Income Tax in Lithuania
Personal Income Tax:
Tax year is calendar
year and the return shall be filed upto 1st May of the following
year.
Tax Rates:
The standard flat PIT
rate is 15%.
Individual activity
income is taxed depending on the amount of income received. PIT calculated at
15% flat rate on taxable income is reduced by applying a PIT credit, calculated
according to special formulas. Therefore:
· 5% rate applies if income does not
exceed EUR 20,000 per calendar year;
· Proportionally increasing rate ranging
from 5% to 15% applies to income exceeding EUR 20,000 but lower than EUR 35,000
received per calendar year;
·15% flat PIT rate is applied to income
amount of EUR 35,000 and higher received per calendar year.
Income under a business
certificate (including rental income) can be received if it does not exceed the
limit of EUR 45,000 the excess is taxed at a flat PIT rate of 15%.
Residency Rule:
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.
Exempt Income:
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.
Taxable Income:
Employment income:
Taxable monthly
earnings in cash and in kind received from the principal workplace include
wages, various additional payments (e.g. sickness and maternity benefits paid
from social insurance), bonuses, employee stock option benefits, incentive
payments, taxable allowances and other similar payments, compensation upon
discharge from work (e.g. compensation for remaining vacation), gratuities, and
compensation for unlawful dismissal from work.
The following income
derived from employment in a Lithuanian legal entity is exempt from PIT:
· Life insurance contributions, additional
(voluntary) health insurance contributions, and pension contributions paid by
an employer on behalf of an employee are not considered as taxable benefits if
certain conditions are met and provided that the total amount of such
contributions does not exceed 25% of the employee's annual employment-related
income and the recipient of such contributions is established in an EEA
country.
· Certain compensations established by the
local Lithuanian legislation (e.g. business trip related expense
reimbursements, daily allowances if certain conditions are met).
· Income received as a prize or gift from
the employer if the value does not exceed EUR 200 per tax year.
· The benefit when employer pays for
railway or public transport tickets for the employee for the arrival/departure
to/from his/her workplace.
· Payments made by an employer upon the
death of a spouse or certain other heirs of an employee, as well as benefits
paid to a spouse, children (adopted children), and parents (adoptive parents)
upon the death of an employee.
· Other income determined in Article 17 of
the Law on PIT.
Equity compensation:
For tax purposes,
equity compensation received by an employee in kind or in cash is treated as
employment-related income and is subject to PIT. The taxable amount is
calculated based on the difference between fair market value of the equity
granted and the amount paid for it by the employee, if any.
Business income:
An individual's
business income derived from self-employment and other individual activities,
including income received from rent, sale, or transfer of property related to
individual activities (not taking into account objects of immovable kind) is
taxed depending on the amount of income received. PIT calculated at 15% flat
rate on taxable income is reduced by applying a PIT credit, calculated
according to special formulas. Therefore:
· 5% rate applies if income does not
exceed EUR 20,000 per calendar year;
· Proportionally increasing rate ranging
from 5% to 15% applies to income exceeding EUR 20,000 but lower than EUR 35,000
received per calendar year;
·15% flat PIT rate is applied to income
amount of EUR 35,000 and higher received per calendar year.
Income under a business
certificate (including rental income) can be received if it does not exceed the
limit of EUR 45,000, the excess is taxed at a flat PIT rate of 15%.
Capital gains:
Taxable income derived
from the sale of property is calculated as the difference between the sale
price and the acquisition price and the taxable gain is subject to a 15% PIT
rate.
The following capital
gains are tax exempt:
· Profits from transfer of financial
instruments or realisation of derivatives not exceeding EUR 500 per tax year.
· Income from the sale of housing
(including land) located in an EEA member state if the individual’s place of
residence was declared there during the last two years prior to the sale. If
the place of residence was declared for a shorter period but income received
from the sale was invested into the acquisition of another housing located in
one of the EEA member states in one year after the sale and the place of
residence was declared there accordingly, such income would also be treated as
non-taxable.
