Lithuania - Income Tax | KPMG | GLOBAL

Lithuania - Income Tax

Lithuania - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

Resident’s annual personal income tax returns must be filed no later than 1 May of the following year.

What is the tax year-end?

The tax year ends 31 December.

What are the compliance requirements for tax returns in Lithuania?

Residents

Resident individuals are obliged to submit the annual income tax return by 1 May of the following year (the tax period is the calendar year). Lithuanian residends are required to report their worldwide income in Lithuania. Worldwide income includes Lithuanian and foreign employment income and personal income, e.g. income from investments, rent, capital gains, business activity, non-taxable income and other. However, if in the taxable period individual has gained taxable income only in Lithuania from which personal income tax has been withheld and paid and the individual does not have any deductions/or does not wish to apply them, no tax return has to be filed.

Income tax has to be paid by 1 May, the date coincides with the filling obligation deadline.

Non-residents

Lithuanian non-residents do not have to file the annual income tax return, unless they intend to apply (provided they can apply) the non-taxable amout or get a refund for the income tax withheld in Lithuania from interest. In this case, the same filling and tax payment provisions as to residents apply.

Also, if a non-resident receives income from a foreign source for the work performed in Lithuania, he/she has to submit the income tax return and pay taxes due within 25 days after income was received.

Tax rates

What are the current income tax rates for residents and non-residents in Lithuania?

Residents

Lithuania imposes a flat rate of 15% on personal income. Special rules are applied for persons performing individual activities.

Non-residents

Non-residents are taxed at the same rate as residents.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Lithuania?

Tax residency in Lithuania is determined by the following criteria:

  • permanent residence (domicile) in Lithuania,
  • individuals whose place of personal, social and economic interest is Lithuania,
  • individuals staying in Lithuania for 183 days in a tax year or staying in Lithuania with or without breaks for 280 or more days during two consecutive tax years, whereby one stay in Lithuania during each of these years must be at least 90 days,
  • Lithuanian citizen employed and remunerated by the Lithuanian state institutions.

For an individual to be recognized as a Lithuanian tax resident at least one of the criteria mentioned above has to be met. Double tax treaty provisions are also considered when defining an individual a resident of Lithuania.

Is there a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

No minimum number of days rule is established in Lithuania, see below for more details.

What if the assignee enters the country before their assignment begins?

An individual is considered a Lithuanian tax resident from the first day of arrival in Lithuania after he/she spent more than 183 days in a tax year or stayed in Lithuania with or without breaks for 280 or more days during two consecutive tax years, whereby one stay in Lithuania during each of these years was at least 90 days. Hence, visiting before/after assignment may extend residency.

The count of days includes:

  • day of arrival;
  • day of departure;
  • holidays, weekends;
  • vacation spent in Lithuania;
  • transit days in Lithuania if the period exceeds 48 hours.

Termination of residence

Are there any tax compliance requirements when entering or leaving the country?

If the foreign taxpayer permanently leaves Lithuania, he/she has to file the Lithuanian leaving tax return. The leaving tax return has to be submitted and tax paid before the departure date. If the leaving date is in the first half of the taxable period, one tax return has to be prepared. If the leaving day is in the second half of the year, an annual income tax return for 2016 also has to be submitted to the tax authorities by 1 May of the following year.

What if the assignee comes back for a trip after residency has terminated?

Normally the residency will not be extended. However, each situation should be analyzed on case by case basis.

Communication between immigration and taxation authorities

Do the immigration authorities in Lithuania provide information to the local taxation authorities regarding when a person enters or leaves Lithuania?

No. However, to some extent, the information is exchanged.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

Upon leaving the assignee has to submit the leaving tax return (as mentioned above) and deregister his/her place of residence from Lithuania. Additional requirements may apply for certain third countries nationals.

Economic employer approach

Do the taxation authorities in Lithuania adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Lithuania considering the adoption of this interpretation of economic employer in the future?

Generally, yes. However, there is no official legal act or commentary issued regarding the Economic Employer definition.

De minimus number of days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

No.

Types of taxable compensation

What categories are subject to income tax in general situations?

In general, the following categories of income are subject to income tax in Lithuania:

  • employment income, including bonuses, awards, cost of living allowances, housing allowances, etc.
  • property/ investment income, including dividends, rental income, royalties, interest on deposits and loans, capital gains on securities, movable and immovable property (certain exceptions apply),
  • other sources (sport activities, performer’s activities, etc.).

