Value Added Tax (VAT) in Lithuania
The Law on Value Added Tax of the Republic of Lithuania is the main legal act regulating calculation, payment and declaration of value added tax. Currently in Lithuania value-added tax (VAT) rate is 21%. It shall be noted that preferential rates are applicable for certain categories of goods and services.
Preferential VAT rate of 9% is applicable to:
- books and other non-periodical publications;
- tourism services;
- newspapers, magazines and other periodical publications, excluding those of erotic or violent character;
- passenger and luggage transportation services on regular routes. A preferential rate of 6% is applicable to goods and services made by farmers.
A preferential rate of 5% is applicable for pharmaceuticals and medical aid devices following conditions of the Law on Health Insurance. The aforementioned rate is also applicable for technical aid devices for the disabled and repair of these devices. 0% VAT rate applies to provision and acquisition of goods and services from another EU Member State.
From 2010 VAT received in other EU member states may be refunded through filing the electronic form at local tax authorities in Lithuania. After receiving the respective application local tax authorities shall forward the application to tax administrator in another EU member state. This process shall ease the VAT refund system within EU. Value added tax rate has been increased from 19% to 21% since 1st September 2009. It was the second major value added tax increase. Value added tax rate has been increased previously from 18% to 19% in January 2009.
Cases of Application of zero-rate of VAT to supply of goods and services
There are certain conditions established for zero-rate of VAT payment. Zero-rate of VAT is charged on the supplies of goods, provided the goods are exported by or on behalf of the supplier outside the territory of the Community.
As well zero-rate of VAT is charged on the supplies of goods when these are dispatched or transported outside the territory of the Community by or on behalf of the purchaser established outside the territory of the country, with the exception of goods transported by the purchaser himself for the equipping and provisioning of pleasure boats and private aircraft or any other means of transport for private use.
In the case of the supply of the goods to be carried in the personal luggage of travellers, zero-rate of VAT is also applicable. In this case zero-rate of VAT will be applied to goods exported by persons who have their permanent address or usually reside outside the Community territory, which they have acquired in the Republic of Lithuania and the value whereof exceeds the threshold established by the Government of the Republic of Lithuania. A foreign passenger must prove that he has his permanent address or usually resides outside the Community by presenting a document of the type specified by the Government of the Republic of Lithuania.
With a regard to transport services zero-rate of VAT will be applied to the supply of services, including transport and any ancillary services, when these services are directly related to the export of goods outside the territory of the Community. Zero-rate of VAT shall be charged on the supply of transport services, also on the supply of any services ancillary to transport where the services are directly related to the goods, which are placed under the arrangements and procedures. Moreover the issue of TIR and ATA Carnets shall be subject to zero-rate of VAT. Zero-rate of VAT is applicable to transportation of passengers on international routes, also to the transportation of passenger luggage irrespective of the type of the means of transport.
Zero-rate of VAT shall be charged on the insurance services as well as financial services when these services are directly linked to the export of goods outside the Community territory.
Zero-rate of VAT is charged on goods supplied to a VAT payer identified for VAT purposes in another Member State and dispatched from the territory of the country to another Member State, irrespective of who - whether the supplier of goods, the purchaser of goods or a third party on order from either of them - dispatches the goods.
List of zero-rate supplies:
- Exports outside the European Union;
- Supplies of gold to the system of central European Banks and Central European Bank;
- Goods and services intended for diplomatic and consular institutions, international organizations and their representatives, also staff and family members of those entities;
- Supplies to charities;
- Modification, modernization, supply and hiring of sea-going vessels and aircrafts;
- Intra-Community (EU) supplies;
- Insurance and fiscal services related to the export of supplies;
- Services of transportation and additional or related services to it.
The obligation to be identified for VAT purposes, calculate VAT and pay it to the budget is applied to the taxable persons who are supplying goods and services within the territory of Lithuania, with the exception of goods (services) when VAT is paid by the purchaser.
A person who is obliged be identified for VAT purposes, must file an application to be identified for VAT purposes. In derogation to this, a taxable person of the Republic of Lithuania does not need to file an application to be identified for VAT purposes, nor calculate VAT if the total amount of consideration for supply of goods and/or services in performance of economic activities during previous 12 months has not exceeded 155 000 LTL (45 892 EUR). This exception does not apply if new means of transport were supplied to other Member States.
Calculation of VAT must commence from the month during which the above mentioned threshold was exceeded. VAT shall not be calculated for payment for supply of goods and services when the payment does not exceed 155 000 LTL. When calculating the amount of 155 000 LTL, the following payments shall not be taken into account:
- Payment for supply of goods and/or services, when VAT for purchase of import of such goods (services) shall not be deductible following the provisions of the Art. 62(1) of the Law on VAT and when the taxable person is a registered VAT payer;
- Payment for supply of long-term assets used in the economic activities of the taxable person;
- Advanced payments;
- Payment for supply of real estate objects and supply of financial services indicated in the Art. 28 of the Law on VAT, when the transactions are sporadic and the taxable person does not, as a rule, engage in this type of activity.
A threshold of 155 000 LTL is not applicable to foreign taxable persons.
