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Pan Baltic tax system comparison (1.01.2023)
The Estonian tax system consists of national taxes and local taxes collected by local governments. National taxes include income tax, social tax, land tax, gambling tax, value-added tax, duty and excise taxes and heavy goods vehicle tax. Local governments have the authority to impose local taxes, however only few local governments have introduced local taxes, in particular: advertisement tax, tax for closing of streets, and parking fees.
Estonia as a member state of the European Union has implemented the EU tax directives, including the VAT Directive, Parent-Subsidiary Directive, Interest and Royalties Directive, Merger Directive, Anti-Tax Avoidance Directives (ATAD I and II), Directives on Administrative Cooperation (DAC I-VI) and is in the process of implementing ATAD III (entry into force as of 1 January 2025) and DAC VII (as of 1 January 2023).
Estonia is also a member of the OECD (Organisation for Economic Co-operation and Development) taking part of developing a global solution for the taxation for large digital technology multinationals and the introduction of a minimum income tax for companies. Also, majority of double taxation avoidance agreements are based on the OECD model agreement and Estonian transfer pricing regulation adheres from the OECD transfer pricing guidelines.
The Estonian tax system is simple and straightforward. Both private persons and companies are taxed at a flat 20% income tax rate (lower rates may apply in certain cases). Income of a company is not taxed until it is distributed to the shareholders or used for other than business purposes. Juridical double taxation is avoided by credit or exemption method.
The tax and duty system in Latvia consists of:
- State taxes
- State duties
- Municipal duties
- The taxes specified in the directly applicable European Union regulatory acts.
In Latvia, there are 15 taxes (even though in the name some of them are called duties or other), including Corporate Income Tax, Value-Added Tax, Excise Duties, Personal Income Tax, Immovable Property Tax, Customs Duty, Natural Resources Tax, Lottery and Gambling Tax, Social Security Contributions, Company Car Tax, Electricity Tax, Solidarity Tax, Micro-Enterprise Tax, Vehicle Operation Tax and Subsidised Electricity Tax.
Besides taxes there are State and Municipal duties. State duties are imposed in accordance with laws and regulations of the Cabinet of Ministers, and currently 56 types of State duties are defined in Latvia. Municipal duties are a mandatory payment set by the respective Municipal Council.
The City Council and the Parish Council (each being Municipal Council) have the right to impose Municipal Fees in their administrative territory for:
- Receipt of official documents developed by the Municipal Council and their certified copies
- Organising events of an entertaining nature in public places
- Receipt of vacationers and tourists
- Trading in public places
- Keeping of different kinds of animals
- Entry of vehicles into special regime zones
- Placement of advertisements, posters and announcements in public places
- Parking of boats, motorboats and yachts
- Use of municipal symbols
- Receipt of building permits
Latvia as a member of the European Union has implemented the EU Tax Directives including the VAT Directive, Parent-Subsidiary Directive, Interest and Royalties Directive, Merger Directive, Anti-Tax Avoidance Directives (ATAD I and II), Directives on Administrative Cooperation (DAC I - VI), and DAC VII (as of 1 January 2023).
Latvia is also a member of the OECD (Organisation for Economic Co-operation and Development) taking part of developing a global solution for the taxation for large digital technology multinationals and the introduction of a minimum income tax for companies. Also, majority of Double Taxation Avoidance Agreements are based on the OECD model agreement and Latvian transfer pricing regulation stems from the OECD Transfer Pricing Guidelines.
The Lithuanian tax system consists of national taxes and local taxes collected by municipalities. The most important taxes collected by the central government are corporate and individual income taxes, excise duties, social security contributions, immovable property tax, land tax, lotteries and gambling tax, value-added tax, duties, taxes for environmental pollution and other taxes.
Lithuania as a member state of the European Union (EU) has implemented the EU tax directives, including the VAT Directive, Parent-Subsidiary Directive, Interest and Royalties Directive, Merger Directive, Anti-Tax Avoidance Directives (ATAD I and II), Directives on Administrative Cooperation (DAC I-VI) and is in the process of implementing ATAD III and DAC VII.
Lithuania is also a member of Organisation for Economic Co-operation and Development (OECD) taking part of developing a global solution for the taxation for large digital technology multinationals and the introduction of a minimum income tax for companies. Also, majority of double taxation avoidance agreements are based on the OECD model agreement and Lithuanian transfer pricing regulation adheres from the OECD transfer pricing guidelines.
Estonian corporate income tax system differs from traditional corporate tax systems by way of deferring the moment of taxation from earning the profit to distributing the profit. Consequently, retained profits of a company are not taxed until they are distributed as dividends or pay-outs equivalent to profit distributions, such as transfer pricing adjustments, expenses and payments that do not have a business purpose and entertainment costs. In addition, for the sake of easier tax administration, fringe benefits, gifts and donations are also taxable on the level of company only.
The Latvian Corporate Income Tax (hereinafter – CIT) Law defines a conceptually new CIT payment regime. Under Latvian CIT Law tax payment to be postponed until the point when the profit is distributed or is deemed to be distributed, i.e. the application of the CIT has been changed from the moment of profit generation to the moment of profit distribution. Thus, the tax will have to be paid regardless of the amount of income earned during the year, only if the taxpayer divides the profit into dividends or deemed dividends (expenses not related to economic activity, transfer pricing adjustments, increased interest payments, loans to related parties, etc.). Since 1 July 2018 the CIT advance payments are cancelled.
In Lithuania corporate income tax (CIT) is applicable to tax base of Lithuanian entity (Lithuanian tax resident) and foreign entity.
A company is a Lithuanian tax resident, if it is established in accordance with the Lithuanian laws.
Tax base of Lithuanian entity is income earned in Lithuania and outside Lithuania.
Income of a tax resident company is not subject to taxation in Lithuania, if it was received from activities through a permanent establishment (PE) in a foreign country that is in the European Economic Area (EEA) or that has a double tax treaty (DTT) with Lithuania and if the income was subject to taxation there.
Tax base of a foreign entity is income generated through PE in Lithuania and income which is sourced through Lithuania.
Taxable profit is calculated by deducting the non-taxable income, allowable deductions and limited allowable deductions from the total income.
The standard corporate tax rate is 20% of the gross profit, which is calculated by multiplying the net payment with 20/80. I.e., upon net dividend distribution at the amount of 1000 EUR, the tax is calculated as follows: 1000 EUR x 20 ÷ 80 = 250 EUR.
Reduced rate 14/86 (14% of the gross profit) is applied to regularly distributed dividends and other profit distributions up to the average amount of distributed profits in previous three calendar years.
The standard corporate tax rate is 20% of the gross profit, which is calculated by multiplying the net payment by 20/80 (the taxable base should be divided by a coefficient of 0.8). Thus, effective tax rate is 25%. The tax is calculated as follows: EUR 1000 x 0,8 x 0,2 = EUR 250 for a net dividend distribution of EUR 1000.
General CIT rate is 15%.
CIT rate of 0% is applied to taxable profits of newly established small entities for the first taxable period. The taxable profit of the following tax year is taxed at a rate of 5%, when certain requirements are fulfilled:
- average number of employees does not exceed 10;
- income during the tax period does not exceed 300 000 Eur;
- shareholders of the entity are only natural persons;
- economic activity of the entity is not suspended, the entity is not liquidated/reorganized, and the entity shares are not transferred to new shareholders for 3 consecutive tax periods, including the first tax period.
