Myths about VAT

The Value Added Tax, that has to be paid for providing goods and services, was first introduced in 1958 in France. Today it is paid in 135 countries. In Europe, the value of VAT ranges from 15 percent (Luxembourg, Cyprus) to 27 percent (Hungary), while in Lithuania it has been 21 percent since 2009.

The VAT is very important to state economics but it can also be beneficial to its payer. All you have to do is study the Law on Value Added Tax of Lithuania and avoid being drawn into the manipulations of its sceptics. Here are a few most popular myths about VAT:

1. Myth. You can only request a VAT code when you reach a certain turnover.

In reality, the code can be obtained by any company, even with zero turnover – all you need to do is file a request. The myth probably originated from the fact that if an entity’s revenue in the past 12 months reached 155,000 Litas, its registration as a VAT payer is mandatory.

2. Myth. Registering as a VAT payer is only mandatory if your revenue in the past 12 months reached 155,000 Litas.

Two more conditions exist that are often forgotten by most businesspeople. First, VAT has to be registered, if goods worth 35,000 Litas or more have been bought from EU countries in the past 12 months. Second, the same applies if a shareholder owns multiple companies, whose turnover sum reaches 155,000 Litas.

3. Myth. It isn’t worth registering VAT, so you should only do it if you reach the turnover limit.

While this might be true in some cases, most often it is more financially beneficial to be a VAT payer. It isn’t worth doing if most of your clients are natural persons, most of whom are not VAT payers. Then it would simply be more difficult to compete in the market, because your product would be more costly to those who do not get a VAT return (those, who do not have a VAT code). However, if you are selling goods to another VAT payer, to them, you are equally competitive with a product priced at 100 Litas without VAT or a product priced at 121 Litas including VAT.

4. Myth. A natural person cannot be a VAT payer

This is especially relevant now, with the increase of members in small partnerships, working under civil contracts. A lot of them are afraid of being paid more than 155,000 Litas over 12 months, because they shy away from becoming VAT payers themselves, as natural persons. This shouldn’t cause alarm, because you can simply write out a bill “for managing my company” with VAT, and then have the VAT returned.