Lithuania Crypto Tax

If you are searching for a crypto-friendly jurisdiction, then Lithuania can be a proper choice not only because of its impatient response toward the fast-growing blockchain industry but also because of its effective tax system. Currently, Lithuania ranks sixth in the index of international competitiveness in taxation. This is interpreted as a low tax burden on business investment and sufficient neutrality, owing to a well-structured system of tax codes.

The main Lithuanian taxes are administered mainly by the State Tax Inspectorate, although contributions to the State Social Insurance System are administered by the Board of the State Social Insurance Fund (otherwise SoDra). The tax year lasts from 1 January to 31 December.

While so far no national authorities have imposed any crypto-specific taxes, the following crypto-related activities are subject to the conventional system of taxation: mining, primary offer, buying and selling, brokering, paying in cryptocurrencies for products or services. All such transactions are required to be denominated in euros.

In order to make the questions simpler for crypto companies, the State Tax Inspectorate has published a document that explains the crypto tax regime. For tax purposes, virtual currency is such an instrument with characteristics similar to Bitcoin, Ethereum, Pulsation, and Litecoin. The definition is not given directly; it may include different markers.

In this case, it does not have a rigorous definition, but generally speaking, it refers to a tool issued via blockchain through an initial offer-known shortly as ICO. The taxation regime is different according to the type of token. In practice, there have been 2 types of taxable tokens:

• Security tokens possess the characteristics inherent in securities and grant their owners claims such as a right to control a company, or a claim on profits, among others.
• Utility tokens provide a right to their holders to receive some kind of product or service in the future for these tokens.

This means that not all tokens can qualify either as one of these two categories, so by the power of authority, the third uncertain type of cryptocurrencies stands out. Besides, it has to be underlined that when it comes to the recognition of cryptocurrencies as certain types of tokens, the State Tax Inspectorate decision does not correspond to the conclusion issued by the Bank of Lithuania. For instance, where the Bank of Lithuania does not recognize a token as collateral, the token may nonetheless be regarded as collateral for all or some tax purposes.

Tax liability will, however, depend on the nature of your crypto activities, and your enterprise may accordingly be liable for the following:

• Corporate Income Tax (CIT) – 15%;
• Value Added Tax (VAT) – 21%;
• State Social Insurance (SSI) – from 21%;
• Withholding Tax (WHT) – 15%.

Corporate Income Tax

Lithuanian corporate income tax is among the lowest in the EU. Of course, this relates to revenues gained by crypto license holders in Lithuania. Taxpayers may also be entitled to a number of benefits (e.g., in relation to R&D projects).

In addition, enterprises that have an average of no more than 10 employees registered and whose income during the tax period does not exceed 300,000 euros, are subject to 0% for the first tax period and 5% for the subsequent tax periods, unless otherwise provided by the Corporate Income Tax Act.

In terms of the nature of the transaction and economic consequences, cryptocurrencies are considered a short-term asset that is either used as a means of paying against products and services or held for sale for the purpose of corporate income tax application.

Examples of application of corporate tax:

• Mining is not subject to tax; sale of cryptocurrencies is subject to tax.
• Security tokens are exempt from tax.
• Funds attracted within the frames of an ICO are not taxed where tokens emitted within the ICO have characteristics of securities – funds acquired in the course of an ICO of security tokens should be included in the list of taxable income only in cases when the token-issuer does not undertake any obligations, or the volume of commitments is less than the volume of attracted funds.

Another very important determinant of the application of corporate income tax is the residence status of the company. In this respect, a company shall be regarded as a tax resident in Lithuania if, under the Lithuanian law, the company was registered therein.

A crypto  resident company should pay Corporate Income Tax on all income received within and outside Lithuania. However, the Lithuanian crypto company need not be taxed on the income generated from economic activities carried out by permanent missions located either in one of the EEA countries or in a country with which Lithuania has an agreement on the elimination of double taxation, provided such income was similarly taxed in those countries.

Corporate Income Tax should be paid by crypto non-resident companies only in the following cases: 1) for income received from economic activities carried out through permanent establishments located in Lithuania, 2) Income earned in foreign countries as a result of economic activities carried out by a foreign company through permanent representations located in Lithuania, 3) income earned in a Lithuanian company, excluding permanent representations, located in Lithuania.

VALUE ADDED TAX

In general, a crypto company is required to be registered as a VAT payer in cases where it provides liable products and services in the country of Lithuania, and those cases where an entity’s taxable annual turnover exceeds an amount greater than 45,000 euros.

