LITHUANIA Law and Practice Contributed by: Evaldas Klimas and Mantas Lideika, WALLESS
7.6 Liens or Encumbrances in the Event of Non-payment Under the law, contractors and/or designers are not permitted to lien or otherwise encumber a property. Such actions can be taken only if doing so is provided for in the concluded agreement or through court proceedings during the litigation process. 7.7 Requirements Before Use or Inhabitation A building can be used only once its construc - tion is completed, and this is formally declared. A certificate on completion of construction must be received from a commission of construction completion for buildings indicated by the law. The construction of simple structures or sim - ple works is officially finished by a declaration signed by the builder. As a principle, only new buildings (up to 24 months after completion of construction) and land for construction are subject to VAT. How - ever, if both transaction parties are registered as VAT payers, they are free to agree to apply VAT on any real estate transaction. If VAT applies, it is added on top of the trans - action price and paid to the state by the seller. When both parties are registered VAT payers, they have the option to manage cash flow by transferring VAT arrears. 8. Tax 8.1 VAT and Sales Tax Real estate transactions are subject to a stand - ard VAT rate of 21%; no reduced rates apply.
8.2 Mitigation of Tax Liability In Lithuania, real estate transactions are com - monly structured as either an asset deal or a share deal. The most appropriate method is decided on a case-by-case basis, and usually depends on whether the buyer is interested in the real estate alone (asset deal), or in the business as a going concern related to the particular real estate (share deal). If a real estate transaction is structured as a share deal, it might be subject to income tax (on capital gains received), but not Lithuanian VAT. Therefore, before entering into a large real estate portfolio transaction, parties are advised to care - fully analyse the subject of the transaction and to consider all the available protections, including individual advance tax rulings on the tax treat - Business premises are subject to real estate tax in Lithuania. The annual rate of the tax is set every year by the local municipality and ranges between 0.5% and 3%. A company must pay real estate tax on the premises if those premises are: • owned by the company; or • transferred by a natural person for the use of the enterprise for a period exceeding one month. There are various tax exemptions applicable to real estate tax, including for the property of com - panies in free economic zones or the property of bankrupt companies. Also, the municipality has the right to reduce the tax rate for a particular taxpayer or to exempt them from taxation (after ment of the transaction. 8.3 Municipal Taxes
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