· Income from the sale or other transfer
of movable property that is legally registered in Lithuania or within an EEA
member state if the property was acquired more than three years prior to its
sale or other transfer.
· Income from the sale of immovable
property (except for housing as indicated above) if the property was acquired
more than ten years prior to its sale.
· Capital gains not exceeding EUR 2,500
during the tax period.
Dividend income:
Dividends are subject
to a flat 15% PIT rate.
Interest income:
The following interest
income is tax exempt:
· Starting from 2018, interest income
received on consumer credits granted via peer-to-peer lending platforms or
funds lend via crowdfunding platforms in Lithuania or in another EEA country is
non-taxable, provided that the amount does not exceed EUR 500 per calendar
year.
· Interest received on (i) government or
municipal bonds of the member states of the EEA and (ii) deposits kept in banks
and other credit institutions of the EEA member states if the government or
municipal bonds are acquired or the contracts of deposits are concluded before
31 December 2013.
· Interest received on non-equity
securities if such securities (i.e. corporate bonds) are acquired before 31
December 2013 and started to be redeemed not earlier than 366 days after the
date of issue.
· When the contracts of (i) deposits kept
in banks and other credit institutions (not necessarily in the EEA member
states) are concluded or (ii) non-equity securities or (iii) non-equity
government securities (i.e. government or municipal bonds, not necessarily of
the EEA member states) are acquired after 1 January 2014, the tax relief is
applied only to the amount of such interest that does not exceed EUR 500 per
tax year.
Rental income:
Income derived from
rent is subject to a flat 15% PIT rate.
Deductions from Income:
Employment expenses:
Employment-related
expenses are not deductible from individual employment compensation.
Personal deductions:
The following expenses
incurred by Lithuanian tax residents over the tax period may be deducted from
taxable income:
· Life insurance premiums paid for one’s
own benefit or for the benefit of a spouse, minor children, or disabled
children if the life insurance company is registered in an EEA member state or
Organisation for Economic Co-operation and Development (OECD) member country.
· Pension contributions paid to pension
funds established in EEA member states or OECD member countries for one’s own
benefit or for the benefit of a spouse, minor children, or disabled children.
· Payments for vocational training or
studies, only if during such studies the first university degree and/or the
first relevant qualification is obtained, including postgraduate studies (the
loan amount repaid over the tax period may be tax deductible).
The total amount of
deductible expenses specified above is limited to 25% of the taxable income
(subject to 15% of PIT) during the calendar year. The total deductible life
insurance premiums and pension contributions amount should not exceed EUR
2,000.
Standard deductions:
A monthly tax-exempt
amount (TEA) is applied only to employment-related income of Lithuanian tax
residents, as follows:
· A TEA of EUR 380 per month is applied to
individuals whose employment-related income does not exceed an amount of one
minimum monthly salary that was in force as of 1 January of the current tax
year (EUR 400 for 2018).
· If employment-related income exceeds an
amount of one minimum monthly salary that was in force as of 1 January of the
current tax year, a monthly TEA is calculated according to the following
formula:
· Monthly TEA = 380 - 0.5 x (an
individual’s employment-related income per month - one minimum monthly salary
that was in force as of 1 January of the current tax year, i.e. 400).
The TEA is proportionally
reduced for larger amounts of income, and if income amounts to or exceeds EUR
1,160 per month, no TEA is applied.
The annual TEA shall be
applied to the total annual income received by the individual. In cases where
an individual receives additional income to the salary income (or salary
increases during the year), corrections are made at the end of the year (when
filing the annual income tax return). The calculation is made taking into
consideration the annual taxable income, including non-taxable income received
for the work performed in the country Lithuania has a DTT concluded with and
accordingly taxed in such a country. Also, income from individual activities
derived under business certificates is not included in the calculation of the
annual TEA.
The annual TEA can be
applied to Lithuanian tax non-residents only at the end of the tax period by
submitting the annual PIT return, provided their annual gross income does not
exceed EUR 13,920.
