Lithuanian properties and their tax reality? An Investor perspective

Lithuanian properties and their tax reality? An Investor perspective

  1. Intro : Estimated growth in property value

The Lithuanian property and real estate have recently seen quite a hike in investments. A statistical data dated March 2022[1] display the interest of investments increasing to 21.1% over the past 12 months. The five biggest cities of Lithuania being, Vilnius, Kaunas, Klaipeda, Siauliai and Panevezys recorded an increase of 0.8% increase in apartment sale prices.

In specific, the top cities such as Vilnius and Kaunas witnessed a capital growth of 0.8% with the approx. price per square meter valuing EUR 2,158 (+16 EUR/sqm). The recent unprecedented Russian-Ukraine Invasion has had no impact-whatsoever on the increasing demand in the real estate properties in Lithuania. Moreover, there has been a significant increase in foreigners investing in real estate in Lithuania as there are no restriction for foreign ownerships, except for agricultural lands.

It is also interesting to analyze that the prices have hiked in Vilnius city center where prices range from EUR 1,950 to EUR 2,200 per sq meter (approx.). As far as the suburbs are concerned, the prices are hiking too with an average of EUR 1,160 per sq meter (approx.)[2]

Investing in real estate does not seem to have only tax benefits (as will be elaborated in this article) but investing in the fast-growing economy in east Europe. Lithuania’s economy witnessed only mild recession since the beginning of the pandemic. According to the report of the European Commission[3] the economy is to see a rise of another 3.1% growth in the year of 2022. The main business such as low valued goods and transportation keeps the economy going strong without major fallout.

 

  1. Reality check 1: Real estate and tax situation in the region

There are two property taxes in Lithuania – a land tax and a real estate tax on premises, buildings and other real estate.

The rates of both of the above taxes are relatively low compared to the global context and the procedures for declaring and paying them are extremely simple. A brief description of each of these taxes follows.

  1. Land tax

As regards the land tax, it is important to point out that it is levied on private land owned by natural and legal persons in the Republic of Lithuania, with the exception of forest land and agricultural land where forest has been established in accordance with the procedure laid down by the laws and regulations of the Republic of Lithuania.

The rate of this tax ranges from 0.01 % to 4 % of the taxable value of the land, which is not identical to market value. The taxable value of land is determined on a mass basis for five years in advance and is in fact always below the market price, with rare exceptions. The specific rates of land tax are set annually by each municipality. The tax period coincides with the calendar year and the tax returns are prepared and uploaded to the taxpayer’s account (e-declaration system) by the tax administration.

The law also provides for exemptions from the land tax on grounds of social or community use of the land or the social situation of the taxpayer. In the latter case, the exemption from land tax applies to natural persons whose families, at the beginning of the tax period, do not include any able-bodied persons and who have an incapacity for work of between 0 and 40 per cent, or who have reached the age of old-age pension, or who are minors, and whose land area does not exceed the tax-free land area established by the municipal councils by 1 September in the current tax period. Multiple parcels of land owned by a natural person and located in the same municipality (locality) for which the same tax-free land parcel rate is set shall be considered as a single parcel of land in this case. If a natural person is entitled to a tax credit and owns more than one parcel of land, the maximum credit per parcel of land shall apply.

  1. Real estate tax (Immovable property tax – VMI)

The other type of tax described is a real estate tax. The tax period is the calendar year. At present, its rate is currently, the rate is between 0.5 % and 3 % of the taxable value of real estate, which is determined by mass valuation over a five-year period. In the case of this tax, it is important to remember that the rate also depends on the purpose of the property to be taxed. As we are concerned here with residential property, we will talk more about the taxation of this type of property.

The tax has a non-taxable value, on which the tax is not levied in all cases, which is the aggregate value of residential, gardens, garages, farms, greenhouses, outbuildings, agricultural, ancillary, scientific, religious, recreational, fishery and engineering structures owned or acquired by natural persons, up to a limit of 150 000 euros. The rate is then progressive according to the value of the property, i.e.:

– a tax rate of 0.5 % is applied to the part of the taxable value of the property exceeding the tax-free amount but not exceeding 300 000 euros;

– a tax rate of 1 % is applied to the part of the taxable value of the property exceeding 300 000 euros but not exceeding 500 000 euros;

– a tax rate of 2 % is applied to the part of the taxable value of the property exceeding 500 000 euros.

For example, if a natural person has acquired a real estate property with a value of €650,000, he would be taxed as follows:

650,000 – 150,000 (tax-free value) = €500,000

for the part of the amount up to 300 000, a rate of 0.5% would apply, i.e. 300 000 x 0.5% = €1 500

for the part of the amount between 300 000 and 500 000, a rate of 1% would apply, i.e. 200 000 x 1% = €2 000.

This means that such a person would pay property tax of €3,500 on a property valued at €650,000, which is approximately 0.54% of the value of the property.

It is important to note that this tax has even more tax advantages than land tax. There are even advantages for large families (with three or more children (stepchildren) up to the age of 18), with higher tax-free values and higher tax rates on larger amounts.

 

  1. Reality check 3: Lithuania real estate investment and foreigner perks

Lithuania is considered to be a safe harbor even despite the ongoing war in its neighboring territory. The Republic of Lithuania has been a member of European Union since 2004 and is also a member of North Atlantic Treaty Organisation (NATO), and other leading global organizations that ensures peace and security.

It can also be noted that main economic factors influencing the residential real estate prices in Lithuania are GDP of the country, inflation rate, interest rate of bank loans and availability of loans from financial institutions. Moreover, positive economic conditions such as increasing salaries, political structure, security and bank credits and loan facilities nominates Lithuania as a strong investing portfolio especially in real estate.

The idea of investing in real estate can be daunting for foreigners but if it comes with its perks, it is certainly a well-calculated investment. Investing in Lithuanian real estate for over 14 sq. meters per person (as a mandate), the foreign individual receives a  grant to multi-visit Schengen visa and if this real estate or apartment is registered as a company as per the threshold provided, the foreign individual or director of the company is eligible to apply for residence permit on the basis of business activities. Furthermore, enjoy the same privileges in terms of tax structure applicable to citizens, for instance the tax on corporate income ranges from 5% to 15% depending on the size of the company.[4]

 

  1. Concluding remarks:

Evaluating the situation of Lithuanian real estate (luxury and not only), it is safe to say that the conditions, quality of life and tax environment offered by this market are amongst the most attractive in the region. Taking into account the newly emerging development projects and future prospects, the Lithuanian real estate market is favorable for investments. Undoubtedly, as in other branches of business, the first to avail; first to enjoy better returns, so we advise you not to delay. We hope the analysis of the situation prepared by us will hopefully help you make important decisions in this matter.

Published by “Glimstedt”  Senior Associate, tax expert Agnė Pimpytė and Associate Pooja Damodaran.

[1]Lithuanian Apartment Price Index, March 2022 – Ober-Haus Nekilnojamasis Turtas, (last visited on 21.06.2022).

[2]Property in Lithuania | Lithuanian Real Estate Investment (globalpropertyguide.com), (last visited on 30/06/2022).

[3]Economic forecast for Lithuania | European Commission (europa.eu), (last visited on 30/06/2022).

[4]Lithuania – Corporate – Taxes on corporate income (pwc.com), (last visited on 30/06/2022).

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