The above tax rate of 0% and 5% is not applied to small entities in certain cases (for example where the same members jointly control over 50 percent of the shares (interest, member shares) of the entity on the last day of the tax period).
Tax rate of 5% is applied to entities with more than 50 percent of income sourced from agricultural activities during the tax period.
Income received from the use, sale or other transfer of property created via activities of R&D, which were carried out by the taxpayer is taxed a rate of 5%.
The tax base is the net distributed profit or other expense subject to tax, including:
- Hidden profit distribution (e.g., loan to a parent company with no intention of repayment)
- Transfer pricing adjustments which are not at arm’s length
- Costs and expenses not related to business activities of the company, including transactions with companies located in non-cooperative (low tax) jurisdictions
- Gifts, donations, and representative costs (tax free thresholds available)
- Fringe benefits
- Transactions for the purpose of obtaining a tax advantage
- Capital pay-outs from equity that exceed the amount of capital paid-in to equity.
The tax base is the net distributed profit or deemed conditional profit (i.e. the decreased amount of share capital that has been earlier increased using part of earnings being added to share capital), including:
- Calculated dividends, including extraordinary dividends
- Pay-outs equivalent to dividends (i.e. profit share-outs)
- Deemed dividends:
- expenses not related to economic activities of the company
- bad debts
- loans to related parties (with several exclusions)
- transfer pricing adjustment
- increased interest payments (thin-cap rule)
- benefits granted by a non-resident to employees of its PE
- income which a taxpayer would have received or the expenditure which a taxpayer would have not incurred if commercial and financial relationships were created or established under valid conditions between two independent persons and if the value of the transactions made between the related persons (out of which one is the taxpayer) corresponded to the market price (value)
- liquidation quota
- the value of assets transferred to another person in reorganizational proceeding in certain cases
- so-called “exit tax”
- result of hybrid mismatch
The taxable income of a Lithuanian entity is income earned in the Republic of Lithuania and abroad.
The taxable income of a foreign entity is income derived from activities conducted through a PE situated in the territory of Lithuania. It also applies to income earned in foreign countries and attributed to PE in Lithuania where such income relates to the activities of a foreign entity conducted through PE situated in Lithuania.
Income of a foreign entity sourced in Lithuania that is not received through a PE situated in Lithuania is also subject to CIT and is applied to:
- Interest income (with the exception of interest on Government securities, accrued and paid interest on deposits and interest on subordinated loans, which meet the criteria established by the legal acts of the Bank of Lithuania);
- Income from distributed profit
- Income from the sale, transfer or rent of immovable property situated in the territory of Lithuania
- Compensation for the breach of copyright and neighbouring rights
- Income received from a sports or entertainment activities
- Annual bonuses paid for the activities to members of a supervisory council.
The period of taxation is a calendar month. The joint corporate income tax and payroll tax return (form “TSD” with appendices) must be submitted to the tax authorities and taxes must be remitted by the 10th day of the month following a taxable distribution or payment.
Tax returns are lodged through an electronic form over the Internet.
A calendar month is the taxation period. If a tax base arises, a tax return should be filed each month no later than on 20th day following the tax period. A taxpayer is allowed not to submit a CIT return to the Tax authorities for taxation periods in which there are no taxable objects. Submission of CIT return for the last month of the reporting year is mandatory.
If a CIT is due, it should be paid no later than on the 23rd day following tax period.
Tax returns are submitted through an electronic form over the Internet (using the Electronic Declaration System of Latvian Tax Authorities).
Filing of tax returns. Paying CIT.
Annual CIT return must be submitted no later than the 15th day of the sixth month of the next tax period (by 15 June of the following year if the tax period coincides with a calendar year), and no later than 30 days after the end of economic activities for the last period.
CIT must be paid no later than the deadline for submitting the annual profit tax and/or annual fixed profit tax return.
Tax payers must submit advance CIT returns and pay advance CIT as well.
Advance tax returns must be submitted and CIT must be paid:
- for the I-II quarters of the current tax year (the first six months) - no later than the fifteenth day of the third month of the current tax year (if the tax year coincides with the calendar year - by March 15), and
- for the III-IV quarters of the current tax year (the seventh to the twelfth months) - no later than the fifteenth day of the ninth month of the current tax year (if the tax year coincides with the calendar year - until September 15), if the advance profit tax is calculated based on the performance of the previous year;
- until the fifteenth day of the third month of the current tax year (if the tax year coincides with the calendar year - no later than March 15), if the advance profit tax is calculated according to the estimated amount of the profit tax for the tax period.
Not applicable in Estonia. Distributable profits are determined by financial statements drawn up in accordance with Estonian GAAP or IAS/IFRS, thus, there is no adjustment of accounting profits for tax purposes (tax loss carry-forward or carry-back).
There is no such concept as use of tax losses under the new CIT system. Tax losses cannot be carried forward or carried back.
Operating losses may be carried forward for an indefinite period (except for losses incurred due to the transfer of securities), provided that certain requirements are met. Losses incurred due to the transfer of financial instruments may be carried forward for five years (indefinitely for financial institutions).
Current year operating losses can be transferred to another legal entity of the group if certain conditions are met.
Reduction of taxable profit by accumulated tax losses is limited to 70% of the taxable profit for the current year (except for small entities). The rest of the accumulated tax losses can be carried forward for an unlimited period of time.
No carryback of losses is available in Lithuania.
The resident legal person and the non-resident legal person acting through its permanent establishment registered in Estonia distributing profits pay 20/80 (or 14/86) corporate tax from the amount of dividend/profits pay-out. This is a corporate tax on profits postponed to the moment of distribution and not a withholding tax of shareholders.
Withholding tax 7% is only applied to regularly distributed dividends to private shareholders (both resident and non-resident private shareholders). Tax treaties may provide for lower rates or exemption.
Participation exemption applies for redistributed dividends, holding threshold is 10%. If the holding is less than 10 per cent, then a credit method applies to avoid international double taxation. Credit method also prevents the double taxation of dividends if distribution is made from other foreign source of income on which the foreign income has been paid (e.g. interest, royalties, capital gains).
The resident legal person and the non-resident legal person acting through PE registered in Latvia distributing profits pay 20/80 CIT from the amount of dividend/profits pay-out. This is a CIT on profits postponed to the moment of distribution and not a withholding tax of shareholders.
Tax (CIT or similar to CIT) paid on income earned abroad is generally treated as a credit against the CIT charged on dividends for the year. In order to have the right to use the tax paid abroad, the taxpayer must receive a certificate of the tax paid from the relevant country’s Tax Authority. Tax credit may not exceed the CIT calculated in Latvia for dividends. Unused tax credit may be carried forward.
Withholding tax of 15% rate is applied to distributed dividends to resident company, unless participation exception is applied. Dividends paid to foreign entities are taxed at a rate of 15%, unless reduced by the DTT or participation exemption.
Dividends paid to resident/non-resident individuals are subject to withholding tax of 15% rate. Dividends paid to non-resident individual might be reduced by the DTT.
Withholding tax is not applied to dividends distributed to resident company/foreign company, where the recipient entity has held enough shares entitling it to more than 10% of the total amount of votes for at least 12 subsequent months (except in cases where the dividends receiving foreign entity is registered or otherwise organized in the target territories). This includes the moment of dividend distribution.
