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Tax Guide

Financial Year – 1 January – 31 December
Currency – Euro (EUR)

Corporate Tax Summary

Residence – A company is a resident if it is incorporated in the Republic of Lithuania.

Basis of Taxation – The tax base of a Lithuanian entity is all income which is sourced inside and outside of the Republic of Lithuania, i.e. earned in the Republic of Lithuania or earned in foreign states.

Income from activities carried out through permanent establishments of Lithuanian entities in a state of the European Economic Area (EEA), or states with which the Republic of Lithuania has concluded and brought into effect a treaty for the avoidance of double taxation (DTA) shall not be attributed to the tax base of the Lithuanian entities where, in accordance with the prescribed procedure, income from activities carried out through these permanent establishments is subject to corporate income tax or equivalent tax in those states.

Tax Base for Foreign Entities:

  • Income from activities carried out by a foreign entity through permanent establishments situated in the territory of the Republic of Lithuania.
  • Income from international telecommunications earned through permanent establishments in the Republic of Lithuania, as well as 50% of the income from transportation which begins in the territory of the Republic of Lithuania and ends abroad, or begins abroad and ends in the territory of the Republic of Lithuania.
  • Income earned in foreign states attributed to the permanent establishments in the Republic of Lithuania where such income is related to the activities of the foreign entity carried out through the permanent establishments situated in the Republic of Lithuania.
  • Income sourced in the Republic of Lithuania and received by a foreign entity other than through permanent establishments situated in the territory of the Republic of Lithuania (Article 4 paragraph 4 of the Law on Corporate Income Tax).
Reference
Corporate Income Tax Rate (%) 15% (general rate), 5%, 0% The 5% rate applies to the following entities:

1. Entities where the average number of employees does not exceed 10 and gross annual revenue is less than EUR 300,000.

This rule does not apply when the total number of employees and the total annual income exceeds these limits in the following cases:

  • Sole proprietorships, whose owners or family members are also owners of other sole proprietorships
  • Sole proprietorships where the owner and/or members of his/her family own more than 50% of the other unit on the last day of the tax period
  • Entities in which the same participant (shareholder or member) holds more than 50% on the last day of the tax period
  • Entities in which the same participants (shareholders or members) jointly control more than 50% on the last day of the tax period

2. Cooperative societies (cooperatives) whose income during the tax period comprises more than 50 percent income from agricultural activities, including the income of cooperative societies (cooperatives) from the sale of agricultural products produced by their members.

3. In certain other cases in accordance with Article 5 paragraph 7 of the Law on Corporate Income Tax.

The 0% tax rate applies to newly registered entities for the first tax period and only for an entity whose participant(s) is/are a natural person(s), if:

  • During the first tax period, the average number of employees does not exceed 10 people and the income for the first tax period does not exceed EUR 300,000 and the participant(s) is a natural person(s), and only if during three consecutive tax periods, including the first tax period:
    1. The activities of the entity are not suspended
    2. The entity is not liquidated
    3. The entity is not reorganised
    4. the shares (units, shares) of the entity are not transferred to new participants.

This rule does not apply when the total number of employees and the total annual income exceeds these limits in the following cases:

  • Sole proprietorships, whose owners or family members are also owners of other sole proprietorships
  • Sole proprietorships where the owner and/or members of his/her family own more than 50% of the other unit on the last day of the tax period
  • Entities in which the same participant (shareholder or member) holds more than 50% on the last day of the tax period
  • Entities in which the same participants (shareholders or members) jointly control more than 50% on the last day of the tax period

Additional Corporate Income Tax
Additional corporate income tax is paid by banks operating under the Law on Banks of the Republic of Lithuania, including branches of foreign commercial banks, credit unions operating under the Law on Credit Unions of the Republic of Lithuania and central credit unions operating under the Law on Central Credit Unions of the Republic of Lithuania.

The taxable profits of credit institutions, calculated on the basis of non-taxable income, allowable and limited deductions (excluding the amount of increased deductions for research and experimental development costs, the amount of tax-free reductions for the production of a film or part thereof, the amount of aid granted and the amount of losses of previous tax periods deductible from income for the tax period) is taxed at the rate of 5 percent of the additional income tax for credit institutions.

Main Tax Benefits and Exemptions
In some cases, a lower corporate income tax rate may be applied to taxable profit.

Branch Tax Rate (%) 15% (general rate), 5% The 5% rate applies to the following entities:

1. Entities where the average number of employees does not exceed 10 and gross annual revenue is less than EUR 300,000.

This rule does not apply when the total number of employees and the total annual income exceeds these limits in the following cases:

  • Sole proprietorships, whose owners or family members are also owners of other sole proprietorships
  • Sole proprietorships where the owner and/or members of his/her family own more than 50% of the other unit on the last day of the tax period
  • Entities in which the same participant (shareholder or member) holds more than 50% on the last day of the tax period
  • Entities in which the same participants (shareholders or members) jointly control more than 50% on the last day of the tax period

2. Cooperative societies (cooperatives) whose income during the tax period comprises more than 50 percent income from agricultural activities, including the income of cooperative societies (cooperatives) from the sale of agricultural products produced by their members.

