Ramunas Audzevicius, Partner at Motieka & Audzevicius in Vilnius, claims that the situation is quite calm in Lithuania, though he admits there are still issues in various areas affecting business.
Audzevicius highlights the tax reform approved by the Lithuanian parliament and signed by the President Dalia Grybauskaite at the end of June 2018. “The personal tax has changed dramatically in a negative way,” he sighs. “People will be taxed more than they expected.”
The reform also involves changes in the employment income tax, raising two personal income tax rates to 20% and 27%. This means income up to 120 times the national average wage — so approximately 107,500 EUR per year — will be taxed at 20%. However, income exceeding this threshold will be taxed at 27%, which the highest rate in Eastern Europe.
According to Audzevicius, the change in Lithuania's personal income tax, which will come into force in January, 2019, was not unexpected, as it had been proposed by the ruling party in the campaign leading up to the October 2016 election. “They promised to implement a progressive tax in the future,” he says. “So they’re fulfilling that promise.” Not everyone is excited, he says. “There are many debates, commentaries, and a lot of criticisms from the opposition parties and the business community regarding this; however, we have what we have.
Still, despite the promises made during the campaign, Audzevicius believes the government failed to provide sufficient justification for introducing such drastic changes in the tax law. The stated purpose of the new law was to reach a balance between wealthy people and the rest, but he believes the real purpose is simply to collect more revenue, which he describes as: “the easiest way to support the government budget.” In practice, he says, the new tax rate means that, “it will be more difficult to compete for attractive foreign direct investments for Lithuania, which has been the goal of each Lithuanian government after my homeland restored its independence in 1990.”
Although Lithuania appears among the most aggressive countries in Eastern Europe on personal taxation rates, it is among the most progressive in the world in blockchain technology regulations. Audzevicius says, “Lithuania is moving to be the leader in FinTech, as it was suggested by our financial authorities.”
Recently, Lithuania has made a number of changes to improve the country's financial technology market, including the issuance by the country’s Ministry of Finance of guidelines for cryptocurrency and initial coin offerings (ICOs). These guidelines provide information about applicable regulations, taxes, accounting, Anti-Money Laundering, and Combating the Financing of Terrorism issues. “This was important for businesses dealing with ICO projects,” Audzevicius explains, “as the new framework established clearance and a more secure environment for FinTech and blockchain business.”
Audzevicius reports that Lithuania’s ICO regulations, which came into force on June 7, 2018, are among the first such in the world. He says with excitement, “it provides legal certainty for law firms which have never advised on ICOs,” and he believes that the new regulations will help increase the number of ICO deals in the country, thus bringing in more business.
Despite the changes in Lithuania's law and economy, the legal market itself has not changed much recently, Audzevicius says, and he describes himself as positive about its status and growth.
