Lithuania Tax

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Lithuania Tax

Lithuania’s location at the geographical center of Europe means it enjoys access to huge markets in Western Europe, Scandinavia, and the Baltics. It is a hotspot for startups, with a ranking of 11 in the World Bank’s Doing Business Report (2019) due to government funding and tax incentives, as well as straightforward registration procedures. However, dealing with complicated tax matters is a major issue for companies seeking to develop an international presence.

Our aim a Bradford Jacobs is to facilitate globalization and to make the world more accessible to every company. By providing payroll services to businesses in over a hundred countries, we hope to support more businesses’ dreams and goals by taking care of the complicated paperwork through our PEO services

The best start of your expansion into Lithuania is a well-informed start. Therefore, we created this guide in which we will address the various tax rules in Lithuania.  

Overview of Lithuania Tax:

Lithuania boasts a multilingual and international workforce, and a formidable technology industry with thriving sectors such as biotechnology, information and communication, and laser technology. The country offers many opportunities to make your business grow. 

Tax, and especially overseas tax, can be complicated. The table below provides an overview, and this guide will explain the tax rates and administration concerning Lithuanian Tax.

  • Tax Type Percentage

Individual Income Tax: 20%

VAT: 21%

  • Corporate Income Tax

15%

20% for credit institutions

Employer Social Security Contributions

1.77% or 2.49%

  • Capital Interests (With-holding Tax)

Royalties & Interests: 10%

Dividends & Profits: 15%

Individual Tax Lithuania- Single, Married

Any individual earning an income must pay local taxes in Lithuania, regardless of their residential status. Permanent residents are taxed on their worldwide income, whilst foreign nationals living and working in Lithuania are only taxed on the income they receive in Lithuania.

Individuals are subject to pay Income Tax (GPM). Income tax can be with-held by the employers and paid to the Tax Inspectorate monthly or paid by the individual in certain cases.

Under tax payment procedure, an individual’s income can be divided into 2 classes: Class A (tax is calculated and withheld by the employer/organization making the payment), and Class B (tax is paid personally through the individual filling a tax return). Income can be divided by class like so:

  • Class A Income Class B Income

- Employment-related income. Gambling and lottery winnings.
- Income from sports and performance activity. Income from individual activities (with certain exceptions).
- Income from rent or sale of immovable or movable property in Lithuania (except for income received under a business certificate). Income from the sale or other transfer of financial instruments.

  • Interest income. Other income not attributed to Class A.

- Royalties (for residents, and non-residents are exempt).
- A non-resident individual (as well as a Lithuanian entity, or a foreign entity through its permanent establishment) that has spent Class B income must submit an annual statement on this income on or before 15th of February of the next calendar year.

Income Tax in Lithuania is progressive, starting at 20%. It is increased to 32% if an individual’s employment income is over 84 months’ average salary payments. Individual activity income (Class B) is taxed depending on how much income is received.

Besides income tax, individuals in Lithuania are also subject to pay for social security, which amounts to about 20% of their income. Capital earnings such as dividends, royalties, interest, and real estate income is subject to income tax at 15%.

Income Tax withheld by employers monthly must be paid by either the 15th of the following month (if salary is paid before the 15th), or by the end of the month (if the salary is being paid after the 15th).

Individuals must file an annual tax statement before the 1st of May of the following year unless they only received Class A (employment) income in that calendar year. Filling tax returns can be done in person at the nearest Tax Inspectorate office, but it is generally done online via the national tax portal (STI). For filing tax in Lithuania, it is mandatory for a taxpayer to obtain a tax identification number (VMI).

Non-residents in Lithuania

Non-residents in Lithuania are subject to income tax from income earned through a permanent base in Lithuania, as well as other income derived in Lithuania, such as:

• Employment income.

• Income of sportspersons and performers.

• Interest (except interest from securities of the Government of Lithuania).

• Income from profits, dividends, shares, etc.

• Royalties, including copyright and auxiliary rights.

• Rent received from real estate in Lithuania.

• Income on sales of immovable property and movable property that is subject to mandatory registration in Lithuania.

Non-Lithuanian tax residents are required to file their annual income tax return with the applicable tax authority for foreign residents within 25 days of receiving their income – this applies if their income is derived from a foreign entity with no permanent establishment in Lithuania, and if non-residents do not have a fixed base.

If a non-resident’s income should be applied to the higher income tax rate, this must be submitted to the tax authorities. After this, annual tax returns must be submitted by 1 May of the following year.

Lithuanian Individual Tax Rules

Eligibility for Lithuanian Income Tax, as well as other taxes, depends on where an individual is residing. The residency of an individual is regarded as the permanent home of an individual, or where the person resides for most of the year.

In Lithuania, the tax year is the calendar year. A person is eligible to pay taxes if they are registered as a local employee or self-employed individual and is taxed on their individual income. If you are a non-resident in Lithuania, you are only subject to paying taxes on your income derived in Lithuania, as the country benefits from a double taxation treaty.

If you are married, you are to be taxed separately, and if you are an EU member-state resident, and most of your income is from Lithuania, you can benefit from tax reductions and benefits.