3. In certain other cases in accordance with Article 5 paragraph 7 of the Law on Corporate Income Tax.

The 0% tax rate applies to newly registered entities for the first tax period and only for an entity whose participant(s) is/are a natural person(s), if:

  • During the first tax period, the average number of employees does not exceed 10 people and the income for the first tax period does not exceed EUR 300,000 and the participant(s) is a natural person(s), and only if during three consecutive tax periods, including the first tax period:
    1. The activities of the entity are not suspended
    2. The entity is not liquidated
    3. The entity is not reorganised
    4. the shares (units, shares) of the entity are not transferred to new participants.

This rule does not apply when the total number of employees and the total annual income exceeds these limits in the following cases:

  • Sole proprietorships, whose owners or family members are also owners of other sole proprietorships
  • Sole proprietorships where the owner and/or members of his/her family own more than 50% of the other unit on the last day of the tax period
  • Entities in which the same participant (shareholder or member) holds more than 50% on the last day of the tax period
  • Entities in which the same participants (shareholders or members) jointly control more than 50% on the last day of the tax period

Additional Corporate Income Tax
Additional corporate income tax is paid by banks operating under the Law on Banks of the Republic of Lithuania, including branches of foreign commercial banks, credit unions operating under the Law on Credit Unions of the Republic of Lithuania and central credit unions operating under the Law on Central Credit Unions of the Republic of Lithuania.

The taxable profits of credit institutions, calculated on the basis of non-taxable income, allowable and limited deductions (excluding the amount of increased deductions for research and experimental development costs, the amount of tax-free reductions for the production of a film or part thereof, the amount of aid granted and the amount of losses of previous tax periods deductible from income for the tax period) is taxed at the rate of 5 percent of the additional income tax for credit institutions.

Main Tax Benefits and Exemptions
In some cases, a lower corporate income tax rate may be applied to taxable profit.

Withholding Tax Rate:
Dividends – Franked 15% Dividends are taxable at a rate of 15%, unless the participation exemption applies. Dividends are exempt from corporate income tax if a parent company holds or intends to hold at least 10% of the shares of the subsidiary for at least 12 months.
Dividends – Unfranked
Dividends – Conduit Foreign Income
Interest 0%, 10%, 15% There is no withholding tax on interest paid to EEA-resident companies and companies resident in countries that have concluded a tax treaty with Lithuania. Otherwise, the applicable withholding tax rate is 10%. The withholding tax rate for non-resident individuals is 15%, unless it is reduced under a tax treaty.
Royalties from Intellectual Property 10% Royalties paid to a non-resident company are subject to a 10% withholding tax, unless the rate is reduced under a tax treaty or eliminated in accordance with the EU interest and royalties directive. The withholding tax rate for non-resident individuals is 15% unless it is reduced under a tax treaty.
Fund Payments from Managed Investment Trusts
Branch Remittance Tax
Net Operating Losses (Years)
Carry Back
Carry Forward Operating losses may be carried forward for an indefinite period, provided that certain requirements are met. Current year operating losses can be transferred to another legal entity of the group if certain conditions are met. Losses incurred due to the transfer of securities and/or derivative financial instruments may be carried forward for five years (indefinitely for financial institutions). Reduction of taxable profit by accumulated tax losses is limited to 70% of the taxable profit for the current year (except for entities that are subject to the reduced CIT rate of 5%). The rest of the accumulated tax losses can be carried forward for an unlimited period of time.

Individual Tax Summary

Residence – An individual is treated as a resident if at least one of the following conditions is satisfied:
(i) The individual’s permanent place of residence during the tax period is in Lithuania.
(ii) The individual’s centre of personal, social or economic interests during the tax period are in Lithuania.
(iii) The individual is present in Lithuania for at least 183 days during the tax period.
(iv) The individual is present in Lithuania for at least 280 days during two consecutive tax periods and has stayed in Lithuania for at least 90 days in either of the tax periods.
(v) The individual is a citizen of Lithuania who does not meet the criteria in (iii) and (iv) above and who receives employment-related remuneration or whose costs of living in another country are covered by the state budget or municipal budgets of Lithuania (e.g. diplomats, consuls, etc.).

Basis of Taxation

  • Lithuanian residents are subject to taxation on their worldwide income.
  • Non-residents are subject to tax only on Lithuanian source income and on income derived from activities through a fixed base in Lithuania, including foreign source income attributed to that fixed base.

Taxable income includes employment income, income from commercial activities, royalties, income from the lease of assets and all other personal income.

Filing Status – Joint filing is not allowed.

