Lithuania Crypto Tax

Lithuania Crypto Tax

Lithuania Crypto Tax

If you are on the lookout for a crypto-friendly jurisdiction, Lithuania may be the right choice not only for its impatient response to the fast-growing blockchain industry, but also for an effective tax system. At present, Lithuania ranks sixth in the index of international competitiveness in taxation. This indicates a low tax burden on business investment and sufficient neutrality thanks 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.

Currently, national authorities have not imposed any crypto-specific taxes, but such crypto-related activities as mining, primary offer, buying, selling, brokering, and paying in cryptocurrencies for products or services, are subject to the existing taxation system. All these transactions must be registered in euros.

To make the questions easier for crypto companies, the State Tax Inspectorate published a document explaining the cryptographic tax regime. For tax purposes, virtual currency is a tool that is similar in its characteristics to Bitcoin, Ethereum, Pulsation and Litecoin. However, the definition is not strictly defined and may include different markers.

In this case, tokens do not have a strict definition either, but it usually means a tool issued through an initial offer (ICO) via blockchain. The tax regime depends on the type of token. In practice, there are 2 types of taxable tokens:

  • Security tokens have characteristics that are inherent in securities and confer upon their holders rights such as the right to manage a company or the right to a share of profits, etc.
  • Utility tokens give the right to their holders to receive a specific product or service in the future in exchange for these tokens

This says it doesn’t mean that all tokens can qualify as either of these two categories, so the third uncertain type of cryptocurrencies stands out by authority. In addition, it is worth noting that when it comes to recognizing cryptocurrencies as specific types of tokens, the decision of the State Tax Inspectorate does not necessarily correspond to the conclusion issued by the Bank of Lithuania. For example, where the Bank of Lithuania does not recognize a token as collateral, the token may still be considered collateral for all or some tax purposes.

Depending on the characteristics of your crypto activities, your company might be subject to paying the following taxes:

  • 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 one of the lowest in the EU. In this case, this applies to revenues generated by cryptographic license holders in Lithuania. Taxpayers may also receive a number of benefits (e.g., in relation to R&D projects).

In addition, companies with an average number of registered employees not exceeding 10 persons and income during the tax period not exceeding 300,000 euros are taxed at a rate of 0% for the first tax period and at a rate of 5% for subsequent tax periods, except in cases of Provided for in the Corporate Income Tax Act.

For the purposes of applying corporate income tax based on the nature of transactions and economic consequences, cryptocurrencies are recognized as short-term assets that can be used as a means of paying for products and services or are held for sale.

Examples of corporate tax application:

  • Mining is not taxable, but sales of cryptocurrencies are taxable
  • Security tokens are exempt from tax
  • Funds raised during the ICO are not taxable where tokens issued during the ICO have securities characteristics
  • Funds received during ICO security tokens should be included in taxable income only if the token issuer does not make any commitments or the amount of obligations is less than the amount of the raised funds

The application of corporate income tax also depends on the residence status of the company. The company is a tax resident in Lithuania if it is registered there in accordance with Lithuanian law.

Cryptographic resident companies are obliged to pay Corporate Income Tax on all income received within and outside Lithuania. However, income from economic activities carried out by the Lithuanian crypto company through permanent missions located in one of the EEA countries or in a country with which Lithuania has an agreement on the elimination of double taxation is not taxed, If such income is taxed in the same way in those countries.

Cryptographic non-resident companies should pay Corporate Income Tax 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

Typically, a crypto company must register as a VAT payer if it delivers taxable products or services in Lithuania and when its taxable annual turnover exceeds 45,000 euros.

In terms of VAT, cryptocurrencies are considered a means of payment (the same as fiat money – euro, dollar, etc.), and their definition for VAT purposes does not depend on the opinion of the Bank of Lithuania. If the counterparty recognizes the cryptocurrency as a legitimate alternative to payment, it should be treated as a contractual means of settlement for VAT purposes, and transactions related to it should be treated as financial transactions.

The significant difference between processing cryptocurrencies for VAT purposes and processing cryptocurrencies for corporate income tax purposes is that such cryptocurrencies never consider short-term assets for VAT purposes.

Examples of VAT application:

  • Mining is not subject to VAT unless there is a supplier-client relationship when the miner pays for products or services provided in Lithuania
  • Sale of services related to cryptography (e.g. paid referral of other platforms), taxed VAT
  • Revenues received from the provision of cryptocurrency exchange services are exempt from VAT as it is equivalent to the processing of fiat money
  • The company providing services to the crypto exchange in Lithuania has the right to collect VAT from these services if the buyer (customer) is taxable person
  • Tokens issued during ICO are exempt from VAT, as the process is equivalent to the issue of shares

The standard taxable period coincides with the calendar month, but the company may require the taxable period to coincide with the calendar quarter if its turnover from economic activity did not exceed 300,000 euros in the previous calendar year.

State Social Insurance

Any company engaging in crypto related activities and employing people is subject to paying the State Social Insurance, which is part of the payroll taxes. An employee can’t begin to work until he/she is registered at the Social Security Tax Office by submitting a 1-SD form designed for notifying about the beginning of the personal social income. This must be completed no later than a day prior to the start of the employment.

While 19.5% is withheld from employees, an employer is required to pay 1.61%-2.49% which is calculated on top of an agreed gross salary. In case of fixed-term employment contracts, the employer’s contributions can be increased to 2.49%.

Payments and reports of the State Social Insurance contributions must be made by the 15th of the following month, or by the first preceding regular working day, if the 15th isn’t a regular working day.

The team of Regulated United Europe (RUE) is pleased to offer comprehensive taxation advice to everyone who’s interested in optimising their taxes in Lithuania. We can also guide you through the company formation, familiarise you with all cryptocurrency regulations in Lithuania and crypto licensing process in Lithuania, as well as provide financial accounting services. Please click here to book a tailored consultation.

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