Optimization of taxation in Lithuania, is the key to a successful and profitable business in, also, any other country in the world. Perhaps for these purposes it is better to use the services of Lithuanian tax consultants. It is worth noting that the Lithuanian tax system is very flexible, and tax rates are among the lowest in Europe.
There are 7 main types of taxes in Lithuania: direct taxes, including corporate income tax, personal income tax, real estate tax of enterprises and organizations, land tax and tax on inheritance and gifts; and indirect taxes, including VAT, excise tax, and tax on gambling and lotteries. The state also collects social security contributions, a tax on state natural resources, a tax on oil and natural gas, a tax on environmental pollution, a consular fee, a stamp duty, and a sales tax.
General taxes on corporate
Corporate lithuanian income tax is paid by enterprises engaged in commercial activities, as well as non-profit organizations that receive profit from commercial activities
Lithuania corporate tax – 15%. If the number of employees is less than ten people and the annual turnover does not exceed EUR 300,000, the rate is reduced to 5%.
VAT The basic rate is 21%. Preferential rates are 9% (printed publications, passenger transportation) and 5% (for the disabled).
Income tax in Lithuania – 15%, in some cases tax reduction to 5% is provided.Contributions to social and health insurance bodies reach 40%.Tax on dividends – 15%
Lithuanian tax haven signed agreements on avoiding double taxation with 53 countries of the world, in addition, special economic zones have been created in the country, where taxes are practically not collected in the first years of activity. In particular, no lithuanian corporate income tax is paid for the first 6 years.
Non-resident companies are generally taxed on profits earned in Lithuania through a local PE, net of deductible expenses, or on income subject to WHT in Lithuania tax system.
From January 1, 2023, new changes to the Law on Corporate Income Taxation regarding anti-hybrid rules will enter into force.
The new amendments aim to prevent non-taxation of income received by foreign shareholders of Lithuanian hybrid companies, i.e. to prevent situations where the income is not taxed either as income of the Lithuanian hybrid entity or as income of foreign shareholders.
The tax return Lithuania mixed business unit includes the part of the income (attributable to its foreign shareholder(s) of the Lithuanian mixed business unit) that is not otherwise subject to corporate income tax or an equivalent tax under Lithuanian law. with respect to corporate income tax or any other country whose resident is a member of the Lithuanian mixed organization for tax purposes.
More detailed information on the application of this rule is currently not available (it should be provided by the tax authorities later this year or next year). However, this provision will not apply to collective investment schemes that meet certain criteria.
Also, there is no local or municipal CIT in Lithuania taxes.
Personal income tax
In 2006, a reduction in personal income tax began. Today, every individual is required to pay a personal income tax of 15% if they are employed or self-employed. If a person is a permanent resident, income taxes in Lithuania are calculated from the person’s income received both in country and abroad. Taxes in Lithuania for foreigners residents are required to pay only on that part of their income received in Lithuania. In order to be recognized as a resident of Lithuania, a person must have lived there for at least 183 consecutive days over a period of 12 months.
Persons whose salary is less than LTL 191 are exempt from paying personal income tax. Disabled people, single mothers (fathers) are also exempt from it, and pensions and scholarships are not taxed.
The land tax Lithuania includes only the land tax, and the rules for calculating and paying this tax are set by the city and regional councils. Land tax is levied on privately owned land and the annual lithuanian tax rate is 1.5% of the value of the land (if the land is forested, the rate does not include the value of the trees).
New owners of land must pay tax for the entire year if the land was purchased in the first half of the year. If the land is purchased in the second half of the year, the tax must begin to be paid from the next year. If the land was sold in the first half of the year, the tax for that year does not need to be paid, and if the land was sold in the second half of the year, the tax must be paid for the entire year.
Excise tax, which is intended to control products sold in the country, is subject to the following goods:
- ethyl alcohol, undenatured alcohol and alcoholic beverages, including beer;
- smoking tobacco and tobacco products;
- coffee, chocolate and products containing cocoa;
- jewelry, gold and silver, with the exception of imitation jewelry and coins;
- motor fuel, excluding aviation fuel, and diesel fuel;
- cars as a luxury item;
- publications of an erotic or violent nature.
Excise tax is not imposed on alcoholic beverages and raw materials for their production, imported by state-owned enterprises with the right to produce alcoholic beverages, as well as on goods for export.
The amount is based on the value of the taxable inheritance, and has the following rates:
- if the value of the inheritance does not exceed 0.5 million Lithuanian litas – 5%;
- if the value of the inheritance exceeds 0.5 million Lithuanian litas – 10%.
Property inherited by one spouse after the death of the other, property inherited by children (including adopted children), parents (including adoptive parents), guardians (custodians), persons in care (children under guardianship), grandparents , grandchildren, relatives, as well as property, the taxable value of which does not exceed LTL 10,000.
Tax on state natural resources
The Law on Tax on State Natural Resources serves to increase the responsibility of those who use natural resources to utilize them efficiently and economically, as well as to compensate for government spending on the development of natural resources and maintaining their quantity and quality. The tax on state natural resources must be included in production costs and paid to the state budget.
Value Added Tax (VAT)
VAT is not paid by persons whose income from the sale of goods or the provision of services (excluding long-term investments) does not exceed LTL 5000, excluding VAT. Persons whose annual income is between LTL 5000 and LTL 15000 can voluntarily be registered as VAT payers. In Lithuania, the tax rate for VAT is 21%.
Goods and services exempt without credit include, but are not limited to:
- Supply of goods/services in the field of health care.
- Social services provided by non-profit organizations.
- Training and education services.
- Cultural and sports services provided by non-profit organizations.
- Services provided by political parties, trade unions and other non-commercial legal entities to their members who meet certain requirements.
- Services provided by religious communities, other communities and centers to their members who meet certain requirements.
- Postal services.
- Radio and television broadcasting services provided by non-profit legal entities.
- All types of insurance and reinsurance services.
- Eligible financial services (some financial services may be subject to tax).
- Lotteries and gambling.
- Renting or selling real estate (tax selection may apply, certain conditions apply).
- Supply of goods, if the VAT payer did not deduct part of the VAT when purchasing and/or importing them (certain conditions apply).
Sales and contributions in kind to a business or part of a business are exempt from VAT (subject to certain conditions).
In Lithuania, the coordination of social insurance schemes operates at a relatively high level. Social security contributions are paid by both employers and employees. The basic contribution is 33.7% of total pre-tax income, thus covering all risks (excluding occupational accidents and illnesses), of which 30.7% is paid by the employer and 3% by the employee.
The state pays a contribution for certain groups of people (partial participation in financing), for example, for children.
According to Lithuanian legislation, there are three categories of contributions to social insurance funds for occupational accidents and illnesses, and the rates for them are as follows:
- category I: employer pays 1%;
- category II: employer pays 0.44%;
- category III: the employer pays 0.28%.
In order to be eligible to benefit from the social insurance scheme, a person must be employed or self-employed and pay a contribution. The State Council of the Social Insurance Fund and its local branches include these persons in the insurance list. All parts of the Lithuanian social insurance scheme are mandatory for employed persons, and only some (pensions and health insurance) are intended for self-employed persons. Self-employed persons may join other units on a voluntary basis.