In 2012 Lithuania is increasing VAT for hotel business

October, 2011

During the year 2011 Lithuania as well as other Baltic states faced a heavy challenge to combat the adverse financial situation in their country. Lithuania, followed by the crisis management plan, is trying to take the companies out of the shadow economy in order to offset the loss ensuring the stability of public finances due to the statements of Lithuanian Government.

Notably in the year 2011 the tax burden was reduced and Lithuanian Government introduced more attractive CIT rate of 15 % (instead of 20%) which corresponds to the rate in our neighbor Latvia. For dividends the tax rate remains at 20%. Therefore, Lithuania still remains attractive to the most foreign investors due to the favorable tax planning possibilities.

Additionally to this in the year 2011 VAT was decreased from 21 to 9 percent to the hotel businesses in order to attract more tourism into Lithuania and therefore increase the foreign investments.

In 2011 Lithuania took the position of European Union Member states from which 24 out of 27 member states enjoys decreased VAT rates for hotel businesses.

It is important to note that Lithuanian Tax institutions currently weights tax and other laws to amendments for 2012.

One of the recent important notes that Tax inspection is drawing attention to is the option to return to previously applied 21 percent tax rate for hotel businesses.

The proposal is drawn by Minister of Finance I. Simonyte detailing that in 2011 companies engaged in hotel businesses did not decrease the accommodation in a hotel pricing, but rather were saving on the smaller VAT percentage. Therefore the applied 9 percent tax rate in 2011 did not bring the required results – the quality of the accommodation in a hotel remained the same, the pricing was not reduced and the saved income on smaller tax rate increased the income of the hotel businesses.

Therefore tax inspection informs that starting from 2012 the tax rate for hotel businesses will be increased from 9 to 21 percent as it was the case in 2010.

Valters Gencs

Tax Attorney & Founding Partner

Gencs Valters Law Firm, Riga

T: +371 67 24 00 90

Email: valters.gencs@gencs.eu