Lithuania’s tax system is designed to be transparent, competitive, and aligned with European Union standards, making it an attractive destination for individuals and businesses alike. Here’s an overview of the key components of Lithuania’s taxation framework:

Personal Income Tax (PIT)

As of 2024, Lithuania employs a progressive personal income tax structure:

• 20% on annual income up to €114,162

• 32% on income exceeding €114,162 accoring to Invest Lithuania

These rates apply to various income sources, including employment earnings and payments to board members.Additionally, social security contributions are deducted from gross income, impacting the net take-home pay of employees.

Corporate Income Tax (CIT)

Lithuania’s standard corporate income tax rate is 16%, applicable to most businesses. However, credit institutions are subject to a higher rate of 20%. The government offers tax incentives to encourage investment, particularly in sectors like technology and manufacturing. For example, small companies may benefit from a reduced tax rate of 5% under certain conditions, fostering the growth of small and medium-sized enterprises (SMEs).

Value-Added Tax (VAT)

Lithuania applies a standard VAT rate of 21% on most goods and services. Reduced rates are available for specific items:

• 9% for books, public transport, heating, and accommodation services

• 5% for periodicals, certain medical devices, and prescription drugs

Exports and intra-community supplies to VAT payers in other EU member states are subject to a 0% VAT rate.

Tax Incentives and Reliefs

Lithuania offers various tax incentives to promote investment and innovation:investlithuania.com

• Research and Development (R&D) Deductions: Companies investing in R&D can deduct three times the amount of their R&D expenses from taxable income.

• Patent Box Regime: Income derived from the commercialization of R&D assets may be taxed at a reduced rate of 5%.

• Free Economic Zones (FEZs): Businesses operating in FEZs can benefit from a 0% corporate tax rate for the first 10 years and a 7.5% rate for the subsequent six years, along with exemptions from real estate and dividend taxes.

Social Security Contributions

Employers contribute 1.77% of gross salaries to social security, while employees pay 19.5%. These contributions fund various social insurance programs, including pensions and healthcare.

Lithuania’s tax system, with its competitive rates and investor-friendly incentives, supports economic growth and aligns with EU regulations. This framework makes Lithuania an appealing destination for both individuals and businesses seeking a stable and transparent fiscal environment.

For more detailed information, you can refer to the original article: investlithuania.com.