Lithuania: Overview

RENTAL YIELDS

Yields are lowish in Vilnius

Vilnius gross rental yields are low, at around 4% - 5%, due to past appreciation of property prices and to the fact that rents have not been rising as fast as prices. Unusually, suburban houses yield rather more, at around 6.3% to 7%.

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TAXES AND COSTS

Income tax can be avoided in Lithuania

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	2.9%	4.3%	4.9%
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Rental Income: Rental income tax is moderate at 15% of the gross income, with basic non-taxable allowance at €1,112 a year.

Capital Gains: Capital gains are treated as ordinary taxable income.

Inheritance: The inheritance tax rate is 5% for property up to LTL500,000 (€144,810). Otherwise, the tax rate is 10%.

Residents: Residents are entitled to basic personal allowances, which are adjusted annually for inflation.

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BUYING GUIDE

Transaction costs are low in Lithuania, except for new buildings

Roundtrip transaction costs, i.e., the cost of buying and selling property, are generally low at 2.3 - 5%. However, buildings sold within 24 months of completion are subject to 18% VAT. The seller typically pays the real estate agent’s fee, which ranges from 1.5% to 3%, plus 18% VAT.

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LANDLORD AND TENANT

Lithuania law is mildly pro-tenant

Rent: Rents can be freely negotiated between landlord and tenant. If the tenant cannot agree the renewal terms with the landlord, he may go to court for arbitration of the amount of rent.

Tenant Security: Upon expiration of a contract the tenant has the ‘priority right’ to renew for a new term, which will be for twelve months.

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ECONOMIC GROWTH

Another successful transition in the Baltic

Lithuania, with a population of 3.4 million is the most populous and largest among the Baltic States. Vilnius, the capital of Lithuania, enjoys the rather fascinating distinction of being the geographical center of continental Europe. Although quite far from the sea ports of Lithuania, it is on an important route from the sea country’s main port to Belarus, Russia, and Poland and other mainland European countries.

After its independence from USSR in 1990, Lithuania emerged as one of the most successful transition states coming from the Third Wave (of democratization). Lithuania enjoys an economy unburdened with government restrictions and a stable currency against the Euro.

Lithuania is one of the EU’s fastest-growing economies. GDP growth since 2001 has been an impressive annual 7.5%; in 2006 GDP growth was 7.5%, following 7.6% in 2005. GDP per capita doubled since independence to around US$10,000 in 2007. Inflation was 3.8% in 2006, up on 2005’s level of 2.7%.

With its ascension to EU and NATO in 2004, Lithuania strengthened its economic prospects. However, there are some signs of strain. Latvia and Estonia, the two other Baltic States, are winning out over Lithuania as destinations for Greenfield investment projects. The government’s corruption-ridden bureaucracy and slow decision-making are not attractions.

The mortgage market has been fast developing, the maximum lending period is now 25 or 40 years. 80% of all purchases are done with the aid of mortgage loans, and the development of the mortgage market is having a significant impact on prices. Credit may be granted for up to 95% of a property’s value. Still, outstanding mortgage loans in Lithuania only accounted for 1.4% of annual GDP, compared to the EU average of 48% of GDP.