The Lithuanian Parliament has adopted a wide-ranging tax reform that will come into force on 1 January 2026. The main objectives of this reform are to raise additional funding for national defence, reduce income inequality, and promote business development and innovation.

1. Changes for businesses: corporate income tax and new incentives

While tax rates for companies will increase, the state is introducing several incentives to encourage investment.

• Increase in corporate income tax rates:
  The standard corporate income tax rate will rise from 16% to 17%. The reduced rate for small businesses (with annual revenue of up to EUR 300,000) will increase from 6% to 7%.

• Good news for startups:
  Previously, new small businesses could benefit from a 0% corporate income tax rate in their first year of operation. Under the new rules, this period will be extended to two years, giving startups more time to establish themselves.

• Investment incentives (immediate expensing):
  Companies will be able to deduct the full acquisition cost of certain assets (such as machinery, equipment, software, and commercial vehicles) as expenses in the first year. This will quickly reduce taxable income and encourage technological upgrades.

• Limitation on loss carryforward:
  From 2026 onwards, tax losses from previous years may be used to offset up to 70% of current taxable profits.

2. Value added tax (VAT): What will become more expensive and what cheaper?

Lithuania will abolish the current general reduced VAT rate of 9% and replace it with new rules.

• Price increases (9% → 12%):
  Hotel accommodation, public transport, and tickets to concerts, theatres, and exhibitions.

• Significant increase for heating (9% → 21%):
  District heating, hot water, and firewood for households will be subject to the standard 21% VAT rate. This will lead to a noticeable rise in winter heating costs.

• Cheaper books (9% → 5%):
  VAT on both printed and e-books, as well as textbooks, will be reduced to promote reading and education.

3. Personal income tax (PIT) and real estate

The personal income tax system will become more progressive, meaning higher earners will pay more.

• New tax brackets:
  Depending on annual total income, tax rates of 20%, 25%, and 32% will apply. It should be noted that the income of most people will remain under the 20% tax rate (approximately €82,000 per year), while very high incomes (the portion exceeding approximately EUR 138,000 per year) will be taxed at 32%.

• Sale of real estate:
  Income from the sale of real estate will be exempt from personal income tax if the property has been owned for at least 5 years (instead of the current 10 years).

• Homeownership tax:
  A primary residence will be tax-exempt if its value is below EUR 450,000. If you own multiple properties, a progressive tax will apply based on their value.

4. Entirely new taxes: insurance and sugar

• Security levy on insurance:
  A 10% tax will be introduced on most non-life insurance contracts (such as home or comprehensive car insurance). Mandatory third-party motor liability insurance for individuals will be exempt from this tax.

• Sugar tax on beverages:
  Sugary drinks will be subject to an excise duty based on their sugar content. For example, beverages containing more than 8 grams of sugar per 100 ml will become approximately EUR 21 per hectolitre more expensive due to the excise duty. This measure aims to promote public health.

Business owners should review their 2026 plans and investments carefully already in 2025 in order to make the most of the new system.