Lithuania

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Tax Policy

TAX POLICY

Income Tax Rate 15%

Corporate Tax Rate 15%

Sales Tax / VAT Rate 21%

As of 2011 individuals in Lithuania pay a flat tax of 15% on their income, 5% for income from individual activities. The tax rate for dividend income is 20%.

The standard corporate tax rate for 2011 in Lithuania is 15%. Micro companies pay 5% corporate tax subject to terms.

Income Tax for an Individual

An individual in Lithuania is liable for tax on his income as an employee and on income as a self-employed person. In the case of an individual who answers the test of a "permanent resident" of Lithuania, tax will be calculated on his income earned in Lithuania and overseas.
A foreign resident pays tax only on his income in Lithuania.

To be considered a Lithuanian resident, an individual must meet the requirement of residence in Lithuania for at least 183 consecutive days in a 12 month period. Occasionally, an individual will be considered a Lithuanian resident even if he is resident in Lithuania for less than 183 days if he/she owns a home in Lithuania that is his/her permanent residence.

An employer is obligated to deduct, immediately, each month, the amount of tax and national insurance due from a salaried worker.

Other taxes on individuals:

Capital duty – No

Stamp duty – There is no stamp duty, but a notary fee may apply to certain transactions.

Capital acquisitions tax – A 15% personal income tax is levied on gifts valued at more than LTL 8,000, but only the portion of the gift exceeding LTL 8,000 is subject to tax. Gifts received from a spouse, child, brother, sister, parent or grandparent are tax exempt.

Real property tax – The real property tax rate ranges from 0.3%-1% of the value of real estate owned by individuals, depending on the municipality.

An individual is required to pay the real property tax for buildings used for individual or economic activities. Buildings intended for certain purposes (manufacturing, industry, services, trading, hotels, etc.) are subject to the real property tax, regardless of whether used in individual or economic activities (unless the building is rented or transferred under a loan-for-use contract to a legal entity). The type of property involved will determine the applicable valuation method and thus the taxable amount.

Inheritance tax – The inheritance tax rate is 5% of inheritable assets valued at LTL 500,000 or less and 10% on inheritable assets valued at more than LTL 500,000. However, the taxable base is only 70% of the inherited assets. The taxable value not exceeding LTL 10,000 is exempt. Exemptions also apply to assets inherited by family members.

Net wealth/net worth tax – No

Social security and health insurance – The employer must withhold a 3% pension social insurance contribution and a 6% health insurance contribution on behalf of its employees.

Royalties received from the employer are subject to a 6% health insurance contribution and a 2% social security contribution in 2010 (the social security contribution increases to 3% as from 2011). In addition, the entity that pays the income, i.e. the insurer, must pay a 3% health insurance contribution and a 14% social security contribution in 2010 (the social security contribution increases to 28% in 2011). Royalties received from an entity other than the employer are also subject to the 6% health insurance and 3% social security contributions. In addition, the entity paying the income must pay a 3% health insurance contribution and 26.7% social security contribution. The basis for the health and social security contributions is 50% of the income with a cap of 48 times the annual insured income (currently LTL 1,170 x 48).

Administration and compliance:

Tax year – Calendar year

Filing and payment – Employment income is taxed by withholding at source. Individual tax returns are due by 1 May following the end of the taxable year. An individual must file an annual return unless (1) he/she does not want to use unused additional TEA and deduct expenses; or (2) did not receive income other than employment income during the tax year.

Tax Penalties – Penalties equal to 10%-50% of the tax liability may be imposed, depending on the type of violation, whether the taxpayer cooperates with the tax authorities and other circumstances the authorities deem relevant. For late tax payment, daily late penalties of 0.05% apply as from 1 April 2009.

Corporate Taxes

The 2011 standard rate of corporate tax in Lithuania is 15%.

Micro companies (those with up to 10 employees and up to LTL 500,000 income per year) may be entitled to a reduced rate of 5%.

Withholding tax:

Dividends – The withholding tax on dividends paid to a nonresident is 15%, unless the rate is reduced under a tax treaty or the EC parent-subsidiary directive applies.

Interest – As from 1 January 2010, withholding tax on interest is abolished for EEA companies and companies resident in countries that have concluded a tax treaty with Lithuania. Otherwise, the rate is 10%.

Royalties – Royalties paid to a nonresident company are subject to a 10% withholding tax unless the rate is reduced under a tax treaty. The 10% withholding tax on EU affiliated companies will be abolished as from 1 July 2011 in accordance with the transition rules in the EC interest and royalties directive.

Branch remittance tax – No

Other taxes on corporations:

Capital duty – No

Payroll tax – No

Real property tax – Depending on the municipality, the rate varies from 0.3% to 1% of the value of real property owned by a legal person or an individual and transferred for use to a legal person for an indefinite period or a period exceeding 1 month. The type of property involved will determine the applicable valuation method and thus the taxable amount.

Social security contributions – In addition to withholding a 3% pension social insurance and 6% health insurance contributions on behalf of an employee, an employer must contribute to social insurance (including pension social insurance, sickness and motherhood social insurance, unemployment insurance, health insurance, occupational accident and disease contributions) at a rate between 30.98% and 31.7% of the employee's gross salary, depending on the risk group. For social security contributions on royalties paid to individuals, see under "Other taxes on individuals".

Stamp duty – No, although a notary fee may apply to certain transactions.

Transfer tax – No

Other – An employer must contribute 0.1% of an employee's gross wages to the Guarantee Fund.

Controlled foreign companies – A foreign company is treated as a CFC if it is controlled by the controlling person on the last day of the tax period and the controlling person holds directly or indirectly more than 50% of the shares (or the controlling person, together with related persons, holds more than 50% of the shares and the portion controlled by the controlling person accounts for at least 10% of the shares) in the controlled entity or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof.

Other – The substance-over-form principle applies under the statutory GAAR provisions.

Disclosure requirements – No

Administration and compliance:

Tax year – The tax year is a financial year that coincides with the calendar year. However, at the request of the taxpayer and taking into account the characteristics of its activities, the tax authorities may set a tax period other than a calendar year subject to the requirement that the tax period is 12 months.

Consolidated returns – Consolidated returns are not permitted; each company must file a separate return.

Tax Filing requirements – Companies make advance payments of corporate income tax on a quarterly basis, with the final balance due on the same date as the annual tax return, i.e. 1 October of the following tax year.

Penalties – Penalties equal to 10%-50% of the tax liability may be imposed, depending on the type of violation, whether the taxpayer cooperates with the tax authorities and other circumstances the authorities deem relevant. For late tax payment, a daily late penalty of 0.05% applies as from 1 April 2009.

Rulings – While rulings are available, they are not binding on the tax authorities or on the taxpayer. 

Value Added Tax (VAT)

The standard rate of VAT in Lithuania is 21%, with reduced rates of 9%, 5% and 0%.

VAT applies on the sale of goods and provision of services.

The annual tax return is due on 1 October of the following tax year.