Benefits in kind received by an employee are taxed in the same manner as employment income.

Furthermore, the taxable income of non-resident individuals include: interest, income from distributed profit and annual bonuses to board and supervisory board members, income from the renting of immovable assets located in Lithuania, royalties, employment income earned through Lithuanian source including through a PE, income from sport activities and performance activities, income from sale of immovable property located in Lithuania or movable property which is registered in Lithuania, compensation for violation of copyright or similar rights.

Tax-exempt income

Are there any areas of income that are exempt from taxation in your country? If so, please provide a general definition of these areas.

Tax-exempt income includes:

  • certain interest not exceeding EUR 500 per year,
  • certain capital gains from securities not exceeding EUR 500,
  • gifts from close relatives,
  • gifts not exceeding the value of EUR 2,500,
  • prizes from an employer not exceeding the value of EUR 200 per taxable year,
  • certain allowances and compensations, insurance benefits, etc.,
  • certain income from the sale of real estates.

Expatriate concessions

Are there any concessions made for expatriates in your country?

No. There is no special regime for expatriates.

However, if an individual is recognized as a Lithuanian tax resident due to the number of days spent in Lithuania, only Lithuanian sourced income is taxed and declared in Lithuania.

Salary earned from working abroad

Is salary earned from working abroad taxed in Lithuania? If so, how?

The taxation of salary earned from working abroad depends on an individual’s residency status and source of income.

As a rule, worldwide income of a Lithuanian resident is taxable in Lithuania. If the individual has worked abroad he/she has to file the annual income tax return and report income earned in the foreing country. If the income tax has been paid abroad credit or exemption method for elimination of double taxation can be applied (specific rules apply).

Taxation of investment income and capital gains

Are investment income and capital gains taxed in your country? If so, how?

Dividends, interest, and rental income

Income from distributed profits Interest and capital gains is subject to a 15% income tax rate. However, certain interest not exceeding EUR 500 per year and cetain capital gains from securities not exceeding EUR 500 is non-taxable. 

Gains from employee stock option exercises

The employee will be subject to a 15% income tax rate at the time of exercise on the difference between fair market value of the underlying shares and the exercise price paid by the employee. Personal income tax imposed shall be paid by the employee himself by submitting his annual personal income tax return if the stock option was provided by a foreign company by 1 May of the calendar year following the tax period when the benefits have been received.

In case of a local company providing such benefits, the employer has the obligation to withhold personal income tax on the particular month when the benefits has been received by the employee.

Foreign exchange gains and losses

N/A

Principal residence gains and losses

N/A

Capital losses

Loss carry-back or carry forward is not possible for personal income tax purposes, exept for persons engaged in individualactivity.

Personal use items

N/A

Gifts

Gifts are non-taxable if received from spouse or close relatives such as siblings, parents.

Gifts not exceeding the value of EUR 2,500 from individuals (not a family member) are non-taxable. Several gifts up to EUR 2,500 per year in total can be received from different individuals.

Foreign property reporting

Bank accounts

Non-resident trusts

N/A

Additional capital gains tax (CGT) issues and exceptions

Are there capital gains tax exceptions in your country? If so, please discuss.

500 euros for securities

Pre-CGT assets

N/A

Deemed disposal and acquisition

N/A

General deductions from income

What are the general deductions from income allowed in your country?

The following expenses incurred by individuals can be deducted from their taxable income:

  • Housing loan interest if the credit was granted before 2009,
  • Fees for initial higher education or vocational training,
  • Life insurance premiums,
  • Pension contributions.

However, the limit of such deductions is set at 25% of the total income, which is subject to a 15% income tax rate. As of 2017, the maximum total deductible amount of life insurance premiums and pension contributions is EUR 2,000.

Individuals engaged in individual activities may opt to deduct all properly documented expenses from their annual income or may reduce the taxable income by 30% without having an obligation to collect all supporting documents.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in your country?

Depending on the employer, gross-up can be used in the tax year to cover tax charges that the employer is to bear.

Calculation of estimates/ prepayments/ withholding

How are estimates/prepayments/withholding of tax handled in your country? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Personal income tax is calculated based on the actual amounts paid to the employee or other income actually received (cash basis), while social security contributions based on the calculated amounts.

