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Lithuania

Lithuania

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Castle in the middle of sea, Lithuania

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 is taxed depending on the type of income at 5, 15, 20, and 27 percent rates. At present, there are 55 effective double taxation avoidance treaties that Lithuania has concluded.

Key message

Tax obligations for a 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 2 consecutive tax years (whereby one stay in Lithuania during each 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.

Liability for income tax

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:

  • 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 taxable year or staying in Lithuania with or without breaks for 280 or more days during 2 consecutive taxable years, whereby one stay in Lithuania during 1 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 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, their Lithuanian sourced income (including earned through a permanent establishment) might still be taxed. Double tax treaty provisions are also considered when defining the individual’s residency status.

Tax trigger points

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. 

Types of taxable income

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:

  • employment income, 
  • 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.

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 property located in Lithuania, also movable property which is registered in Lithuania; royalties and compensation for violation of copyright or similar rights; income from sports activities and performers’ activities.

Tax rates

As of 2019 new personal income tax (PIT) rates apply.

Progressive 20/27 percent PIT rate is applicable to:

  • employment income;
  • remuneration paid for activities of the supervisory or management board;
  • royalties received from employer;
  • remuneration of the managers of small partnerships (under civil contracts).

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:

  • dividends;
  • income from individual activities;
  • social security benefits (including sickness allowance payable by employer).

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) is subject to 20 percent rate (otherwise 15 percent rate applies).

Special rules are applied for self-employed individuals.

Non-residents are generally taxed at the same rates as residents.

Social Security

Liability for social security

For employment income the following social security rates apply in 2019:

  • Employees rate: 19.5 percent (additional 1.8 percent/ 3 percent is paid by employees participating in certain pension accumulation plans; withheld by employer);
  • Employer’s rate: 1.77 percent (2.49 percent applies for temporary employment contracts).

Cap for social security contributions (except for health insurance) is applied to employment income exceeding EUR136,344 in 2019.

Specific rules are established for self-employed individuals with a cap for contributions applied.

According to European Union (EU) Regulations, an individual is subject to mandatory social security in the country/territory where the work is performed, i.e. in the EU, or European Economic Area (EEA) member state, or Switzerland, at the location of the work functions. Therefore, foreigners fall under the requirement to pay social insurance contributions in Lithuania if their work functions are performed in Lithuania, unless A1 certificate, confirming that social security contributions are paid in the foreign country/territory, is obtained.

Employment insurance

Unemployment social insurance contributions are part of employee’s social security contributions payable.

Compliance Obligations

Employee compliance obligations

The taxable period is the calendar year. Resident individuals are obliged to submit the annual income tax return by 2 May of the following year. If during the taxable period an individual has received taxable income only in Lithuania which was declared and tax withheld and paid by the payer, no tax return has to be filed (unless the individual wants to apply tax reliefs and get a tax refund). However, in case of foreign income, submitting the income tax return is mandatory.

If a non-resident receives income for the work performed in Lithuania, they have to submit an income tax return and pay taxes due within 25 days of the income receipt.

Employer reporting and withholding requirements

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 remuneration is paid prior 15th of the current month) or by the end of the current month (if 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.

Immigration

Work permit / Visa requirements

The regulation of staying in Lithuania and working in Lithuania depends on whether the person is an EU citizen (citizens of EU, EEA countries/territories and Switzerland are treated similarly as EU citizens) or a national from another country/territory.

EU citizens

Citizens of EU, EEA countries/territories 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.

Non-EU citizens

Visa requirements

Any non-EU citizen arriving and staying in Lithuania is subject to the regulation set by the Council (EC) Regulation No. 539/2001 listing those countries/territories 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. 

Work permit

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/territories are not required to obtain a work permit in the following cases:

  • permanent residence permit is obtained
  • temporary residence permit is issued on the ground that (i) a foreigner has retained the right to Lithuanian citizenship; (ii) they are a person of Lithuanian decent; (iii) in case of family reunification; (iv) a foreigner is under guardianship (care) or they are appointed as guardian; (v) a foreigner is granted subsidiary or temporary protection in the Republic of Lithuania or it is not possible to send the foreigner to the foreign country/territory due to humanitarian reasons; (vi) a foreigner is studying in Lithuania and is planning to work as an intern; (vii) a foreigner is an intra-corporate transferee; (viii) a foreigner is a permanent employee of a company established in a EU or EEA country/territory and is sent for temporary work while is covered by social insurance of the sending company’s country/territory; (ix) enters Lithuania for term not exceeding 3 months within 1 year to negotiate, implement the agreement, perform trainings of the personnel or install equipment; (x) intends to work as a professor, perform research of studies, experimental works; (xi) is a shareholder of the company established in Lithuania following the specific requirements established by laws; (xii) profession of a foreigner is included in the list of professions that Lithuania is in need
  • released from the obligation to obtain work permit based on other grounds.

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 2 years.

Other Issues

Double taxation treaties

At present there are 55 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, Japan, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Latvia, Luxembourg, North 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 Organisation for Economic Co-operation and Development (OECD) model tax treaty.

Permanent establishment implications

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. 

Indirect taxes

The standard value-added tax (VAT) rate is 21 percent. There is also a reduced rate of 9 percent and 5 percent. There are several transactions which are subject to VAT at a rate of 0 percent or are VAT exempt.

Transfer pricing

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. 

Local data privacy requirements

Lithuania has a personal data protection law. As of 25 May 2018, General Data Protection Regulation (GDPR) came into force in Lithuania. 

Exchange control

There are no exchange controls in Lithuania. 

Non-deductible costs for assignees

Expenses incurred by individuals, such as life insurance premiums, pension contributions, II pillar pension contribution exceeding 3 percent, housing loan interest if the credit was granted before 2009, house/ car repair and childcare services purchased from the Lithuanian taxpayers can be deducted from their taxable income. However, the limit for such deduction 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.

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 their worldwide income in Lithuania, these costs cannot be deducted from the taxable income.

 

All information contained in this document is summarized by KPMG Tax and Legal Advisers, the Lithuanian member firm affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity, based on the Lithuanian Law on Personal Income Tax No. IX-1007 of 2 July 2002 and subsequent amendments; the Lithuanian Law on State Social Insurance No. I-1336 of 21 May 1991 and subsequent amendments; the Lithuanian Law on Corporate Income Tax No. IX-675 of 20 December 2001 and subsequent amendments; the Lithuanian Law on Value Added Tax No. IX-751 of 5 March 2002 and subsequent amendments; Law on Legal Status of Aliens of Lithuania No. IX-2206 of 29 April 2004 and subsequent amendments, Visas Issuance Procedure, approved by the Order of the Minister of Foreign Affairs of Lithuania No. 1V-899/V-330 of 28 December 2017 and subsequent amendments, Work Permit Issuance to Aliens Procedure, approved by the Order of the Minister of Social Security and Labour of Lithuania No A1-133 of 27 March 2013 and subsequent amendments, as well as information provided on the website of the Migration Department of Lithuania.

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