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Taxation in Lithuania
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Taxation in Lithuania

Corporate Tax

Main rate: 19% effective rate (2006)

Lithuanian entities are subject to tax on their worldwide income; non-resident entities are taxable on Lithuanian-source income only. Any commercial enterprise registered under Lithuanian law is regarded as a Lithuanian entity for tax purposes. The corporate tax rate is 15%, but under incentive legislation some companies may be entitled to a 13% rate. From January 1st 2006 a temporary social tax of 4% also applies (to be reduced to 3% in 2007). Distributions by one resident company to another are subject to the 15% withholding tax, but there is a participation exemption where 10% of the shares have been held for one year. Cross border payments of interest are subject to a withholding tax at a rate of 10%, except for interest payments for government securities issued in the international financial markets, interest paid out for deposits or for certain subordinated loans.

Individual Tax

Flat rate of 33% (27% from July 1st 2006)

Resident individuals are taxed on their worldwide income; non-residents are taxed on Lithuanian-source income only, including foreign-source income derived from a fixed base in Lithuania. An individual is resident if having a permanent home in Lithuania, or staying in Lithuania for 183 days in a tax year or 280 days in two consecutive tax years, including at least 90 days in each of the two years. A Lithuanian national employed by the Lithuanian government is always regarded as resident.

Individual income tax is charged at a flat rate of 33%, but the government plans to reduce this to 27% from July 1st 2006 and to 24% from January 1st 2008. There is a reduced 15% rate applicable to certain types of income, including income from distributed profits, rent or sale of property, creative activities and other individual activities.
Capital Gains

Company gains taxed as income

Capital gains of resident companies, including permanent establishments, are taxed as part of general taxable income at a 15% rate. For non-residents only capital gains on immovable property are taxed at 10%.

Individuals are taxed at 15% on gains on the disposal of any property, including shares. Gains on the disposal of shares held for more than one year, however, are exempt subject to certain conditions, including that the seller has not had a 10% shareholding in the relevant entity in the past three years. In addition, gains by individuals on the disposal of Lithuanian immovable property owned for more than three years are exempt.

Indirect Tax

Standard rate: 18%; Lower rates: 9%, 5%, 0%

Value-added tax (VAT) applies to most transactions. Registration is compulsory for Lithuanian businesses whose annual turnover exceeds LTL 100,000, but voluntary registration is possible. For foreign companies the turnover threshold is not applicable and they have to register irrespective of turnover. Foreign taxable persons must register either through a local affiliate or via a fiscal agent. Only companies established in EU member states may register directly. It is possible for foreign taxable persons to be refunded for VAT paid in Lithuania subject to certain conditions.

The standard rate is 18%, and a 9% rate applies to the construction and renovation of buildings financed from certain sources. A 5% rate applies to passenger and luggage transport, books and newspapers, pharmaceuticals, hotel accommodation and certain foodstuffs. Zero-rated items include the export of goods and some related services, international transport, supplies of ships and aircraft, and certain cases of international trade or supplies to other EU member states. VAT exempt items include education, healthcare, insurance and financial services; the leasing of dwellings and other immovable property; and the sale or transfer of immovable property. Social, cultural, sports, radio and television services if supplied by non-profit-seeking entities are also exempt from VAT.

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