As Lithuania is a member of the EU and the Schengen area, it offers advantageous tax regulations and financial incentives for foreign nationals who work or conduct business here. However, non-residents who conduct business activity in Lithuania may be subject to different taxation requirements and deadlines to those who are classified as residents. The taxation system for non-residents does involve multiple exceptions and may seem rather complex to navigate at first, but understanding it can bring significant gains and even help avoid double taxation to those who receive their income from multiple countries.
WHO IS CLASSIFIED AS A NON-RESIDENT?
An individual is generally classified as a Lithuanian tax non-resident if they do not meet any of the statutory criteria for Lithuanian tax residence. These criteria include having a permanent place of residence in Lithuania, maintaining stronger personal, social or economic interests in Lithuania than abroad, spending at least 183 days in Lithuania during a tax year, or spending at least 280 days in Lithuania over two consecutive tax years while being present for at least 90 days in one of those years. Additional statutory exceptions and the residence tie-breaker provisions of applicable double taxation agreements may affect the final determination.
- Maintain a stable address of residence only in a foreign country throughout the entire calendar year
- Maintain greater personal, social and economic interests in a foreign country (compared to Lithuania) throughout the entire calendar year
- Generally, an individual may become a Lithuanian tax resident if they spend at least 183 days in Lithuania during a tax year or at least 280 days over two consecutive tax years, including at least 90 days in either year. The calculation of days spent in Lithuania is governed by statutory rules and exceptions. Travelling, holidays and other temporary absences do not automatically reduce the number of days counted for tax residence purposes. An individual may also qualify as a Lithuanian tax resident without meeting these day-count thresholds if other statutory residence criteria are satisfied.
Exception
Lithuanian tax legislation provides specific exceptions to the general physical presence criteria for certain foreign nationals. Depending on the circumstances, individuals who spend 183 days or more in Lithuania may still qualify as tax non-residents where they meet the relevant statutory conditions, including certain employment, diplomatic or other qualifying situations. These exceptions are not automatic and must be assessed individually. Where an individual is considered a tax resident of both Lithuania and another country, the applicable double taxation agreement may determine their treaty residence.
- They utilize a permanent business establishment in Lithuania solely to conduct individual business-related activity
- Employment income is not automatically treated as foreign-source income merely because it is paid by a foreign employer or transferred from a foreign bank account. For Lithuanian Personal Income Tax purposes, the location where employment duties are physically performed, the individual’s tax residence and the applicable double taxation agreement are relevant. Employment performed in Lithuania may generate Lithuanian-source income even where remuneration is paid by a foreign company. Any exception to Lithuanian tax residence or taxation must satisfy the specific statutory or treaty requirements.
- They are employed at a diplomatic organization or consulate of a foreign country, or work at a sub-branch of an international organization.
INCOME TAX DECLARATION FOR NON-RESIDENTS
Non-residents who receive taxable income from individual business-related activity conducted through a base located in Lithuania must declare their income before May 1st of the following year.
Lithuanian tax non-residents are not universally required to submit an annual Personal Income Tax return for all Lithuanian-source income. Filing obligations depend on the type of income, whether the tax was withheld at source, its classification as Class A or Class B income, and whether an annual recalculation or tax relief claim is required. Certain taxable Class B income must be declared using the applicable declaration within 25 days of receipt, while specific categories of income are subject to annual reporting. Where an annual return is required, the statutory deadline is generally 1 May of the following year, subject to applicable deadline adjustments.
This regulation affects the following sources of income:
- Work-related income sourced in Lithuania that is subject to tax-free allowance
- Certain qualifying interest income received by Lithuanian tax non-residents may benefit from an annual EUR 500 exemption under the conditions established by Lithuanian Personal Income Tax legislation. The exemption does not automatically apply to every type of interest income or financial instrument. The tax treatment depends on the nature and source of the interest, the applicable statutory exemptions and any relevant double taxation agreement.
- Profit related to real estate sales
Exception
- Lithuanian tax non-residents receiving taxable Class B income may be required to declare the relevant income and pay Personal Income Tax within 25 days of receipt, using the applicable declaration procedure. However, the 25-day deadline does not apply universally to every category of Class B income. Income from individual activities carried out through a fixed base in Lithuania and certain other income categories may be subject to annual declaration requirements. The applicable filing procedure must be determined according to the type and classification of income.
The classification of income received by Lithuanian tax non-residents as Class A or Class B depends on the type of income, the payer’s status and the applicable provisions of the Lithuanian Law on Personal Income Tax. Class B income may include certain income from individual activities carried out through a fixed base in Lithuania, specified gambling winnings and other Lithuanian-source income for which the recipient is responsible for declaring and paying the tax. Income from the sale of financial instruments is not automatically taxable in Lithuania merely because the recipient is a non-resident. The applicable tax treatment must be determined separately for each income category, taking into account domestic legislation and relevant double taxation agreements.
AVOIDING DOUBLE TAXATION
Lithuania has concluded double taxation agreements with numerous jurisdictions to allocate taxing rights and reduce the risk of international double taxation. Each agreement is a separate bilateral treaty, and its provisions may differ depending on the contracting country, the type of income and the taxpayer’s residence status. Tax treaty relief may take the form of reduced withholding tax rates, exemptions or foreign tax credits, subject to applicable conditions. The number of treaties in force should be verified against the current official list maintained by the Lithuanian State Tax Inspectorate (VMI). Double taxation agreements allocate taxing rights between the contracting states and establish mechanisms for eliminating double taxation. Depending on the applicable treaty and domestic legislation, relief may be granted through a foreign tax credit, exemption or reduced withholding tax rate. A foreign tax credit is not automatically available for every tax paid abroad, and the amount of credit may be limited to the tax attributable to the relevant foreign income. Taxpayers must satisfy the applicable residence, documentation and beneficial ownership requirements to claim treaty benefits.
In cases where income is sourced in countries and territories that are not part of the double tax treaty, full taxation duties in multiple countries can still be reduced. However, the means of achieving this objective are very case specific and have to be studied on an individual basis.
Competent specialists at Company in Lithuania UAB are ready to provide valuable legal guidance and international tax advice specific to your case. Please kontaktai to learn how we can help you start and conduct business or other professional activity in Lithuania with confidence.
