Taxation in Lithuania

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Taxes in Lithuania are levied by the central and the local governments. Most important revenue sources include the value added tax, personal income tax, excise tax and corporate income tax, which are all applied on the central level. In addition, social security contributions are collected in a social security fund, outside the national budget. Taxes in Lithuania are administered by the State Tax Inspectorate, the Customs Department and the State Social Insurance Fund Board. In 2019, the total government revenue in Lithuania was 30.3% of GDP. [1]

Contents

History of taxation in Lithuania

Before the 16th century, finances in the Grand Duchy of Lithuania were based on barter. The first taxes ( duoklė ("tribute"), dėkla (grain and hay trubite) and mezliava  [ lt ]) were paid in farm products. The first cash taxes were introduced during the reign of Kęstutis, although most taxes were still paid in goods (e.g., wheat, cattle, horses).

In the Polish–Lithuanian Commonwealth, a treasury court was established in 1591, followed by the treasury tribunal in 1613 that presided over tax cases until 1764. The taxes were set by Sejm. Taxes introduced in the 17th and 18th centuries included padūmė (tax on holdings), hiberna (tax for quartering), kvarta (tax on government estates) and pagalvė (pillow tax, payable per individual). [2] After the partitions of the Polish–Lithuanian Commonwealth the taxation system in Lithuania was subordinated to the respective partitioning powers. Taxes collected during this period were mostly on land, rents, trade and manufacture.

Taxes were again collected by the newly independent Lithuanian state after 1918. The Law on Taxes was introduced on 23 January 1919, followed by a number of additional tax laws. Taxes introduced included direct taxes (e.g., land tax, real estate tax, business tax, inheritance tax) and indirect taxes (e.g., excise taxes on drinks, tobacco, precious metals, as well as tariffs).

During the Soviet occupation, the Lithuanian financial system, including taxes, was integrated into the Soviet one. The personal income tax was progressive and ranged from 0.35 to 13 percent on income above the non-taxable amount. Local taxes were also collected: house and land ownership tax, as well as vehicle ownership tax.

The modern tax system in Lithuania was gradually reestablished in the early 1990s with the introduction of corporate income and personal income taxes in 1990, land tax in 1992 and the Law on Tax Administration in 1995, amongst a lot of other tax related legislation.

Modern tax system

The modern tax system in Lithuania is based on the Constitution of Lithuania. Articles 65 and 127 of the constitution enshrine two key tenets of the tax system: taxes can only be introduced by law and only Seimas can introduce tax laws. Key tax laws in Lithuania include Law on Tax Administration, Law on Customs and the individual laws for specific taxes. [3] The tax practice is also affected by international treaties, including numerous bilateral tax treaties for the Avoidance of Double Taxation to which Lithuania is part. As part of the European Union, taxation system in Lithuania is also heavily affected by European rules and regulations, particularly in the areas of VAT and tariffs.

The main principles of tax administration in Lithuania, as defined by law, are:

Tax revenue in the Lithuanian national budget by type of tax, 2020 Tax revenue of the national budget of Lithuania by the tap of tax (2020).svg
Tax revenue in the Lithuanian national budget by type of tax, 2020

Most taxes in Lithuania are administered by the State Tax Inspectorate, except social security and health insurance taxes which are administered by the State Social Insurance Fund Board and tariffs which are administered by the Customs Department. The Customs also administer the part of value added tax and excise duties where they relate to goods imported and exported. Some tax administration functions are also performed by the Ministry of Environment Protection and the Ministry of Agriculture.

The most important taxes collected in Lithuania include the personal income tax, corporate income (profit) tax, value added tax and excise tax which together accounted for 96.7% of tax revenue or 78.4% of total revenue in the national budget (including municipal budgets) in 2020. [4] All of these taxes are collected in the state budget, although a part of the personal income taxes collected from individuals are allocated to the municipality where that individual resides. The rules for this allocation are approved annually. Taxes on property are allocated fully to municipal budgets.

