Taxation of international executives
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 2 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?
Resident individuals are obliged to submit the annual income tax return by 2 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 received 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 2 May, (the filing deadline).
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 amount 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.
If a non-resident receives income from a foreign source for the work performed in Lithuania, they have to submit the income tax return and pay taxes due within 25 days of the income receipt..
What are the current income tax rates for residents and non-residents in Lithuania?
As of 2019 new personal income tax (PIT) rates apply.
Progressive 20/27 percent PIT rate is applicable to:
If the total annual income (from sources listed above) exceeds certain threshold (136,344 Euros (EUR) in 2019) which also serves as a cap for social security contributions, the exceeding part is subject to 27 percent rate.
15 percent rate applies to:
Progressive 15/20 percent PIT rate applies to any other income which is not subject to 15 percent or 20/27 percent rates (except for income from waste). The total annual amount exceeding the threshold established (EUR136,344 in 2019) the exceeding part is subject to 20 percent rate (otherwise 15 percent rate applies).
Special rules are applied for self-employed individuals.
Non-residents are taxed at the same rate as residents.
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:
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/territory 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/territory before their assignment begins?
An individual is considered a Lithuanian tax resident from the first day of arrival in Lithuania after they spent more than 183 days in a tax year or stayed in Lithuania with or without breaks for 280 or more days during 2 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:
Are there any tax compliance requirements when entering or leaving the country/territory?
If the foreign taxpayer permanently leaves Lithuania, they have 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 that year also has to be submitted to the tax authorities by 2 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.
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.
Will an assignee have a filing requirement in the host country/territory after they leave the country/territory and repatriate?
Upon leaving the assignee has to submit the leaving tax return (as mentioned above) and deregister their place of residence from Lithuania. Additional requirements may apply for certain third-country/territory nationals.
Do the taxation authorities in Lithuania adopt the economic employer approach1 to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in Lithuania considering the adoption of this interpretation of economic employer in the future?
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?
What categories are subject to income tax in general situations?
In general, the following categories of income are subject to income tax in Lithuania:
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: employment income for the work performed in Lithuania, interest, income from distributed profits, payments to board and supervisory board members, income from rent or sale of immovable assets located in Lithuania, royalties and compensation for violation of copyright or similar rights, income from sports activities and performer’s activities.
Intra-group statutory directors
Will a non-resident of Lithuania who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in Lithuania) trigger a personal tax liability in Lithuania, even though no separate director's fee/remuneration is paid for their duties as a board member?
Based on the Lithuanian Labor Code, a statutory director of a Lithuanian company must have an employment contract with that company next to their formal appointment as the managing director and, therefore, remuneration must be paid. Personal tax liability might be triggered on the remuneration, if a non-resident director is present in Lithuania when performing work functions.
a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in Lithuania?
Taxation on salary might be triggered, if a non-resident director is present in Lithuania when performing work functions.
b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in Lithuania (i.e. as a general management fee where the duties rendered as a board member is included)?
Remuneration must be paid by the Lithuanian company. Personal taxation does not depend on who bears the costs.
c) In the case that a tax liability is triggered, how will the taxable income be determined?
Generally, part of work performed while being physically present in Lithuania is taxable in Lithuania. However, actual taxable income should be determined case by case.
Are there any areas of income that are exempt from taxation in your country/territory? If so, please provide a general definition of these areas.
Tax-exempt income includes:
Are there any concessions made for expatriates in your country/territory?
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.
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 they have to file the annual income tax return and report income earned in the foreign country/territory. If the income tax has been paid abroad credit or exemption method for elimination of double taxation can be applied (specific rules apply).
Are investment income and capital gains taxed in your country/territory? If so, how?
Income from distributed profits is subject to a 15 percent income tax rate.
Interest and renal income is taxed at a progressive 15/20 percent income tax rate. The total annual amount exceeding the threshold established (EUR136,344 in 2019) is subject to 20 percent rate (otherwise 15 percent rate applies). However, certain interest not exceeding EUR500 per year is non-taxable.
The employee will be subject to a 20/27 percent 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 (the social security cap is applied). Personal income tax imposed shall be paid by the employee themselves by submitting their annual personal income tax return if the stock option was provided by a foreign company by 2 May of the calendar year following the tax period when the benefits have been received (employer’s social security obligations to be considered specifically)
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.
Special rules apply depending on the type of transaction.
Loss carry-back or carry forward is not possible for personal income tax purposes, except for persons engaged in individual activity.
Gifts are non-taxable if received from spouse or close relatives such as siblings, parents.
Gifts not exceeding the value of EUR2,500 from individuals (not a family member) are non-taxable. Several gifts up to EUR2,500 per year in total can be received from different individuals.
Bank accounts in foreign jurisdictions shall be disclosed.
Are there capital gains tax exceptions in your country/territory? If so, please discuss.
EUR500 for securities.
What are the general deductions from income allowed in your country/territory?
The following expenses incurred by individuals can be deducted from their taxable income:
However, the limit of such deductions is set at 25 percent of the total income. As of 2019, the maximum total deductible amount of life insurance premiums and pension contributions is EUR1,500. Maximum total deductible amount of house/ car repair and childcare services purchased from the Lithuanian taxpayers is EUR2,000.
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 percent without having an obligation to collect all supporting documents.
What are the tax reimbursement methods generally used by employers in your country/territory?
Depending on the employer, gross-up can be used in the tax year to cover tax charges that the employer is to bear.
How are estimates/prepayments/withholding of tax handled in your country/territory? 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 accrued 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 the net income to the employee.
When are estimates/prepayments/withholding of tax due in your country/territory? 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 15 February of the following year by the employer.
Other income is taxed and declared annually or monthly depending on the type of income received.
Is there any Relief for Foreign Taxes in your country/territory? 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 European Union (EU) member countries/territories or countries/territories with which Lithuania has a double tax treaty. Credit method is applicable for employment income received from other countries/territories.
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 55 treaties concluded.
What are the general tax credits that may be claimed in your country/territory? Please list below.
Lithuania allows crediting foreign tax against Lithuanian tax liability arising on the same income or gains.
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 100,000 US dollars (USD) and the calculation covers 3 years.
|Moving expense reimbursement||20,000||0||20,000|
|Interest income from non-local sources||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = EUR0.890 (2014.10.05).
Calculation of taxable income
|Days in Lithuania during year||365||366||365|
|Earned income subject to income tax|
|Moving expense reimbursement*||0||0||0|
|Total earned income||131,720||136,170||131,720|
|Total taxable income||136,560||141,010
* 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|
|Additional tax-exempt amount**
|Foreign tax credit||0||0||0|
|Lithuanian tax thereon||20,124||21,151.50
* Basic tax exempt amount is applied only for employment related income. Basic tax exemption per year for 2019 is calculated based on the formula3,600 – 0.15 × (gross yearly income – 6,660), meaning that if gross income is EUR30,660 per year or higher – no tax exempt amount applies.
** For 2017 an additional tax-exempt monthly amount is granted to parents raising children up to 18 years or older if the child attends secondary school. For each child monthly tax exempt amount is EUR200. If the child deduction is applied by both parents, each parent can deduct ½ of the indicated amount (i.e. EUR100). However, additional tax-exempt amount is only applicable if the children are living in Lithuania and their residence place have been declared in Lithuania. No additional tax-exempt amount is applied as of 2018.
1Certain 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/territory 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/territory employer but the employee’s salary and costs are recharged to the host entity, then the host country/territory 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/territory.
2For example, an employee can be physically present in the country/territory 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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