The additional TEA was
revoked and replaced by children allowances starting from 2018. For all
children the Lithuanian Social Security Authorities pay EUR 30 per month per
child from birth to 18 years of age or older, if they study according to a
general curriculum until they reach the age of 21. The additional children
allowances are also possible for families receiving certain low amounts of
income, having 3 or more children, etc.
Personal allowances:
There are no personal
allowances available in Lithuania.
Business expenses:
Expenses incurred for
the purpose of receiving income from individual activities by self-employed
individuals are tax deductible. There are two options to deduct expenses from
income received/earned during the tax year:
· It is possible to deduct the actual
expenses incurred by individuals while performing individual activities;
however, such expenses have to be supported by relevant substantiating
documents.
· Alternatively, it is possible to deduct
30% of income received/earned, and no supporting documents are required.
Losses:
In certain cases, individuals
performing individual activities can carry forward the losses for an unlimited
period of time, until the activity that resulted in such losses is terminated.
Generally, losses
resulting from the sales of shares and other financial instruments can reduce
the profits earned from such sales during the same tax year (certain
restrictions apply). However, losses resulting from other sales of property
(e.g. immovable property) do not reduce the taxable base of other sales
transactions of such property. Moreover, it is not possible to carry forward
losses resulting from capital gains.
Corporate Income Tax:
Profit tax:
Under the Law on Profit
Tax, Lithuanian companies are subject to profit tax on their worldwide income.
Lithuanian (resident) companies are defined as enterprises with the rights of
legal persons registered in Lithuania. For purposes of the profit tax, Lithuanian
companies include companies formed in Lithuania and companies incorporated in
foreign countries that are registered in Lithuania as branches or permanent
establishments.
Profits of Lithuanian
companies earned through permanent establishments in the EEA or in tax treaty
countries are exempt in Lithuania if the profit from activities carried out
through these permanent establishments is subject to corporate income tax or
equivalent tax in such countries.
Foreign (nonresident)
companies, which are defined as companies not incorporated in Lithuania, are
subject to profit tax on their Lithuanian-source income only.
A foreign enterprise is
deemed to have a permanent establishment in Lithuania if it satisfies any of
the following conditions:
· It permanently carries out activities in
Lithuania.
· It carries out its activities in
Lithuania through a dependent representative (agent).
· It uses a building site or a
construction, assembly or installation object in Lithuania.
· It uses installations or structures in
Lithuania for prospecting or extracting natural resources, including wells or
vessels used for that purpose.
International
telecommunication income and 50% of income derived from transportation that
begins in Lithuania and ends in a foreign country or that begins in a foreign
country and ends in Lithuania are considered to be income received through a
permanent establishment if such activities relate to the activities of a
foreign enterprise through a permanent establishment in Lithuania.
Tax rates:
The standard profit tax
rate is 15%.
A 5% rate applies to
small entities with annual income not exceeding EUR300,000 and an average
number of employees that does not exceed 10 for the tax year.
A 5% rate applies to
the taxable profit of agricultural entities. An entity is deemed to be an
agricultural entity if more than 50% of its income is derived from agricultural
activities.
Entities registered and
operating in a free economic zone benefit from 100% exemption from profit tax
for 6 years and a further 50% reduction in profit tax for an additional 10
years if they satisfy either of the following conditions:
They make investments
in fixed assets of at least EUR1 million, and at least 75% of their income is
derived from the following activities:
· Production
· Processing
· Storage
· Manufacturing of aircraft and spacecraft
and related equipment
· Repair and maintenance of aircraft and
spacecraft and services related to such activities
· Computer programming activities
· Computer consulting activities
· Management of computer equipment
· Other information technologies and
computer services activities
· Data analytics
·Web servers (hosting) and related
activities
· Call center activities
· Wholesale trade in goods stored in the
zone and services related to such activities
They make investments
in fixed assets of at least EUR100,000, their average number of employees is no
less than 20, and at least 75% of their income is derived from the following
activities:
· Accounting
· Bookkeeping
· Consulting activities (except audit,
accounts examination and fairness confirmation)
· Administrative services
· Human resources activities
· Architecture, engineering activities and
services related to technical consulting activities (except the controlling of
construction works and the making photos of locations)
The above benefits are
not available to credit institutions and insurance companies.