Other tax exemptions related to dividends
Dividends are not taxed in Lithuania, if received from EEA registered entity that profit is subject to CIT there, irrespective to votes and term of shares held.
The Latvian CIT Law provides for the following reliefs:
- relief for donors
- relief for tax paid abroad
- relief for income from disposal of shares
- for capital companies of special economic zones and free ports
- relief for taxpayers engaged in agricultural activity
Withholding agents must withhold income tax from certain payments. Withholding agents include resident legal entities, resident individuals registered as sole proprietors or acting as employers, and non-residents having a permanent establishment or acting as employers in Estonia.
Withholding rates are the following:
- Salaries, remunerations and other similar payments– 20%
- Interests – 20%. Non-residents are not subject to withholding tax on interest income, except for interest income received from Estonian real estate funds
- Royalties – 20% for resident individuals, 10% for non-residents. Royalty payments to associated EU and Swiss companies meeting certain conditions are exempt from withholding tax Tax treaties may provide lower rates or exemption.
- Rents – 20%
- Artist and athletes – 20% for resident individuals, 10% for non-residents
- Services rendered in Estonia – 20% for resident individuals, 10% for non-residents. Tax treaties may provide for exemption.
- Services rendered by a legal person located in a low tax territory – 20%
For non-residents, the taxable object is income earned in Latvia from economic activies or related activities. The tax is deducted from payments made by residents and PEs to non-residents, if no Personal Income Tax (hereinafter – PIT) is deducted from these payments. CIT is deducted from:
- Remuneration for management and consulting services - 20% of the remuneration amount
- Compensation for the disposal of real estate located in Latvia - 3% of the compensation amount (applicable also for companies if real estate in Latvia made up more than 50% of the asset value of that company)
- Payments to non-residents located in tax havens – 20% (interest payments, royalties, dividends), and
- Remuneration for renting real estate in Latvia - 5% of the remuneration amount.
Regarding management services, it is possible not to pay tax in the amount of 20% in Latvia, if no later than by the day of the submission of the last CIT return of the reporting year, a completed resident's certificate or application for tax relief is submitted.
Withholding tax on interest
There is no withholding tax on interest paid to Lithuanian resident (company or individual). General rule is, that interest paid to foreign company is subject to 10%, unless interest is paid to the company, which is the resident of EEA or the resident of a country Lithuania has a signed DTT with. In such case, no withholding tax is applicable.
Withholding tax of 15% is applied to interest paid to non-residents individuals, unless reduced rate according to DTT applies.
Withholding tax on royalties
Royalties paid to the resident company are not subject to withholding tax. Royalties paid to a non- resident company are subject to 10%, unless they are reduced according to DTT.
The 15% withholding tax is applicable to royalties paid to resident/non-resident individual. However, the rate might be reduced under DTT, when royalties are paid to non-resident individual.
Capital gains received by the tax payer is not taxable, if it generated from the transfer of shares under the following circumstances:
- the company which shares are transferred is registered or otherwise organized in a state of the EEA or a state with which a DTT has been concluded and is applicable; and
- the company is a payer of CIT or an equivalent tax, and
- if the company holding the shares has held more than 10 percent of the voting shares of the company for at least 2 years without breaks before selling those shares or
- if the shares were transferred in the cases of reorganization or transfer specified in the Law of CIT, the company has held more than 10 percent of the voting shares for at least 3 years without breaks;
The relief does not apply in the event of transfer of assets or in the event the shares are transferred to the company which issued them.
The Lithuanian thin capitalization rules apply in respect to loans from related parties (or loans from third parties guaranteed by related parties).
The controlled debt-to-fixed-equity ratio is 4:1. Interest expenses calculated on the exceeding part of the controlled debt are non-deductible. However, thin capitalization rules might not apply to the Lithuanian company (receiving the loan) if it can prove that the same loan under the same conditions would have been granted by a non-related entity.
Interest expenses are deductible, if they do not exceed interest income of the company.
If the interest expenses of the company exceed the interest income, the amount of the interest expenses exceeding the interest income is deducted from the income, only if that amount is not exceeding 30 percent of the taxable EBITDA of the company.
Not taking into account the above-mentioned exception, if interest expenses exceed interest income, then deductable amount of interest expenses may not be higher than 3 mln Eur.
If an entity belongs to the group of entities, the above criteria shall be applied jointly for all Lithuanian entities and PEs of foreign entities in Lithuania that belong to the same group.
A foreign company is treated as a controlled foreign company (CFC) and its income is included into the income of a controlling company, if:
- the controlled company is established in a blacklisted territory; or
- the passive income of the CFC (e.g., dividends, interest, royalties, income from financial activities, and commissions) exceeds one-third of its total income;
- the CIT rate applied to this income is lower than 50% of the effective CIT rate that would be applied in Lithuania to such passive income; and
- CFC has insufficient staff and assets to carry out actual economic activities in the territory in which it is registered for.
As of 1 January of 2023, CIT Law has been supplemented with special anti-avoidance provisions, which prevent double non-taxation of income received by hybrid entities in Lithuania.
Transfer of the assets from Lithuania might be subject to Exit taxation CIT under certain conditions transposed from the EU ATAD directive.
For the purpose of calculating taxable profit, entities must accept the amount which is in line with the actual market price of a transaction or economic operation as income and they must recognise the total amount of costs incurred during a transaction or economic operation.
The obligation for every company which has a turnover above 3 milion Eur to prepare annual transfer pricing documentations for every transaction (or group of transactions) with associated parties valued separately or together above 90 thousand Eur.
Tax administrators in Lithuania as well as all over the world give exceptional attention to transfer pricing, initiate tax audits, analyse the transfer prices applied between associated parties and if discrepancies are found – the administrator then adjusts the tax base and issues fines as well as late payment interest fees.
Main CIT incentives are the following:
- For the purpose of calculating the profit tax, the costs, incurred in R&D may be deducted three times from the income in the tax period in which they are incurred;
- The companies implementing an investment project can reduce their taxable profit by the amount of the actual expenses incurred for the acquisition of the property that meets the specified requirements. The taxable profit calculated for the tax period can be reduced up to 100 percent. The taxable profit can be reduced only by amounts paid under invoices received during the tax periods of 2009-2023, unused relief can be carried-forward 4 years;
- The tax payers, providing free-of-charge funds that meet the requirements for the production of a film or part of it to the Lithuanian film producer, may deduct 75% of the free of charge funds from their taxable income when calculating the profit tax. In addition, the entire amount of funds can reduce the profit tax itself, but the taxable profit calculated for the tax period can be thus reduced by no more than 75 percent;
- a legal entity does not have to pay CIT for another 20 years, if it implements large scale project under the following conditions: (i) contract must be signed until 31-12-2025; (ii) average number of employees must seek at least 150 for taxable year (not less than 200 employees in Vilnius); (iii) capital investments must reach at least 20 mln. Eur (at least 30 in Vilnius); (iv) at least 75% of income for the relevant tax period consists of income from data processing, internet server services (hosting) and related activities or income from manufacturing;
- A legal person does not have to pay CIT for another 10 years (for another 6 taxable years pays the 7.5% CIT rate), if capital investments reach ≥1 mln. Eur in free economic zone under the following conditions: (i) ≥75% of income must be generated from activities performed in free economic zone; (ii) capital investments must not become lower than 1 mln. Eur every taxable year and a legal person must provide auditor‘s report, confirming such investments; however certain limitations of the intensity of state aid under EU law apply; tax incentive does not apply to companies engaged in trade, finance, insurance, holdings, business consulting activities;
- A legal person does not have to pay CIT for another 10 years (for another 6 taxable years pays the 7.5% CIT rate), if capital investments reach ≥ 100 000 Eur in free economic zone under the following conditions: (i) ≥75% of income must be generated from activities performed in free economic zone; (ii) average number of employees should be ≥ 20 during specific taxable period; (iii) capital investments must not become lower than 100 000 Eur every taxable year and a legal person must provide auditor‘s report, confirming such investments; however certain limitations of the intensity of state aid under EU law apply.
