Taxes in Lithuania

Taxes in LithuaniaThe tax legislation in Lithuania is favourable for international business and the tax system is adapted to the legislation of the European Union.

It is very important before starting business in another jurisdiction, to get acquainted with the tax system and the local rules, to avoid any inconvenience in the future. By opening a company in Lithuania, we will be happy to provide you with an individual consultation regarding taxes and rules regarding doing business in Lithuania. Also, you will be able to get brief information regarding the tax systems below.

Lithuania has eight types of taxes:

Direct taxes

Indirect taxes

Other taxes and contributions to the State budget:

  • Social insurance contributions
  • A tax on public natural resources
  • A tax on oil and natural gas
  • A tax on environmental pollution
  • Consular fees
  • Stamp duty
  • Sales tax

Taxes in Lithuania

Corporate income taxes

Rate: 5% or 15%.

5% is applied if the company meets the following criteria during the reporting period:

  • Sales revenue does not exceed EUR 300,000 per year
  • Number of employees not exceeding 10;
  • If shareholders hold more than 50 per cent of shares in other companies, the first two criteria of both companies are added together.

The 15 per cent rate is applied in all other cases.

The CPN standard rate is 15 per cent. However, small companies and agricultural companies may apply a reduced CPN rate of 0 per cent or 5 per cent if certain conditions are met. For the period beginning on 1 January 2020 and ending in 2022, the 20% CPN rate is applied to the taxable profits of credit institutions exceeding the threshold of 2 million euros. Special rules apply for calculating taxable profits.

As a rule, the CPN applies to taxable income received by a Lithuanian tax resident from his local and world activities. Taxable income is calculated by reducing the total income of a given tax period with deductible expenditure and non-taxable income.

The income of a resident tax company is not taxable in Lithuania if it was derived from activities through a permanent establishment (PE) in a foreign State which is located in the European Economic Area or has a double taxation agreement (DTT) with Lithuania, and if the income was taxable there.

In addition, the CPN may be reduced or even not applied if income from foreign sources not derived through CP is taxed at source (WHT) in a foreign country and that country has a DTT with Lithuania.

Non-resident companies are generally taxed on income from Lithuania received through the local permanent establishment and reduced by deductible expenses or income due to VAT in Lithuania.

Corporate income tax is paid by businesses engaged in commercial activities and is also paid by non-profit organizations that profit from commercial activities.

Reduced CPN rate for small companies

Enterprises with less than 10 employees and a gross annual income of less than 300,000 euros can benefit from a reduced CPN rate of 0 per cent in the first year of operation and 5 per cent in subsequent periods if certain conditions are met.

Dividend tax

  • Rate 15% (exceptional 0%)
  • 0% applies if the recipient is a resident of the EU or another State with which a tax convention has been concluded
  • Lithuania has concluded more than 55 double taxation agreements, including with EU countries, India, Georgia and Ukraine.

The standard dividend tax for a physical person is 15%. An exceptional 0% applies if the recipient is a resident of the EU or another State with which a tax convention has been concluded. Lithuania has concluded more than 55 double taxation agreements, including EU countries, India, Georgia, and Ukraine.

Dividends distributed from a resident company to another resident company are subject to a corporate tax of 15 percent, unless the parent company owns at least 10 percent of the shares of the subsidiary for at least 12 months, after which the dividends are tax-free. Dividends received by a foreign legal entity registered in an EEA member State whose profits are already subject to corporate income tax or equivalent are also exempt.

Income tax on the population

Persons earning less than the minimum non-taxable income are virtually exempted from NPFL. Currently, the standard amount of non-taxable income is 300 euros and the minimum wage is 555 euros. Below, you will find an example of the calculation of tax-free income for wages of 555 euros and wages of 1,000 euros.

  • Salary 555 euros
  1. EUR 555 Wage – EUR 555 Minimum Wage = EUR 0
  2. 0.15*EUR0=EUR0
  3. EUR 300 standard non-chargeable amount – EUR 0 = EUR 300 of non-chargeable income
  • Salary 1,000 euros
  1. Eur 1000 Wage – EUR 555 Minimum Wage = EUR 445
  2. 0.15 * 445 EURO = 66.75 EURO
  3. Standard EUR 300 – EUR 66.75 = EUR 233.25 of unencumbered income

Property tax

Real estate tax in Lithuania ranges from 0.3% to 3%. Private property is generally taxed at 1% of the value of the property, which exceeds 220,000 euros.

Land tax

In Lithuania, the land tax includes only tax payments on land, while the provisions on the calculation and payment of this tax are determined by the city and district councils. The object subject to the land tax is privately owned land and its annual rate is between 0.01 per cent and 4 per cent of the value of the land (in the case of forest, the rate does not include the value of trees).

