BNS presents a summary of the key changes in the Lithuanian Finance Ministry’s proposal for a tax reform presented this week.
Self-employment under an individual activity certificate. The Finance Ministry proposes a 20-percent personal income tax for revenue received from individual activity and it would be introduced gradually. The existing 15-percent tariff would remain unchanged in 2024, increasing to 17 percent in 2025 and 20 percent in 2026.
Additional personal income tax rate. Under the proposal, an individual’s total annual income above 60 average monthly wages, or VDUs (currently around 101,000 euros) would be subject to an additional 5-percent tax. Incomes above 120 VDUs (202,000 euros) would be additionally taxed at 7 percent.
Business certificates. The latest proposal is to more than half the annual income threshold from 45,000 to 20,000 for holders of business certificates, and those earning more than 20,000 euros would be obliged to register their individual activity. Currently, 84 percent of people using business certificates earn less than 20,000 euros per year.
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Social insurance contributions. From next year, all self-employed workers would be required to pay the same social insurance (SoDra) contributions calculated on 90 percent of their taxable income, compared to the existing range of 50 to 100 percent. The SoDra cap – the maximum amount on which contributions are paid – would amount to 60 VDUs (around 101,000 euros), instead of 43 (64,700 euros).
VAT payers. The annual income threshold for businesses to register as VAT payers would be increased from 45,000 to 55,000 euros. The change would come into force next year.
Advance corporate income tax. Businesses generating annual revenue up to 500,000 euros would be required to pay advance corporate income tax from 2024. The threshold now stands at 300,000 euros.
Corporate income tax relief. Small businesses – those making up to 300,000 euros a year and employing no more than 10 people – are currently subject to a reduced corporate tax of 5 percent. The Finance Ministry proposes abolishing the 10-employee condition to qualify for the tax break. The new rule would enter into force next year.
Accounting for fixed assets. The faster depreciation of fixed assets, which currently applies to companies with up to 10 employees and an annual turnover of up to 150,000 euros, would be extended to businesses with an annual turnover of up to 300,000 euros, and the requirement on the number of employees would be scrapped.
Gifts. The Finance Ministry proposes taxing gifts from relatives, including spouses, parents, children, grandparents, grandchildren, exceeding 300,000 euros a year. Gifts from siblings would be taxed if they exceed 150,000 euros. Currently, gifts from members of immediate family are tax-free, regardless of their value. Otherwise, gifted wealth is taxed at 15 percent.
Contributions to pension and life insurance funds. The Finance Ministry proposes allowing the deduction of only contributions to second-pillar pension funds from taxable income. Currently, contributions to third-pillar pension funds and investment life insurance contributions can also be deducted.
Further reading
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