Estonia has concluded tax treaties with more than 60 countries to avoid double taxation. The tax treaties may limit the Estonian tax rates and provide for more beneficial treatment than provided in local law. Most treaties follow the OECD model. The list of tax treaties can be found on the webpage of the Ministry of Finance.
Latvia has concluded Treaties For The Avoidance of Double Taxation (DTT) with 64 countries. DTT may limit tax rates in Latvia and provide for more beneficial treatment than provided in local law. Most treaties follow the OECD model. The list of tax treaties can be found on the webpage of the Ministry of Finance (https://www.fm.gov.lv/en/tax-conventions).
Lithuania has concluded tax treaties with 58 countries to avoid double taxation. The tax treaties may limit the Lithuanian tax rates and provide for more beneficial treatment than provided in local law. Most treaties follow the OECD model. The list of tax treaties can be found on the webpage of the Ministry of Finance.
A resident individual pays income tax on income derived from all sources of income in Estonia and outside Estonia (i.e. worldwide income).
The taxable income does not include fringe benefits, gifts and donations, dividends or other profit distributions subject to corporate income taxation (except for regularly distributed dividends which are taxed with a reduced rate on a corporate level).
The main tax exemptions are the following: business travel costs, property returned in the course of property reform, inheritance received, transfer of movable property in personal use, sale of home, , certain scholarships, social benefits and aid payments, and lottery prizes from lotteries organized under an operating license.
Resident individuals may postpone their income tax liability concerning certain financial assets, by using an investment account. In such case, gain or income from financial assets are taxable at the moment of drawing the amounts out of the investment account, provided that they are not used for acquisition of financial assets. Investment account allows private investors to benefit from deferred taxation of profits similarly to companies.
Resident individuals may deduct the following expenses from their taxable income in a calendar year:
- Basic exemption up to 6000 EUR;
- Increased basic exemption for maintenance of at least 2 children - 1848 EUR for second child and 3048 EUR as of third child
- Interest on housing loan up to 300 EUR;
- Training expenses of the taxpayer or dependents;
- Voluntary pension insurance payments (15% of taxable income but not more than 6000 EUR);
- Mandatory social security payments in a foreign state
- Gifts and donations to certain non-profit organisations and churches
The limit for housing loan interest, training expenses and gifts and donations is 1200 EUR in total.
Taxation period is a calendar year The tax return deadline is 30th April following a tax year, the tax due date is 1st of October.
Latvian Tax resident is required to pay PIT on all income earned, both inside and outside of Latvia (i.e. worldwide income).
PIT base includes salary tax, tax on income from economic activity, tax on income from capital, reduced patent tax, part of micro-enterprise tax, income of seasonal agricultural workers taxes.
There is a list of expenses that are not subject to PIT, the most important of them:
- income from disposal of real estate (subject to certain criteria),
- dividends or other profit distributions subject to corporate income taxation,
- liquidation quota (subject to certain criteria),
- insurance compensations,
- lottery and gambling winnings, if the amount of the winnings during the tax year does not exceed EUR 3000,
- scholarships (subject to certain criteria),
- funeral allowance up to EUR 250,
- compensation for business trip and work expenses,
- transfer of movable property in personal use, etc
The taxpayer calculates and pays PIT based on the annual income declaration.
At the same time, in order to reduce the need to submit an annual income declaration and pay the tax at the end of the tax year, the PIT law stipulates that in many cases the payer of the income calculates and withholds the tax, and pays it to the budget already during the tax year (for example, the employer withholds and pays salary taxes on monthly basis, tax from dividends and interest payments are paid by the person making the payment, etc.). However, the payer is responsible for submitting the Annual PIT return if the income is earned from sources where no tax has been withheld during the tax year.
Resident individuals may deduct the following expenses from their taxable income in a calendar year:
- Mandatory State Social Insurance Contributions and a Solidarity Tax (also substantially similar payments in EU countries and EEA member states)
- Payments for raising the qualifications of the taxpayer and his family members
- Use of medical services (medical bills and health insurance payments to insurance companies)
- Contributions made to private pension funds
- Insurance premium payments
- Authors' expenses
- Donations or gifts to a budget institution or an association, foundation, religious organization or their institution registered in the Republic of Latvia
- Donations or gifts to a political party or association of political parties registered in the Republic of Latvia
The total amount of above-mentioned expenses may not exceed EUR 600 per year and not more than 50% of annual taxable income. Eligible expenses for family members include expenses for education and medical treatment only in the amount of EUR 600 per family member.
The payer's contributions to private pension funds and life insurance premium payments to be included in the eligible expenses may not exceed 10% of the payer's annual income and no more than EUR 4000 per year.
Annual PIT return should be filed on a calendar-year basis between 1 March and 1 June in the year. In case the annual income in 2022 exceeds EUR 78 100, the Annual PIT return should be submitted between 1 April and 1 July 2023 to recalculate PIT and Solidarity tax.
The tax rate is a flat 20%. 10% income tax applies to supplementary pension payments under certain conditions.
Progressive PIT rates are applied in Latvia.
The tax rate payable on annual taxable income is as follows:
- for annual income up to EUR 20 004 (1st income threshold) - 20%;
- for annual income exceeding EUR 20 004 but not exceeding EUR 78 100 (2nd income threshold) - 23%;
- over EUR 78 100 in 2022 (3rd income threshold) - 31 %.
The payroll tax rate payable on monthly taxable income is as follows:
- income up to EUR 1667 (1st income threshold) - 20%;
- income exceeding EUR 1667 (2nd income threshold) - 23%.
PIT rate of 20% applies to income from capital, including interest. The rate on income from capital gains is 20%. 10% for income from real estate.
Income tax is levied on individuals who are residents in Lithuania for tax purposes or on individuals who are not residents but are receiving Lithuanian sourced income.
Income tax of a rate of 20% is applied to employment related income.
However, the amount exceeding 60 average wages per year (EUR 101,094; for 2023) is taxed at a rate of 32%.
Income tax of a rate of 15% is applied to income from distributions (dividends).
15% rate applied to share of other taxable income not linked to employment relations (excluding income from self-employment; income from distributions; income from profit shares and remuneration for service on the supervisory board or management board, loan committee; income from employers under copyright contracts; income from civil (service) contracts of small partnership managers), not exceeding amount of 120 average wages (2019 and later):
- royalties other than from the employer,
- sale of property (or other transfer of ownership),
- rent of property,
- gambling winnings,
- gifts, prizes not from the employer, etc.
