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 year following the income year (calendar 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 an annual income tax return by 1 May of the following year (the tax period is the calendar year). Lithuanian residents 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 all personal income tax has been withheld and paid and 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 an annual income tax return, unless they derive income from Lithuanian sources subject to withholding tax (but from which income tax has not been withheld). 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 an 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,
  • foreign 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 one of these years must be at least 90 days,
  • employment of a Lithuanian citizen by the Lithuanian government.

For an individual to be recognized as a Lithuania 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 one of these year 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 earns income in Lithuania that is taxable in Lithuania but stop receiving such income during the taxation year and terminates any economic relations with Lithuania, he/she has to file a leaving tax return. Different deadlines for the tax returns and tax payments apply, depending on the termination date. If economic relations was termintated in this first half of the year (i.e. until the end of June), then the leaving tax return has to be submitted and taxes paid by the termination data. If economic relations was terminated in the second half of the year, the leaving tax return has be submitted and taxes paid by the termination day and also an annual income tax return has to be submitted 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.

Filing requirements

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

As previously discussed, if an assignee earns income in Lithuania that is taxable in Lithuania but stops receiving such income during the taxation year and terminates any economic relations with Lithuania, then a leaving tax return has to be submitted. Also, depending on the termination date, an annual income tax return might be required.

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 assents 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 Lithuanian resident is taxable in Lithuania, if the individual has worked abroad he/she has to file an annual income tax return and report income earned in the foreing country. If income tax has been paid abroad and it can be proven with a certificate on income and taxed paid, issued by the foreign tax authority, a credit or exemption method for elimination of double taxation can be applied.

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 at the time of exercise on the difference between fair market value of the underlying shares and the exercise price paid by the employee, if the stock option is granded by a foreign company. Personal income tax imposed shall be paid by the employee himself by submitting his annual personal income tax return by 1 May of the calendar year following the tax period when the benefits has 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 business activity.

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

N/A

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.

N/A

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 individual 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.

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 is 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 amount paid to the employee or other income actually received, while social security contributions – 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 to the authorities all the due tax amounts 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 a personal income tax and social security return on a monthly basis. The withheld personal income tax has to be remitted to the authorities by the 15th of the current month (if the remuneration is paid prior 15th of the current month) or by the end of current month (if the remuneration is paid after 15th of the current month). While, the social security contributions payable has 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.

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 labour income, earned and taxed in EU member countries or countries with which Lituania has a double tax treaty.

Other foreign income taxes that are substiantially similar to Lithuanian personal income tax may be credited againts the Lithuanian tax liability, limited to the amount of income tax actually paid in the foreign country. A proof, i.e. an official certificate issued abroad, providing that the tax has been paid indicating the amount thereof is required.

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 2016 and ends 31 December 2018. The taxpayer’s base salary is USD 100,000 and the calculation covers three years.

  2016
USD
2017
USD
2018
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 earned income 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 2016
EUR
2017
EUR
2018
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.

*** Tax exempt income includes certain interest 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**
2,880 2,880 2,880
Foreign tax credit 0 0 0
Lithuanian tax thereon 20,052 20,719.50
20,052

*Basic tax exempt amount is applied only for employment related income. Basic tax exemption per year is calculated based on the formula: 2,400 – 0.34 × (gross yearly income – 4.200), meaning that if gross income is EUR 11,258.83 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 120. If the child deduction is applied by both parents, each parent can deduct ½ of the indicated amount (i.e. EUR 60). 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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