To be considered a tax resident in Lithuania, an individual must meet one or more of the following criteria:

• You are a residing in Lithuania.

• The individual’s center of vital interests (economic, social, and personal) is in Lithuania.

• The individual stays in Lithuania continuously or with interruptions for at least 183 days in a tax year.

• The individual stays in Lithuania continuously or with interruptions for at least 280 or more days with or without breaks during 2 consecutive tax years (one stay during one of the two years must be at least 90 days, with or without interruptions).

• A Lithuanian citizen is employed and compensated by the Lithuanian state institutions.

Lithuania VAT & Excise Duty

Lithuania has a standard VAT rate (also known as PVM) of 21%, which applies to most goods and services. There is also a reduced VAT rate of 9% that applies to public transport, heating and water for residential use, firewood for households and hotels, and books and publications, which is valid until the end of 2022. A further reduced VAT rate of 5% is applied to the sale and repair of equipment for the disabled, pharmaceutical goods, medical devices, and periodical publications.

There are, however, certain goods and services in Lithuania that are VAT-Exempt. This includes:

• health care services and goods

• rent and sale of immovable property

• insurance services

• certain financial services

• cultural and sporting good activities

• educational services

• betting and gaming services

• universal postal services

• social and related services

• radio and television services

Lithuania also has an excise duty on ethyl alcohol, alcoholic drinks, processed tobacco, energy products, electric energy, energy-related products, coal, coke, and lignite.

Lithuania Employers Social Security and statutory contributions

In Lithuania, social security and statutory contributions are settled through an employee’s salary (which are withheld from an employee’s salary and paid by employer every month) as well as an employer’s own monthly contributions.

Currently, social security contributions to be paid monthly by the employee are 19.5%, which includes, pension, healthcare, sickness, and maternity leave.

Employers must pay social security contributions of 1.77% (for indefinite contracts) and 2.49% (for fixed-term contracts), which is split between unemployment and accidental insurance. Employers are also subject to (with certain exceptions) an additional contribution of 0.16% to the Guarantee Fund, and 0.16% to the Long-Term Employment Fund.

Contributor Social Security Contribution (%)

  • Employee 19.5
  • Employer 1.77 (indefinite) or 2.49 (fixed term)

There are some types of employment income that are exempt from social security contributions, such as reimbursement of business travel expenses, payments for training and requalification of employees, sickness allowance for the first two days of illness, and directors’ fees by board members.

Lithuania Corporation Tax

In Lithuania, resident companies are taxed on their worldwide and local income. Non-resident companies are generally taxed on local-sourced income, and on income received through a permanent establishment in Lithuania. The standard corporate tax rate is 15%. However, if certain conditions are met, small companies and agricultural companies can apply for a reduced tax rate of 0% or 5%.

From beginning of 2020 to end of 2022, an increased tax rate of 20% is applied to taxable profits of credit institutions exceeding the threshold of EUR 2 million. Special rules for the calculation of this taxable profit apply.

A company’s income is not subject to taxation in Lithuania if it was received from activities via a permanent establishment that is either in a country in the European Economic Area or a country has a double tax treaty with Lithuania.

Corporate Income Tax can also be reduced through deductible expenses or income which is subject to withholding tax.

All tax returns must be submitted electronically by the 15th day of the sixth month of the following tax period or calendar year. With-holding tax on payments to foreign companies must be collected, withheld, and paid by a domestic company or a subsidiary of a foreign company in Lithuania within 15 calendar days after the end of the month when the payment was made.

A Lithuanian entity, or a foreign entity through its permanent establishment that has spent Class B income must submit an annual statement on this income on or before 15th of February of the next calendar year.

Lithuania Capital Gains & Withholding Tax

Capital gains (dividends and profits) of resident and non-resident companies are subject to a withholding tax at a rate of 15%, whilst interest and royalties are taxed at 10%. Income from capital gains is taxed at 15%, but if it exceeds 120 average salaries, it is subject to a tax rate of 20%.

With-holding tax is exempt from payments on interest for EEA countries, as well as countries with which Lithuania has a Double Tax Treaty.

Capital gains from the sale of shares of a company residing in Lithuania or another EU/EEA member state can also be exempted if the investor maintains uninterrupted contribution of more than 10% for at least two years, or three in case of reorganization.

Certain payment types relating to the rental, sale, or lease of immovable property are likewise subject to a with-holding tax at 10% or 15%.

Lithuania Deductions/Tax Credits

Devaluation of tangible and intangible assets is tax deductible at rates ranging from 5% to 33.3%, depending on the item. Start-up expenses and interest charges are generally deductible.

Donations to charitable organizations are capped at 40% of taxable income and are eligible for a 200% tax deduction. Entertainments fees are deductible for up to 50% but is capped at 2% of the company’s income. Travel expenses and other employee benefits are also deductible.

Company tax losses can be carried forward indefinitely, but for each year, they can only be compensated by 70% of their taxable income. Losses from shares can be carried forward for up to 5 years and can only be compensated against income from the sale of shares.

Lithuania Stamp Duty

There is no stamp duty in Lithuania.

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