Income tax of a rate of 20% applied to share of other taxable income (mentioned above) exceeding 120 average wages (2019 and later).
The 5% rate of income tax is applied to income from non-individual activity, received from the sale or other transfer of ownership of waste.
Latvia has implemented a differentiated non-taxable minimum:
- maximum non-taxable minimum – EUR 500 per month
- the amount of taxable income, up to which the maximum non-taxable minimum is applied – EUR 500 per month
- the amount of taxable income, above which the differentiated non-taxable minimum is not applied – EUR 1800 per month
The amount of tax relief for each dependent person is EUR 3000 per year or EUR 250 per month.
The most notable tax-exempt income includes:
- certain life insurance payments and non-life insurance compensations;
- amount of interest generated from debt securities, not exceeding 500 Eur;
- amount from sale of financial instruments (certain securities are excluded), not exceeding 500 Eur;
- the value of prizes and gifts, not exceeding 200 Eur, received during the tax period from a person related to the resident through work relations or relations corresponding to their essence;
- income received from the sale or other transfer of ownership of residential housing (including assigned land) located in the EEA state, if in the last 2 years before the sale or other transfer of ownership, it was the person’s place of residence, declared officially;
- income from sale of immovable property, registered in the EEA, which was acquired not earlier than 10 years ago before sale occurred;
- income from the sale of movable property, if this property is registered in the Republic of Lithuania or the movable property is registered in a state of EEA, if property was purchased earlier than 3 years before its sale or other transfer of ownership;
- other type of income.
The non-taxable amount of income applies only to income related to employment relations or relations corresponding to their essence and it is changed often.
Other type of expenses related to certain insurance contributions, pension fund contributions, professional training, might be deducted from Lithuanian tax residents’ income.
According to the Estonian legislation an individual is a tax resident in Estonia if:
- is/her place of residence is in Estonia (the place where the person permanently or primarily lives)or
- he/she stays in Estonia for at least 183 days over the course of a period of 12 consecutive calendar months.
Treaty residency is determined according to the applicable tax treaty to avoid double residency.
According to the Latvian legislation an individual is a tax resident in Latvia if:
- a person’s place of residence is in Latvia (the place where the person permanently or primarily lives) or
- a person stays in Latvia for at least 183 days over the course of a period of 12 consecutive calendar months or
- a person is a citizen of Latvia employed abroad by the government of Latvia.
The residence of an individual is judged by the individual circumstances in each case. The criteria are laid down in the laws and principally outline the requirements as:
- Domiciled in Lithuania; or
- Personal, social or economic interests are in Lithuania rather than abroad; or
- Spending a specified period of time in Lithuania (residents are recognised foreign individuals staying in Lithuania with or without breaks for no less than 183 days in a calendar year, or staying in Lithuania with or without breaks for no less than 280 or more days during two consecutive calendar years, where the stay in Lithuania during one of these years lasted at least 90 days); or
- the individual is a citizen of Lithuania who does not meet the above criteria and who receives employment-related remuneration or whose costs of living in another country are covered by the state budget or municipal budgets of Lithuania.
Tax base of residents
Lithuanian tax residents are subject to tax on their worldwide income.
A non-resident is a person with a limited tax liability whose taxable income consists only of an Estonian-based source of income. The income tax rate is 10% or 20%.
Tax is imposed on the income from wages of non-residents, if the work or service duties are performed in Estonia. If the wages are paid by a foreign company with no permanent establishment in Estonia, the income is not taxable in Estonia if the non-resident is present in Estonia for working purposes for less than 183 days during a period of 12 consecutive months. Non-residents with Estonian employers or temporary agency workers are taxed in Estonia as of day 1 even if they spend in Estonia less than 183 days.
Remuneration of the members of the management or controlling body of an Estonian company is taxable in Estonia even if the duties are performed outside Estonia.
Income tax is imposed on gains from transfer of immovable property situated in Estonia and movable property entered into the relevant register in Estonia. Also, tax is imposed on gains from sales of participation in a company or contractual investment fund, if the participation was not less than 10%, and more than 50% of the assets of the company (directly or indirectly) consists of immovable property or buildings located in Estonia.
A non-resident who has received business income, gain from transfer of property or other taxable income which is subject to taxation in Estonia but on which no tax was withheld, is required to submit an income tax return by 30th April following a calendar year.
Tax treaties may provide lower tax rates or exempt non-resident from taxation in Estonia.
A non-resident is a person with a limited tax liability whose taxable income consists only of an Latvian-based source of income. For non-residents PIT rate generally is 23%.
If a non-resident is a resident of a country with which Latvia has concluded a tax convention, then it is possible to apply the tax payment procedures specified in the tax convention.
According to the provisions of the tax conventions, the salary income of a non-resident is exempt from the application of PIT in Latvia, if the salary work is performed outside of Latvia.
If an employee of a foreign employer (non-resident) works in Latvia, then according to the provisions of the tax convention, the tax in Latvia would not be applicable if the following conditions are simultaneously fulfilled:
- the employee stays in Latvia for less than 183 days in a 12-month period
- the salary is paid by an employer who is not a resident of Latvia
- the salary is not paid from the employer's PE in Latvia.
If non-resident is employed in Latvia, the tax is calculated and paid to the state budget by the employer. Before taxing the non-resident's earned income, the following shall be deducted from the monthly gross income:
- Social security payments (employee part of Social security payments paid in employee’s residence country)
- Spending on education and medical services (including dental services and scheduled operations), donations to public benefit organisations, and donations to political parties of up to 50% of the person’s annual taxable income, capped at EUR 600 a year for each family member.
- Contributions to private pension funds and endowment insurance (the policy should mature in at least ten years) at 10% of taxable income, capped at EUR 4,000.
The employer does not apply the non-taxable minimum and benefits to the non-resident.
If non-resident is a resident of another member state of the European Union or a country of the European Economic Area and earned more than 75 percent of his total income in Latvia, then, non-resident is entitled to apply the non-taxable minimum and other benefits.
In addition, the taxable income of a non-resident is income from the sale of real estate in Latvia and the sale of other capital assets. Income disburser withhold tax from the non-resident's income from the disposal of capital assets, applying a 3% personal income tax rate.
Non-resident has the right to simultaneously submit a declaration for the reporting period on income from capital gains and a declaration of clarification of annual capital gains income to calculate PIT at a rate of 20% from capital gains.
If a non-resident receives income from the alienation of capital assets from a natural person who is not a performer of economic activity, the non-resident himself pays the tax in the amount of 20%.
The object of income tax of a non-resident of Lithuania shall be:
- income received from self-employment on a fixed base (including income received in foreign countries while attributed to that fixed base in Lithuania and linked to the self-employment economic activities);
- income received not on a fixed base, when such income is sourced in Lithuania:
- interest other than on non-equity government securities;
- income from distributions and payments to the members of the Management Board and Supervisory Board;
- rental income from immovable property located in Lithuania;
- income from employment relations;
- income from sporting activities;
- income from the activities of performers;
- income from the sale or other transfer of movable property ownership, if such property is subject to legal registration under the legislation of the Republic of Lithuania, and is (or must be) registered in Lithuania, as well as income from the sale or other transfer of immovable property located in Lithuania;
- compensation for infringements of copyright or related rights.