New landowners are required to pay a full-year tax if the land is acquired in the first half of the year. However, if the land is acquired in the second half of the year, the tax must be paid from the following year. If the land is sold in the first half of the year, the tax is not paid for the year, but if it occurs in the second half, the tax must be paid for the whole year.

Excises

The following products are collected by excise, which is intended to correct the consumption of goods sold in the country:

  • Ethyl alcohol, denatured alcohol and alcoholic beverages, including beer.
  • Smoking of tobacco and tobacco.
  • Coffee, chocolate and products containing cocoa.
  • Jewellery, gold and silver, with the exception of jewellery and coins.
  • Motor fuel, excluding aviation fuel, and diesel fuel.
  • luxury Class Cars
  • publications of an erotic or violent nature.

Excise is free of alcohol and its raw materials imported by State-owned enterprises licensed to produce alcohol and on exported goods.

Value added tax (VAT)

Rate 21 per cent

The company is obliged to register the VAT by the payer if:

  • Income in the last 12 months exceeded €45,000
  • EU purchases this year exceeded or exceed €14,000

If the shareholder has more than 50% of shares in other companies, the criteria are summed up for all companies.

The rate of 9 per cent is applied to:

  • The passenger transport on regular routes
  • On books and non-recurrent information publications
  • For certain accommodation services (until 31 December 2022)
  • Provision of thermal energy and hot water for residential use
  • Wood and wood products for domestic energy heating

The rate of 5 per cent is applied to:

  • Medicines and medical aids
  • Equipment for the technical support of persons with disabilities and its repair
  • Periodicals

Lithuania has a standard VAT rate of 21% with a reduced rate of 9% and 5%. A VAT of 9 per cent applies to books, information publications, periodicals, accommodation and passenger transport on regular routes, while a reduced rate of 5 per cent applies to equipment for disabled persons, Persons entitled to compensation under the Health Insurance Act. Registration in VAT is required when the aggregate quantity of goods and/or services supplied in the ordinary course of business exceeds 45,000 EUR over a 12-month period.

Registration of VAT payer in Lithuania

 The obligation to be registered is imposed when the turnover of a company in a financial year exceeds 45,000 euros; the procedure can be done in person at the local tax authorities or online by filling in the necessary forms – in this case form FR 0388.

Social tax

Social insurance contributions are paid by both employers and employees. The basic contribution amounts to 33.7% of total income before taxation, thus covering all risks (except for accidents at work and occupational diseases), of which 30.7% is paid by the employer and the remaining 3% by the employee.

Taxation of representatives

The representative offices or any other organizations registered in Lithuania are regulated by the legislation of the Republic of Lithuania.

The representation of a legal entity is a subdivision of a legal entity that has its registered office and enjoys the right to perform all the operations specified below. Representation of a legal person may represent and provide for the interests of a legal person, conclude contracts and conduct other transactions on behalf of a legal person, and carry out imports and export transactions exclusively between foreign legal entities and other entities that have established a subsidiary or related enterprises, institutions or organizations and a subsidiary. Legal representation is not a legal person.

Upon registration of a representation, a foreign legal person or other organization is obliged to notify the Register of Legal Persons of a change in the documents and data of a legal person submitted to the Register, as well as the legal status of a legal person. Before submitting an application for registration of representation of foreign legal persons, the Administrator of the Register of Civil Law must verify the correctness of the information entered in the application, the conformity of the statute with the legislative requirements and the fact that: That the representation of foreign legal persons is entitled to registration.

Company in Lithuania UAB listed the key issues of corporate taxation in Lithuania. For more specific tax-related questions, contact us for consultation with the accountant.

Company in Lithuania UAB will help you to register your company in Lithuania. We are also glad to offer our clients accounting services and assistance in the process of VAT registration by the payer.