In 2019, the total government revenue in Lithuania was 30.3% of GDP. [1] Such ratio is slightly below the OECD average of 33.8%, but higher than of several other developed economies such as USA, Australia and Switzerland. [5]

Total receipts from taxes and social contributions as % of GDP Total receipts from taxes and social contributions as %25 of GDP.png
Total receipts from taxes and social contributions as % of GDP

Taxes levied

Personal income tax

Personal income tax (Lithuanian : Gyventojų pajamų mokestis or GPM) [6] is levied on residents and certain non-residents. Residents are taxed on their worldwide income, including income from employment, self-employment, investment income and capital gains. Non-residents may be taxed on certain types of income deemed to originate in Lithuania, including employment income, interest, income from distributed profit and income arising from real estate or other property. Relief from double taxation is available in some cases. [7]

There is an income tax threshold (Lithuanian: Neapmokestinamasis pajamų dydis or NPD). Basic tax rate for income from employment is 20% and the higher rate is 32%. [6] Income from dividends is taxed at a rate of 15%. Tax rate varies for other types of income. Thresholds are adjusted annually based on the national average wage and overall rates may also depend on personal circumstances (number of children, disability reliefs, etc).

Social security contributions

Contributions to the social security fund are due on income from employment. They are paid to the State Social Insurance Fund Board (Lithuanian: Valstybinio socialinio draudimo fondo valdyba or Sodra) and are colloquially known as the Sodra taxes (Lithuanian: Sodros mokesčiai). They consist of two main taxes: state social insurance (Lithuanian: Valstybinis socialinis draudimas or VSD) and compulsory healthcare insurance (Lithuanian: Privalomasis sveikatos draudimas or PSD). Generally, all residing citizens and permanent residents are required to pay the compulsory healthcare insurance (PSD) contributions. [8]

As of 2021, employee contributions are withheld from the salary at a rate of 19.5%-22.5%, depending on the chosen contributions to different pillars of the pension funds. This includes 6.98% tax rate of the compulsory healthcare insurance (PSD). The employer contributions are usually 1.77%, but may vary (0.14%-2.49%) depending on the type of employment, industry, activity type, etc. [9] Individuals other than employees, including the self-employed, sport persons, artists and farmers, may be subject to social security contributions at different rates. Social security contributions have a "ceiling" (Lithuanian: Sodros įmokų lubos) i.e. a threshold after which the contributions are not deducted. [10]

In general, income tax and the social security contributions might take about 40% of the gross salary. [11]

Corporate income tax

Corporate income tax (Lithuanian: Pelno mokestis, literally profit tax) [12] is levied on Lithuanian companies, companies operating in Lithuania through a permanent establishment, and non-resident companies. Lithuanian companies are taxed on their worldwide income, allowing for deduction for income generated through permanent establishments in other countries in accordance with international treaties. Companies operating in Lithuania through a permanent establishment are taxed on the profit attributed to such permanent establishment. Non-resident companies are taxed on certain income that is considered to originate in Lithuania, such as dividends, interest and royalties, although exceptions exist. [13]

Most companies are taxed at a rate of 15%. [12] The rate of 5% is applied for small companies and agricultural enterprises, as defined by law. Startups enjoy the rate of 0% for the first fiscal year (if income does not exceed 300 000 EUR). The rate of 10% is applied on the interest and royalty income paid to non-resident companies. Non-profit organisations, social enterprises, businesses engaged in shipping or some other activities may be taxed on a different basis. Participation exemption applies to dividend paid/received from closely held companies and capital gains from shares of closely held companies, as defined by law.

Value added tax

Standard VAT rates in Lithuania
VAT RateAs of
18%1/05/1994
19%1/01/2009
21%1/09/2009

The value added tax (Lithuanian: Pridėtinės vertės mokestis or PVM) [14] is levied on goods and services that are subject to VAT according to law. The VAT in Lithuania is part of the European Union value added tax system.

