Personal Income Tax in Lithuania

The law “on Income Tax of Individuals”, adopted in 2002 sets out the taxation of individuals’ personal income.

Since 2009 general rate of personal income tax is 15%. Income from distributed profits, including dividends, is taxed by 15% personal income tax.  Income of self-employed individuals is taxed by 5% rate (with an exception of so called “free professions” income and income deriving from securities which are taxed by general 15% rate).

From August 2009 amendments to the law on personal income tax came into force. The law provides the complete list of benefits in kind and the list income that will not be interpreted as benefit in kind for the tax period starting from 2010. The amendment to the law on personal income tax sets the new rule for calculation of non-taxable amount of income.

Expatriate taxation

Expatriates are liable for Lithuanian taxes depending on their tax residency. In Lithuania residents are taxed on worldwide income with the following exception. Residents (non- Lithuanian citizens) are taxed on income the source whereof is in Lithuania if such resident during the same taxation period is considered as a resident of that other state, and Lithuania has a DTA with such state, and respective authorities of that other state inform Lithuanian Tax Office about it. Non residents are taxed on income received from permanent base and on income received abroad which are attributed to that permanent base in Lithuania when such income is related to non resident‘s activities via permanent base in Lithuania; as well income received not via permanent base, but the source whereof is in Lithuania.

 If respective documents are presented, expatriate is not subjected to obligatory 9% healthcare insurance tax if it is already paid in other country. Wherewith Lithuanian residents are subjected to 9% healthcare social tax and 15% of total personal income tax is applicable.

Pursuant to the domestic legislation, an individual will be regarded as a resident of Lithuania, if:

• any natural person whose permanent place of residence during the tax period is in Lithuania, or
• any natural person whose place of personal, social or economic interests during the tax period is in Lithuania rather than in a foreign country, or
• any natural person who is present in Lithuania continuously or intermittently for 183 days or more during the tax period, or
• any natural person who is present in Lithuania continuously or intermittently for 280 days or more during successive tax periods and stayed in Lithuania continuously or intermittently for 90 days or more during one of those tax periods.

As a general rule, persons who do not match to the above-mentioned categories are considered to be non-residents of Lithuania for tax purposes. However, an individual will not be considered Lithuanian resident even if he stays in Lithuania for 183 days during the calendar year and during the 2 year period stays in Lithuania more than 280 days in the following cases:

• If he is only engaged in individual activity through his permanent establishment in Lithuania;
• If he works in Lithuania, but receives his salary from budget of a foreign state;
• If he works for foreign state’s diplomatic, consular or international organizations agency in Lithuania.

Non-Lithuanian resident taxation from particular income

Non-Lithuanian resident in Lithuania pays income tax from the following income:

1. Through his permanent establishment in Lithuania received income from individual activity (Tax rate – 15%);
2. Not through permanent establishment received income if the source of this income is in LT (Tax rate 15%, dividends – 15% starting from year 2014).

E101 Certificate

The E101 certificate is required in order to pay tax only in his/her home country. E101 provides that the employee is registered as socially insured person in his/her State (as for instance – Lithuania). A statement should be presented to the competent authority of the employment State, if the authority requests for it. The E101 is not provided for person who is going to change another person, whose assignment period has expired.

General rules on E101 Certificate

Every case on the application of E101 Certificate is examined individually. However, some general rules can be set out for the E101 certificate. As for instance if person is sent to another State to work for 12 month – tax is paid in home country. General rule is also applicable that a tax is paid where the person works, regardless his residence. If the person is working in two states – tax is paid where his residence is. If no residence in working states – then tax is paid where company’s legal address is. If person is employed by several employers – the tax is paid where the residence country is.

Salary taxation in Lithuania

Annual income tax declarations must be submitted by May 1 of the following year.

Taxation of the income from alienation of immovable property

As the previous legal framework for personal income tax states, income from alienation of immovable property shall not be taxed if the respective property has been in the person`s ownership for more than 3 years. Furthermore income from the sale of immovable property shall also not be taxed if a person has lived in that property for more than 2 years. However, if the person resided for less than two years in the immovable property, the income from the sale of such property shall not be taxed only in such case if the person uses the profit from the sale of this property for acquisition of a new property for living. Such acquisition shall be made within one year.

Income tax exemptions

As of 1^st January 2009 most of personal income tax exemptions have been cancelled. For instance, it will no longer be possible to deduct interest for acquired real estate, acquired computers and education fees (for second higher degree) for the purposes of taxable income calculation. Exemption for loan interest on acquired real estate shall continue to apply for loans taken before 2009, however for only one property.

Calculation of non-taxable income amount

There have also been introduced a new calculation of non-taxable income amount. Non –taxable income amount is applicable only on income related to an employment agreement. For persons with income not exceeding 290 EUR per month non-taxable amount shall be 165 EUR. If income exceeds 290 EUR, non-taxable amount shall be calculated using the following formula:

non-taxable amount = 165 EUR – 0,26 x the amount that exceeds 290 EUR. According to this formula, non-taxable amount shall not be applied for persons earning more than 928 EUR per month.

Tax treaties

Currently, Lithuania has concluded 53 Treaties on the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and capital in effect with Armenia, Azerbaijan, Austria, Belarus, Belgium, Bulgaria, Canada, China, Croatia, Czech Republic,Cyprus, Denmark, Estonia, Finland, France, Georgia, Germany, Great Britain, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Kazakhstan, South Korea, Kuwait Latvia, Luxembourg, Malta, Macedonia, Moldova, Morocco, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Turkmenistan, USA, United Arab Emirates, Ukraine, Uzbekistan. The mentioned treaties are based on OECD/UN model agreement. New tax treaties have been concluded in 2014 with Cyprus, United Arab Emirates, Kuwait, Turkmenistan and Morocco.

Furthermore, these treaties are applied directly and do not need to be incorporated into domestic laws.