The Lithuanian Ministry of Finance has announced the introduction of a package of legal acts on tax amendments into the system of legal harmonisation on 16 April 2025. The key proposals involve raising the corporate income tax (CIT) rate, modifying the progressive personal income tax (PIT) brackets, and altering the taxation of immovable property. This will help to ensure the financing of the State Defence Fund and increase the efficiency and progressivity of the tax system.
This development plans to raise an additional EUR 248.7 million to the State and municipal budgets in 2026, EUR 624.6 million in 2027, and to raise an additional EUR 306 million already in 2026 and EUR 523.6 million in 2027 to finance state defence.
These tax proposals are submitted for discussion with the political community, social partners and the public. Opinions on the envisaged amendments are expected by 2 May this year. Once approved by the Seimas, the relevant legislative amendments will enter into force on 1 January 2026.
Progressive taxation of income
It is proposed to apply a 20% rate to annual income below the amount of 36 average wages (AW) (estimated at EUR 6.9 thousand per month in 2026), a 25% rate to income from 36 AW to 60 AW (average EUR 6.9 to 11.5 thousand per month), a 32% rate to income from 60 AW to 120 AW (average EUR 11.5 to 23 thousand per month), and an income tax rate of 36% to income above 120 AW.
It is also proposed to maintain tax reliefs for lower income earners. For income from non-employment relationships, as well as sickness, maternity, paternity, childcare and long-term work benefits, up to 12 AW, a 15% rate is planned to be applied, and a 5% is proposed to be set for income from non-individual activities received from the sale of base metals.
Income from individual activities is also planned to be included in the general progressive taxation of residents, but it is important to emphasise that taxation would not change for middle-income earners (taxable income of up to EUR 35, 000 per year).
It is proposed to apply a tax credit of 15 percentage points to the annual taxable income of individual activities not exceeding EUR 20, 000 (thus maintaining the lower limit of the effective PIT rate of 5%), while taxable income of up to EUR 35 000 would continue to be subject to the same taxation system, i.e. a gradually increasing tax of up to 15%. If the annual taxable income of individual activities reaches EUR 35 thousand, but does not reach EUR 42.5 thousand, the tax would gradually increase to 20%. If such revenue exceeded the amount of EUR 42.5 thousand, the basic PIT rates would be applied.
Amendments to the Law on Immovable Property Tax
In order to increase the state defence funding, it is proposed to credit 50% of the immovable property tax paid by residents for non-commercial real estate to the State Defence Fund, the rest will go into municipal budgets.
The main changes proposed are as follows:
New progressive rate system for non-commercial property of residents:from 2026, it is proposed to tax a person’s non-commercial real estate (residential, recreation, gardens, garages, etc.) from the value of EUR 40, 000. The following rates will apply:
- 0% from EUR 0 to EUR 40,000;
- 0.1% for the part of the value exceeding EUR 40,000 but not exceeding EUR 200,000;
- 0.2% for the part of the value exceeding EUR 200,000 but not exceeding EUR 400,000;
- 0.5% for the part of the value exceeding EUR 400,000 but not exceeding EUR 600,000;
- 1% for the part of the value exceeding EUR 600,000.
However, for housing where the owner declares a place of residence, a tax benefit of 50% will be applied, but not for a value exceeding EUR 450,000. For persons with three or more children or children with disabilities, the reduction will be 75%.
A resident who is entitled to housing heating compensation would be exempt from the tax (for the entire value of the housing in which the place of residence is declared).
It is also proposed to extend the object of immovable property tax, i.e. to tax construction that has not actually been completed, if 10 years have elapsed since the issue of the building permit and five years have passed since the data in the Real Estate Register have not been adjusted, thus providing municipalities with additional leverage, reducing long-term construction that has not been completed in decades.
Taxation of abandoned real estate: It will be possible to apply a rate of up to 4% to abandoned or unattended buildings, thereby encouraging their owners to take up maintenance.
Defence Fund – additional 0.2% rate on commercial real estate: A target rate is introduced to increase the revenue of the State Defence Fund. The tax will be paid by both natural and legal persons with commercial real estate.
Automation of declarations: As of this year, residents will no longer have to submit tax returns themselves, but will be formed by the State Tax Inspectorate, thus reducing the administrative burden and the likelihood of errors.
Increased frequency of asset valuation – every three years: in order to bring the tax value of real estate closer to the market price and the stability of the tax, the valuation will be carried out more often.
