Lithuania - Taxation
Lithuania has one of the most liberal tax regimes in Europe. The corporate income rate was reduced from 24% to 15% as of 1 January 2002. Enterprises which derive at least half of their revenue from agricultural goods and services can qualify for a 0% corporate tax rate. Small enterprises with gross income of less than €144,810 (LTL 500,000) and have no more than 10 employees are taxed, as of 2002, at 13% of profits, down from 15%. Capital gains are considered part of corporate income and are taxed at the corporate rate. Dividends are generally taxed at 15% but if paid to a nonresident company that owns more than 10% of its voting shares (i.e., its parent company), there is no tax. This provision is not applicable to companies operating in Free Economic Zones (FEZs), which offer 80% reduction in the corporate income tax rate for the first five years, and a 50% reduction for an additional five years. The statutory withholding rates are 15% for dividend income and 10% for interest and royalty. Withholding rates on capital income are often reduced to 10% and 5% in bilateral double tax prevention treaties between Lithuania and other countries.
Lithuanian personal income tax law make a distinction between income from one's principal place of employment, which is taxed at a flat rate after extensive deductions, and income from supplemental sources, which is taxed according to a progressive schedule of brackets ranging from 10% to 35%. The flat rate for principal income was 33% in 2002 and reduced to 29% for 2003. Deductions from income for the primary flat tax include a non-taxable minimum which is higher for disabled persons, single parents and other specified groups, plus all social security and social assistance payments, death benefits, court awards, gifts, allowances for insurance payments, charity donations, and most payments to pension accounts. The lowered flat tax rate in 2003 was accompanied by the introduction of a 1.5% real estate tax. Gifts and inheritances are taxed at 0%, 5% and 10% depending on the amount involved.
The main indirect tax is Lithuania's value-added tax (VAT) enacted 22 December 1993 and most lately revised in 1 July 2002 for application in 2003. There is a base rate of 18%, applicable to most goods and services, and three reduced rates; 5% and 9% rates are applied to foodstuffs and "environmentally friendly" products as well as to newspapers, journals, newspaper paper, drugs and medicines that have previously been exempt for VAT. Exports and services for non-residents and pertaining to non-resident property, including tourist, travel agency, international passenger and real estate services, have 0% VAT rates. There are also excise duties on ethyl alcohol and alcoholic beverages, tobacco and fuels. However, by the new Law on Excise Duties of 1 July 2002 excise taxes on jewelry, electrical energy, coffee, chocolate, and other food products have been abolished, and turnover taxes have replaced excises on sugar, luxury cars, liquid cosmetics containing ethyl alcohol, and publications of an erotic and/or violent nature. In 1999, the government introduced a pollution tax on packets to encourage the recycling of packaging material.