Guide

The three Europes of VAT, and where Lithuania sits

Europe runs VAT three different ways. The European Commission measures the result every year as the VAT gap: the tax that was due minus the tax that was collected. The numbers below are from the Commission's reports for 2023, published December 2025. They explain why a detailed country can be a good place for a foreign company, and what it demands in return.

1. The machine states

The tax office receives invoice data as data and cross checks it by computer. Hungary reports invoices in real time and its gap is 2.3 percent, among the smallest in the EU. Italy, Spain and Portugal run the same family of systems. Lithuania joined this group in 2016 with i.SAF, years before most of Europe.

2. The trust states

Few filings, high voluntary compliance. Austria's gap is 1 percent, Finland's 3 percent, with a fraction of Lithuania's reporting burden. Estonia runs light and digital, but its gap drifted from 5.9 to 10.3 percent between 2019 and 2023. Light does not automatically mean tight.

3. The gap states

Periodic filings, weak matching, slow refunds, audits by lottery. Romania's gap is 30 percent, the EU's largest. Malta sits at 24.2 percent. Rules exist on paper. What happens in practice is another question, in both directions.

Lithuania: a machine state still closing an old gap

Lithuania built one of Europe's most demanding reporting systems because its gap used to be huge. It has fallen from 20.9 percent in 2019 to 15.1 percent in 2023, still 23rd of 27. Read those two facts together and you get the character of the place: the machine exists, and the pressure to use it is rising, with a defence budget now leaning on tax collection too. Every invoice you issue and receive is cross checked against your counterparties monthly. Every domestic truck is announced before it moves.

Why that is good news for a foreign trader

The scrutiny is not aimed at you. The gap lives in cash sectors, fuel and the shadow economy. A foreign importer whose data reconciles perfectly every month is the least interesting company in the country.
Machine checks replace human visits. When the computer has already matched your invoices against your counterparties, there is little reason to send anyone to look. Clean filers become invisible. In a gap state, being clean does not protect you from the audit lottery.
Errors surface early and small. The counterparty cross check catches a supplier's mistake in weeks, as a question, not in three years, as an assessment with interest.
Import VAT is cash flow, not cash out. A registered payer settles import VAT inside the VAT return instead of paying it at the border. On a container of goods that is thousands of euros that never leave your account.
The practical draws stack on top. An EU external border with a container port, the Klaipėda to Kaunas to Vilnius corridor, warehousing and services well below Nordic prices, and direct VAT registration with no local company needed.

The catch, stated plainly. In a country hunting a 15 percent gap with a real time machine, sloppy filings are visible instantly. Lithuania rewards companies that do it properly and is unforgiving to companies that half do it. You cannot half do Lithuania. That is the whole reason a service like ours exists, and the cases page shows what half doing it costs.

Sources: European Commission, VAT gap country reports for 2023, December 2025 release, taxation-customs.ec.europa.eu. Country comparisons from the Commission's 2024 and 2025 VAT gap reports as summarised by the Tax Foundation. Figures cited: Hungary 2.3% (2022), Austria 1%, Finland 3%, Romania 30%, Malta 24.2%, Estonia 10.3%, Lithuania 15.1% (all 2023), Lithuania 20.9% (2019).