Lithuania: Living There - Tax Issues

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INDIVIDUAL TAXATION

Residents are taxed on their worldwide income. Married couples are taxed separately.

INCOME TAX

Residents can deduct interest expenses, educational expenses, and IT expenses before arriving at their taxable income but these deductions must not exceed 25% of the taxpayer’s aggregate taxable income. But these deductions don’t apply to the income generated under a business certificate.

Deductible educational expenses of the taxpayer are principal and interest of study loans as well as financing for his higher educational studies. Acquiring a personal computer and computer software are tax-deductible up to LTL4,000 (€1,158).

Residents are entitled to basic personal allowances (tax-free amount), which are adjusted annually for inflation. The tax-free amount depends on the family circumstances of the taxpayer. These personal allowances are deducted from the employment income but any excess can be applied to the taxpayer’s other income.

The basic allowance is LTL320 (€93) per month. For parents with three or more children less than 18 years old, the basic monthly allowance is LTL475 (€138), with an additional LTL50 (€15) each subsequent child after the third child.

A special basic allowance of LTL370 (€107) per month is given to single parents with three or more children less under 18. These taxpayers are granted an additional LTL60 (€17) for each subsequent child after the first child.

Furthermore, an allowance of LTL420 (€121) is granted to disabled individuals and an increased allowance of LTL475 (€138) is given to seriously disabled taxpayers.

Rental Income Tax

A 15% flat tax rate is imposed on the gross rental income of individuals.

Payments on loan interest for housing are tax deductible as long as they do not exceed 25% of the taxpayer’s total income. For loans taken out after 19 October 2006, loan interest on only one immovable property would be deductible. The basic non-taxable allowance is €1,112 a year.

Business Certificate and Individual Activities

This is an alternative way of treating income, which requires the purchase of a Business Certificate for €174 (not to be confused with company formation, which is different and offers few advantages). The amount depends on the location of immovable property and the validity period of the business certificate.

In this case, the property can only be leased to individuals. The resident can either be taxed on his net profits at a flat rate of 24% as of 01 January 2008 or on his gross income at 15%.

If the individual chooses to be taxed on their net profits, depreciation and other income-generating expenses are deducted from the gross income to arrive at the taxable amount.

Capital Gains

There are no special capital gains taxes in Lithuania; capital gains are treated as ordinary taxable income. Capital gains from the sale of registered real property owned for at least three years are tax exempt. Otherwise, net income gained from the sale of property is taxed at 15%.

The acquisition cost and incidental expenses (such as commissions, taxes and duties) are deducted from the selling price. Maintenance and repair costs are also deductible. The allowable deductions must be supported by documents.

VAT

VAT is generally levied at a flat rate of 18%.

Letting and leasing of residential immovable property is VAT exempt, except in the following circumstances:

• Provision of accommodation in hotels, motels, camping sites, or in sectors with a similar function
• Letting of other residential premises for a period not exceeding two months
• leasing of residential premises where the right of ownership to the leased premises may pass to the lessee or the third party not later than upon the expiry of the lease or upon the payment of last installment.

The sale or transfer of immovable property used for more than two years is also VAT exempt.

Generally individuals engaged in individual activities would have to calculate VAT on the property being sold if, e.g. land for construction or new buildings (used for less than two years) are sold, and the amount of income received during the last 12 months exceeds LTL100,000 (€28,962).

CORPORATE TAXATION

Income Tax

Income and capital gains realized by corporate entities are taxed at a flat rate of 15%. Income-generating expenses are deductible when computing for the taxable income.

PROPERTY TAX

Land Tax

A 1.5% land tax is levied on private owners of landed estate in Lithuania.

Real Estate Tax

Real estate (immovable) tax, which ranges from 0.3% to 1%, is levied on all immovable property (excluding land) in Lithuania. Taxpayers include legal persons in Lithuania and foreign nationals who own properties in Lithuanian territory.

Lithuania - more data and information

• Lawyers (attorneys) with property law practices in Lithuania

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