Thinking beyond borders
In Lithuania, individual’s tax liability is determined by the residence status for taxation purposes and the source of income derived by the individual. Income tax is payable at a standard 15% flat rate. At present, there are 54 effective double taxation avoidance treaties that Lithuania has concluded.
Tax obligations for business traveler will generally arise after staying in Lithuania for more than 183 days in a tax year or 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).
Also, business travelers are likely to be taxed on their employment income received for the work performed in Lithuania.
An individual’s liability for income tax in Lithuania is determined by the residence status. 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. If an individual does not qualify as a Lithuanian tax resident, his or hers Lithuanian sourced income (including through a PE) might still be taxed. Double tax treaty provisions are also considered when defining an individual a resident of Lithuania.
Technically, there is no minimum threshold/number of days that exempts the employee from the requirements to file tax returns and pay income tax in Lithuania.
Resident taxpayers are subject to income tax on their worldwide income, while non-residents are taxed on their Lithuanian sourced income.In general, the following categories of income of residents are subject to income tax in Lithuania:
Benefits in kind received by an employee are taxed in the same manner as employment income.
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 for the work performed in Lithuania; 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.
Lithuania imposes a flat rate of 15% on personal income. Special rules are applied for persons performing individual activities.
Non-residents are taxed at the same rate as residents.
Social security and mandatory health insurance contributions are payable in respect of gross employment income by the employer and employee. There is no income cap for social security contributions on earnings from an employment relationship. Specific rules are established for persons performing individual activities with a cap for contributions applied.
It should be noted, that it is likely that most extended business traveler would not be liable for Lithuanian social security. This could be caused by the fact that business travelers remain in their home countries’ social security system under the European Union or European Economic Area (including Switzerland) rules or they remain in their home countries’ social security system under a totalization agreement with Lithuania.
The standard rate of social security contributions for 2018 is 40.18%, where 31.18% is employer’s part and 9% is employee’s part. Additionally 2% is withheld from the gross employment income of an employee participating in certain second pillar pension accumulation plan.
The tax period is the calendar year. Resident individuals are obliged to submit an annual income tax return by 1 May of the following year. If in the taxable period individual has gained taxable income only in Lithuania from which all personal income tax has been withheld and paid, no tax return has to be filed. However, in case of foreign income, submitting the income tax return is mandatory.
If a non-resident derives income from Lithuanian sources subject to withholding tax (but from which income tax has not been withheld), he/she has to submit a tax return by 1 May of the following year.
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.
Employers are required to submit the personal income tax returns and social security reports on a monthly basis. The personal income tax withheld 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 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 by the 15th of February of the following year.
The regulation of staying in Lithuania and working in Lithuania depends on whether the person is an EU citizen (citizens of EU, EEA countries and Switzerland are considered as EU citizens) or a national from another country.
Citizens of EU, EEA countries and Switzerland are not required to obtain visas and/or residency permits in Lithuania. However, the EU citizens intending to stay in Lithuania for a period exceeding 3 months within a half-year have to obtain a special note confirming their right to live in the territory of Lithuania. Afterwards they have to declare their residence place in Lithuania. A work permit is not required for EU, EEA and Switzerland citizens.
Any non-EU citizen arriving and staying in Lithuanian is subject to the regulation set by the Council (EC) Regulation No. 539/2001 listing those countries whose nationals must be in possession of visas when crossing the external borders and those whose nationals are exempt from that requirement.
Any foreigner who is subject to a visa free regime is eligible to stay in Lithuania without visa for three months period within half a year from their first day of entry in to Lithuania or any other Schengen state.
Furthermore, any foreigner having a valid Schengen visa is entitled to enter Lithuania and stay for the period permitted by the visa; however, no longer that three months within a six-month period.
In general, regardless whether it is a short or a long-term stay, work permit is required to obtain if a non-EU citizen intends to work in Lithuania. Foreigners from non-EU countries are not required to obtain a work permit in the following cases:
Non-EU citizens residing in Lithuania for a longer term than 3 months within any 6 month period, depending on the intended length and purpose of stay – shall obtain either national (D) visa that will be valid for no more than 1 year, or temporary residence permit that will be valid for no more than 3 years from the Lithuanian Migration Department.
At present there are 54 effective double taxation treaties that Lithuania has concluded: Armenia, Azerbaijan, Austria, Belarus, Belgium, Bulgaria, Canada, Czech Republic, China, Croatia, Cyprus, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Latvia, Luxembourg, Macedonia, Malta, Mexico, Moldova, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, Turkmenistan, UAE, Ukraine, United Kingdom, USA and Uzbekistan.
The treaties generally follow the OECD model tax treaty.
There is the potential that a Permanent Establishment (PE) could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has. Respective double tax treaties has to be considered to clarify each situation.
The standard value-added tax (VAT) rate is 21 percent. There is also a reduced rate of 9 and 5 percent. There are several transactions which are subject to VAT at a rate of 0 percent or are VAT exempt.
The tax authorities are entitled to make transfer pricing adjustments in respect of transactions between associated persons.
In relation to international business travelers, it should be noted that if a Lithuanian entity receives services which are rendered intra-group, these services are likely to attract tax authorities’ interest. In order to avoid tax liability arising from related-party transactions, the value of those transactions have to be at arm’s length.
Lithuania has a personal data protection law.
There are no exchange controls in Lithuania.
Expenses incurred by individuals, such as life insurance premiums, pension contributions and housing loan interest if the credit was granted before 2009, can be deducted from their taxable income. However, the limit for such deduction is set at 25% of the total income, which is subject to a 15% income tax rate.
It should be noted, that these deductions are only applicable for Lithuanian tax residents, who declare their worldwide income in Lithuania. Thus, if the assignee is not considered as a Lithuanian tax resident or does not declare his/hers worldwide income in Lithuania, these costs cannot be deducted from the taxable income.