Land and Property Investment Opportunities in Lithuania
Land and Property Investment Opportunities in Lithuania
Why buy land and property in Lithuania?
- A consistent stream of foreign trade and exports supports stable growth in Lithuania
- With an estimated GDP of 3% by the end of year, Lithuania is set to be within the top 3 fastest growing countries in the EU
- Bordering to Latvia who also shows strong potential with a GDP of 5.2%, domestic markets should expand across the Baltic region
- Reduced emigrants’ remittances will likely spark additional incentives for foreign investment and residency
- Government deficit is set to narrow from 3% to 2.5% of GDP this year and is predicted to decline by further 2% in 2014
Who can buy land and property in Lithuania?
Similar to its Baltic neighbours, Lithuania imposes pretty relaxed legislation on foreign real estate ownership.
Both EEA and non-EEA country citizens may purchase residential property freely with restrictions in place only pertaining to buildings of national or strategic importance.
Furthermore property may be acquired absent of Lithuanian residency.
Generally, property law across the Baltic region is based on a strong public real estate register, where in both Estonia and Latvia the acquisition of ownership right shall only be valid and binding upon amendments to the State’s official land registry.
Adherence is less pronounced in Lithuania, where acquisition of ownership right is binding upon agreement between both parties, irrespective of the registries amendment.
With this being said, property cannot be transferred, mortgaged or sold by the new owner until the register has been amended.
These minimal restrictions, favourable ownership rights, along with signs of economic recovery may well look attractive to foreign investors.
However when looking closer at the market, Lithuania does not demonstrate classic characteristics of a maturing market and is likely not suited to all.
Buying property in Lithuania
Following considerable slowing of the real estate market over the last several years, signs of new development and regrowth are showing.
Trends are not following that of what are being typical seen in other recovering european markets however, where prices are rising across all major cities.
In the cities of Siauliai and Panevezys the average market price last year was only around half of that in Klaipėda and Kaunas, at EUR €535 per sq.m compared to EUR €960 per sq.m respectively.
The majority of market change in Lithuania seems to be localized to within the capital, Vilnius.
Data for properties in the centre and surrounding suburbs indicated that the average price of detached and semi-detached houses increased by 5% last year.
Similarly an influx in the amount of apartments being sold within the area is driving up smaller property prices.
Fully refurbished apartments in the centre and old historical town area of Vilnius range from EUR €1,800 to EUR €2,400 per sq.m. In the popular areas of Antakalnis, Zverynas and Valakampiai such old style apartments today cost around EUR €1,600 to EUR €1,800 per sq.m.
This demand for prime city locations is also evident from typical rental prices.
Rental yield is considered to almost be back to that of pre-recession at 4.13% – 5.68% in the centre and 4.40% – 5.38% in the neighbouring suburbs.
Although this demand, stemming from new businesses moving into the capital, is driving Lithuania’s resale and rental markets, there is also a growing market emerging for new build properties located outside of town.
Furthermore with affordable prices, such properties are now becoming popular with foreign investors.
For as little as 10 km outside of Vilnius, property prices for a 120 sq.m house can be around EUR €90,000 lighter.
Tax levies on foreign sale of real estate is influenced mostly by how long the property is owned and whether the foreign investor resided at the premises.
Additional levies may also be imposed, depending on the age and total value of the property at the date of sale.
In general, taxation on property sale in Lithuania is modest compared to other EU members.
Personal Income Tax
There is limited difference in income tax obligation regardless of the method in which foreign investors acquire ownership of property.
Whether purchased individually or through a foreign company, either a withholding (WHT) or personal income tax (PIT) of 15% is due on real estate transfer and acquisition.
Foreign investors should however understand that officially this tax relates to the gross value of proceeds and thus in both cases, recalculations based only on sale proceeds less acquisition costs must be requested from the authorities.
For foreign investors looking to register Lithuanian domiciled company, corporate income tax (CIT) is also fixed at 15% on capital gains upon request for readjustment.
Under special circumstances a foreign investor may be exempted from PIT if they have resided at the property for more than 2 years prior to resale or, if resale occurs before such a time, they use the proceeds to purchase another residential property.
The latter clause provides some freedom for foreign real estate investors to capitalize more from new residential areas emerging.
Value Added Tax
Depending on the buyers objectives for property purchase the decision to buy new builds over older property will bare additional financial consideration.
If investment yield preludes mostly to capital gain then investors should consider two factors.
Firstly, whether the lack of any clear sign of sudden price rises beyond what’s being seen to date justifies purchasing property in Vilnius with today’s inflated prices.
Secondly, if deciding to purchase property on the outskirts, how long do they intend to hold the property before resale.