A foreign taxable person must be identified for VAT purposes through a subdivision within the territory of the country and where there is no such subdivision, through an appointed fiscal representative in the Republic of Lithuania. The requirement to appoint a fiscal representative shall not apply to taxable persons established in other Member State who may be identified for VAT purposes directly. A foreign taxable person does not need to be identified for VAT purposes if, within the territory of the country, he is engaged only in the following activities:
- Supply of goods and/or services which is exempt from VAT;
- Supply of goods and/or services which, under the Law on VAT, are not subject to VAT;
- Supply of goods and/or services where 0% VAT is applied.
Failure to file an application to be registered as VAT payer or refusal to be identified for VAT purposes shall not release a taxable person from the obligation to calculate VAT.
Excess VAT and VAT difference arising in respective tax period can be refunded (included) following the provisions of the Art. 87 of the Law on Tax Administration. VAT may be refunded, if the following conditions are met:
- payer has paid all the taxes, default interest, penalties, interest for overdue tax or the payment of the above taxes, default interest, penalties has been deferred for the VAT payer; or the VAT payer has filed an application for deferral following the procedure established by the legal acts of the Republic of Lithuania; or a tax dispute is going on in respect of the above mentioned obligations; or the VAT payer has applied, following the procedure set by the Government of the Republic of Lithuania, to the Commission for Reviewing Applications of Tax Payers in Respect for Making Settlement in Shares and Property for making a settlement for these taxes, default interest and penalties in shares and property after submitting all the requisite tax returns or accounts. In cases where a tax dispute is going on in respect of the request for refund of the excess VAT amount or its portion it shall be regarded that the VAT payer does not meet the requirements.
- a decision to impose a penalty on the VAT payer for a deliberate violation of tax law specified in the Law on Tax Administration has not become effective or 3 years have lapsed from commission of such a violation.
The refundable amount of VAT specified may not exceed the amount specified below:
- 21% VAT amount calculated on the goods and services declared during the respective tax period to which 0% VAT rate is applicable;
- 21% VAT amount calculated on the goods and services declared during the respective tax period and indicated in the Art. 58 of the Law on VAT (supply of goods to which 0% VAT rate is applicable);
- the VAT amount deducted during the tax period on acquired capital assets, with the exception of the amount of import VAT subject to the procedure of inclusion into output VAT as well as the amount of input VAT for the tangible capital assets manufactured by the taxable person;
- the VAT amount deducted during the tax period on acquired and/or imported materials, raw materials and/or services intended for the production of capital assets and/or on unfinished construction, with the exception of the amount of import VAT that was subject to the procedure of inclusion into output VAT;
- the VAT amount deducted during the tax period for purchased or imported fuels, fertilisers, seeds, fodder, pesticides and herbicides. This subparagraph shall apply only to VAT payers whose income from supplies of agricultural products and/or services during the previous calendar year made up at least 50 per cent of all income.
The balance of the excess amount of the VAT which has not been carried forward or refunded by the end of the calendar half-year period (January – June) may be refunded to the VAT payer after the end of the half-year period provided that the VAT payer meets the conditions set above and was registered as VAT payer no later than 3 months before the end of the calendar period.
If any mistakes were made in the request for VAT return, the mistakes shall be rectified following the procedure determined by the central tax administrator. If the amount of the input/import VAT was not deducted due to a mistake but should have been deducted three or more years ago, the mistake cannot be rectified.
In addition to the above mentioned rules, it is clarified in the Law on Tax Administration that the tax overpayment may be refunded, provided that it was accrued during the current calendar year and not earlier than five preceding calendar years counting back from the date of crediting, where crediting is performed at the initiative of the tax administrator without a separate taxpayer’s request, or, in the presence of the taxpayer’s request, counting back from the date of submission of the request.
In case where before the submission of the request, the taxpayer performs an action evidencing his knowledge about the existence of a tax overpayment and seeks to recover it, the said time limit shall be calculated starting on the day on which the action was performed. In such case, the taxpayer must provide evidence supporting the performance of the said action to the tax administrator along with the request to refund (credit) a tax overpayment. The said time limit shall not include the calendar year during which tax or judicial disputes were in process or mutual agreement procedures were applied under double taxation treaties concluded and brought into effect by the Republic of Lithuania or under the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (90/436/EEC).
A foreign taxable person also has the right to be refunded the VAT paid in the Republic of Lithuania. The right to be refunded the VAT paid in the Republic of Lithuania is granted to foreign taxable persons established in those countries where the VAT paid (or any equivalent tax) is refundable to taxable persons of the Republic of Lithuania.
Certain requirements for foreign taxable persons shall be met in order to be refunded the VAT paid in the Republic of Lithuania. Firstly, a foreign taxable person shall have no subdivision (branch) in the Republic of Lithuania, or place of residence in Lithuania (in case of natural person) during tax period for which VAT refund was requested; and secondly, the taxable person did not pursue any economic activities in Lithuania.
According to the provisions of the Art. 118 of the Law on VAT, a foreign taxable person can request for the following VAT returns: import VAT paid in the Republic of Lithuania for the goods imported into the territory of the European Union; VAT paid by the taxable person for the goods and/service including those acquired in the Republic of Lithuania (including goods or services acquired from other Member States).