June 28, 2021
Value added tax is applied for most goods and services in Lithuania. There are two ways how legal entities or sole proprietors can register for VAT purposes – either by voluntary registration or there could be four possible scenarios when obligation to register for VAT purposes becomes mandatory and five most common mistakes made by taxpayers in these scenarios.
1st scenario. Sales turnover exceeds 45.000,00 EUR threshold per 12 months period.
1st mistake: Turnover is calculated per calendar year instead of 12 months period.
2nd scenario. Value of the goods purchased within the EU exceeds 14.000,00 EUR per calendar year.
2nd mistake: many businesses does not know this obligation or calculates threshold per 12 months period.
3rd scenario. When the same shareholder or shareholders controls more than one legal entity the total income amount of controlled legal entities shall be taken into account.
3rd mistake: shareholders assume that if one legal entity, controlled by them, soon become obliged to register for VAT purposes, they can establish new legal entity, start operating through that new legal entity and avoid mandatory VAT registration.
4th mistake: one of the shareholders with 50 percent of shares (50 percent of shares are considered as a controlling package of shares for VAT law purposes) or the sole shareholder starts to control other legal entity (by establishing new legal entity, purchasing the shares of legal entity, inheriting the shares of legal entity, receiving the shares of the legal entity as a gift, etc.) and does not notify directors of other legal entities about such event.
4th scenario. Any natural person, engaged in sole proprietorship and controlling one or more legal entities, is obliged to register for VAT purposes once combined turnover of those legal entities and sole proprietorship exceeds 45.000,00 EUR per 12 months period or the value of purchased goods within EU exceeds 14.000,00 EUR per calendar year.
5th mistake: in most cases it is assumed by default that turnover from sole proprietorship and turnover of controlled legal entities shall be calculated separately.