Tax Guide for US Expats Living and Working in Lithuania
Who Is Liable For Income Taxes in Lithuania
Residents are subject to income tax on their worldwide income. Nonresidents are subject to income tax on income earned through a fixed base in Lithuania and other income derived in Lithuania, including the following:
- Interest
- Income from distributed profits
- Rent received for real estate located in Lithuania
- Income on sales of immovable property and movable property subject to mandatory registration in Lithuania
- Employment income
- Income of sportspersons and performers
- Royalties, including copyright and auxiliary rights
Income is recognized when it is received.
An individual is considered to be a resident of Lithuania for tax purposes if he or she meets any of the following conditions:
- He or she has a habitual abode in Lithuania.
- His or her center of vital interests is in Lithuania.
- He or she is present in Lithuania continuously or with interruptions for 183 or more days in the calendar year.
- He or she is present in Lithuania continuously or with interruptions 280 or more days in two consecutive calendar years and is present in Lithuania continuously or with interruptions 90 or more days during one of these tax years.
If an individual who is considered a Lithuanian resident for three tax years leaves Lithuania during the fourth year, and if he or she spends less than 183 days in Lithuania during the fourth year, he or she is treated as a Lithuanian resident during the fourth year until his or her last day in Lithuania.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Residents employed by Lithuanian companies are subject to income tax on income earned from employment in Lithuania and abroad. Nonresidents employed by Lithuanian companies are subject to income tax on income earned from employment in Lithuania. Residents of Lithuania employed by foreign companies and nonresidents employed by foreign companies to work in Lithuania are subject to income tax on their employment income.
Taxable employment income is all income in cash and in kind, including wages and salaries, bonuses, fringe benefits including free lodging, and other incentive payments.
Self-employment and business income. The taxation of income from partnerships and private (personal) enterprises is regulated by the Law on Corporate Profit Tax. Income from an individual activity (for example, income from rendering independent services) that is registered with the Lithuanian tax authorities is subject to tax under the Law on Resident Income Tax at a rate of 5% or 15%, depending on the type of activities performed.
Investment income. Dividends received from Lithuanian and foreign companies (with certain exceptions) are taxed at a rate of 20%.
Interest from credit institutions (banks, credit unions or other credit institutions) of Lithuania and European Economic Area (EEA) countries is not taxable in Lithuania. Interest from credit institutions of other countries is taxed at a rate of 15%. Interest on nonbanking loans is not taxable if the repayment period of the loan begins more than 366 days after the date of the granting of the loan. For interest on loans granted by the borrower’s shareholders or employees to be not taxable, additional requirements apply.
Interest from securities of the government of Lithuania, EEA countries or municipalities is not taxable. Interest on other securities is not taxable if the maturity date of the securities is more than 366 days after the date of issuance of the securities. For interest on securities owned by the issuer’s employees to be not taxable, additional requirements apply.
Royalties paid to resident and nonresident authors and inventors are taxed at a rate of 15%.
Directors’ fees. An annual management bonus received from a Lithuanian company by a board member that is not payable under the individual’s employment contract is treated as miscellaneous income and is taxed at a rate of 15%.
Exempt income. The following amounts are excluded from taxable income:
- Death allowances to the spouse, children (including adopted children) and parents (including foster parents)
- Life insurance payments (in certain cases)
- The difference between annual proceeds received from the sale of property not requiring legal registration and its acquisition price, not exceeding LTL 8,000 (€2,317)
- Income received from the sale of movable property legally registered in Lithuania or immovable property located in Lithuania (in certain cases)
- Income from the sale of securities (in certain cases)
- Certain other income listed in the Law on Resident Income Tax
Capital gains. Capital gains are generally taxable, subject to the exceptions mentioned in exempt income.
Deductions
Personal deductions and allowances. Residents and nonresidents may deduct the general nontaxable minimum amount, which depends on the income received. The annual nontaxable minimum amount may not be greater than LTL 5,640 (€1,633) if annual income does not exceed LTL 9,600 (€2,780). If annual income is greater than LTL 9,600 (€2,780), the nontaxable minimum amount is calculated according to a formula provided in the Law on Resident Income Tax. For specified groups of residents, including disabled persons, the nontaxable minimum amount is greater.
Individuals who have one or two children may deduct an additional nontaxable income amount. For each parent, the monthly amounts are LTL 50 (€14.48) for the first child and LTL 100 (€28.96) for any subsequent child.
Nonresidents may deduct the general nontaxable minimum amount from Lithuanian-source income at the end of the tax year.
Deductible expenses. The following deductions from a resident’s personal taxable income are allowed:
- Cumulative life insurance premiums (these are premiums paid under a life insurance agreement providing that the insurance payments may be received not only in the event of accidents, but also after the expiration of the agreement) paid on the individual’s own behalf and on behalf of his or her spouse and minor children.
