Tax administration procedures and the activities of the State Tax Inspectorate are regulated by the Law on Tax Administration.
The Lithuanian taxation system is comprised of direct and indirect taxes.
In Lithuania, double taxation of income is being eliminated by applying Law on Corporate Income Tax, Law on Personal Income Tax and international conventions for the avoidance of double taxation.
Personal income tax is paid by permanent residents of Lithuania. Non-permanent residents of Lithuania pay income tax only on income originated in Lithuania: income from individual activities carried out through the base in Lithuania, work-related income for the activity in Lithuania, income from sport and art related activities, interest, royalties, dividends, annual payments (bonuses) to members of the Board and the Supervisory Board, income from the sale of real estate located in Lithuania and movable property that needs to be registered in Lithuania, and income from the rental of real estate located in Lithuania.
In order to avoid double taxation the method of exemption from income tax is applied to the income of a permanent resident of Lithuania received in EU Member States or states with which conventions for the avoidance of double taxation have been signed and are being applied, except for dividends, interest and royalties, provided that income tax or a tax equivalent to it has been paid on such income in those states.
To avoid a double taxation of permanent resident of Lithuania on dividends, interest and royalties earned abroad income tax paid abroad on dividends, interest and royalties is deducted from the amount of income tax payable in Lithuania.
Dividends received by a resident are taxed at a 20 per cent income tax rate and all other income is taxed at a rate of 15 per cent tax, with the exception of income received from a distributed profit of agricultural company and cooperative society (cooperative) by its participant (member) and an income from agricultural activities received by a resident, whose agricultural or economic holding's economic size is equal to 14 European size units or more, which are taxed at a rate of 10 per cent (in 2009 it was subject to a 5 per cent tax).
In the case of a Lithuanian entity, all income earned in Lithuania and in foreign countries is subject to corporate income tax.
In the case of a foreign entity, income from activities carried out in Lithuania through a permanent establishment as well as income of certain types originated from Lithuania is subject to corporate income tax.
The corporate income tax rate is 15%; a corporate income tax rate of 10% is applicable to some types of income.
Real estate (or part thereof) belonging to natural persons by right of ownership, which is located in Lithuania, with the exception of buildings (premises) of residential, garden, garage, farm, greenhouse, agricultural, farm support, education, religion, recreational use, piscicultural buildings and engineering structures, if such immovable property is not used for economic or individual activities, is not transferred for use by legal entities for an indefinite period of time or for longer than one month, and is not an immovable property belonging to legal entities and located in Lithuania, is subject to immovable property tax.
The rate of immovable property tax can be from 0.3% to 1% of the value of the real estate for tax purposes.
Value added tax is usually levied on the provision of goods and services in exchange for payment taking place in Lithuania, when the goods or services are being provided for payment by a taxable entity, whilst it is engaging in economic activities.
Both a Lithuanian entity and a foreign entity can be considered a taxable entity.
A Lithuanian taxable entity is a Lithuanian legal entity or natural person that is engaging in any kind of economic activity.
A foreign taxable entity is a legal entity, organisation or other unit of a foreign country engaging in any kind of economic activity, as well as a natural person engaged in economic activity, whose permanent place of residence is not in Lithuania.
Value added tax rates are the following:
- standard rate is 21%
- reduced rates are 9% and 5%
Excise duty is usually levied on ethanol and alcoholic beverages, processed tobacco, energy products, electricity.
The payer of excise duty is usually the owner of a warehouse with goods on which excise duty is levied, a registered receiver of goods on which excise duty is levied.
In order to ensure proper accessibility of tax services, the State Tax Inspectorate has drawn up a classification of services approved by the Head of the State Tax Inspectorate under the Ministry of Finance.
In accordance with this classification, 52 services have been described in detail: the methods of their provision and the forms of documents, the service providers and recipients, as well as the applicable legal acts.
Foreign entities must register as VAT payers in Lithuania if:
- they commence the VAT taxable economic activity in Lithuania,
- they acquire goods in Lithuania from taxable entities based in other EU Member States and the value of goods purchased during the calendar year exceeds 35,000 litas,
- they acquire services from taxable entities based in foreign countries,
- they are engaged in distance sales and the value of supplied goods, transported to Lithuania during the calendar year, exceeds 125,000 litas.
A foreign entity must submit request for registration as a VAT payer immediately, once the obligation to register as a VAT payer arise, or not later than 7 working days before the desired date of the registration if the entity registers voluntarily. Request for registration as a VAT payer can be submitted in the following ways:
- by post,
Entities of foreign states may request to be removed from the Register of VAT Payers of Lithuania when:
- they cease to engage in economic activities in Lithuania,
- they start to be engaged only in such activities that do not require them to be registered as VAT payers,
- after compulsory registration as VAT payers due to distance sales the value of all goods transported to Lithuania during the previous calendar year did not exceed the limit of 125,000 litas and it is unlikely to exceed it during the current calendar year,
- after compulsory registration as VAT payers due to acquisitions of goods from another EU Member State/acquisitions of services from foreign entities, the value of acquired goods during the previous calendar year did not exceed the limit of 35,000 litas and it is unlikely to exceed it during the current calendar year/the entity did not acquire any services from foreign taxable entities during the previous and/or current calendar year,
- more than 24 months have passed (except instances when an entity assumes the status of an entity under liquidation) since the day of voluntary registration as a VAT payer due to acquisitions of goods from another EU Member State and/or due to engagement in distance sales, and the entity has not acquired the mandatory status of a VAT payer.
Submitting a tax declaration
A tax declaration must be submitted to a respective tax administrator by the terms provided in the appropriate tax law. The term for submission of a tax declaration may be extended in accordance with the procedure established by the central tax administrator.
Law on Tax Administration provides for the following ways of submitting a declaration: in writing and electronically. The taxpayer has the right to choose the way of submitting a tax declaration.
Article 77 of the Law on Tax Administration provides for instances when a taxpayer may be temporarily relieved from submitting a tax declaration.
The specifics of the submission of a tax declaration of a legal entity in bankruptcy or under restructuring are provided in Article 78 of the Law on Tax Administration.
The Electronic Declaration System (EDS) simplifies the collection and processing of tax declarations.
EDS services include:
- filing of declarations online;
- notifying taxpayers about the results of processed declarations, such as mistakes found in them;
- notifying taxpayers about missing declarations that must be submitted; and other electronic services.
The Database of Consultative Materials (DBCM) explains taxes, informs on how to calculate and pay the taxes, and provides frequently asked questions and answers.
The Integrated Tariff is comprised of the data of the Integrated Tariff of the European Community (TARIC), valid in Lithuania since 1 May 2004. It is supplemented by data on national taxes administered by customs (excise and VAT), also valid since 1 May 2004. It includes a number of prohibitions and limitations as well.
A publication for new taxpayers titled Mokesčių procedūros (Tax Procedures) describes these procedures briefly, and indicates the legal acts which regulate them.