Tax on property income in Lithuania
Taxation Researcher | January 09, 2019
Effective Tax Rate on Rental Income
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Nonresidents are taxed on their Lithuanian-sourced income. Married couples are taxed separately.
The tax year is the calendar year. Income is taxed in the year in which it is actually received.
Income is generally subject to income tax at a flat rate of 15%. Dividends are subject to income tax at a flat rate of 15%. Income from individual business activity is subject to income tax at a flat rate of 5%.
A 15% flat tax rate is imposed on the gross rental income of individuals.
Business Certificate and Individual Activities
This is an alternative way of treating income, which requires the purchase of a Business Certificate for up to €1,043 (not to be confused with company formation, which is different and offers few advantages). The amount depends on the location of immovable property and the validity period of the Business Certificate. In this case, the nonresident property owner can only rent out to individuals.
There are no special capital gains taxes in Lithuania; capital gains are treated as ordinary taxable income and subject to the income tax rate of 15%. Capital gains from the sale of registered real property, except for property used in individual activities, owned for at least three years are tax exempt.
VALUE ADDED TAX (VAT)
Letting and leasing of residential immovable property is generally VAT-exempt, except in the following circumstances:
- Provision of accommodation in hotels, motels, camping sites, or in sectors with a similar function
- Letting of other residential premises for a period not exceeding two months
- Letting of premises, sites, garages for parking or keeping any means of transport (including aircraft, ships, rolling stock) or other property with a similar function, immovable by its nature
- Letting of any permanently installed equipment (falling within the concept of property immovable by their nature
The sale of a new building is subject to VAT at the rate of 21%. A new building is defined for VAT purposes as an unfinished building or structure as well as a finished building or structure for a period of 24 months following its completion or following substantial improvement.
The sale of real estate owned for more than 24 months or two years is also VAT-exempt. Exemption from VAT is also granted on the sale or any other transfer of land (except for land transferred together with a new building that has been used for less than two years, and land for construction) where, under the contract conditions, the person to whom land is transferred, or a third party, acquires the right to land at their disposal as an owner.
However, a Lithuanian taxable person has the right to elect to render a sale of real property or letting of real estate as subject to VAT if the real property is sold or leased to another taxable person subject to VAT and such election is declared to the tax administrator. This option is valid for not less than 24 months for all transactions concluded by a taxable person and related to the sale and lease of immovable property.
CORPORATE INCOME TAX
Income and capital gains realized by corporate entities are taxed at a flat rate of 15%. Income-generating expenses are deductible when computing for the taxable income. A 15% withholding tax is levied on rental income from real property and sales of real property by foreign entities.
A foreign company that owns real estate in Lithuania should not be considered to constitute a permanent establishment (PE), if it does not use the real estate in commercial activities. It should be noted, however, that where there is a double tax treaty in force between Lithuania and the foreign country, the provisions of that treaty should be considered.
Where a permanent establishment is deemed to exist, the foreign company is subject to broadly the same taxation regime as a Lithuanian resident entity.
Depreciation. The depreciation of buildings and other structures is calculated separately for each asset. Generally, buildings may be depreciated over periods from 6 years to 30 years. New buildings may be depreciated using either a straight-line or double-declining balance method. All other buildings may be depreciated using only straight-line method.
Nonresidents are subject to land tax with respect to land they own located in Lithuania. The annual land tax rate ranges from 0.01% to 4% of the taxable value, which is determined according to the rules established by the government. The applicable tax rate, assessment and payment terms are set forth by the municipalities, which are also entitled to grant land tax incentives.
Real Estate Tax
Real estate located in Lithuania is subject to real estate tax, and the applicable rate ranges from 0.3% to 3%. For individuals, real estate tax is levied at a flat rate of 1% and the tax base is the taxable value of the property exceeding LTL1 million (approximately €290,000). The taxable value is deemed to be the average market value determined by mass valuation according to the major purpose and location of the property, or the replacement value in respect of some groups of immovable property.
Taxpayers may request to apply a value obtained by their own valuation if such value differs by more than 20% from the average market value or the replacement value. The municipalities are entitled to reduce the tax or to grant exemptions.