- Pension contributions to pension funds on the individual’s own behalf and on behalf of his or her spouse and minor children.
- Expenses relating to vocational training or studies (if first higher education or qualification is obtained on graduation), and to first doctoral studies and first post-graduate art studies.
This includes tuition paid for the spouse, siblings and children. If a loan is obtained to pay tuition, only the amount of loan repaid during a tax year may be deducted.
The total amount of the above deductions may not exceed 25% of taxable income (taking into account deductions).
Rates. The three rates of individual income tax are 5%, 15% and 20%. The 5% rate applies for some types of individual activities that, according to the Law on Residents Income Tax, are not considered as “liberal professions.” The 20% rate applies only to income from distributed profits. Other income is subject to tax at a rate of 15%.
B. Other taxes
Land tax and state land lease tax. Land tax is imposed on land-owners, both individuals and legal entities, at a rate of 1.5% of the estimated value of the land. State land lease tax is imposed on users, both individuals and legal entities, of state land at rates ranging from 0.1% to 4% of the estimated value of the state land.
Inheritance tax. Inheritance tax is applied to both residents and nonresidents, unless international treaties provide otherwise. The tax base for a Lithuanian permanent resident is inherited property, such as movable property, immovable property, securities and cash.
The tax base for a nonresident is inherited movable property requiring legal registration in Lithuania (for example, vehicles) or immovable property located in Lithuania. The rate of inheritance tax applied to inheritors is 5% if the taxable value is less than LTL 500,000 (€144,810) and 10% if the taxable value exceeds LTL 500,000. Close relatives, such as children, parents, spouses and certain other individuals, may be exempt from this tax.
C. Social security
Social security contributions. Employers must withhold social security contributions at a rate of 3% from an employee’s gross salary. Social security contributions are not deductible when calculating the amount of an employee’s personal income tax to be withheld from the employee’s gross payroll. In addition, employers must make social security contributions at a rate of 27.98%, 28.18% or 28.7%, depending on the type of employer.
Certain types of employment-related income are exempt from social security contributions, including the following:
- Benefits related to an employee’s death paid by an employer to the employee’s spouse, children and parents, or in the event of a natural disaster or fire, in the amount of five minimum monthly salary payments (LTL 4,000 or €1,158)
- Reimbursement of business travel expenses in the amount specified under the laws or government resolutions
- Payments for the training and requalification of employees
- Allowances for illness compensated by the Lithuanian employer for the first two days of illness
- Directors’ fees received by board members Self-employed individuals and individuals that register an individual activity in Lithuania, sportspersons, performing artists, individuals working under copyright agreements and farmers must pay social security contributions that vary depending on the amount of income received.
Health insurance. Health insurance contributions are separated from social security contributions and residents’ income tax. Employers must withhold health insurance contributions at a rate of 6% from an employee’s gross salary as health insurance contributions payable by an employee and pay health insurance contributions themselves in the amount of 3% in addition to the employee’s gross salary.
Under the Law on Health Insurance, self-employed individuals and individuals that register an individual activity in Lithuania, sportspersons, performing artists, individuals working under copyright agreements and farmers are subject to compulsory health insurance contributions depending on the amount of income received (with certain exceptions). In certain cases, Lithuanian tax residents must pay 6% health insurance contributions.
Double tax relief and tax treaties
The following rules apply to the taxation of foreign-source income received by permanent Lithuanian residents:
- Income (except dividends, interest and royalties) received by a permanent Lithuanian resident and taxed in another European Union (EU) member state or another state with which Lithuania entered into a double tax treaty is exempt from tax in Lithuania.
- A permanent Lithuanian resident may reduce the Lithuanian income tax applicable to dividends, interest and royalties by the amount of income tax paid in the country where the income was sourced if the source country was an EU member state or a state with which Lithuania has entered into a double tax treaty.
- A permanent Lithuanian resident may reduce the Lithuanian income tax applicable to all types of income by the amount of income tax paid on such income in other states, except for income received from tax havens.
Lithuania has entered into double tax treaties with the following countries.
Armenia
Hungary
Portugal
Austria
Iceland
Romania
Azerbaijan
Ireland
Russian
Belarus
Israel Federation
Belgium
Italy
Serbia
Bulgaria
Kazakhstan
Singapore
Canada
Korea (South)
Slovak Republic
China
Kyrgyzstan
Slovenia
Croatia
Latvia
Spain
Czech Republic
Luxembourg
Sweden
Denmark
Macedonia
Switzerland
Estonia
Malta
Turkey
Finland
Moldova
Ukraine
France
Netherlands
United Kingdom
Georgia
Norway
United States
Germany
Poland
Uzbekistan
Greece
To learn more about the history, culture, economy and other information about Lithuania
We have been preparing US income tax returns for US Citizens and permanent residents living in Lithuania for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Lithuania and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Lithuania.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email