On 21 May 2024, the Defence Fund package was presented in Lithuania, to bring Lithuania’s defence spending up to 3% of GDP. The proposal outlined how the defence budget will be increased; several are related to the insurance sector.

According to the information available to us, the Lithuanian Government is planning to discuss and debate the proposed draft laws more extensively over the next few weeks, so the currently published drafts and ideas may still be subject to further modifications. However, according to the draft laws and other publicly available information, the insurance sector could be affected in the ways described further.

Additional taxation of insurance agreements

The concept of a  Security Contribution is being considered, which would mean introducing a new contribution (tax) at the rate of 10% on insurance agreement premiums, except life insurance and personal liability insurance. In essence, such a levy would be classified as an indirect tax and would be comparable to a consumption tax on a defined type of insurance agreement. However, as this proposal was only made recently, only the outlines of how it would function have been established. The actual legislation draft of a tax of this kind will likely be prepared at a later stage of discussions and deliberation. However, it is worth mentioning that various negative statements have been made publicly by coalition partners regarding the implementation of such a tax project.

The Law on Corporate Income Tax

The abolition of the special treatment of the insurance sector in the Law on Corporate Income Tax is also being considered. This means that a larger share of the income of insurance companies would be subject to corporate income tax (CIT).

In particular, the current provision stating that all life insurance premiums (subject to conditions on the duration of the agreement – i.e. that it is at least 10 years, or is being paid out to a person of retirement age) are exempt from CIT, is to be narrowed down: i.e. only the part of the premium that is invested for the benefit of the policyholder could be attributed to the non-taxable income of the insurance company, not the entire premium, as is currently the case.

However, it is also worth pointing out that the proportion of life insurance premiums received after this amendment (subject to the same conditions as above) is considered to be remuneration by the insurance company for the provision of life insurance, fund administration, investment and other services, which would be treated as taxable income. This means that the expenses relating to the generation of such taxable income would qualify as allowable deductions (and the expenses relating to non-taxable income as non-allowable deductions).