Lithuania Tax & Business Guide - Deloitte

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Basic facts
Population 3.4m Inflation 3.8% (2006)
Main languages Lithuanian, Russian, Polish GDP per head US$8,760
Currency Lithuanian litas (LTL) GDP growth 7.5% (2006)
Economic communities European Economic Area, EU, WTO
GDP sources 5.5% agriculture, 35.0% industry, 60.0% services
Political environment

Lithuania is a parliamentary democracy with a directly elected president.

A four-party coalition government comprising the Social Democratic Party (LSP), the Peasant Nationalists (LVL), the Liberal and Centre Union (LCS) and Civic Democracy, led by Gediminas Kirkilas of the LSP, took office in July 2006. The next elections are due by October 2008 (legislative) and June 2009 (presidential).
Foreign trade and investment
Exports US$14.1bn (2006) Imports US$18.3bn (2006)

Leading exports: Oil and other mineral products, machinery and transport, textiles, chemicals, electronics and furniture.

Major export (import) markets: Russia, Germany, Poland, Latvia, Estonia and the Netherlands.

Foreign firms enjoy the same rights and obligations as domestic companies, with the exception that they cannot buy agricultural land. The government attracts foreign investment through the development of industrial parks near important centres.

Vilnius is the major economic centre of Lithuania, as well as its capital, and one of the largest financial centres of the Baltic States.
Business and financing
Business forms Public/private companies and partnerships

Foreign enterprises may establish subsidiaries in Lithuania as legal entities (that is, public or private companies), or open a branch or representative office, which are not considered legal entities. The minimum authorised capital of a public company is LTL 150,000 (ƒ43,400), and the minimum authorised capital of a private company is LTL 10,000 (ƒ2,900). A private company may not have more than 250 shareholders.

Lithuanian law also recognises a partnership as a separate business entity. Partnerships may be general or limited, and there is no minimum authorised capital or minimum number of members required.
Labour environment
Unemployment rate 3.4% (2006)* Minimum wage LTL 700 (monthly)
*Economist Intelligence Unit estimate.

Only about 10% of the workforce is unionised.

Employers make social security contributions of 31% and employees contribute 3%.
Taxation
Corporate income tax
Main rate 15%/13% (2007)

Lithuanian entities are subject to tax on their worldwide income; non-resident entities are subject to tax only on income sourced in Lithuania. A commercial enterprise registered under Lithuanian law is regarded as a Lithuanian entity for tax purposes. The corporate income tax rate is 15%, but under incentive legislation certain companies may be entitled to a reduced rate of 13%. A temporary social tax of 3% applies, bringing the effective rate to 18%. The surtax is set to be abolished on January 1st 2008.

Dividend distributions by a resident company to another company are subject to a 15% withholding tax, but a participation exemption applies where the beneficiary owns more than 10% of the shares of the payor for an uninterrupted period of 12 months. Crossborder payments of interest are subject to a 10% withholding tax, except for interest payments with respect to government securities issued in the international financial markets, and interest paid on deposits or for certain subordinated loans.
Personal income tax
Flat rate of 27% (2007)

Resident individuals are taxed on their worldwide income; non-residents are taxed only on Lithuanian-source income and on income derived from activities through a fixed base in Lithuania, including foreign-source income attributed to that fixed base. An individual is treated as a resident if the individual:

* Has a permanent place of residence in Lithuania during the tax period;
* Has personal, social or economic interests in Lithuania, rather than abroad, during the tax period;
* Is present in Lithuania for at least 183 days during the tax period, or is present in Lithuania for at least 280 days in consecutive tax periods and has stayed in Lithuania for at least 90 days in any of such tax periods; and
* Is a citizen of Lithuania who does not meet the criteria set out in the bullet point immediately above and who receives employment-related remuneration or whose costs of living in another country are covered by the state or municipal budgets of Lithuania (diplomats, consuls, etc).

Employment income is taxed at a flat rate of 27% (a 24% rate is expected to apply from January 1st 2008). A reduced rate of 15% applies to certain types of income, including income from distributed profits, interest, the sale or lease of property, individual activities (self-employment), among others.
Capital gains
Capital gains are taxed as income

Capital gains of resident companies, including permanent establishments, are taxed as general taxable income at a rate of 15%. In the case of non-residents, only capital gains on immovable property are taxed at 10%.

Individuals are taxed at 15% on gains from the disposal of property, including shares. Gains on the disposal of shares that have been held continuously for more than one year are exempt, subject to certain requirements, including that the ownership of the seller during the previous three years did not exceed 10% of the share capital. In addition, capital gains from the sale of immovable property located in the European Economic Area are exempt if owned for at least three years before the sale (unless the sale of immovable property constitutes the business activities of the individual).
Indirect tax
Standard rate 18% Lower rates 9%, 5%, 0%

Value-added tax (VAT) applies to most transactions. The standard rate is 18%. A reduced rate of 9% applies to the construction, renovation and insulation of residential houses financed with state and municipal budget resources. A reduced rate of 5% applies to passenger transport, books and newspapers, pharmaceuticals, hotel accommodation, certain foodstuffs, among others. Zero-rated items include the export of goods and some related services, international transport, supplies of ships and aircraft as well as supplies to EU member states. VAT-exempt items include education, healthcare, insurance and financial services; the lease of dwellings and other immovable property with the exception of hotels, motels, camps, etc; the sale or transfer of immovable property, with the exception of new buildings and land for construction purposes. Social, cultural, sporting, and radio and television services if supplied by non-profit entities are also exempt from VAT.

Registration is compulsory for Lithuanian businesses whose annual turnover exceeds LTL 100,000 (ƒ29,000), but voluntary registration is also possible. The turnover threshold does not apply to foreign companiesÛthey must register irrespective of turnover. Foreign taxable persons must register either through a local affiliate or through a fiscal agent. Only companies established in the EU member states may register directly.
Tax administration and compliance
Tax year Entities: financial year. Individuals: calendar year

Companies make advance payments of corporate income tax on a quarterly basis, with the final balance due on the same date as the annual tax return, that is, October 1st of the following tax year. Employment income is taxed by withholding at source. Individual tax returns are due by May 1st following the end of the tax year.
Additional tax information
Withholding taxes Dividends 15%, Interest and Royalties 10%. Rates may be reduced under an applicable tax treaty or by the application of EC directives.
Tax treaties Lithuania has concluded more than 40 tax treaties.
Dividends Dividends are taxable, but a participation exemption applies where the beneficiary has owned more than 10% of the shares for an uninterrupted period of 12 months.
Revenue protection Lithuania has anti-tax-haven legislation.
Groups There is no provision for group taxation.
Incentives Small enterprises; free economic zones; deductions from personal taxable income (contributions to private pension funds, life insurance, etc.)
Other taxes Customs duties, Excise tax, Land tax, Real estate tax, Tax on environmental pollution, Inheritance tax, State natural resources tax, Petroleum and gas resources tax.