The standard VAT rate in Lithuania is 21%. [14] Certain goods and services are subject to reduced VAT rates of 9% (e.g., most books, periodicals and passenger transportation services), 5% (e.g., medicines, medical equipment, equipment for disabled, etc) and 0% (e.g., international transportation). [15] Certain goods and services are exempt from VAT (e.g., financial services). [14]

Excise tax

Excise taxes (Lithuanian: Akcizo mokesčiai) [16] in Lithuania are applied on imported or locally manufactured and sold products:

Excise tax rates are set by law and have changed frequently, driven by the minimum tax rates required by European Union, as well as local budgetary and public interest considerations, as the tax contributes significantly to the national budget, while many of the products taxed (i.e., alcohol and tobacco products) have negative effects on public health.

As of 2015, the excise tax rates on tobacco products were due to meet the minimum rates required by the European Union by 2018. [17] The relatively low rates in Lithuania are mostly driven by the presence of a significant black market for cigarettes, which are illegally imported from Russia and Belarus.

At the same time, the excise taxes on alcohol products are substantially higher than the minimum levels required by European Union, exceeding them already in 2004, especially for spirits. The increases have been driven by budgetary and public health considerations (alcohol consumption in Lithuania is among the highest in Europe), [18] but have attracted criticism for contributing to the widespread black market. Beer, on the other hand, is relatively mildly taxed compared to other European countries. [19]

The black market for goods subject to excise tax has been cited as the main reason for the excise taxes in Lithuania failing to meet either budgetary or public health goals. The black market benefits from close proximity to Russia and Belarus, widespread tolerance among the population and the prices of legally available goods being high relative to income. Black market sales are estimated to constitute 33% of all sales for spirits (although only 4–5% for low-alcohol beverages that enjoy lower excise tax rates), 35% for cigarettes and 15 to 20% for vehicle fuel. Therefore, further increasing excise taxes beyond the minimum level set by European Union has been criticized as counter-productive. [19]

Other taxes

The Law on Tax Administration sets the list of 25 taxes (as of 2015) levied in Lithuania. Other than the taxes outlined above, they include taxes on real estate and land, natural resources, pollution, inheritance, lotteries and gambling, as well as fees for services provided by the government (e.g., registration of industrial property) and certain taxes in the sugar industry.

Related Research Articles

Excise tax in the United States is an indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are not uniform throughout the United States. Certain goods, such as gasoline, diesel fuel, alcohol, and tobacco products, are taxed by multiple governments simultaneously. Some excise taxes are collected from the producer or retailer and not paid directly by the consumer, and as such often remain "hidden" in the price of a product or service, rather than being listed separately.

<span class="mw-page-title-main">Taxation in the United Kingdom</span>

Taxation in the United Kingdom may involve payments to at least three different levels of government: central government, devolved governments and local government. Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty. Local government revenues come primarily from grants from central government funds, business rates in England, Council Tax and increasingly from fees and charges such as those for on-street parking. In the fiscal year 2014–15, total government revenue was forecast to be £648 billion, or 37.7 per cent of GDP, with net taxes and National Insurance contributions standing at £606 billion.

<span class="mw-page-title-main">Indirect tax</span> Type of tax

An indirect tax is a tax that is levied upon goods and services before they reach the customer who ultimately pays the indirect tax as a part of market price of the good or service purchased. Alternatively, if the entity who pays taxes to the tax collecting authority does not suffer a corresponding reduction in income, i.e., impact and tax incidence are not on the same entity meaning that tax can be shifted or passed on, then the tax is indirect.

In France, taxation is determined by the yearly budget vote by the French Parliament, which determines which kinds of taxes can be levied and which rates can be applied.

Taxation in Greece is based on the direct and indirect systems. The total tax revenue in 2017 was €47.56 billion from which €20.62 billion came from direct taxes and €26.94 billion from indirect taxes. The total tax revenue represented 39.4% of GDP in 2017. Taxes in Greece are collected by the Independent Authority for Public Revenue.

This is a list of the maximum potential tax rates around Europe for certain income brackets. It is focused on three types of taxes: corporate, individual, and value added taxes (VAT). It is not intended to represent the true tax burden to either the corporation or the individual in the listed country.

