After Listening to the Public Opinion — Revised Draft Law on Immovable Property Tax
After hearing the interested parties, the revised amendments to the law concerning the introduction of the traditional model of residential property tax aimed to tax individual property rather than the total amount of its value, are submitted. Thus, municipalities, receiving a tax paid by residents, will have more opportunities to expand education, health, social and other public services rendered to the residents.
The draft law submitted after the revision establishes that a person should not pay tax on housing where his place of residence is declared and the value of which does not exceed the median value of immovable property of a particular municipality (the previous proposal provided for a rate of 0.03 %). In this way, half of housing of the country with declared residence would be exempt.
According to the provisions of the updated draft, the tax would be calculated only on the value of the housing above one median. If the value of the housing is between one and two medians, the tax rate would be 0.06 %. A rate of 0.1 % would apply to the value exceeding two medians.
It is proposed that after the adoption of the amendments to the legislation in the Seimas, the first immovable property tax returns under the amended model would reach the residents in 2026.
It should be pointed out that the Ministry of Finance proposes to establish that the whole tax on immovable property — both commercial and non-commercial — would be included solely in municipal budgets. Currently, revenue from the tax on commercial immovable property goes to municipal budgets, while revenue from the tax on residential property — to the State budget.
“After consideration of comments and proposals of the public and interested parties, we have amended the draft Law on Immovable Property Tax. The updated tax model is more socially sensitive — half of all housing owners would not pay the tax, while disadvantaged persons and persons at retirement age could benefit from the possibility of deferring the payment of the tax until the transfer of the property. The development of a less harmful tax base for the economy is one of the most important recommendations of international institutions to Lithuania, and the proposed change in the immovable property tax model is a significant step towards it. Moreover, this proposal would create a new sustainable source of income for municipalities, thereby strengthening their financial autonomy”, – said Minister of Finance G. Skaistė.
According to preliminary estimates, on average the tax on the principal residence in the country would make up about EUR 14 per year. For example, a standard 50 sq. m housing of old construction in Vilnius district Fabijoniškės, Žirmūnai or Pilaitė, the tax value of which would amount to about EUR 55 000, would be exempt because its value is below the median of Vilnius city (EUR 60.1 thousand).
The amount of the tax to be paid would depend on the median of values of immovable property in a particular municipality. Taking into account the administrative costs, it is proposed that the resident be exempt from the tax if the amount of the tax payable does not exceed EUR 5.
It is important to note that the contributions for a resident would be calculated from the size of the mass valuation of immovable property of the Centre of Registers rather than on the potential commercial value of the object.
In addition, the amendments to the law give more rights to municipalities when deciding on the application of reliefs and determination of the specific tax rate within the limits provided for by the law.
By taxing immovable property used for non-commercial activities (including the principal residence and taking into account the EUR 5 relief), the total revenue of municipal budgets from the tax could range from EUR 18 million to EUR 103 million depending on the rate chosen by the municipality for other non-commercial property (0.1-1 %). Increased income of municipal budgets due to the proposed new source of revenue would allow the municipality to invest in the accessibility and improvement of the quality of the living environment, education, social and other public services used by the residents of the municipalities concerned.
In order to ensure the ease of the tax payment, immovable property tax returns (with the tax calculated for each resident) will be prepared by the State Tax Inspectorate, as is currently the case with the administration of the payment of the land tax.
It is important to note that that in summer the Ministry of Finance invited everyone to participate actively in the discussion on the Municipal Financial Independence Improvement Package, which includes also a draft amendment to the Law on Immovable Property Tax. In total, almost 30 proposals were received from both public and other interested authorities, associations and natural persons. Many proposals have been taken into account and included in the revised draft law.
The improved draft is expected to reach the Seimas in the Spring Session.
Last updated: 13-02-2023
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