Aug 192014

29% of GNP are redistributed in Lithuania through taxes (European Union average is 38%). While there are many different taxes in Lithuania only a few behemoth taxes brings in the state the most income.

The most important is Value Added Tax. Its rate is 21% and usually, when anything is sold in Lithuania this is added to the price (there is a mechanism of VAT return if the same thing is resold several times so that VAT is typically paid only once).

Personal income tax is officially 15%. This is only part of the story however as much of income taxation is formally considered to be other taxes. The true burden goes up to 40%-50% of work income. While nominally a flat rate the income tax is actually progressive as the untaxed portion gradually decreases as the salary increases. There are income tax discounts available for the self-employed.

Company income tax (known as Profit tax) is 15%, with additional 20% income tax on most dividends paid to natural persons (meaning 33% effective tax rate on dividends). Company income is taxed deducing expenses.

Fuels, electricity, tobacco and alcohol are additionally taxed by excise duties. The European Union typically requires high excise duties so Lithuania was forced to increase them. For this reason, car fuel in Lithuania is nearly double as expensive as in the USA where there is no excise (but the prices are still lower than Western Europe).

The Real Estate tax is paid only by companies and owners of real estate deemed expensive (0,3% to 3% of value annually). Land tax is paid by every freehold owner (0,01%-4%). Municipalities decide the actual percentage but the “value” here is the official value which may be lower than the market value. There are no other property taxes. Note that much of the commercial land in Lithuania is rented from the state for 99 years (leasehold) but these public rental rates are comparable to land tax.

There is no inheritance tax for the close-of-kin.

Augustinas Žemaitis

Tax advice and tax planning in Lithuania


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