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Published:January 20, 2023

Lithuania Allows VAT Deduction on Purchases of Electric Cars

Lithuania has joined the rest of the EU member states in incentivising the purchase of electric cars. See how the new VAT deductions impact your budget and the EU’s green economy goals in one fell swoop. 

Lithuania Allows VAT Deduction on Purchases of Electric Cars

Considering purchasing an electric car? You may be able to tick off your New Year’s resolution sooner than expected. As of 01 January 2023, Lithuania has approved a VAT deduction on electric vehicles. See how the recent amendments impact the Lithuanian economy, your budget, and the EU’s attempt to meet their climate neutrality targets. 

The newly-approved VAT deduction in Lithuania

The amendment, which the president signed on 16 November 2022, will be effective from 1 January 2023 and permits an input VAT deduction for purchasing passenger (M1) electric cars of up to €50,000 (including VAT). 

In other cases, VAT deduction is allowed for acquired passenger cars if the cars are supplied, rented out, or used for paid passenger transport services. In addition, there is no limitation on input VAT deductions for passenger cars classified as special-purpose motor vehicles (under legal acts governing the classification and coding of cars). 

These changes could significantly increase the Electric Vehicles market in Lithuania, which is already projected to grow by 23.64% (2022-2027), resulting in a market volume of US$194.90m in 2027.

Timeline

Previously, 26 of the 27 Member States provided incentives and benefits for buying or owning an electric car. Lithuania was the only exception. 

  • 2019 - proposed VAT cuts for electric vehicles denied

VAT cuts for electric cars were previously proposed in 2019. However, parliament turned down the proposal. During the vote, Petras Cimbaras, representing the Social Democratic Labour Party of Lithuania (and the person behind the initiative), said it would help Lithuania meet its EU climate change commitments. 

During this stage, the most powerful argument opposed to the VAT deductions on electric vehicles was around concerns that VAT cuts would only benefit electric car sellers and Lithuania's highest earners. 

  • 2021 - Lithuania offers €4,000 subsidies for switching to electric cars

As a part of a €162 million Climate Change Programme approved by the Lithuanian government, buyers of used electric cars could claim a subsidy of €2,000 while new vehicles became eligible for €4,000 compensations.

  • 2023 - Lithuania approves input VAT deduction for electric vehicles

Across the EU, experts have questioned whether VAT exemptions are the fairest way to incentivise electric vehicle use. However, as we enter 2023, Lithuania is preparing for a greener, more affordable future concerning transport with the first official tax benefits. 

The purpose of deducting input VAT on electric cars

The transport sector is among the most prominent EU greenhouse gas contributors and accounts for 16% of global emissions. Due to this, reducing transport emissions has become a critical priority for the EU to meet its climate neutrality targets. 

In a step towards reaching the goal of a green economy, the new amendment aims to incentivise companies to make a much-needed shift towards electric vehicles, hopefully reducing the environmental impact of fuel consumption and a business's carbon footprint.

Read more about the VAT treatment of electric cars in our guide to VAT in the automotive sector.

VAT compliance for a new economy

Lawmakers are constantly updating VAT regulations to meet the new economic demands. Therefore, you need an adaptable end-to-end VAT compliance solution supported by world-class VAT technology.

Get in touch with VAT IT for a customised VAT solution for your business.  

 

 

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