Dividends, interest and royalties paid to non-residents taxed at a rate of 15%, unless the rate is reduced under DTT.
The Estonian tax law does not provide for special tax regime for expatriates. Special tax regime is applicable only for crew members of ships operating in international carriage of goods and passengers by sea (except for passenger ships engaged in regular service in the European Economic Area and ships under EEA flag).
There is no specific tax regime for expatriates in Latvian tax legislation. Special tax regime is applicable only for crew members of ships operating in international carriage of goods and passengers by sea (except for passenger ships engaged in regular service in the European Economic Area and ships under EEA flag).
Additional income tax should be paid by 1st of October.
The employer credits the withheld PIT to the budget until the 23rd of the month following the month of income payment.
The amount of tax calculated in the Annual PIT return must be paid:
- until 23 June 2022 if the amount of the tax does not exceed EUR 640
- if the amount of the tax exceeds EUR 640, it can be paid in three instalments until 23 June, 23 July and 23 August 2022, paying a third of the amount each time.
The tax return must be submitted by April 30 following a tax year (calendar year).
The employer submits PIT return until the 15th date of the month following the taxation period.
Annual income declaration should be filed on a calendar-year basis between 1 March and 1 June in the year following the year of assessment. In case the annual income in 2022 exceeds EUR 78 100, the annual income declaration should be submitted between 1 April and 1 July 2023.
A non-resident who permanently leaves Latvia before year-end must file an annual tax declaration within 30 days after he or she stops receiving income.
The annual income tax return must be submitted and the income tax paid by May 1 of the calendar year following the tax period.
The current VAT Act is valid from the 1 st August 2022. It is based on the Council Directive 2006/112/EC).
The current VAT Act is valid from the 1 st January 2023. It is based on the Council Directive 2006/112/EC.
The current Law on VAT is valid as of 1st July 2002. It is based on the Council Directive 2006/112/EC).
A person involved in economic activity whose taxable supply (including import) has exceeded 40 000 EUR in a calendar year, is obligated to register as a person liable for VAT. After the registration that person would be liable to pay VAT on supply, purchases subject to reverse charge and imported goods. A person liable to VAT is also entitled to deduct input VAT from purchases related to their taxable supply.
It is possible to register for as a person liable for VAT before the 40 000 EUR threshold is exceeded, as long as the person is engaged in business activity or about to commence business activity in Estonia.
A VAT payer is a person who independently carries out any economic activity anywhere, regardless of the purpose or result of this activity. Local taxable persons must register for VAT purposes, if the total VAT taxable value of goods supplied and services provided during the previous 12 months has exceed EUR 40 000.
VAT registration is obligatory immediately if:
- a taxable person provides services to a taxable person from another Member State and the place of the supplied services is where the customer is established; or
- receives services from a taxable person from another Member State or a third country or territory, who is a taxable person who does not carry out economic activity in Latvia.
Additionally, if the total amount of intra-Community acquisitions of goods reaches or exceeds a threshold of EUR 10 000 in the current calendar year, it is mandatory to register as a VAT taxable person.
Other country taxable persons should always register for VAT purposes in Latvia before carrying out any taxable supplies.
It is possible to register for VAT purposes in Latvia on voluntary basis, i.e. before performing VAT taxable transactions which trigger the VAT registration requirement.
Lithuanian and foreign natural and legal persons who carry out any type of economic activity in Lithuania, as well as a collective investment entity established in the Republic of Lithuania without the status of a legal person, whose form of activity is an investment fund. In certain cases, the payer may also be a person who does not perform economic activities.
Obligation to register as a VAT payer
In Lithuania a special scheme for small companies has been implemented, i.e. a taxable person of the Republic of Lithuania is not obliged to submit an application to be registered as a VAT payer, if the total amount of consideration for goods and/or services provided in the course of economic activity on the territory of Lithuania per year (last 12 months) did not exceed 45,000 euros.
However, it should be emphasized that if the value of the goods purchased from other member states by a taxable person of the Republic of Lithuania in the previous calendar year exceeded 14,000 euros or is expected to exceed this limit in the current calendar year, then the taxable person must submit a request to register him as a VAT payer even in the event that the annual remuneration 45 000 euros was not exceeded.
However, a foreign taxable person must register as a VAT payer from the start of economic activity in the Republic of Lithuania.
A person whose activity does not otherwise meet the requirement to register as a person liable for VAT, is obligated to register as a person with limited liability if they are purchasing goods/services subject to reverse charge from supplier located outside Estonia and imported goods. Person with limited liability does not have a right to add VAT on their own sales nor are they entitled to deduct input VAT.
When purchasing immaterial services, the obligation to register as a person with limited liability arises from the first purchases. For goods the obligation arises after the acquisition of goods exceeds the value of 10 000 euros from beginning of a calendar year.
VAT is charged on:
- supply of services and goods in Estonia
- import of good to Estonia
- export of goods from Estonia
- Intra-Community acquisition of goods and services
- acquisition of immaterial services from suppliers located outside Estonia.
VAT is charged on:
- Supply of services and goods within Latvia
- Supply of goods within the EU and exports of goods
- Import of goods in Latvia
- Intra-Community acquisition of goods, including self-supply of goods from other EU member state to Latvia.
- Other EU member state
- Services subject to reverse charge received by Latvian taxpayer
- Acquisition of new vehicles in the EU by non-registered VAT payer or a person who is not a VAT payer.
VAT is charged on:
- supply of services and goods in Lithuania
- import of goods to Lithuania
- export of goods from Lithuania
- Intra-Community acquisition of goods and services
Standard VAT rate 20% is always applied unless a reduced rate or exemption is provided.
Reduced rate 9% is applied to:
- books and educational literature
- medicines, medical equipment, and medical devices which are listed in the Regulation of the Minister of Social Affairs
- accommodation services or accommodation services with breakfast.
Reduced rate 5% applies to press publications.
Reduced rate 0% is applied to:
- export of goods
- intra-Community supply of goods and services
- goods and services supplied onboard ships and airplane
- delivery of goods and services for diplomatic and consular missions, international organisations, institutions of the European Union and NATO
- goods placed under customs procedures
- goods placed in an excise warehouse
- services where the place of supply is not Estonia
- transport services for the export and import of goods.
Exemption applies to supply of services and goods of the social nature, among others universal postal service, health services and education services.
In addition, following services are exempt from VAT:
- insurance services
- leasing of an immovable for commercial purposes,
- financial services.
Standard VAT rate 21% is always applied unless a reduced rate or exemption is provided.
Reduced rate 12% is applied to:
- Medicines, medical equipment, and medical devices.
- Specified products for infants.
- Scheduled domestic public transport services for passengers and their luggage.
- Firewood and fuel wood supplied to natural persons.
- Supply of thermal energy used for household needs.
- Accommodation services for tourists.
Reduced rate 5% applies to:
- Mass media and subscriptions, except erotic material and pornography.
- Books and educational literature.
- Fresh fruits, berries and vegetables.
Reduced rate 0% is applied to:
- Export of goods and related services.
- Intra-Community supply of goods.
- Refuelling of ships and aircraft and supply of goods and services.
- Delivery of goods and services for diplomatic and consular missions, international organisations, institutions of the European Union and NATO.