In the context of VAT, cryptocurrencies are a means of payment, no different than fiat money like the euro and dollar, and their definition is irrelevant by the Bank of Lithuania. If the counterparty recognizes the cryptocurrency as a valid alternative to payment, it needs to be regarded as a contractual means of settlement for VAT purposes, and transactions related to such should be treated as financial transactions.

An important difference of processing cryptocurrencies for the purposes of VAT and for the purpose of corporate income tax is that such cryptocurrencies will never be considered short-term assets for VAT purposes.

The regular taxable period coincides with the calendar month, but a company can request that the taxable period coincides with the calendar quarter if the company’s turnover from economic activity during the previous calendar year did not exceed 300,000 euros.

State Social Insurance

Any company performing crypto-related activity and employing personnel is obliged to pay the State Social Insurance, being a part of payroll taxes. A so-called employee is not in a position to start working before he/she is registered by the employer in a Social Security Tax Office, by means of the 1-SD form designed to notify about the beginning of personal social income. It has to be done no later than a day before the start of employment.

Whereas the employees have 19.5% deducted, an employer is obliged to pay 1.61%-2.49% on top of an agreed gross remuneration. In fixed-term employment contracts, the employers’ contributions could be increased to 2.49%.

The payments and reports of the payments of the State Social Insurance contributions are to be performed not later than the 15th of the following month, or – if the 15th is not a regular working day – on the first preceding regular working day.

The team of Regulated United Europe (RUE) is ready to provide full-scale taxation consultation for everybody who’s interested in optimizing taxes in Lithuania. We are also ready to guide you through company formation, getting acquainted with all cryptocurrency regulations in Lithuania and crypto licensing process in Lithuania, and provide services of financial accounting. To book a tailored consultation, please click here.

Crypto Taxes in Lithuania in 2023

Lithuania has recently revised its crypto legislation but hasn’t introduced any significant changes to the applicable taxes and reporting, except for the requirement that senior managers of Lithuanian crypto companies now are obliged to be permanent residents of Lithuania in line with the Lithuanian Personal Income Tax Law. Otherwise, Lithuanian crypto companies also have to pay ordinary taxes and comply with ordinary tax reporting requirements. Simultaneously, new taxation standards and reporting requirements may appear in the pipeline as an outcome of the new global tax transparency regime introduced by the Organization for Economic Cooperation and Development (OECD).

Corporate Income Tax

Lithuanian and foreign businesses, while engaging in crypto-related economic activities, remain obliged to pay the standard 15% Corporate Income Tax. Allowances and exemptions will apply as usual. These will be all income sourced by Lithuanian crypto companies as a result of activities both within and outside Lithuania, except the income earned from economic activities carried out through permanent establishments based in the European Economic Area and in the countries that have double-taxation elimination agreements with Lithuania. The non-Lithuanian crypto companies will further be burdened with paying taxes on the income sourced within Lithuania.

Where your cryptocurrency company has recently been set up, the tax rate of 0% on taxable profits applies for the first taxable period. After that, it will be obliged to pay only the reduced 5% of Corporate Income Tax if the following criteria are met: 1) an average number of employees does not exceed 10 people, 2) the income during the tax period does not exceed 300,000 EUR, 3) the shareholders are only natural persons, and 4) the economic activities are not terminated, the company is not liquidated, and the shares are not transferred to new shareholders for three consecutive tax periods, including the first tax period. The 5% rate covers the gains from the commercialised R&D invention, too.

Personal Income Tax

The Personal Income Tax rates go to 5-32%, but now, in respect to crypto companies, this is relevant because the latter is obliged to open local offices, with local staff. However, they have an obligation to hire a senior manager, too, who needs to be a permanent resident of Lithuania.

The value of the Personal Income Tax contribution is 20% for both permanent and non-permanent residents in 2023, provided their annual income derives its source from employment relations and does not exceed the amount of 101,094 EUR. Annual income exceeding 101,094 EUR must be taxed at the rate of 32%. Normally, paternal leave, sick pay, dividends, self-employment, and other kinds of revenues are taxed at reduced rates.

Value Added Tax (VAT)

In Lithuania, the Value Added Tax is 21% and it still does not apply to companies offering crypto exchange services because for VAT purposes cryptocurrencies are treated as an alternative means of payment, not a type of short-term assets, and their transactions are viewed as financial transactions. However, all other crypto-related economic activities usually are subject to tax, and any other undertaking providing taxable crypto services in Lithuania is obliged to register as a VAT payer once its taxable annual turnover exceeds EUR 45,000.