Due to the absence of the tax code in Argentina, the tax regulation takes place in accordance with separate laws, which, in turn, are supplemented by provisions of normative acts adopted by the executive authorities. The powers of the executive authority include levying a tax on profits, property and added value throughout the national territory. In Argentina, the tax policy is implemented by the Federal Administration of Public Revenue, which is subordinate to the Ministry of Economy. The Federal Administration of Public Revenues (AFIP) is an independent service, which includes: the General Tax Administration, the General Customs Office and the General Directorate for Social Security. AFIP establishes the relevant legal norms for the calculation, payment and administration of taxes:

Taxation in Finland is mainly carried out through the Finnish Tax Administration, an agency of the Ministry of Finance. Finnish Customs and the Finnish Transport and Communications Agency Traficom, also collect taxes. Taxes collected are distributed to the Government, municipalities, church, and the Social Insurance Institution, Kela.

Taxation in Norway is levied by the central government, the county municipality and the municipality. In 2012 the total tax revenue was 42.2% of the gross domestic product (GDP). Many direct and indirect taxes exist. The most important taxes – in terms of revenue – are VAT, income tax in the petroleum sector, employers' social security contributions and tax on "ordinary income" for persons. Most direct taxes are collected by the Norwegian Tax Administration and most indirect taxes are collected by the Norwegian Customs and Excise Authorities.

Taxes in Germany are levied by the federal government, the states (Länder) as well as the municipalities (Städte/Gemeinden). Many direct and indirect taxes exist in Germany; income tax and VAT are the most significant.

Taxation in Estonia consists of state and local taxes. A relatively high proportion of government revenue comes from consumption taxes whilst revenue from capital taxes is one of the lowest in the European Union.

The United Arab Emirates is a federation of seven Emirates, with autonomous federal and local governments. The UAE has historically been a low-tax jurisdiction. The federal government and local governments are entitled to levy taxes on citizens and companies. The federal government currently levies a value added tax, corporate income tax, and excise taxes. Some emirates levy property, transfer, excise and tourism taxes. Some emirates also charge corporate taxes oil companies and foreign banks.

Taxes in Portugal are levied by both the national and regional governments of Portugal. Tax revenue in Portugal stood at 34.9% of GDP in 2018. The most important revenue sources include the income tax, social security contributions, corporate tax and the value added tax, which are all applied at the national level.

Taxes in Bulgaria are collected on both state and local levels. The most important taxes are collected on state level, these taxes include income tax, social security, corporate taxes and value added tax. On the local level, property taxes as well as various fees are collected. All income earned in Bulgaria is taxed on a flat rate of 10%. Employment income earned in Bulgaria is also subject to various social security insurance contributions. In total the employee pays 12.9% and the employer contributes what corresponds to 17.9%. Corporate income tax is also a flat 10%. Value-Added Tax applies at a flat rate of 20% on virtually all goods and services. A lower rate of 9% applies on only hotel services.

Czech Republic's current tax system was put into administration on 1 January 1993. Since then, an updated VAT act was introduced on 1 May 2004 when Czech Republic joined the EU and the act had to correspond to EU law. In 2008, the administration also introduced Energy Taxation. Changes to tax laws are quite frequent and common in the Czech Republic due to a dynamic economy. The highest levels of revenue are generated from income tax, social security contributions, value-added tax and corporate tax. In 2015, total revenue stood at CZK 670.216 billion which was 36.3% of GDP. The tax quota of the Czech Republic is lower than the EU average. Compared to the averages of the OECD countries, revenues generated from taxes on social security contributions, corporate income and gains and value added taxes account for higher proportions of total taxation revenue. Personal income tax lies on the other end of the spectrum where the revenue is proportionally much lower than the OECD average. Taxes on property also account for lower levels of revenue.

Taxation in Belgium consists of taxes that are collected on both state and local level. The most important taxes are collected on federal level, these taxes include an income tax, social security, corporate taxes and value added tax. At the local level, property taxes as well as communal taxes are collected. Tax revenue stood at 48% of GDP in 2012.

