General Information
Country Name: Lithuania
Currency: Euro (€) (EUR)
Primary Tax Authority: State Tax Inspectorate (Valstybinė mokesčių inspekcija – VMI)
Key Legislation:
- Corporate Income Tax Law 2001
- Personal Income Tax Law 2002
- Value Added Tax Law 2002
Fiscal Authority Allocation
Centralized Fiscal System:
Lithuania operates a centralized fiscal system, with all taxes collected and administered by the State Tax Inspectorate (VMI). There are no regional taxes, but municipalities receive a portion of income tax revenue for public services.
Corporate Income Tax (CIT)
Standard Rate: 15%
Lithuania levies a flat corporate income tax rate of 15% on resident companies, which are taxed on their worldwide income. Non-resident companies are taxed on their Lithuanian-sourced income only.
Corporate Forms and Taxation:
- Private Limited Liability Company (UAB): The most common corporate form in Lithuania, taxed at the standard 15% rate.
- Public Limited Liability Company (AB): Typically used for larger enterprises, taxed at the same 15% rate.
- Branches of Foreign Companies: Taxed at 15% on Lithuanian-sourced income.
Exemptions and Incentives:
- Micro-enterprise Rate: Small businesses with less than 10 employees and annual income below €300,000 can apply a reduced CIT rate of 5%.
- Free Economic Zones (FEZs): Companies operating in Lithuania’s free economic zones benefit from a 0% CIT rate for the first 10 years and 50% of the standard rate for the next 6 years.
- Research and Development (R&D) Deduction: Companies can deduct up to 300% of qualifying R&D expenses.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 21%
Lithuania applies a VAT rate of 21% to most goods and services. Reduced rates of 9% and 5% apply to certain goods and services, including books, pharmaceuticals, and public transportation.
Exemptions:
Certain financial services, healthcare, and education services are exempt from VAT. Exports are zero-rated, allowing businesses to reclaim VAT on inputs related to exports.
Personal Income Tax (PIT)
Progressive Rates:
Lithuania operates a progressive personal income tax system with the following rates:
- Income up to €104,277: 20%
- Income above €104,277: 32%
Dividends:
Dividends received by individuals are taxed at a flat rate of 15%.
Additional Mandatory Contributions
Social Security Contributions:
Both employers and employees must contribute to the Lithuanian social security system, covering pensions, healthcare, and unemployment benefits.
- Employer Contribution: 1.77% of gross salary (since the employer’s liability has been largely shifted to the employee’s gross income).
- Employee Contribution: 19.5% of gross salary.
Withholding Taxes
- Dividends: 15%
- Interest: 10%
- Royalties: 10%
These rates may be reduced under Lithuania’s double taxation agreements (DTAs).
Transfer Pricing Rules
Lithuania adheres to OECD guidelines for transfer pricing. Transactions between related parties must follow the arm’s-length principle, and documentation must be maintained for cross-border transactions.
Special Tax Regimes
- Free Economic Zones (FEZs): Companies operating in FEZs are eligible for full CIT exemptions for the first 10 years of operation and a 50% reduction for the next 6 years. They also benefit from exemptions from real estate taxes.
- Start-Up Incentives: Lithuania provides various incentives to start-ups, particularly in the technology sector, including tax holidays and simplified administrative procedures.
Other Taxes
- Real Estate Tax: Real estate is taxed at rates ranging from 0.5% to 3% of the property’s market value, depending on the municipality.
- Capital Gains Tax: Capital gains are generally taxed at 15%, but certain exemptions apply, such as gains from the sale of a primary residence held for more than 2 years.
- Excise Duties: Excise taxes are levied on specific goods, including fuel, alcohol, and tobacco.
Double Taxation Agreements (DTAs)
Lithuania has signed over 55 double taxation agreements with countries around the world, including key partners such as Germany, France, and the United States. These treaties aim to prevent double taxation of income and provide reduced withholding tax rates on dividends, interest, and royalties.
Local Taxes
While Lithuania has a centralized tax system, local municipalities receive part of the income tax revenue to fund public services. Additionally, municipalities may impose real estate taxes and certain fees.
Compliance and Reporting
Annual Filing:
Corporations must file annual tax returns by June 15th of the following year. The tax year in Lithuania follows the calendar year. Personal income tax returns are due by May 1st of the following year.
Penalties for Late Filing:
Penalties for late filing or underpayment of taxes include interest and fines. The rate of interest on late payments is typically 0.03% per day.
Recent Developments
Green Taxation:
Lithuania is introducing new environmental taxes to support sustainability goals, including higher excise duties on carbon-intensive fuels and incentives for electric vehicles.
Digital Services Tax:
Lithuania is exploring the introduction of a digital services tax aimed at taxing multinational companies that provide digital services in the country, aligning with broader EU initiatives in this area.
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