed gross salary. The other part – 19.5% – is withheld from the employee’s salary. If a person is employed on the basis of a fixed-term contract, the employer’s contributions increase to 2.49%.

An employee must be registered at the Social Security Tax Office prior to the commencement of employment. This can be done by completing and submitting a 1-SD form, which is essentially a notification of the beginning of the State Social Insurance.

Payments of the State Social Insurance contributions along with appropriate reports are sent by the 15th of the following month, or by the first preceding working day if the 15th is a weekend or a public holiday.

If you need further clarification to understand what taxes your cryptocurrency company should be paying in Lithuania and how to optimise them, our team here at Company in Lithuania UAB will be delighted to provide further guidance. Contact us today to receive a tailored consultation that will put you on the right track to growing your business.