Personal Income Tax Rates

Taxable Income Tax Payable – Residents Tax Payable – Non Residents
Employment-related income and other income 20%/32% 20%/32%
Dividends 0%/15% 0%/15%
Other income 15%/20% 15%/20%
Capital gains 0%/15%/20% 0%/15%/20%

15% tax is applicable to self-employed persons.

Other income unrelated to employment (royalties, interest, gains from the sale of property) is generally subject to personal income tax at a rate of 15%, provided the annual amount of such income does not exceed 120 average salaries. Any amount of income exceeding 120 average salaries is subject to personal income tax at a rate of 20%. Income from distributed profits (dividends) is subject to personal income tax at a rate of 15%.

Additional Comments
Non-residents are taxed at the same rate as residents (for income obtained in Lithuania).
Permanent residents of Lithuania have a duty to declare their income and taxes paid for the previous year by 1 May each year.

Goods and Services Tax (GST)

Rate 21%, 9%, 5%, 0%
Taxable Transactions VAT is levied on a taxable person’s supply of services and goods for consideration if such supply is considered as made in Lithuania according to the Law on VAT. VAT may also be levied on the acquisition of goods and services for consideration within Lithuania from another member state.
Import VAT is levied on the import of goods if the import is made in Lithuania.
Registration A special scheme for small enterprises has been implemented in Lithuania. This means that Lithuanian taxable persons are allowed to not register as a VAT payer if their turnover during the last 12 calendar months does not exceed EUR 45,000. However, it should be noted that if during the last calendar year the Lithuanian taxable person has acquired goods from other EU member states and the taxable amount of those goods has exceeded EUR 14,000, or it is foreseen that it will exceed this threshold during the current year, then such a taxable person is obliged to register as a VAT payer, even in cases where the annual turnover threshold (EUR 45,000) is not exceeded.
Foreign taxable persons carrying out economic activity in Lithuania are not subject to the above mentioned special scheme. This means that foreign taxable persons must register as VAT payers from the start of their activities and the turnover of such activities does not have any impact on the obligation. However, there are some exceptions when foreign taxable persons are not obliged to register as VAT payers, despite their economic activity in Lithuania.
It should be noted that although in some cases there is no obligation for a foreign taxable person to register as a VAT payer in Lithuania, the VAT on the purchases can be refunded only via VAT deduction (this means that the foreign taxable person must register).
Filing and Payment Form FR0600 must be filed for the tax period (calendar month, calendar half-year, other tax period). It should be submitted not later than 25 days after the end of the tax period. The VAT accounted for a certain tax period should also be paid not later than 25 days after the end of the tax period. There are some exceptions.

Other Taxes Payable

Tax Reference
Payroll Tax From 1 January 2020, a 20% income tax rate is applied to income incidental to employment relations or relations in their essence corresponding to employment relations, bonuses, income received from the employer under copyright agreements, and the income of small community leaders when the annual share of such income is below the amount of 84 average national wages (AW) used to calculate the insured persons‘ state social insurance contribution base for 2020. The annual share of income exceeding the amount of 84 AW (EUR 104,278 for 2020) shall be subject to a 32% rate.

Social Security Contributions:
The employer must withhold 12.52% of the employee’s gross salary for social security contributions (8.72% for pension social insurance, and 2.09% and 1.71% for sickness and motherhood social insurance, respectively) and 6.98% for health insurance contributions, as well as an additional 2.1% for participants in the second pillar pension fund programme. The employer’s share is usually equal to 1.77%-3.75% (depending on the type of employment agreement and risk group). Contributions are made to unemployment insurance, social insurance for accidents at work and occupational diseases, and the long-term employment benefit fund.

Stamp Duty There is no stamp duty, but a notary fee may be applied to certain transactions.
Land Tax Rate 0,5%

Reference:
The tax is paid by Lithuanian and foreign natural and legal persons. It is imposed on immovable property in Lithuania, with the exception of:

  • Currently unused immovable property with unfinished construction.
  • Immovable property created (acquired) on the basis of public and private partnership, if the public and private partnership agreement is under implementation and this type of property is used for the purpose prescribed by the agreement.

Tax exemptions:
Residential facilities, gardens, garages, farms, greenhouses, holdings, home farms, education, religious and recreational facilities or premises owned by natural persons, as well as fishery and engineering structures attributed to the object of the real estate tax. However, a part of the total value of such property owned by a natural person which exceeds a non-taxable value, i.e. EUR 150, 000, shall be subject to taxation.
For families with three and more children (or adopted children) under 18 years of age, and families with a disabled child (or adopted child) under 18 years of age, as well as an older disabled child (or adopted child) who has a special need for permanent care, the non-taxable rate of real estate value is increased to EUR 200,000.
There are some other exceptions.

Last updated: 01.11.2020

Contact persons:

Partner, Attorney at Law in Lithuania
Kęstutis Kvainauskas
Partner, Attorney at Law
Phone: +370 5 212 40 84

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