Topic 3 Key players in the taxation system

In 2019, there have been some changes to the tax system. In 2022, the rates apply to the main taxes paid by employees:

• State Social Insurance contributions (Sodra taxes): 19.5%;
• Personal Income Tax (PIT): 20% (if the salary does not exceed 60 average wages, i.e. €90,246 per year), 32% (if the salary exceeds 60 average wages);
• Supplementary pension saving: 2.7% (optional). From 2023 onwards: 3%.

Useful links:

State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania https://www.vmi.lt/evmi/en/home

Customs of the Republic of Lithuania https://lrmuitine.lt/web/guest/titulinis#en

The State Social Insurance Fund Board under the Ministry of Social Security and Labour https://www.sodra.lt/en/

Personal income tax (Gyventojų pajamų mokestis or GPM in Lithuanian) is deducted from your salary, as well as from other non-employment income (sale of assets, etc.). For those working under an employment contract, personal income tax is deducted from wages (by the employer), while self-employed workers pay it themselves. Income from employment is taxed at a rate of 20% (32% if the income exceeds 60 average wages). Income from self-employment is taxed at 15%. Sickness benefits (including those paid by the employer), maternity, paternity, parental and long-term employment benefits are taxed at 15%. GPM is payable by permanent residents of Lithuania who have received income and by non-permanent residents of Lithuania who pay GPM on income sourced in Lithuania.

Further information: https://finmin.lrv.lt/en/competence-areas/taxation/main-taxes/personal-income-tax

VAT is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption. It is a tax paid by consumers. The standard VAT rate in Lithuania is 21 %. The reduced VAT rates are as follows: 0%, 5 % and 9%.

Further information: https://www.vmi.lt/evmi/en/pridetines-vertes-mokestis2

This tax is payable by all legal entities in Lithuania that make a certain amount of profit. The exact amount of tax payable is based on the company’s costs, sometimes taking into account activities such as charitable donations, research, investment in production.

The standard rate of corporation tax is 15 per cent.

Subject to tax:

All income of a Lithuanian entity sourced inside and outside of the Republic of Lithuania:

• earned in the Republic of Lithuania;
• earned in foreign states.

Income from economic activities carried out by a Lithuanian entity through permanent establishments located in a State of the European Economic Area (EEA) or in a State with which Lithuania has concluded and brought into force a treaty for the avoidance of double taxation (TADT) is not subject to tax in cases where in accordance with the prescribed procedure, income from economic activities carried out through these permanent establishments is subject to corporate income tax or equivalent thereto in those states.

Further information: https://www.vmi.lt/evmi/en/pelno-mokestis2

The main purpose of the state social insurance system is to guarantee income to insured persons in the event of incapacity for work due to sickness, maternity, old age, disability or other causes. These taxes are paid by both the employer and the employee. Together, the national social security contributions amount to 40% of the ‘paper’ salary. VSD is also payable by self-employed workers, those with business licences, authors’ contracts, athletes, performers and others.

In order to be entitled to benefits under the social insurance scheme, the person must be employed or self-employed and pay contributions. The State Social Insurance Fund Board and its local offices include these persons on the social insurance registry. All branches of the Lithuanian social insurance system are compulsory for employees, but only some of them (pension and health care) are for self-employed persons. Self-employed persons can join other branches voluntarily.

Further reading: https://socmin.lrv.lt/en/activities/social-insurance-1/social-insurance-contributions

Source of picture: https://www.pexels.com/photo/tax-documents-on-the-table-6863332/

The PSD entitles people to health insurance free of charge (for most services). If person is not insured, he/she has to pay for medical services.

The following persons are automatically covered by compulsory health insurance:

• Persons employed under an employment contract
• Minors
• Pensioners
• Unemployed persons registered with the Employment Service
• Persons on maternity or parental leave
• Students
• Socially disadvantaged person
• Other disadvantaged persons belonging to special groups
• Carers who meet the conditions

Contract employees do not need to pay any extra fees as the tax is automatically deducted from their salary.

More information available only in Lithuanian: https://www.vmi.lt/evmi/en/privalomojo-sveikatos-draudimo-toliau-psd-%C4%AFmokos

Permanent residents of Lithuania have the duty to declare their income and taxes paid each year until May 1 for the previous year.

Income received not only in Lithuania but also abroad should be declared, but only if the person is considered a permanent resident of Lithuania during the period for which the income is declared:

• the person’s permanent (declared) place of residence is in Lithuania; or
• the person’s place of personal, social or economic interests during the tax period is in Lithuania rather than abroad; or
• the person stays continuously or intermittently for 183 days or more per year; or
• other. in the cases provided for in Article 4 of the Personal Income Tax.

The Lithuanian State Tax Inspectorate (VMI) exchanges information annually with the tax inspectorates of other Member States of the EU and the European Economic Area (EEA) on the details of these declarations.

The annual income tax return can be submitted via the VMI electronic declaration system (by logging in via e-banking). However, filing an income tax return can be a rather complicated process, so it can also be done by visiting a territorial unit of the VMI with the help of VMI staff.

VMI electronic declaration system: https://deklaravimas.vmi.lt/en/Pradinis_Prisijungimo_puslapis/Prisijungimasperisorinessistemas.aspx

Contacts: https://www.vmi.lt/evmi/en/aptarnavimo-skyriai