Currently, seven
free-economic zones are located in AkmenÄ—, Kaunas, KÄ—dainiai, KlaipÄ—da,
Marijampolė, Panevėžys and Šiauliai.
Social enterprises,
which have 40% or more employees included in target groups (for example,
disabled individuals and long-term unemployed), are eligible for a 0% tax rate.
In addition, the entity may not perform the activities included in the list of
unsupported activities (for example, hunting, and alcohol and tobacco
production) of social enterprises.
Nonprofit entities are
subject to profit tax if they engage in business activities. If the annual
business income of a nonprofit entity does not exceed EUR300,000, a 0% tax rate
applies to the first EUR7,250 of taxable profit. The remaining part of the
taxable profit is subject to tax at a rate of 15%. Income received from
activities carried out to satisfy public interests that is intended to be used
for the funding of such activities is not considered income received from
business activities of nonprofit entities.
Entities engaged in
international transportation by ships or in a directly related activity can
elect to be taxed on a special tax base related to the net tonnage of their
fleet. The tax on such entities is calculated by applying the 15% corporation
tax to the net tonnage instead of the taxable profit of the entities.
Capital gains:
Capital gains are included in taxable profit
and are subject to tax at the regular profit tax rate, except for gains and losses
derived from disposals of securities and derivatives. Gains and losses on
securities and derivatives are included in a separate tax base that is subject
to tax at the regular profit tax rate. A capital gain derived from the sale of
shares of a company registered in an EEA country or in a tax treaty country is
exempt from tax if the shares have been held for an uninterrupted period of at
least two years and if the holding represents more than 25% of the shares of
the company throughout that period.
The exemption mentioned
above does not apply if the shares are transferred to the issuer of the shares.
Capital gains derived
from the transfer of shares in a reorganization or from another transfer
specified in the law is exempt from tax if the shares have been held for an
uninterrupted period of at least three years and if the holding represents more
than 25% of the shares of the company throughout that period.
Administration:
Tax year:
The tax year is the
calendar year. Companies may request permission to use a different 12-month tax
year, which must be used continuously.
Profit tax:
Companies must file
profit tax returns with the tax inspectorate by the 15th day of the 6th month
following the end of the tax year.
Companies must make
quarterly advance payments of profit tax by the 15th day of the last month of
each quarter. The law specifies two methods that companies may choose to
calculate their advance profit tax. The chosen method must be applied
consistently throughout the year, but it can be changed once in the tax year.
The following are the specified methods:
·The results of prior financial years. The advance payments for the first
six months are calculated based on the profit tax for the year before the
preceding year. Each of these advance payments equals 25% of the profit tax for
such year. For the 7th through 12th months of the tax year, the advance payment
equals 25% of the profit tax calculated for the preceding tax year.
·The forecasted profit tax of the current year. Each of the advance payments equals
25% of the forecasted profit tax for such year. However, the total of the
advance profit tax payments made during the tax year must total at least 80% of
annual profit tax.
·
If companies choose to
pay the advance profit tax based on the results of prior financial years, they
must file two profit tax advance payment returns. The first return covers the
first 6 months of the tax year and must be filed by the 15th day of the 3rd
month of the tax year. The second return covers the last 6 months of the tax year
and must be filed by the 15th day of the 9th month of the tax year.
If the advance profit
tax payment is based on the forecasted profit tax of the current year, the
profit tax advance payment return must be filed by the 15th day of the 3rd
month of the tax year.
Newly registered
enterprises in their first tax year and enterprises with taxable profit not
exceeding EUR 300,000 in the preceding tax year are not required to make
advance payments of profit tax.
