Lithuanian tax system
Tax System of Lithuania
Lithuania is experiencing tax changes
Lithuania, similarly to neighboring country Latvia, struggling with state budget deficit, started to undertake tax changes in 2012.
Some of the new tax rates have already entered into force, but in the first half of 2012 it is planned to decide on some more changes, such as tax on private transport means (cars, motor bikes, yachts, horses), introduction of progressive taxation of personal income, the hike of the corporate income tax from current 15% to 20%, tax on deposit interest income. Despite all the changes Lithuania’s tax system remains competitive and with a relatively small burden.
Corporate income tax
* General flat rate is 15%.
* As of 1st Jan 2012, a 5 per cent corporate income tax rate was extended to business enterprises employing not more than 10 persons and having turnover under 1 million litai (289,500 euros) (previously the limit was LTL 500 thousand).
* Withholding taxes: on dividends (0% to foreign residents owning at least 10% shares for 12 months; in other cases – 15%), interest
(0% if paid to the European Economic Area, or to a country with which Lithuania has an effective tax treaty; in other cases – 10%), royalties (0% if paid to the company resident in the EU and qualifying under the EU Interest and Royalties Directive, in other cases – 10%), capital gains from sale and lease of Lithuanian real estate (15%), income from performing and sports activities (15%), annual bonuses to supervisory board members (15%); 0% for all payments to Latvia.
* For entities running investment projects (under defined conditions) taxable profit is reduced by up to 50 per cent.
* Standard VAT rate – 21%. Reduced VAT rate of 9% for heating and hot water as well as reduced VAT rate of 5% for supply of compensatory medicines and medical aid devices is extended for another year.
Tax on land
* The purpose of the amendments made to the tax on land is to move to taxation of private land based on market value.
* Starting from 2013 it is proposed to shift to taxation of land subject to the average market value of the land, which would be established for the period of 5 years. In order to avoid a sudden increase in land value in individual territories, a four-year transitional period is planned. The Law provides for the land tax rate limits of 0,01–4 per cent, and specific rates will be set by municipal councils. They will also have the right to apply the tax reliefs, including the right to reduce the tax or to exempt from it.
* Land tax: 1,5 per cent of cadastral value of land. Real estate tax (on real estate other than land): 0,3%–1% of the value of real estate. The exact real estate tax rate is established by the respective municipality. As of 2012, individuals owning residential real estate with a total value exceeding 1 million litai (289,500 euros), are taxed with 1% real estate tax on the excess.
Real estate transfer duty
No transfer duty; notary fees apply (0,45% of transaction value, but no less than 30 EUR and no more than 5,800 EUR or 14,500 EUR in case of transfer of multiple objects).
Personal income tax
General flat rate – 15%; reduced 5% applies to certain activities carried out by self-employed individuals; dividends taxed at a rate of 20%.
Compulsory health insurance contributions
Employee rate – 6% withheld from gross salary; for employer 3% on top of gross salary.
Social security contributions
Employee rate – 3% withheld from gross salary; for employer 27,98% on top of gross salary.