In December 2017, the Lithuanian Parliament approved the Lithuanian Budget Proposal for 2018, which included amendments to the Lithuanian Law on Value Added Tax (VAT).

The following changes were enacted and came into effect as of 1 January 2018:

• The reduced VAT rate of 9% will apply for an indefinite period of time to thermal energy supplied for the heating of residential premises (including thermal energy transmitted via hot water supply systems), hot water (or cold water supplied for the preparation of hot water) supplied to residential premises, and thermal energy consumed for the heating up of such water (under the previous provisions, the rate of 9% applied only until 31 December 2017).
• No threshold applies to supplies of non-reimbursed prescription drugs in order for such supplies to be eligible to the reduced 5% rate of VAT (under the previous provisions, the rate of 5% was available only to supplies of non-reimbursed prescription drugs when the taxable value of the outer package value is above €300).
• The reduced VAT rate of 9% for accommodation services supplied according to the procedures prescribed by legal acts governing tourist activities will apply until 31 December 2022 (under the previous provisions, the reduced VAT rate of 9% was applied for an indefinite period of time).
• Foreign taxable persons established in countries which are members of the Organisation for Economic Co-operation and Development, in which there is no VAT (or an identical tax to it) are entitled to apply for a VAT refund and claim the VAT paid in Lithuania. Currently, the provision applies only for taxable persons established in the United States.

Moreover, due to the simultaneous amendments to the Lithuanian Law on Corporate Income Tax regarding allowable deductions, taxable persons are now only allowed to deduct 50% of the VAT incurred on entertainment and representation expenses starting from 1 January 2018 (under previous provisions, 75% of the VAT was deductible). In addition, the amount of such deductible expenses shall not exceed 2% of the taxable person's revenues for the fiscal year.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Baltic UAB, Vilnius

• Irmantas Misiunas
  irmantas.misiunas@lt.ey.com
• Raimonda Gaizauskiene
  raimonda.gaizauskiene@lt.ey.com

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ATTACHMENT

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