Lithuania Implements Electric Cars Purchases‘ VAT Deduction

Aiming to incentivize acquisitions of electric cars and increase the size of the electric vehicles market in the country, Lithuania has decided to adopt VAT deductions for electric car purchases. This measure makes prices of electric vehicles more customer-friendly and has already been adopted in all other countries of the European Union. The move towards incentivizing electric vehicles is based on the need to lower the greenhouse gas emissions of the transportation sector, which currently is one of the top producers of emissions.

The electric cars VAT deduction was signed in November last year and came into power on 1 January 2023. It is applicable on M1, in other words, passenger, electric cars. It is possible to deduct VAT on electric car purchases that do not exceed €50, 000 (VAT-inclusive). VAT deduction is also applied to other types of electric passenger car supply, such as car rentals or paid passenger transportation services.

Lithuania was the only country with no VAT deduction on electric vehicles due to the country's Parliament's decision to turn down the deduction in 2019. The argumentation behind the decision was that the deduction could be considered discriminatory — benefitting only the electric vehicle sellers and the country’s top earners that are the target market of electric car sales.

However, in 2021, the country took another turn and started offering subsidies of €4, 000 for those who switch to new electric cars and €2, 000 for used electric vehicles as part of the Climate Change Programme.

It is expected that the most recent incentive will help boost the expansion of the electric vehicles sector, which is already forecasted to grow significantly.

Corporate Tax