Tax System in Lithuania
Lithuanian economy is ranked the 6th in the EU for ease of paying taxes, which makes it a favourable environment for running a business or residing as an individual. The country boasts a wide variety of forms of companies and individual activities, allowing differentiated income taxation, as well as underlying the necessity for professional tax advice.
All types of taxes in Lithuania are administered by the State Tax Inspectorate, apart from the Social Insurance contributions, which are supervised by the State Social Insurance Fund Board (SoDra). The tax year coincides with the calendar year.
This article aims to overview the most common types of Lithuanian taxes that businesses and individuals are subject to paying.
Corporate Income Tax
Almost all Lithuanian and foreign companies are required to pay corporate income tax at the flat rate of 15%. All income sourced in Lithuania and abroad by a Lithuanian company is taxable.
However, foreign companies only have to pay corporate income taxes on the following instances: 1) for the income earned from economic activities carried out through permanent establishments located in Lithuania, 2) for the 50% of income earned from transport operations which begin in the territory of Lithuania and end in foreign countries and vice versa, 3) income earned in foreign countries attributable to the economic activities carried out by a foreign company through permanent establishments located in Lithuania, 4) income sourced in Lithuania and received by a foreign company otherwise than through permanent establishments located in Lithuania.
In certain cases, tax allowances apply. For example, companies with an average number of listed employees not exceeding 10 people and income for the tax period not exceeding 300,000 EUR are taxed at the rate of 0% for the first tax period and at the rate of 5% for the following tax periods, except cases outlined in the Income Tax Law.
Supportive and knowledgeable Company in Lithuania UAB specialists will gladly share their expertise with you, should you wish to receive tailored advice on corporate taxes in Lithuania.
Lithuanian VAT legislation is harmonised with the EU Value-added tax system, which is an important part of the borderless single market. The standard rate of Value-added Tax (VAT) in Lithuania is 21%, and it’s applied to the majority of goods and services sold in Lithuania. The acquisition of goods or services in Lithuania for commercial purposes from another EU member state may also be subject to VAT.
However, there are instances when VAT rates may be reduced or even not applicable. For example, leasing of residential real estate is normally VAT-exempt, except for the hospitality sector, parking and transportation and permanently installed equipment which is considered immovable.
Personal Income Tax
Permanent and non-permanent residents of Lithuania are obligated to pay a variety of personal income taxes. Income received from employment relations is taxed at the rate of 20%-32%. All other types of income sourced in Lithuania and outside Lithuania by permanent residents are also subject to the Personal Income Tax. Income sourced in foreign countries by non-permanent residents isn’t taxed by the Lithuanian government.
However, in addition to the income received from employment relations in Lithuania, non-permanent residents are also obligated to pay income tax for remuneration received for a number of activities carried out in Lithuania. For example, sale of movable and immovable property, interests, self-employment (on a fixed base), sports and performances, just to name a few.
All taxpayers are entitled to request income tax refund at the end of the tax year for the following expenses:
- Fees paid for studies or vocational training
- Interest paid on a loan for the purchase or construction of a home, for which the contract was concluded before the 1st of January 2009
- Amounts paid for finishing and any repair work on various buildings, except for the renovation of multi-apartment residential buildings
- Payments for car repair services
- Payments for the care of underage children
Permanent residents are also entitled to request a tax refund for the social insurance related expenses:
- Life insurance contributions paid under life insurance contracts
- Pension contributions paid to the 3rd pillar pension funds
- Additional cumulative pension contributions paid in accordance with the provisions of Paragraph 4 of Article 8 of the Law on Pension Accumulation and which are higher than 3% per capita income from which state social insurance contributions are calculated
Social Security Tax
Permanent residents of Lithuania are subject to paying social security taxes to the State Social Insurance Fund Board (SoDra) and to the State Tax Inspectorate. They consist of Mandatory Health Insurance and State Social Insurance. The contributions are made by both an employer and an employee.
An employer is obligated to pay 1,61%-2,49% which is calculated on top of an agreed gross salary. An employee is obligated to pay 19.5% which is deducted from a negotiated gross salary. The latter can also choose to pay for the 2nd and 3rd pillars of the pension scheme, which are partially supported by the government. Non-permanent residents of Lithuania are exempt from paying social security contributions if they’re EEA/Switzerland-based residents and if an A1 certificate is obtained.
Immovable Property Tax
Companies and individuals are obligated to pay taxes imposed on Lithuania-located immovable property (real estate and land). If an individual owner of real estate transfers the use of it to a company for a period longer than one month, the Real Estate Tax is paid by the company.
The Real Estate Tax rate of 0.5%-3% and the annual Land Tax rate of 0,01%-4% are determined by the municipalities using such criteria as immovable property purpose, legal status, technical characteristics, maintenance, taxpayer category and location in the municipal territory. They can also grant tax incentives.
These criteria also determine if certain taxpayers can be exempt from paying the Immovable Property Tax. For instance, it’s not applied to property used for agricultural activities, social services, creative and educational work. It also applies to the real estate that isn’t in use, where construction is incomplete and for the property created or acquired on the basis of public-private partnership as defined by Lithuanian law on investments. If you wish to find out more about your own eligibility, please contact one of our experienced professionals, who will be more than happy to advise.
Excise taxes are international taxes levied on particular goods and services, usually paid by authorised warehouse keepers, registered consignees and consignors. In Lithuania such taxes are imposed on alcohol, tobacco, energy products such as fuel and electricity.
The tax period of an authorised warehouse keeper, registered consignee and consignor is a calendar month, after which the excise duty return must be submitted by the 15th of the following month.
While the excise tax rates on tobacco are relatively low, alcohol excise taxes significantly exceed minimum requirements imposed by the EU. This is largely determined by the fact that alcohol consumption in Lithuania is higher than in the majority of other EU member states, which causes public health issues.
Exemptions from the Excise Tax apply to a number of goods. Here are a few examples:
- Goods acquired or imported under international treaties
- Beer, wine and other fermented beverages produced by individuals, provided that these beverages are for personal use only
- Ethyl alcohol used in medical products
- Goods imported in the personal luggage of a traveller and within the limit of the quantities established by the Lithuanian government
In addition to the above-mentioned taxes, Lithuanian taxation system contains plenty of other specific taxes pertinent to sugar, exploitation of forest, natural resources, pollution, inheritance, gambling and more.
Company in Lithuania UAB provides accounting services and comprehensive tax advice, including advice on possible tax allowances and avoidance of double taxation. We’ll be pleased to help you to navigate through this intricate but often favourable system. Contact our competent and dedicated team to learn more about your responsibilities and opportunities for paying the right amount of taxes in Lithuania.