Tax Law in Lithuania (II)

Tax Law in Lithuania (II)

These are the highlights if you want to know the essential of Tax Law (II) in Lithuania.  This entry was drafted by STRATEGUM Dargis ir partneriai for”E-IURE COMPENDIUM” 2018. Link to e-IURE Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case “ STRATEGUM Dargis ir partneriai” is an excellent option in Lithuania.

Payers of income tax of individuals

All income derived and/or earned by residents who pay the income tax of individuals are divided into permanent and non-permanent residents of Lithuania.

A permanent resident of Lithuania is any natural person whose permanent place of residence is in Lithuania, or whose place of personal, social or economic interests is in Lithuania rather than in a foreign country, or any natural person who stays in Lithuania most of time. The concept of a permanent resident of Lithuania is clearly specified in paragraph 1 of Article 4 of the Law on Income Tax of Individuals of the Republic of Lithuania. All other natural persons are considered non-permanent residents of Lithuania.

Object of income tax of individuals

The object of income tax of individuals is the income of a resident – the remuneration received during the tax period for the performed works, services rendered, transferred or granted rights, the income from the individual activities, the income for the sale or otherwise transferred, invested property (funds), or other benefit received by the resident in cash or kind[1].

Non-permanent residents of Lithuania pay the income tax of individuals from income the source of which is in Lithuania.

Two types of activity of a resident of a different nature are distinguished – work activities carried out based on the employment-based relations or the relations corresponding to their essence, and individual activities.

Although paragraph 1 of Article 5 of LITI LR stipulates that the tax object is the income received by a resident, but the income tax of individuals is calculated and paid not from the total income of the individuals, but only from the taxable income which forms the basis of this tax after deduction of corresponding tax-exempt types of income and/or allowable deductions.

Rates of Income Tax

Total income tax rate is 15 %.

The 5% income tax rate is imposed on income from individual activity, with the exception of income from liberal professions activity, as well as on income from non-individual activities received after selling base metal scrap or otherwise transferring it into ownership.

A resident may choose to pay a fixed rate income tax on income from individual activities if he is not required to register and is not registered as a value added taxpayer.

Value Added Tax (VAT)

The object of VAT is the supply of goods and services effected for consideration within the territory of the country when the goods and services are supplied by the taxable person in the course of his economic activity. The VAT object is also an acquisition of goods for consideration within the territory of the country from another Member State. The object of import VAT is the import of goods when the goods are deemed to have been imported into the territory of the country.

Regulation in Lithuania

VAT has been introduced in Lithuania since 1 May 1994 after the entry into force of the Law on Value Added Tax of the Republic of Lithuania. This law was valid until 30 June 2002. Since 1 July 2002, the new version of the Law on Value Added Tax of the Republic of Lithuania came into force, which implemented all basic legal acts of the European Union regulating VAT taxation, but the requirements were not transposed into the law, the application of which is possible only in the case of Lithuania as a member of the European Union and a part of the common market. On 15 January 2004, the Law amending and supplementing the Law on Value Added Tax No IX-1960 of the Republic of Lithuania, which came into force from 1 May 2004, was adopted. This law has definitively transposed the provisions of European Union legislation regulating the procedure for VAT taxation.

VAT rates:

1. Standard VAT rate is 21 %.
2. The reduced rate of VAT of 9% is applied to:

• most of the literature, information publications, textbooks, newspapers, magazines and other publications of a similar nature;
• passenger transport services by regular routes as well as transportation of passenger  luggage services;
• accommodation at hotels and other special accommodation services.

3. The reduced rate of VAT of 5% is applied to:

• Technical support means for the disabled and repairs thereof;
• Pharmaceuticals and medical aid measures, where the costs of acquiring these goods are reimbursed fully or partially, as well as non-compensated prescription medicines the taxable value of which exceeds EUR 300.

VAT payers

VAT payer is a person who has a duty to calculate and pay VAT and who is registered by the tax administrator as a VAT payer, including persons registered for VAT purposes other than that.

Taxable persons who supply goods or services in the territory of the country must register as VAT payers and to calculate VAT and pay it to the budget.

Taxable persons of the Republic of Lithuania may not register as VAT payers and do not calculate the VAT for goods supplied (with the exception of new vehicles supplied to other Member States) and/or services provided and not to pay it into the budget if the total remuneration amount for goods and/or services provided in the course of an economic activity during the year did not exceed EUR 45 000.

