Tax changes in Lithuania in 2012 and 2013
In the year 2012 Lithuanian economy kept growing slowly, but steadily. As Lithuania has not still entered the Euro zone, Euro zone problems shattering Southern Europe countries have not touched Lithuania so deeply. Therefore, Lithuania appears to be attractive for Southern Europe companies to move their business here. In 2012 there were no dramatic tax law changes; the majority of tax rates remain stable.
Together with the Law on the Budget for the year 2012 there were some tax changes made in Lithuania. The purpose of these tax changes was to stimulate the development of the small business and to balance the budget.
As concerning corporate income tax, company’s income limit when the company would be taxed on preferential 5% corporate income tax rate in Lithuania was increased from 145.000 EUR to 290.000 EUR starting from January 1st 2012. Company is allowed to apply this 5 % rate only if it satisfies the following conditions: the company's average number of employees does not exceed 10 and the same shareholder of the company does not have more than 50 % of shares in another company. To compare, a general corporate income tax in Lithuania is 15 %, so this tax exemption should be very useful for small business companies. The government expects that these changes shall encourage inhabitants to found their companies more actively.
General taxation rules of dividends and other income from distributed profits by corporate income tax remain unchanged. Dividends and other income from distributed profits are taxed by 15%, unless the Lithuanian Law on Corporate Income Tax states otherwise. Dividends of the company, where the shareholder owns no less than 10% of shares for a longer than 12 months period, paid for that shareholder are not subject to corporate income tax, except if such shareholder is registered or otherwise organized in purposive territories (off-shores). Dividends between EU and EEA companies are not taxed on condition profits of such company are subject to corporate income tax in that country.
General rate of personal income tax in Lithuania remains unchanged in 2012 - it is still 15% with an exception on dividends and other income from distributed profits which is taxed by 20% personal income tax rate. On January 29th, 2012 the Lithuanian Parliament adopted supplementation to taxation of distributed profits by personal income tax saying 20% rate is not applicable for unlimited liability unit member receiving income from this unit. It means that income from distributed profits received by members of unlimited liability companies shall be taxed by general 15% personal income tax rate. This change came into force on July 14th, 2012.
Moreover, few significant changes of the Law on VAT in Lithuania came into force since January 1st, 2012. Since 2012 the company has the obligation to register as a VAT payer in Lithuania if its turnover per year is more than 45.000 EUR (instead of 29.000 EUR, which was before the year 2012). “Turnover per year” means only the turnover received from selling goods and supplying services in the country's territory (before these changes all the turnover including sales and services outside the country's territory were taken into account). In case the turnover per year of the person / legal person who is not registered as VAT payer exceeds 45.000 EUR, the VAT shall be calculated and paid not only from the part exceeding this amount, but from all the transaction's value which was the reason of exceeding the limit.
For one year the preferential VAT rate for the heating as well as for a hot water (9 %) and for recoverable pharmaceuticals (5 %) was prolonged. This preferential rate is valid till December 31st 2012. Preferential rate 9 % rate for books and non-periodicals shall remain also in 2013.
Starting from 2012, general VAT rate of 21 % is again applied for the hotel services and special settlement services (for the period from January 1st 2011 to December 31st 2011 there was a preferred VAT rate of 9 % applied). Zero VAT rate applies for acquisition of goods and services between EU companies.
Additionally, preferential VAT rates shall be applicable for few new categories of goods and services starting from 2013. Preferential rate 9 % rate shall be applicable for newspapers, magazines and other periodicals, except those of erotic or violent character and those where paid advertisement takes more than 80% of total area of publication. The same size preferential rate shall be also applicable for passengers transport tickets on regular routes as well as for carriage of luggage. Since January 1st 2013 preferential 5% VAT rate shall apply to technical aid means of disabled people and to repair of such means.
Seeking additional progressiveness of the taxation system and making richer inhabitants contribute the sponsorship of the public expenses from the January 1st 2012 not only the real estate used for business purposes, but also all the other real estate is taxed by real estate tax. All the real estate value exceeding 290.000 EUR shall be taxed by 0,3 % to 1 % real estate tax. Particular tax rate has to be determined by the municipalities. It is important that only this value part which exceeds 290.000 EUR shall be taxed by the real estate tax. These real estate tax changes were passed according to the international practice and recommendations of International Currency Fund.
Starting from January 1st, 2013 upper limit of the real estate tax rate will be increased to 3% instead of 1% and tax rates will be 0,3-3%. Municipality may set up several specific tax rates which are differentiated only on the basis of one or more of the following criteria: real estate purpose, use, legal status, its technical characteristics, maintenance status, taxpayer category (size or legal form, or social status) or location of the real estate in the municipality.
Furthermore, new edition of the Law on the Land Tax was adopted by the Lithuanian Parliament and will come into force since January 1st, 2013. The main idea of new amendments is to tax the land according to its market value, which shall be assessed for 5 years by the evaluation in a mass or individual way. The land tax rate limits shall be 0,01 – 4 % and the particular rate shall be assessed by municipalities. In comparison, now the land tax rate is 1,5 % from the value of the land. The difference is that according to the current law this value is not market value, but normative value, which usually does not correspond the real value and is much lower. Furthermore, the exemptions for the rural economy land would be applied. Normally, for the rural economy big territories are necessary and the economic benefit received from it is limited. Therefore, the 0,35 % value reduction coefficient shall be applied.
Regarding possible tax changes in 2013, the Lithuanian Ministry of Finance says it will not suggest fundamental changes. However, due to elections of the Lithuanian Parliament in October possible tax changes will depend on the new government. Discussions and proposals to impose cars tax and progressive taxation of income have been taking place for few years; therefore that is a question if the new government would make essential changes.