Although new builds are likely to produce greater return on investment, due to current markets suggesting popularity amongst buyers outside Vilnius, additional tax levies may apply.
Lithuanian legislation on the sale of new buildings, which includes; any building that has been in use for less than 24 months after completion, unfinished buildings, building land or land with new buildings is subject to VAT at a fixed rate 21%.
Foreign investors should ensure that any significant price differences between modern style builds take into consideration the extra cost associated with reselling the property if it is around 2 years old.
Real Estate Tax
Similarly considerations regarding the property’s total capital value should also be taken into account by foreign investors.
From the 1st January 2013, Lithuania imposed a new taxation on certain real estate properties, deemed Real Estate Tax (RET).
Residential properties with a gross value in excess of LTL 1,000,000 (EUR €290,000) are now subject to 1% RET, however properties with a total family-wise-ownership value below this threshold are exempted.
This additional levy is base on the average market value of the property and can vary between 0.3% – 3% depending on municipality.
Investors should be aware that RET can be assessed either by mass valuation, which is performed every 5 years, or by using replacement cost valuation.
If upon resale, the market value differs by more than 20% from the estimated sale price, then the seller may request for an individual evaluation to be performed.
Although the majority of rental demand is currently localized to Vilnius, opportunities in well developed locations with good access will also grow.
Income to be generated through rental of property will likely come from short term leasing.
Similar to capital gains, any income generated inside Lithuania regardless of residency status is subject to 15% PIT on gross income.
Under set conditions however, investors who reside at the property personally may opt to pay a fixed amount of tax on property rental income once a year.
Stipulations may also allow for reduced taxation if the property is leased to persons for business purposes.
Currently the only limitation to this permission is that the lessee cannot be a legal entity and must obtain a business certificate to rent residential premises in such regard.
The following documents are required during the land acquisition process;
Title of real estate – Official title deeds to the property, detailing any outstanding debts or legal obligations due.
Title of land use – Attests that the property owner has legal right to and has so provided the right to the buyer for the land to which the property is encumbered to.
Sales-purchase agreement – Both parties agreement under the conditions of price and payment.
Notarized sale-purchase agreement – Signed by all parties this authorizes the investors application to register the new title with Land Registry.
Land title registration – Although not required to establish legally binding transfer of ownership deeds, it is required for any emcumbarances added to the property.
Buying land in Lithuania
Like most EEA countries, Lithuania imposes additional restrictions pertaining to foreign ownership of land.
Under the country’s Constitution, the Lithuanian State is the exclusive owner of the subsoil, internal waters, forests, parks, roads, historical, archaeological and cultural objects of national significance.
Title to other lands, including farm and designated forestland may be acquired by persons other than the Lithuanian State.
These include persons who are either a citizen of Lithuania or foreign persons who meet union state criteria.
In regards to foreign investors, any citizen or permanent resident to a country member of either the EU, EEA, NATO or OECD and who also has permanent residency in Lithuania is lawfully eligible to purchase such lands.
Land considered agricultural in nature however carries additional restrictions.
Foreign persons that meet union criteria must also demonstrate that they have been engaged in agribusiness activities within Lithuania for a minimum of 3 years, before they may purchase such land.
Similar to other EEA countries, limited published criteria detailing what constitutes subsection lands can be problematic.
Foreign investors should take additional steps to ensure correct definition between farm and agricultural land.
Unlike Latvia and Estonia, Lithuania also provides an additional purchase route whereby foreign investors may buy agricultural land absent of this 3 years period.
That is, foreign legal persons and other foreign organisations with established representatives or branch offices in Lithuania may acquire small plots of agricultural land.
Country lands are protected well from excessive foreign ownership.
Lithuania enforces maximum quantity restrictions on all foreign nationals, including residents which prohibits any persons owning more than 500 hectares.
The European Commission has approved extension of these restrictions and therefore they shall be imposed until the end of Lithuania’s transitional period, which ceases on 30th April 2014.
Municipal Property Tax and Land Tax
All taxes pertaining to possession and use of real estate being it; real estate tax, land tax or State owned land lease tax, are paid to local municipalities where the property is located.
The annual rate of the real estate tax is set annually by the local municipalities and ranges between 0.3% – 1% of the real estates’ taxable value.
The annual rate of the land tax is 1.5% of the lands’ taxable value, while the annual rate of the State owned land lease tax varies from 1.5% – 4%.
The particular rate of the latter is established by the municipalities where the land plot is located.
Typical purchase costs
Notary Fee 0.45%
Registration Fee 0.03% – 0.5%
Real Estate Agent Fee 1.5% – 3% (+21% VAT) seller
Total Cost 2.295% – 4.61%
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Written by Smash.vc
We invest in profit-focused lifestyle businesses. Also memes, lots of memes.
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