The ongoing war in Ukraine has sparked governments to take defense seriously. The Lithuanian government is no exception here – as of 2025, Lithuania is set to increase defense spending.
Unsurprisingly, the new Defense Fund Package was approved by the Parliament on June 20, 2024, which includes proposals to increase the national defense spending to 3% of gross domestic product for the period of 2025-2030.
The Defense Fund Package consists of four parts: an extension of the banks’ solidarity contribution, a corporate tax increase, changes in excise duties, and the introduction of the concept of security contributions (insurance premium tax). The Parliament also adopted the so-called Defense Fund Law.
Corporate Tax
From January 1, 2025, both the standard and the reduced rate of corporate tax will increase. The amendment to the Law on Corporate Income Tax increases the standard (15%) and preferential (5%) corporate tax rates applicable to small businesses by one percentage point, to 16% and 6%, respectively. The increase in corporate tax rates is accompanied by an increase in the taxation of dividends by up to 16% and an increase in the taxation of qualifying profits from the commercialization of patentable inventions and software up to 6%.
The proposal was to increase the standard corporate tax rate up to 17%, however, Economy and Innovation Minister Ausrine Armonaite said that higher corporate tax rates would be detrimental to economic growth and investment climate.
Another change is related to the abolishment of tax benefits for healthcare and life insurance companies. Income from services provided by healthcare institutions that are financed by the Compulsory Health Insurance Fund will be taxable income. The income from services provided by healthcare institutions will be attributed to taxable income and the costs for generating this income will be tax deductible. A similar change will apply to the insurance sector, which means a higher proportion of the income will be subject to corporate tax.
Starting January 1, 2025, limitations to the acquisition and lease costs of cars will apply that will be linked to the vehicle’s CO2. For example, a proportion of up to EUR 75,000 of the purchase price of a company car may be deducted from income with carbon dioxide (CO2) emissions of 0 grams per kilometer and EUR 10,000 with carbon dioxide (CO2) emissions exceeding 200 grams per kilometer.
Excise Duties
This measure concerns increasing excise duties on alcohol, tobacco, and fuel.
The most significant increase was in the excise duty on ethyl alcohol, which will be between EUR 2,837 and EUR 3,262 for the years 2025-2026, and EUR 3,751 in 2027.
The excise duty on e-cigarette liquids was increased by one and a half times more than the government had planned: the rate will increase by 150% each year.
A EUR 0.06 (part of excise duty + VAT) increase per liter of fuel for excise duty on petrol, diesel, green farmer diesel, and transport oil gas shall apply. It is expected that fuel prices will increase by EUR 0.07 per liter next year.
Some of these excise duties are set to increase annually until 2028-2030. As decided by the Parliament, 4.1% of excise revenue will be transferred to the Defense Fund in 2025, 7.1% in 2026, and 7.4% in 2027.
Banks’ Solidarity Contribution
The Parliament also adopted a law amending the Law on Temporary Solidarity Contribution, which stipulates that the bank solidarity contribution that was supposed to be temporary, will continue to be levied for one more year, i.e., banks will continue to pay the contribution in 2025.
The contribution for 2025 will be calculated based on the net interest income for 2019-2022, the same as it was for 2024.
It is expected that the banks operating in Lithuania will contribute EUR 50-70 million to the Defense Fund.
Security Contributions
The Defense Fund package should also include a security contribution concept, which provides for a 10% contribution to be applied to insurance contracts, excluding life insurance and personal civil liability insurance.
The latter concept has been submitted for public consultation and a draft law on its implementation is yet to be drafted and voted on separately.
The tax changes that are set to take effect in Lithuania as of 2025 represent a significant shift in the country’s fiscal policy, with a clear focus on strengthening the national defense. While the increase in taxes may not be a favorable move for businesses, it is with the understanding that the current geopolitical situation necessitates prioritizing national security.
By Arunas Sidlauskas, Partner, and Abigail Protcenko, Junior Associate, Widen
This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
