The private use of company cars is common practise in Lithuania, but has significant tax implications for both employers and employees. The State Tax Inspectorate (STI) closely monitors the use of company cars and inaccurate reporting can lead to additional tax liabilities or even penalties.

This article outlines the applicable tax rules for personal use of company vehicles, the two methods available for calculating benefits in kind, the documentation required for compliance, and special considerations for companies and sole proprietorships.

Company car: business use vs. personal use

If a vehicle is used exclusively for business purposes, no additional income tax obligations arise (with the exception of depreciation restrictions in connection with CO2 emissions, which are not taxable benefits in kind).

However, as soon as a company car is used for private purposes – e.g. for commuting, personal errands or leisure activities- the situation changes. Private use is then considered a taxable non-cash benefit and is subject to the same taxation rules as salary. Consequently, both the employer and the employee are liable to pay tax.

How to calculate the benefit in kind

1. Percentage of market value

• If the fuel is excluded: 0.70 % of the market value of the vehicle per month.
• If fuel is included: 0.75 % of the market value of the vehicle per month.

For example, if a company car has a value of €25,000 and the fuel costs are borne by the employer, the taxable benefit is €187.50 per month (€25,000 × 0.75%). From this amount, the employee must pay GPM and social security contributions, while the employer must pay the employer’s social security contributions and, in certain cases, VAT. In practise, this can amount to around €80 in taxes.

2. Market rental value

Alternatively, the taxable benefit can be determined on the basis of the current rental value of a comparable vehicle for the period of private use. Although the rental value method can be adjusted during the course of the year, any change requires a recalculation of the benefit from the beginning of the financial year.

The market value of the vehicle should be verified using publicly available vehicle sales lists, insurance documents or other reliable sources.

3. By the actual usage of the car

If the benefit is calculated on the basis of actual kilometres driven, detailed logbooks must be kept clearly distinguishing between business and private journeys.

Taxes related to company car use

If a company vehicle is used privately, the following obligations apply:

Employee: taxable (20% or more, depending on annual income) and social security contributions, with rates influenced by the choice of pension saving under the Sodra.

Employer: Employer’s social security contributions (1.77%) and, in certain cases, VAT (especially if the company covers the fuel and operating costs).

Regardless of whether the taxes are borne directly by the company or withheld from the employee’s salary, it is important to declare them correctly and comply with the regulations.

Documentation required by VMI

The STI may request documentation to verify that the vehicles are used primarily for business purposes. To minimise the risk, companies should:

• Establish and implement internal guidelines for vehicle use;
• Issue formal instructions or agreements regarding the assignment of vehicles to employees;
• Maintain mileage logs and business travel reports;
• Keep receipts for fuel purchases, invoices and service records;
• Keep records of where vehicles are stored and which employees are authorised to use them.

Accurate and transparent records support the business reasons for vehicle use and reduce the risk of expenses not being recognised as deductible costs.

Special considerations

Small partnerships (MBs) and sole proprietorships

These companies can choose whether the private use of a company car is taxed as income tax (subject to PIT and social security contributions) or as dividend income (profit distribution). This choice has a direct impact on the deductibility of the related expenses. If treated as dividends, certain expenses may be deemed non-deductible, so professional advice from the STI or an accountant is strongly recommended.

Luxury vehicles

The purchase of luxury vehicles is often scrutinised by the TAX inspection. If the company cannot demonstrate the business necessity, the associated expenditure and depreciation may not be recognised for corporation tax purposes. Although a threshold of €50,000 is generally stated, each case is assessed individually.

CO2 emissions and environmental restrictions

For vehicles purchased after 2025, the tax treatment will also take CO2 emissions into account. The higher the emissions, the lower the proportion of the costs that can be recognised as deductible. For example, if emissions exceed 130g/km but not 200g/km, only up to €25,000 can be treated as deductible expenses.

Key takeaways

The private use of company cars is permitted in Lithuania, provided it is accurately declared and properly documented. Companies may use either the percentage of value or the market rent when calculating the benefit, but in either case the tax must be correctly declared by both parties.

Comprehensive documentation from orders and logbooks to petrol receipts is crucial to prove compliance and avoid potential disputes.

Special rules apply to MBs, sole traders and high-value vehicles, which can be treated differently for tax purposes. With proper record keeping, transparent reporting and compliance with applicable tax rules, both employers and employees can benefit from the use of company cars without running into unexpected problems with the tax authorities.

Final note: If your company plans to allow private use of vehicles, consult your accountant first. They will ensure all taxes, VAT, and accounting entries are handled correctly, keeping your business compliant and avoiding surprises from the tax office.