Lithuania - Catering Sector and Return to the Standard VAT Rate

Blog Article

During the pandemic years, one of the most hurting sectors economically and labor-wise was undoubtedly the catering and hospitality sector. Most European countries have tackled this difficult situation without precedent in the modern world with appealing concern and high practicability. The first positive reaction was the drastic reduction of the VAT rates previously designed for the catering sector.

Most Member States have implemented a reduced rate for catering establishments and their services. This project has been ongoing during and after the pandemic. Some countries have prolonged preferential VAT rates for restaurants, cafes, and similar catering establishments for a year, two years, or even more.

In a unique move, the Lithuanian Parliament adopted an amendment to the VAT Act, extending the reduced rates for several periods. This was necessary to prolong the applicability of the preferential rate after the original framework had expired.

The last amendment has postponed the return to the STD VAT rate until the end of 2023. Various interested stakeholders, such as the Democratic political faction, representatives of the catering and hotel sector, and owners of interested businesses, made several moves to prolong the usage of the preferential rate.

The democratic part of Seimas tried to push the agenda for the shift from the transitory applicability of the preferential rate for the catering sector to the indefinite extension. However, the ruling party quickly refused this.

Timeline of changes

From the onset of the pandemic until the post-pandemic period, the catering establishments benefited from a preferential VAT rate of 9%. However, this came to an end on December 31, 2023.

The VAT rate for catering services has been reinstated. From January 1, 2024, the STD VAT rate of 21% should be imposed to provide these services, e.g., food preparation, drink delivery, takeaway food, food delivery, and similar services.
Impact of the changes

The main representatives of the business sector have tried numerous times to underscore the importance of using the preferential rate to provide their services, as they have seen a steady increase in their financials after the pandemic. Numbers clearly show that the catering sector flourished after the disaster experienced during the pandemic and shortly after it.

People couldn’t wait to go to restaurants, cafes, and other establishments after being isolated from all that enjoyment for a long, long time. The turnover of the businesses in question has been growing exponentially, and stakeholders have often emphasized that one of the reasons is the preferential rate for their services.

As the number of restaurants has increased, the labor force on which the catering sector is founded has logically seen striking growth. However, since the reinstatement of the STD VAT rate for the sector, the prices of services and products have grown, the salaries of the employees have grown, and the expenditure for the businesses has increased. As a consequence, the sector is coping with new difficulties.

As a logical response, the business owners concluded that the standard rate would be reinstated, so they increased the prices of their products and services during the last months of 2023 and the first quarter of 2024.

There is a significant distinction between businesses in the sector in their approach to increasing their prices to customers. Some have decided to increase prices continuously month-by-month, others suddenly by 10-20%, while others are still defining their best strategy as a practical move that will not scare their customer base.

Business environment and regulatory framework

The situation concerning applying the SDT VAT rate for catering establishments is now clear. However, this doesn’t mean the regulatory framework is set in stone indefinitely and cannot be changed in the upcoming months.

The stakeholders concerned with the reinstatement of the STD rate have organized more than a few public displays of discontentment with the ruling party's chosen route. Last April, big protests were organized before the Government headquarters.

The Finance Act for 2024 introduced additional burdens for the catering sector in addition to increasing the VAT rate for its services. It has also increased the minimum monthly salary for employees, the profit tax, and other indirect tax duties.

When all is combined, to some extent, it could be understood why business owners are “afraid” that their business operations could be hurt—economically speaking—after these legislative changes. One thing to remember is that Lithuania isn’t the only country that reinstated the STD VAT rate for the catering sector after the post-pandemic period. However, some countries have postponed the usage of the reduced rate for the catering sector for an additional time.

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Contributed on
15 May 2024
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