Lithuania introduces VAT relief for small businesses

On January 18, Lithuania introduced new VAT relief rules for small businesses through the State Tax Inspectorate (VMI). These changes allow Lithuanian small businesses to operate in other EU countries without immediately paying local VAT.

However, there’s controversy. The government has yet to fully implement the European Commission’s VAT directive. Some question whether the adoption of these rules is even legal. But for now, businesses need to focus on how they can benefit from the new scheme, how to apply it, and what risks come with it.

What's new?
One thing remains the same: Lithuania’s domestic small business VAT rules. Businesses earning less than €45, 000 annually are still exempt from VAT. But the big change? VAT relief now applies internationally.

Before, small businesses had to pay VAT in those countries from the first euro earned. Now, they can avoid local VAT under the cross-border Small Business Scheme (SVS).

Who can benefit?

Two key conditions must be met:
1. EU-Wide revenue limit - the business must earn less than €100, 000 across the EU in the current and prior year.
2. National revenue limits - the business must stay under the turnover threshold in the country it’s operating in.

What’s next?

The VAT reform will likely be finalized in Lithuania’s Parliament by May 1, 2025, but businesses can already apply the SVS rules from January 18, 2025. However, businesses might still be waiting for their EX code, which takes up to 35 working days to process.

Opportunities and risks

This scheme offers cost savings and easier expansion within the EU. However, businesses must track their revenue carefully and be aware of extra reporting requirements. Plus, VAT on expenses can't be reclaimed under this exemption.

In short, while this change opens up new opportunities for Lithuanian small businesses, they must stay compliant to avoid future complications.

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