Taxation in Malta is levied by the State and it is administered by the Commissioner for Revenue. The total tax revenues in 2014 amounted to €2.747 Billion, which represents 34.6% of the Maltese GDP. The main sources of tax revenue were value-added tax, income tax, and social security contributions.

<span class="mw-page-title-main">Value-added tax</span> Form of consumption tax

A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. If the ultimate consumer is a business that collects and pays to the government VAT on its products or services, it can reclaim the tax paid. It is similar to, and is often compared with, a sales tax. VAT is an indirect tax because the person who ultimately bears the burden of the tax is not necessarily the same person as the one who pays the tax to the tax authorities.

The organization responsible for tax policy in Ukraine is the State Fiscal Service, operating under the Ministry of Finance of Ukraine. Taxation is legally regulated by the Taxation Code of Ukraine. The calendar year serves as a fiscal year in Ukraine. The most important sources of tax revenue in Ukraine are unified social security contributions, value added tax, individual income tax. In 2017 taxes collected formed 23% of GDP at ₴969.654 billion.

Kenya's taxation system covers income tax, value-added tax, customs and excise duty. The regulations are governed by independent legislators that govern the taxation system, the main legislator, the Kenya Revenue Authority (KRA) has different sections that deal with the above taxes while also having the authority to undertake reviews on various companies and corporations. The main goal of the system is to enhance tax compliance through simplified and efficient tax administration.

References

  1. 1 2 "Revenue Statistics 2020 - Lithuania". OECD Centre for Tax Policy and Administration. Retrieved January 30, 2021.
  2. ↑ "Mokesčių administravimo raida Lietuvoje". State Tax Inspectorate. Retrieved 16 April 2015.
  3. ↑ Puzinskaitė, Egidija; Klišauskas, Romanas (2012). "Mokesčių teisės sistema ir apmokestinimo principai". Jurisprudencija. Mykolo Romerio universitetas. 19 (2): 675–695. Retrieved 16 April 2015.
  4. ↑ "2020 m. Valstybės biudžeto ir savivaldybių biudžetų konsoliduota visuma" (PDF). Ministry of Finance of the Republic of Lithuania. Retrieved 30 January 2021.
  5. ↑ "OECD Data - Tax revenue". Organisation for Economic Co-operation and Development. Retrieved January 30, 2021.
  6. 1 2 "Personal Income Tax". State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania. Retrieved January 30, 2021.
  7. ↑ "2014-15 Worldwide Personal Tax Guide. Lithuania". EY. Archived from the original on 27 April 2015. Retrieved 15 April 2015.
  8. ↑ "Compulsory health insurance contributions". National Health Insurance Fund under the Ministry of Health. Retrieved January 30, 2021.
  9. ↑ "Contribution rates for employees - Rates in 2021". The State Social Insurance Fund Board under the Ministry of Social Security and Labour. Retrieved January 30, 2021.
  10. ↑ "International Tax, Lithuania Highlights 2020" (PDF). Deloitte. Retrieved January 30, 2021.
  11. ↑ "Taxes". Migration Information Centre "I Choose Lithuania". Retrieved January 30, 2021.
  12. 1 2 "Corporate income tax". State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania. Retrieved January 30, 2021.
  13. ↑ "2014-15 Worldwide Corporate Tax Guide. Lithuania". EY. Retrieved 15 April 2015.
  14. 1 2 3 "Value Added Tax". State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania. Retrieved January 30, 2021.
  15. ↑ "VAT Rates Applied in the Member States of the European Union" (PDF). European Commission. Retrieved 15 April 2015.
  16. ↑ "Excise Duties". State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania. Retrieved January 30, 2021.
  17. ↑ "Didės alkoholio ir tabako akcizai". Kauno Diena. 25 November 2015. Retrieved 20 April 2015.
  18. ↑ "Global status report on alcohol and health 2014. APPENDIX I Alcohol consumption" (PDF). World Health Organization. Retrieved 20 April 2015.
  19. 1 2 "Akcizų mokestis Lietuvoje" (PDF). UAB „Ekonominės konsultacijos ir tyrimai”. Retrieved 20 April 2015.
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