Taxes in Lithuania
Lithuania is one of the cheapest countries to live in Europe. It is perfect for expats coming from various countries worldwide, that want an affordable place to live with advanced infrastructures. The government needs your taxes to ensure they have enough funds to complete the state’s projects.
Taxes are compulsory financial charges or levy imposed on a taxpayer by a government to fund various public expenditures. Thankfully, the government has made good use of our taxes and made Lithuania one of the best places to live.
In this article, I’ll be showing you everything you should know about the Lithuanian tax system. By the end of this guide, you should be able to identify this part of your salary is taxable and what part isn’t.
What are the taxes
One of the reasons why Lithuania is a perfect option for both individuals is that you get all the benefits of other European countries at a very low tax rate.
Personal Income Taxes
Income taxes are paid by people who have received income whether the person is employed or self-employed. If the person is a permanent resident, he is taxed on his worldwide income.
Taxable income in Lithuania includes revenue from individual activities carried out through employments, a paid service, interest, distributed profits, and annual bonuses, sports and performing activities, royalties, compensations, and sale or rent of property in the Republic of Lithuania.
Lithuanian residents have taxed 9% healthcare social levies and 15% personal income tax.
Expatriate taxation
Foreign residents and expats are required to pay taxes for income that was received in Lithuania.
You will be considered a taxable resident if you’ve stayed in the country for at least 183 days within 12 months, 280 days in each of two consecutive tax years, domiciled, or stay in the country for economic or social interest.
Your taxation rate depends on your residency status. Lithuania residents are taxed on worldwide income while non-residents are taxed on revenue generated in the country.
There are however certain exceptions to this rule including Double Taxation Agreements.
If respective documents are presented, expats are not subjected to the 9% healthcare insurance levies if it is paid in another country.
Corporate taxes
The standard CIT rate in Lithuania is 15%. However, smaller companies and agricultural entities can apply a reduced rate of 1% or 5% if certain conditions are met.
Generally, these taxes apply to the worldwide income of a Lithuanian corporation while foreign companies will only be taxed on income generated within the country.
Taxable income is calculated by reducing general income with deductible expenses and non-taxable revenue in a tax year.
You should know that revenue generated by a resident company is not subject to taxation if the revenue was generated was through its permanent establishment outside Lithuania or a country that has a double tax treaty with Lithuania when the income is taxable in that country.
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Tax system
In Lithuania, taxes are levied by the central and the local governments. The tax year begins on the 1st of January and ends on the 31st of December every year. However, corporations may adopt a substitute year of reporting. All legal residents and entities are required to pay dues taxes in the country.
Lithuanian legislation states that all tax returns must be submitted electronically. Exceptions may apply if it is annual income tax returns, a case where it is not possible to submit tax returns electronically, or electronic submission would cause an unbalanced administrative burden.
Since January 2009, most of the tax exemptions that used to be available were removed. There will no longer be deducted interest for real estate, acquired computers, or tuition fees.
You’ll need a taxable income calculation to determine your non-taxable income amount.
The non-taxable income amount applies to revenue generated from employment agreements. If your income is not more than €290/month your non-taxable amount will be around €165.
Direct tax
Direct tax is one that is assessed on an individual (legal or natural) or property (i.e. real and personal property, livestock, crops, salaries, etc.) as distinct from the transaction tax.
Indirect tax
An indirect tax is a tax imposed by an agent (such as a retail store) on a person who carries the ultimate economic tax burden (such as the consumer). Subsequently, the intermediary issues a tax return and returns the tax proceeds to the nation.
Fees
In any of the aforementioned groups, net income is calculated on all total earnings earned over the fiscal year and decreased by revenue-related expenditures for the same time. Losses from one of the seven types of basic income (except capital investment) should be entirely compensated against positive income from another category of income (exceptions which apply to other income').
Business in Lithuania
Our company provides services for setting up a company in Lithuania. The specialists of our company have the necessary knowledge, experience and qualifications. We can offer a consultation with taxes in Lithuania. In addition, we also provide business support, accounting and other services necessary for your business. Our specialists have vast experience in this field of activity. We will be happy to help you successfully open a business in Lithuania.
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