Mining activities also aren’t subject to VAT, since normally there’s no supplier-client relationship where a miner is paid for products or services provided in Lithuania. Also, tokens issued within the ICO remain VAT-exempt as the very process is treated as equal to the issuance of shares. On the other hand, such activities as sales of crypto-related services—for example, paid referral of relevant platforms or software and hardware sale—are generally subject to VAT.

State Social Insurance

The State Social Insurance rate for 2023 is 21.27% and will be payable by the employer and resident and non-resident employees. An employer is obliged to pay 1.77-2.49%, which is in addition to the agreed gross salary, while 19.5% will be deducted from employees. If a person works based on a fixed-term contract, then an employer’s contribution may grow to 2.49%. As has been the case, it is a requirement to file a new employee with the Social Security Tax Office prior to engaging in work. The normal due date for reporting and making payments remains the 15th day of the following month.

New Global Tax Transparency Framework

It is an intergovernmental organization with 38 members, most of whom are the most developed countries in the world. OECD just adopted a new international tax transparency framework which would permit enhanced reporting and exchanging information on crypto-assets. It purports that the OECD aims to raise crypto-taxation and tax-reporting standards through the elimination of crypto-related tax inconsistencies and administrative silos across member countries and is essentially proposing automatic tax reporting and taxpayer information sharing among tax authorities that apply to cryptocurrency exchange businesses, cryptocurrency transfers, and may soon apply to online and offline crypto wallets.

Since Lithuania is a member of the OECD, it has to be put in consideration that any policy it gets as a recommendation from OECD can well be actualized. This includes recent crypto tax policy recommendations of its clearance into the national taxation framework in 2023.

How Do I Pay Taxes on Crypto in Lithuania in 2024?

In 2024, taxation of cryptocurrency income is one of the most attractive themes for investors and users of these digital assets in Lithuania. Proper understanding of local tax rules and obligations allows effective financial management and avoidance of probable penalties for non-observance of tax laws. The following will be an in-depth look into the details of how taxpaying on cryptocurrency income is done in Lithuania.

Basics of Cryptocurrency Taxation in Lithuania

According to Lithuanian law, income from cryptocurrencies may fall under different categories of taxation, depending on the nature of receipt of this income. It may be a gain from capital, business income, or other types of income. In each case, different tax rates and declaration conditions apply.

Capital gains tax

When the cryptocurrency is realised with a profit, the difference between the sale and purchase price is treated as capital gains, being subject to taxation. In Lithuania, the tax rate on capital gains amounts to 15%. The taxpayers shall track and calculate the capital gains independently for declaration purposes.

Income from mining

Depending on the regularity and whether a systematic approach is taken to the process, income derived from mining cryptocurrency may be assessed as business income. Such an income falls within the rates applicable for business incomes that could differ with the nature of structuring and total income.

Taxation and declaration

Taxpayers of Lithuania are obligated to declare revenues obtained with the help of cryptocurrencies in the annual tax return. Further, the accuracy of such declaration may only be assured if detailed records of all cryptocurrency transactions were maintained, including dates of transactions, volumes of transactions, purchase and sale prices.

VAT and cryptocurrencies

Under the current Lithuanian legislation, transactions in cryptocurrencies are exempt from VAT. This corresponds to common European practice and decisions of the European Court of Justice.

Important Aspects and Recommendations

Record Keeping: Proper and detailed record keeping regarding cryptocurrency transactions provides the very basis for correct declaration and taxation.

Loss Utilisation: Losses incurred from a cryptocurrency transaction may be utilized to set off taxable gains in certain circumstances, which may vary according to local taxation laws.

Professional Advice: With the complexity of tax laws and the dynamic development of the cryptocurrency market, advice from professionals is highly recommended.

Taxation of crypto-income in Lithuania needs to be performed with extreme care regarding recordkeeping, understanding tax legislation, and declaration of income on time. In this way, it ensures the observance of the Law, thus permitting responsible use of cryptocurrencies.

Basic Rates of Taxation in Lithuania, 2024: The table below represents general rates that can be applied in Lithuania for personal income tax, corporate tax, value-added tax, and capital gains tax in respect to cryptocurrency-derived gains.

Also, lawyers from Regulated United Europe provide legal support for crypto projects and help with adaptation to MICA regulations.