Any balance of tax due
for a tax year must be paid by the 15th day of the 6th month following the tax
year. If the total of the advance payments exceeds the tax due for the tax
year, a company may obtain a refund or apply the excess to future taxes. Taxes
must be paid in euros.
Withholding taxes:
Withholding taxes together with returns for
such taxes must be submitted to the tax inspectorate by the 15th day of the
month following the month in which the taxes are withheld.
Withholding taxes:
Withholding tax at a
rate of 10% is imposed on the following types of payments to nonresident
companies:
· Interest
· All types of royalties
· Compensation for violations of
copyrights or related rights
Interest paid to an
entity registered in an EEA country or in a tax treaty country is exempt from
tax.
Royalties, payments for
know-how and compensation for violations of copyrights or related rights are
exempt from withholding tax if the criteria stipulated in the Council Directive
2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest
and royalty payments made between associated companies of different member
states are met.
Withholding tax at a
rate of 15% is imposed on the following types of payments to nonresident
companies:
· Dividends (for further details, see
Dividends)
· Payments with respect to the sale, rent
or other transfer of immovable property located in Lithuania
· Payments for performance and sport
activity in Lithuania
· Directors’ fees to members of the
Supervisory Board
Dividends:
Dividends received from Lithuanian and foreign
companies are subject to corporate profit tax at a rate of 15%. The 15% tax on
dividends paid by Lithuanian companies is withheld at source.
For dividends paid by
Lithuanian companies to other Lithuanian companies, profit tax for the
preceding tax year is reduced for the company receiving dividends by the
withholding tax calculated on the dividends. However, the amount of the
reduction may not exceed the amount of profit tax for the preceding tax year.
The amount of the withholding tax not used to reduce the preceding year’s tax
may be set off against other taxes or refunded by the tax authorities. Payers
of dividends must pay the withholding tax on the dividends to the tax
authorities by the 15th day of the month following the month of payment of the
dividends.
Lithuanian resident
companies receiving dividends from foreign companies must pay the tax on the
dividends to the tax authorities by the 15th day of the month following the
month of receipt of the dividends.
Under the participation
exemption rule, dividends are not subject to profit tax if the recipient is a
company (not located in a tax haven) that holds at least 10% of the shares of
the payer of the dividends for a period of at least 12 months. The
participation exemption does not apply to dividends distributed to individuals
from the following types of profit:
· Profits that were subject to a 0% tax
rate
· Profits that were reduced by investment
relief
· Profits that were not taxed because of
specific exemptions indicated in the law
Dividends paid by
foreign companies to Lithuanian companies are not subject to tax if the company
paying the dividends is registered in an EEA country and if the company’s
profits were subject to corporate profit tax or an equivalent tax.
The participation
exemption also applies to the following:
· Dividends that are attributed to the
permanent establishment of a foreign company in Lithuania
· Cash payments made to reduce the
company’s capital that was formed using the company’s earnings
The above-mentioned
participation exemptions for dividends paid by Lithuanian companies to foreign
companies and the dividends received by Lithuanian companies from foreign
companies may be denied under a general anti-abuse rule, which provides that
the participation exemption may be denied for entities or a group of entities
if the main purpose or one of the main purposes of the arrangements that were
put in place was to obtain a tax advantage.
Foreign tax relief:
In general, a foreign tax credit may be claimed
in an amount not exceeding the amount of Lithuanian profit tax payable on the
foreign income. Special rules apply to particular types of income, unless a
double tax treaty provides otherwise.
The exemption method is
applied to profit from activities carried out through permanent establishments
of Lithuanian entities in EEA countries or in tax treaty countries if profit
from activities carried out through these permanent establishments is subject
to corporate income tax or equivalent tax in such countries.
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Note:
Information
placed here in above is only for general perception. This may not reflect the
latest status on law and may have changed in recent time. Please seek our
professional opinion before applying the provision. Thanks.
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