Payroll taxes (personal income tax and social security contributions) are calculated by the employer on a monthly basis. Before the salary payment the employer withholds and pays all the due tax amounts to the authorities and transfers a net income to the employee.

When are estimates/prepayments/withholding of tax due in your country? For example, monthly, annually, both, and so on.

If the employee is on the company’s payroll, tax withholding is due every month.

Employers are required to submit the personal income tax return and social security report on a monthly basis. The personal income tax withheld has to be remitted to the authorities by the 15th day of the current month (if the remuneration is paid prior to 15th day of the current month) or by the end of current month (if remuneration is paid after 15th day of the current month). While, the social security contributions payable have to be transferred no later than by the 15th day of the month following the month during which the payment was made. An additional year-end annual income tax return needs to be submitted no later than 15th of February of the following year by the employer.

Other income is taxed and declared annually or monthly depending on the type of income received.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in your country? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

The exemption method is applied for employment income, earned and taxed in EU member countries or countries with which Lituania has a double tax treaty. Credit method is applicable for employment income received from for other countries.

Exemption and credit methods could be also applied for the other income, e. g. rent income. However, special conditions apply).

Lithuania has an extensive network of tax treaties covering income tax, currently there are 53 treaties concluded.

General tax credits

What are the general tax credits that may be claimed in your country? Please list below.

Lithuania allows crediting foreign tax againts Lithuanian tax liability arising on the same income or gains.

Sample tax calculation

The calculation3 assumes a married taxpayer resident in Lithuania with two children whose assignment begins 1 January 2017 and ends 31 December 2019. The taxpayer’s base salary is USD 100,000 and the calculation covers three years.

  2017
USD
2018
USD
2019
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD 1.00 = EUR 0.890 (2014.10.05).

Other assumptions

  • All income earned is attributable to local sources.
  • The employee is considered a Lithuanian resident throughout the assignment.
  • Bonuses are paid out at the end of the taxation year along with December’s salary (for the work performed in Lithuania).
  • The company car is used for business and private purposes.
  • The market value of the car is USD 66,667. Then monthly amount of the benefits in kind received is calculated by multiplying market value of the car (estimated in the beginning of the year) by 0.75%.
  • Education allowance covers only those studies required for work.
  • Moving expenses are actual expenses incurred by the employee due to relocation (plane ticketcs etc.).
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Year-ended 2017
EUR
2018
EUR
2019
EUR
Days in Lithuania during year 365 366 365
Earned income subject to income tax
Salary 89,000 89,000 89,000
Bonus 17,800 17,800 17,800
Cost-of-living allowance 8,900 8,900 8,900
Housing allowance 10,680 10,680 10,680
Company car 5,340 5,340 5,340
Moving expense reimbursement* 0 0 0
Home leave 0 4,450 0
Education allowance** 0 0 0
Total earned income 131,720 136,170 131,720
Investment income*** 5,340 5,340 5,340
Total income 137,060 141,510 137,060
Deductions 0 0 0
Total taxable income 136,560 141,010
136,560

* Actual moving expense reimbursement is non-taxable in Lithuanian.

** Education allowance covering only those studies required for work are non-taxable in Lithuania.

*** Assuming it includes interest income not exceeding EUR 500 per year.

Calculation of tax liability

Taxable income as above 136,560 141,010 136,560
Less:
Tax-exempt amount* 0 0 0
Additional tax-exempt amount**
4,800 4,800 4,800
Foreign tax credit 0 0 0
Lithuanian tax thereon 19,764 20,431.50
19,764

* Basic tax exempt amount is applied only for employment related income. Basic tax exemption per year is calculated based on the formula: 3,720 – 0.5 × (gross yearly income – 4,560), meaning that if gross income is EUR 12,000 per year or higher – no tax exempt amount applies.

** An additional tax-exempt monthly amount is granted to parents rasing children up to 18 years or older if the child attends secondary school. For each child monthly tax exempt amount is EUR 200. If the child deduction is applied by both parents, each parent can deduct ½ of the indicated amount (i.e. EUR 100). However, additional tax-exempt amount is only applicable if the children are living in Lithuania and their residence place have been declared in Lithuania.

Footnotes

  1. Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the ‘economic employer’ and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.
  2. For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.
  3. Sample tax calculation generated by KPMG Baltics, UAB, a Lithuanian member firm of KPMG International.

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