Personal income tax
Income tax is levied on individuals who are resident in Lithuania for tax purposes or on individuals who are not resident but receiving a Lithuanian sourced income.
The residence of an individual is judged by the individual circumstances in each case. The criteria is laid down in the laws and principally outlines the requirements as:
- Domiciled in Lithuania
- Personal, social or economic interests in Lithuania
- Spending a specified period of time in Lithuania (residents are recognised foreign individuals staying in Lithuania with or without breaks for no less than 183 days in a calendar year, or staying in Lithuania with or without breaks for no less than 280 or more days during two consecutive calendar years, where the stay in Lithuania during one of these years lasted at least 90 days).
Permanent residents pay income tax on their worldwide income.
The standard income tax rate is 15%.
For distributed profits, 15% income tax rate is applied.
A 5% income tax rate applies to income on sale of waste.
The income from activities specified by the legislation may be exercised under a business certificate that is subject to a fixed amount of income tax determined by individual municipality councils.
Non-taxable income and incentives
The most notable tax exempt income includes:
- Statutory compensations (e.g., business travel costs compensations), except for compensations for unused vacations and redundancy payments upon the termination of employment contracts;
- Certain life insurance payments and non-life insurance compensations;
- Income from the sale of movable property, if this property is registered in the Republic of Lithuania or the movable property is registered in a Member State of the European Economic Area if property was purchased earlier than 3 years before its sale or other transfer of ownership;
- Income from the sale of real estate located in a Member State of the European Economic Area if real estate was acquired more than 10 years prior to its sale or other transfer of ownership;
- Lottery winnings from entities registered with the European Economic Area that are subject to tax from the turnover of the lottery.
When calculating annual personal income tax amount of a Lithuanian permanent resident, taxable income may be reduced by expenses incurred by an individual whose total amount during the tax year cannot exceed 25% of calculated taxable income, i.e., deductible can be life insurance contributions, pension contributions paid to pension funds and payments for studies.
There is no separate wage tax in Lithuania. Employment income is subject to 15% income tax rate, which is deducted by the employer. When calculating tax on employment source income basic tax-exempt amount of income (depends on amount of income as well as working capacity of employee) shall apply.
Income and capital gains from substantial shareholdings
Capital gains on the disposal of a substantial shareholding in a company are taxed according to the general principals of income tax. This means capital gains are subject to 15% tax.
The tax period is a calendar year. Certain kinds of income are taxed at the moment of payment.
Tax returns and payments
Depending on the particular type of income, the tax is paid and tax returns presented monthly or annually. All income, according to the tax payment procedure, is divided into two classes: “A” and “B”.
Income of A class comprises income from which the income tax is calculated and paid to the budget by persons paying out income, for example income incidental to employment relations or relations in their essence corresponding to employment relations, income from sports or performing activities, royalties, interest, income from artistic activities, income from property rent, etc.
Income of B class comprises income from which the tax is calculated, paid to the budget and declared by an individual, for example, winnings from gaming and lotteries, any income received from individuals of foreign states and from entities of foreign states (not through a permanent establishment) residing abroad, income from a resident of Lithuania (except for income incidental to employment relations, interest, royalties, etc.), income from the sale or other transfer into ownership of immovable property (e.g. a building, land) and of movable property where such type of property is subject to legal registration (e.g. a car), income from individual activities (except for income from individual activities from the sale or other transfer into ownership of non-felled forest, round wood, base metal scrap), etc.
A resident of Lithuania who during the tax period received income attributed in accordance with the tax payment procedure to both A and B classes must, after the end of the tax period and before 1 May of the calendar year following that tax period, either himself or through a person authorised by him submit an annual income tax return to the tax administrator for the previous tax period and declare therein all the income received during the previous tax period and the income tax calculated in respect of such income.
Income tax by an individual must be paid after the end of calendar year, before 1 May of the following calendar year.
Taxation of non-residents
The object of income tax of a non-resident of Lithuania shall be:
• income from individual activities carried on from a fixed base as well as income received in foreign countries and attributed to the said fixed base in Lithuania
• income sourced in Lithuania and received otherwise than through a fixed base, i.e.:
• income from distributed profits
• income from distributed profits and annual bonuses to Board and Supervisory Council members
• income from the rent of immovable property located in Lithuania
• income incidental to employment relations or relations in their essence corresponding to employment relations
• income from sports activities, including income connected directly or indirectly to those activities, irrespective of whether it is paid directly to a sportsman or a third person acting on behalf of the sportsman
• income from performing activities, including income connected directly or indirectly to those activities, irrespective of whether it is paid directly to a performing artist or a third person acting on behalf of the performing artist
• income from the sale or other transfer into ownership of movable property where such type of property is subject to legal registration under the legal acts of the Republic of Lithuania and where it is (or must be) registered in Lithuania, and also from the sale or other transfer into ownership of immovable property located in Lithuania
• compensations for violation of copyright or neighbouring rights.
A natural person who is not deemed to be a resident of Lithuania may, in accordance with the procedure established by the Government of the Republic of Lithuania, apply to the tax administrator for recognition as a resident of Lithuania, provided that his income sourced in Lithuania during the tax period (except for the income on which income tax reliefs provided by the treaties of the Republic of Lithuania or the avoidance of double taxation were applied during the said tax period) accounts for not less than 90% of the total income received during the tax period.
A permanent residency status for Lithuanian taxation purposes applies to an individual:
• who has a main permanent residence place in the territory of Lithuania within the tax period (i.e. calendar year) or
• who’s place of personal, social or economic interest within the tax period is more likely in Lithuania rather than abroad or
• who is present in Lithuania permanently or with intermissions equal or exceeding, in total, 183 days within the tax period or any twelve-month period commencing or ending in the calendar year or commencing in one and ending in another calendar year or
• who is present in Lithuania permanently or with intermissions equal or exceeding, in total, 280 days within the tax periods following each other and in one of such tax periods his/her presence permanently or with intermissions become equal or exceeding, in total, 90 days or
• who is a citizen of the Republic of Lithuania who receives remuneration under an employment contract or a contract in its essence corresponding to an employment contract or whose costs of living in another country are covered from the state budget or municipal budgets of Lithuania.
A non-resident of Lithuania who received income from individual activities carried on from a fixed base must, after the end of the tax period and before 1 May of the calendar year following that tax period, has to submit annual income tax return and pay personal income tax.
A non-resident of Lithuania who during the tax period received income attributed to B class income (other than from individual activities carried on from a fixed base) must calculate income tax in respect of such income and pay it to the budget as well as file the respective income tax return not later than within 25 days of receipt of the income.
When income is received from or through Lithuanian registered entities, income tax is deducted and paid to the state budget by those entities. When income is received from other individuals or foreign registered entities, then foreign residents must file individual income tax returns to the tax inspectorate of place of residence or place of work.