Exemption applies to supply of services and goods of the social nature, among others universal postal service, health services and education services.
In addition, following objects are exempt from VAT:
- Postal services (Latvijas pasts) and postal stamps
- Certain medical and dentist services.
- Social and rehabilitation services.
- Education services.
- Cultural services.
- Authors’ remuneration.
- Financial services.
- Insurance and reinsurance services.
- Gambling and lotteries
- Sale of used real estate.
- Real estate rental for individuals
Standard VAT rate 21% is always applied unless a reduced rate or exemption is provided.
Reduced rate 9% is applied to:
- heat energy supplied to heat residential premises, hot water supplied to residential premises or cold water for preparing hot water and heat energy used to heat this water;
- printed and electronic books and printed and electronic non-periodical information publications;
- accommodation services provided in accordance with the procedure established by legal acts regulating tourism activities;
- passenger transportation services on regular transportation routes established by the Ministry of Transportation or its authorized institution or municipalities, as well as passenger luggage transportation services specified in this point;
- firewood and wood products for burning are supplied to household energy users, as defined in the Energy Law of the Republic of Lithuania;
- until 2023 December 31 for catering services provided by restaurants, cafes and similar catering establishments and for takeaway food, excluding alcoholic beverages and services or parts of services that are related to alcoholic beverages;
- for visiting all kinds of art and culture institutions, art and culture events;
- until 2023 June 30 for performance services provided by performers (actor, singer, musician, conductor, dancer or other person acting, singing, reading, reciting or otherwise performing works of literature, art, folklore or circus numbers);
- until 2023 June 30 for visiting sports events, sports clubs and other persons providing services similar to those provided by sports clubs;
Reduced rate 5% applies to:
- Medicines, medical aids and food products for special medical purposes, when the costs of purchasing these goods are fully or partially compensated in accordance with the procedure established by the Health Insurance Law of the Republic of Lithuania, as well as non-reimbursable prescription drugs;
- technical assistance devices for the disabled and their repair;
- printed and/or electronic newspapers, magazines and other periodicals with certain exceptions.
Reduced rate 0% is applied to:
- export of goods;
- supply of goods when the goods are delivered by passengers;
- supply, rental, etc. of ships and aircraft;
- transactions related to ships and aircraft;
- transportation services and related transactions;
- supply of goods and services for diplomatic missions, consular institutions, European Union institutions, institutions established by them and international organizations or their representative offices, as well as for the staff of these missions and consular institutions and their family members;
- supply of gold to the European system of central banks and the European Central Bank;
- for the supply of goods to another member state;
- goods and services intended for disaster victims;
- for the servicing and processing of movable items, when such items are temporarily imported into the European Union;
- representation in certain transactions;
- for certain transactions related to international trade.
The following goods and services are VAT exempt:
- goods and services related to health care;
- social services and related goods;
- education and training services;
- cultural and sports services;
- activities of non-profit legal entities;
- postal services;
- information services provided to the public by radio and television;
- insurance services;
- financial services;
- special signs;
- gambling and lotteries;
- rental of immovable objects by nature;
- sale or other transfer of certain immovable objects by nature.
§411 of VAT Act provides a list of goods on which a local reverse charge is applicable i.e. the supplier will issue and invoice without VAT and the buyer is responsible for declaring and paying VAT from the purchase. The provision is applicable only to transactions between two Estonian VAT taxable persons.
Domestic reverse charge is applicable to following supply:
- tax -exempt immovable to which VAT has been added voluntarily
- scrap metal within the meaning of Waste Act
- investment gold
- precious metal and metal products.
Reverse charge is also applicable to goods to be installed or assembled in Estonia supplied by a business established in another Member State, who is not tax registered in Estonia or does not have permanent presence in Estonia.
Domestic reverse-charge procedure applies to the following transactions:
- Supply of timber and related services.
- Supply of scrap metal and related services.
- Supply of construction services.
- Supply of mobile phones, tablets, laptops, integrated circuit devices and video games consoles.
- Supply of cereals and technical crops.
- Supply of untreated precious metals, precious metal alloys and metals clad with precious metals.
- Supply of ferrous and non-ferrous semi-finished metals.
Reverse charge is also applicable to goods to be installed or assembled in Latvia supplied by a business established in another Member State, who is not tax registered in Latvia and does not have permanent presence in Latvia.
Law on VAT provides a list of goods/services on which a local reverse charge is applicable, i.e. the buyer (must be a registered VAT payer) is obliged to declare and pay VAT.
Domestic reverse charge is applicable to following supply of:
- Construction services;
- ferrous and non-ferrous metal waste / scrap;
- for mobile phones, tablets and laptops.
This provision allows for the import VAT to be calculated and deducted on a monthly VAT return, meaning that no actual import VAT must be paid to the customs. To implement the special scheme, the taxable person must meet following requirements:
- been VAT registered for 12 consecutive months,
- no late submission of VAT returns within previous 12 months,
- no tax debt within previous 12 months,
- notify the Tax authority and receive a confirmation allowing to implement the scheme.
This provision allows for the import VAT to be calculated and potentially deducted through a monthly VAT return, meaning that potentially no actual import VAT must be paid to the Customs. To implement the special scheme, the taxable person must meet following requirements:
- Has been VAT registered for 12 consecutive months,
- No late submission of VAT returns within previous 12 months,
- There are no tax debts on the date of submission of the application,
- Received a confirmation from the Tax Authority allowing to implement the scheme.
The period of taxation is a calendar month. VAT return, as well as report on intra-Community supply must be submitted to the tax authorities and taxes must be remitted by the 20th day of the month following the taxable period. Tax returns are lodged through an electronic form over the Internet.
The period of taxation is a calendar month. VAT return, as well as report on intra-Community supply must be submitted to the Tax Authority by the 20th day of the month following the taxable period. Taxes must be paid by the 23rd day of the month following the taxable period. Tax returns are submitted through an electronic form over the Internet.
All VAT invoices received and issued by VAT payers are registered in the i.SAF subsystem of the smart tax administration system i.MAS.
Register data shall be submitted to the tax administrator by the 20th of the following month, after the end of VAT payer's tax period (which can be calendar month or calendar quarter or half-year);
VAT return and VAT must be paid be by the 25th of the following month, after the end of the tax period.
A taxable person who has the obligation to pay VAT without registering as a VAT payer submits the value added tax report of a person not registered as a value added tax payer FR0608 after the end of the month by the 25th of the following month.
The annual tax return (if applicable) is due on October 1st of the following tax year. VAT payers registered in Lithuania are also required to submit VAT registers no later than 20 days after the end of the taxable period.
Deduction is not allowed for input VAT incurred on the purchase of goods and services used for:
- non-chargeable VAT activities;
- sales when VAT is calculated on margin;
- representation (deduction of 50% only is allowed);
- acquisition and of cars, etc.
Estonia does not impose any gift, inheritance, or estate taxes. Various transactions may be subject to payment of state fees (stamp duties).
Certain transactions are subject to stamp fees (state fees) in Estonia, e.g., transferring a real estate, entries into business registry, court proceedings, etc.
Certain transactions are subject to stamp fees (state fees) in Latvia, e.g., transferring a real estate (1-3% from the real estate value, but not exceeding EUR 50 000), entries into business registry, court proceedings, etc.