The Ministry of Finance stresses that the proposed changes will allow more efficient use of the potential of the immovable property tax, ensure more social justice and contribute to housing affordability and environmental goals. In addition, the broadening of the tax base will increase the ability of municipalities to address issues that are important to the local population.
Promoting investment and entrepreneurship
It is proposed to introduce a relief for instantaneous depreciation of fixed assets, e.g. for equipment, computer equipment, software. This exemption would allow companies to deduct the acquisition price of fixed assets in the tax period in which the assets were put into use.
Allowable deductions of limited amounts are to include scholarships, which will allow companies to deduct from their income up to EUR 2,500 per tax period scholarships paid under tripartite agreements for students studying science, technology, engineering or mathematics, as well as scholarships for researchers carrying out a research and experimental development project.
For small businesses, it is envisaged to extend from one to two years the period during which the profits earned by newly registered companies would be subject to a 0% corporate income tax rate, thus facilitating the growth and development of companies.
Development of the tax base and review of exemptions
It is proposed to reduce the current reduced rate of value added tax (VAT) of 9% for books and non-periodical publications to 5%. For other goods and services, which were subject to a preferential VAT rate of 9%, it is proposed to increase it to 12%.
It is also proposed to abolish the heating VAT exemption. It should be noted that the aim will also be to increase the range of compensations available for heating.
In order to use the State budget funds more efficiently, e.g. as an increase in the quality and accessibility of health care, it is proposed to include the employer’s additional (voluntary) health insurance contributions into the taxable part of the wages. If these benefits are considered to be part of the payroll, the employer will continue to be able to reduce taxable profits at such costs by financing them more significantly from his own resources.
Additional sources of defence funding
In order to ensure sustainable revenue, it was proposed to finance the State Defence Fund with a security contribution. The 10% rate of the security contribution would be paid by insurers operating in Lithuania in respect of the total amounts of insurance premiums specified in non-life insurance contracts concluded – extended or amended, if the insurance premium also changes – with the exception of compulsory insurance premiums for natural persons (insurers) against civil liability in respect of the use of motor vehicles, which would not be subject to taxation. The implementation of this proposal would bring about EUR 110 million in additional revenue to the Defence Fund.
In order to contribute to the financing of national defence and thus public health policy objectives, it is proposed to introduce excise duties on non-alcoholic sweetened beverages, energy drinks, as well as to introduce excise duties on beverage concentrates, avoiding possible substitution effects. For sweetened beverages with a sugar content of more than 5 g and less than 8 g per 100 ml, as well as beverages containing sweeteners, an excise duty rate of EUR 7.4 per hectolitre is foreseen, whereas for beverages with the same sugar content of 8 g and more, as well as for energy drinks, an excise duty rate of EUR 21 per hectolitre is foreseen. It is proposed to apply the excise duty rate of 105 EUR/hl or 4.3 EUR/kg to beverage concentrates.
It is estimated that, due to tax factors, a price of 1 litre of a beverage containing more than 5 g but less than 8 g of sugar, as well as a beverage containing sweeteners alone, would increase by EUR 0.09 next year, the price of the same amount of a beverage containing 8 g or more of sugar, as well as an energy drink, would increase by EUR 0.25 per litre, EUR 1.27 per litre of concentrate and EUR 0.52 per 100 g. These changes would generate approximately EUR 25 million in additional revenue for the State budget per year.
At the same time, exemptions from excise duty are foreseen for pharmaceutical products, medical devices, food supplements, veterinary medicinal products, milk, milk and fermented milk products, infant formula, follow-on formula, as well as sweetened beverages for food production, non-prepacked sweetened beverages produced in mass caterers and other products.
It is proposed to increase the current standard corporate income tax rates of 16% and 6% by 1 percentage point. These changes would allow the State budget to generate additional revenue of EUR 111.5 million per year.
The Government has set a goal for ministries to reduce management costs, thus contributing to ensuring adequate defence funding. Ministries (with the exception of the Ministry of National Defence) will have to review and plan the internal expenditure of the public sector using the zero-budget method in their areas of management. This includes expenditure for administrative purposes, information technology, other goods and services to be procured through public procurement. An important condition is that these savings do not have a negative impact on the services provided to the public. Ministries will also have to submit proposals for abandoning or reducing the scope of lower-priority activities. Both these proposals and internal public sector expenditure savings are expected to be discussed during the budget negotiations.