It is not obligatory to register as a VAT payer if the value of the products (except for new vehicles or excisable goods) purchased by the taxable person of the Republic of Lithuania from other Member States exceeded EUR 14 000 in the previous calendar year and this threshold is not foreseen in the current calendar year.

There is also a possibility for voluntary registration as VAT payers in cases where the mentioned registration limits are not exceeded.

Tax Period

A tax period is a calendar month, but in some cases, a calendar half-year or another period can also be set. If the tax period is a calendar month, the VAT tax return for the tax period must be submitted and the amount of VAT payable is paid no later than by 25th day of the next month.

The Law on Value Added Tax of the Republic of Lithuania also specifies cases, where the supply of goods, provision of services and the purchase of goods from another Member State is not subject to VAT, as well as the cases, where imported goods are exempt from import VAT, special schemes for VAT taxation (compensatory VAT rate for farmers, tourism services, second-hand goods, works of art, collectible and antique items, investment gold and special telecommunications, radio and television broadcasting and/or services provided electronically), etc.

State social insurance contributions

Social insurance contributions are paid into the budget of the Fund and are intended to finance the types of social insurance benefits. The types of social insurance are as follows:

• social insurance of pensions;
• social insurance of illness;
• social insurance of maternity social;
• insurance of unemployment;
• social insurance for accidents at work and occupational diseases.

Payers of social insurance contributions are insurers, policyholders, self-employed persons and persons who are insured with state voluntary social insurance.

Insurers are legal entities, other organizations or their subdivisions (branches, representative offices), as well as natural persons who must pay state social insurance contributions. The legal entities of the Republic of Lithuania, individuals engaged in individual activities, self-employed persons, etc. are recognized as insurers.

Policyholders are natural persons who pay state social insurance contributions themselves and/or the insurers pay contributions for them. Persons insured with social insurance are persons working under employment contracts, civil servants, officials, etc.

The social insurance contributions of the persons employed under employment contracts, civil servants and categories of similar types of insured persons are calculated from the amount of wage computed for each insured person.

Unlike other taxes and compulsory contributions, there are no permanently valid sizes of social insurance contributions (rates).

Compulsory health insurance contributions

Citizens of the Republic of Lithuania and foreigners, who permanently reside in Lithuania, as well as foreigners legally working and temporarily resident in Lithuania, must pay compulsory health insurance contributions. The payers of compulsory health insurance contributions are insured persons and/or insurers – legal entities and their branches and representation agencies.

The basic amount of the compulsory health insurance contribution is 3%. The insured persons pay 3% of compulsory health insurance contributions from the income calculated from the income computed in accordance with the procedure established by the Law on State Social Insurance from which social insurance contributions are calculated for persons.

This system of personal healthcare and economic measures guarantees the provision of healthcare services to the insured persons and the reimbursement of expenses for the provided services.

Contributions to the Guarantee Fund

The State Social Insurance Fund Board under the Ministry of Social Security and Labour and other administration institutions of State Social Insurance Fund took over the execution of the administration function of the Guarantee Fund from 1 January 2017. Until then, the State Tax Inspectorate was responsible for the administration and regulation of these contributions.

The purpose of the Guarantee Fund (contributions to it) is to pay flat-rate payments to employees of bankrupt and failed enterprises who worked in an enterprise prior to the court ruling to initiate bankruptcy proceedings against the enterprise or to carry out the bankruptcy proceedings by extrajudicial procedures before the  meeting of creditors, irrespective of whether the labour relationships continue or are terminated, as well as former employees of enterprises when companies are indebted to them.

Contributions to the Guarantee Fund are paid by all legal entities (enterprises, public institutions, banks, credit unions), except for many state institutions. Contributions must also be paid by units of legal entities of the Member States of the European Union established in the Republic of Lithuania.

These companies pay 0.2% of the amount of wage calculated to employees (from which the state social insurance contributions are calculated).

Other taxes

Real Estate tax

The object of the tax is real estate paid by real estate owners – natural and legal persons.

The tax rate is from 0.3% to 3% of the tax value of the real estate.

The tax value of real estate is the average market value of real estate based on which the tax rate is determined.

Land tax

Land tax is similar to the abovementioned real estate tax.

The object of the tax is private land owned by the natural and legal persons in the Republic of Lithuania, with the exception of forestland and agricultural land. Like the real estate tax, the land tax is paid by natural and legal persons.

The tax base is the taxable value of the land, which is equal to the average market value of the land.

The tax rate may range from 0.01% to 4% of the taxable value of the land.

[1] Paragraph 1 of Article 5 of LITI LR