FREQUENTLY ASKED QUESTIONS

  • What does the “resident of Lithuania” mean?
    An individual is a resident if one of the following conditions is met:
    • A natural person is registered at the permanent place of residence in Lithuania.
    • An individual who is present in Lithuania for a period or periods in the aggregate of 183 days or more during the tax period.
    • Lithuanian diplomats currently in the service are also residents of Lithuania.
    Tax requirements in Lithuania apply depending on the residency status. The corporate tax status is determined by where the turnover is generated, where the profits are distributed, and in which country the employee is registered as a taxable resident.
  • Does an e-resident have to pay taxes in Lithuania?
    Not necessarily.e-Residency in Lithuania does not imply automatic tax residency and only gives the opportunity to use electronic services offered by the Lithuanian state.
  • How are dividends taxed in Lithuania?
    Dividends in Lithuania is a subject of a tax rate of 15% (exceptional 0% applies) 0% applies if the recipient is a resident of the EU or another State with which a tax convention has been concluded. As of 2021 Lithuania has concluded more than 55 double taxation agreements, including with EU countries, India, Georgia and Ukraine.
  • What is the advantage of taxation for a Lithuanian company?
    Taxation of Lithuanian companies is one of the most beneficial in the European Union. The main advantage is a 15% or 5% tax on retained profit of the company. 5% is applied if the company meets the following criteria during the reporting period:
    • Sales revenue does not exceed EUR 300,000 per year
    • Number of employees not exceeding 10;
    • If shareholders hold more than 50 per cent of shares in other companies, the first two criteria of both companies are added together.
    The 15 per cent rate is applied in all other cases.
  • What are the direct taxes in Lithuania?
    Direct taxes include:
    • Corporate income tax
    • Property tax on enterprises and organizations
    • Land tax
    • Personal income tax
    • Income tax and gifts
  • What are the indirect taxes in Lithuania?
    Indirect taxes include:
    • VAT
    • Excise duties
    • Tax on gambling and lotteries
  • What are other taxes and contributions to the State budget in Lithuania?
    Other taxes and contributions to the State budget cover:
    • Social insurance contributions
    • A tax on public natural resources
    • A tax on oil and natural gas
    • A tax on environmental pollution
    • Consular fees
    • Stamp duty
    • Sales tax
  • What is payroll taxation in Lithuania?
    By the law the Lithuanian company has to employ a director in the company. The director and owner can be the same person and non-Lithuanian citizen. However, for the non-Lithuanian director payroll taxes must be paid in the country where the employee is a taxable person. The tax rates for resident-individuals in Lithuania are: 20% income tax, 19.5% Social Insurance Tax for Employee, 1.79% Social Insurance Tax for Employer, and 2% Pension fund.
  • What is personal income tax in Lithuania?
    Lithuanian residents pay income tax on their personal income. Personal income tax is withheld from the country’s population from the total wages of employees on a monthly basis and is paid directly by the employer. 20% rate is applied with annual labour income up to EUR 81,162 gross, and rate 32% with annual earnings above EUR 81,162 gross Income tax is levied on the permanent resident’s income received both in Lithuania and abroad.
  • What is considered taxable income in Lithuania?
    Taxable income in Lithuania is:
    • income from work under an employment or contractual agreement in Lithuania,
    • income from a business carried out in Lithuania,
    • interest income received from Lithuania,
    • income from distributed profits and annual bonuses to the Board and Supervisory Board members,
    • income from the rental of property located in Lithuania,
    • profit from the sale of assets located in Lithuania,
    • income from sports activities,
    • income from performing activities,
    • income from sale or other transfer into ownership of movable property where such type of property is subject to legal registration under legal acts of the Republic of Lithuania,
    • royalties,
    • compensations for copyright or related rights infringement.
  • Is there a labor tax in Lithuania?
    Yes. Social Insurance Tax for Employee is 19.5% and includes 6.98% health insurance contributions. And Social Insurance Tax for Employer is 1.79% that includes 0.32% for Guarantee Fund and Long-term Unemployment Fund.
  • Do I have to pay taxes for foreign employees outside Lithuania?
    No. If the company has employees who are not tax residents of Lithuania, the salary payments to these foreign employees are not taxed in Lithuania and we do not file tax returns for these employees. Foreign employees must declare their income on behalf of a Lithuanian company in the country in which they are taxable.
  • How can the permanent establishment (place of business) affect company’s tax residency?
    If the permanent establishment takes place in a country other than the country of registration, place of management, and business activity of the company, then it is important to understand that the country of company’s taxation may also change. When doing business on a permanent basis in another country (for example, having warehouses, selling goods, providing services), there is a risk of changing the permanent establishment in Lithuania to the country where the company actually operates. In this case, taxation will be carried out in accordance with the tax regulations of the country where the business is located, not Lithuania. The inspection authorities of the foreign country shall notify of the change of tax residence resulting in tax liabilities. In this case, the general Lithuanian tax rules no longer apply to your company. So, at the end of the financial year, the payment of company taxes will take place in accordance with the laws of a foreign country. Company in Lithuania UAB strongly recommends an international tax advice aimed at minimising the risk of unexpected tax liabilities for your company.
  • What to do if the estimated turnover in the near future exceeds 45,000 EUR?
    The company can apply in advance for the registration of VAT in Lithuania before the designated threshold of 45,000 EUR is reached.
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