Land tax is based on the assessed value of land. The tax is imposed on all land, except for land where economic activities are prohibited, on land in use by diplomatic missions and international organizations, cemeteries, land underlying churches and land in public use. Land tax shall be paid by the owner or by the user of land.
The tax rate, established by the local government council, is 0.1-2.5 % of the assessed value of land annually. Land tax is paid into the local government treasuries. Tax is paid twice a year on March 31st and October 1st.
Estate tax/inheritance tax
Estonia does not impose any gift, inheritance, or estate taxes.
Real estate tax
The tax object is land, buildings or parts thereof, engineering buildings used in economic activity.
Real estate tax base in general is the cadastral value of real estate (land, buildings, engineering structures). For agricultural land (until 2025) – the special value determined by the State Land Service especially for the purposes of tax calculation.
Local municipalities have been delegated the right to set the real estate tax rate from 0.2% to 3.0% of the cadastral value of real estate.
The tax rate set by local municipalities can exceed the limit of 1.5% only if the real estate is not managed in accordance with the procedure established in the regulatory acts.
Real estate tax is payable quarterly - no later than on March 31st, on May 15th, on August 15th, on November 15th.
Immovable property taxes
Tax payers are legal entities and individuals.
Immovable property tax rates vary from 0.5% to 3% and are established by each municipality separately.
Individuals are not paying any immovable property tax, if the taxable value of the immovable property is not exceeding 150 000 Eur;
Other tax rates are the following:
- tax rate of 0.5% is applied to immovable property, which taxable value is not exceeding 300 000 Eur (but is less than 150 000 Eur);
- rate of 1% rate is applicable to property which taxable value is more than 300 000 Eur, but is not exceeding 500 000 Eur;
- rate of 2% is applicable to property which taxable value is exceeding 500 000 Eur;
Individuals, raising three or more children under the age of 18 or disabled children are taxed at different rates:
- owning property which taxable value is not exceeding 200 000 Eur, no tax is applied;
- tax rate of 0.5% is applied to immovable property, which taxable value is not exceeding 390 000 Eur (but is less than 200 000 Eur);
- rate of 1% rate is applicable to property which taxable value is more than 390 000 Eur, but is not exceeding 650 000 Eur;
- rate of 2% is applicable to property which taxable value is exceeding 650 000 Eur.
Private land (except forest and agricultural land) in the Republic of Lithuania owned by natural and legal persons are subject to tax.
Tax rates vary from 0.01% to 4% of taxable value of the land and are established by each municipality separately.
Subject to tax is the following property:
- Inherited property of a resident of Lithuania (any item of immovable and movable property, securities and money);
- inherited property of a non-resident, in case of movable property subject to legal registration and immovable property located in the Republic of Lithuania.
The tax is calculated on the taxable value of the inherited property (70 percent of the total value of the inherited property) at the following rates:
- if the taxable value of the inherited property does not exceed EUR 150 000, then it is taxed at a rate of 5%;
- if the taxable value of the inherited property exceeds EUR 150 000, then it is taxed at a rate of 10%.
The property is not subject to tax, if:
- property inherited by a spouse upon the death of the other spouse;
- property inherited by children (adopted children), parents (adoptive parents), guardians (custodians), foster children, grandparents, grandchildren, brothers or sisters;
- inherited property with taxable value thereof not exceeding EUR 3,000.
An individual who has inherited property in the Republic of Lithuania must pay the tax prior to the issuance of the inheritance certificate, except for cases where the tax payment has been deferred or exempted by a decision of the municipal council. There is no obligation to declare inherited property
A resident of Lithuania who inherited property in foreign states during the calendar year must either himself/herself or through a person authorized by him/her submit to the local tax authority a tax return and pay the tax by 1 March of the calendar year following the calendar year during which the property was inherited.
The object of the employer's and employee's mandatory contributions is all income calculated on paid employment, from which personal income tax must be deducted, without deducting the non-taxable minimum, tax relief and eligible expenses for which the taxpayer is entitled to reduce taxable income.
Social tax rates are as follows:
- Employee’s liability is 10.50%
- Employer’s liability is 23.59%
Solidarity tax is a compulsory state social insurance contribution made from income that exceeds the maximum amount of the object of compulsory contributions, i.e., from an amount exceeding EUR 78 100 per year. The solidarity tax applies to socially insured persons - employees, self-employed, whose income in a calendar year exceeds the maximum amount of mandatory state social insurance contributions.
Solidarity tax rate is 25%.
Employers on behalf of employees must withhold 19,5% of the employee’s gross salary for SSC. Employer’s share starts and constitutes 1,45% (with certain exceptions ) of the employee’s gross salary.
SSC must be paid (tariffs of SSC slightly differ in each case) by other individual groups as well, such as individuals performing independent individual activities, members of the management boards, owners of unlimited civil liability entities, sportsmen, performers and others.
Capital gains are included in the calculation for taxable income and taxed at the standard income tax rate of 20%.
Taxable capital gain is generally computed as gross selling price less acquisition costs. Gains from the sale of a summer cottage or garden house are exempt if owned for more than 2 years.
Capital gains are determined by deducting from the disposal price of the capital asset the purchase value and the value of the investment in the capital asset during the holding of the capital asset (Capital gains = Disposal price – purchase value – investment value).
PIT rate on income from capital gains is 20%.
Capital assets are:
- Real Estate
- Shares, stocks, shares, partnerships and other financial instruments
- Investment fund certificates and other transferable securities certifying participation in investment funds or similar collective investment undertakings
- Debt instruments (bills, certificates of deposit, short-term debt instruments issued by commercial companies) and other money instruments traded on money markets
- Company within the meaning of the Commercial Law
- Intellectual property objects
- Investment gold and other precious metals, objects on a currency exchange or a commodity exchange, and
- Virtual currency
Capital gains tax return:
- If a person's total income in a quarter exceeds EUR 1 000, a declaration of income from capital shall be submitted to the Tax Authority once a quarter by the 15th day of the month following the taxation period. The amount of the assessed tax shall be paid by the 23rd day of the same month
- If the person's total income for the quarter does not exceed EUR 1 000, the return must be submitted by 15 January of the following year and the calculated amount of tax paid by 23 January.
The purpose of the Company car tax is to apply a tax on a vehicle owned or held by a merchant, a branch of a foreign merchant or a farm, which is used not only for performing economic activities, but also for personal needs.
The object of the Company car tax is owned or held by a merchant, or a branch of a foreign merchant, or a farm, or is used on the basis of an employment contract, or is lent by a person who is not a merchant, a branch of a foreign merchant, or a farm:
- vehicle, which according to its design and internal equipment is intended for the transportation of passengers and their luggage, in which the number of seats, excluding the driver's seat, does not exceed eight seats, which is registered as a light, light passenger or light utility vehicle;
- a truck with a gross weight of up to 3,000 kilograms, which is registered as a cargo van and has more than three seats (including the driver's seat).
Tax rates are from EUR 10 - 82 per month.
Company car tax can be paid on monthly or yearly basis.
Legal persons and individuals must pay taxes for environmental pollution (i.e. taxes related to pollution from stationary pollution sources; taxes related pollution from mobile pollution sources; the manufacturer and/or importer must pay taxes related to pollution with product and/or packaging waste; the landfill operator pays taxes related to pollution with waste disposed of in the landfill).