Reliable Taxpayer Status: What It Means and Why It Matters
July 26, 2025 at 4:27 am,
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Article 40(prim). of the Law on Tax Administration (MAĮ) sets out the criteria for determining when a legal entity or a self-employed individual qualifies as a reliable taxpayer. The status is assessed based on violations committed after 1 January 2019 and has real consequences for doing business in Lithuania.
Who It Applies To (and Who It Doesn’t)
- Applies to: Lithuanian and foreign legal entities operating in Lithuania, and self-employed individuals.
- Does not apply to: entities listed in Article 3(2) of the Corporate Income Tax Law (e.g. budgetary institutions, the Bank of Lithuania, the state or municipalities and their institutions, the state enterprise “Indėlių ir investicijų draudimas”, and European Economic Interest Groupings).
Key Criteria (Simplified)
- No serious tax violations with over €15,000 in additional tax assessed
Within the last 3 years, there must be no final administrative decisions imposing fines for:
- unrecorded income,
- undeclared (“envelope”) wages,
- unjustified VAT deductions or inflated deductible expenses,
- use of company or business funds for private purposes,
- misuse of charitable donations.
A taxpayer fails this criterion if fined and assessed over €15,000 in additional taxes for any one of these violations.- No penalties for illegal employment
Within 3 years, neither the company, nor its responsible persons may have been sanctioned for illegal work by any authority (VMI, State Labour Inspectorate, FNTT, police). - No criminal convictions
Within 3 years, neither the legal entity, its director, nor the self-employed individual may have a final conviction for crimes such as fraud, illicit enrichment, economic, business, or financial crimes (Criminal Code Articles 182, 189¹, 199–224, etc.).
If a director was convicted and later resigned, the company remains “non-reliable” until the 3-year period expires. - No major administrative fines (€1,500 or more)
Within 1 year, neither the director nor other responsible persons/self-employed individuals may have been fined €1,500 or more for administrative violations under the listed articles of the Administrative Offences Code (e.g. excise, VAT, accounting).
Violations are assessed within the context of the specific business activity.
Consequences of Non-Compliance
If the taxpayer fails to meet these criteria:
- VMI publicly discloses the taxpayer as non-reliable.
- Longer limitation periods apply for tax audits.
- The taxpayer cannot participate in public procurement.
- Charity recipient status cannot be obtained or retained.
- VAT refunds may be delayed for 6 months.
- Licensing may be restricted (e.g. for fuel trading).
- Other penalties may apply as specified by law.
How VMI Evaluates Reliability
- Only violations after 1 January 2019 are considered.
- Offences by a director or responsible person are attributed to the company.
- The €15,000 threshold applies per type of violation (e.g., combined VAT and profit tax on the same issue).
- If potential criminal activity is referred for investigation, reliability is assessed after the case is resolved.
Data Processing and Privacy
- Data controller: State Tax Inspectorate (VMI) for personal data under GDPR.
- Retention period: 10 years.
- Data is used solely for statutory tax administration functions.
Practical Advice for Businesse
- Internal controls: Regularly review VAT deductions, accounting, and related-party transactions.
- Employment compliance: No undeclared work, all employees must be officially registered.
- Leadership screening: Verify management reputation and assign accountability.
- Documentation: Keep contracts, justifications, and corrections properly filed — before audits.
- Respond quickly: Act immediately on VMI or VDI notices and document your actions.
In essence: The reliable taxpayer status isn’t just a label — it’s a gateway to public tenders, faster VAT refunds, and business credibility. Preventive compliance and sound bookkeeping cost far less than the penalties for a single major mistake.