Lithuania tax system - taxation of Lithuanian companies and individuals: VAT, income tax and capital gains. Tax treaties of Lithuania.

Personal income tax applies at a 20% rate to income not exceeding EUR 114 162 for a calendar year in 2024, and at a 32% rate to the part of income exceeding this threshold.

Income from profit distribution (for example, dividends) is subject to a fixed 15% personal income tax rate.

The standard profit tax rate is 15%. However, small companies and agricultural companies may apply a reduced income tax rate of 0% or 5% if certain conditions are met.

In Lithuania, value added tax (VAT) applies to supplies of goods and services for remuneration in Lithuania done by a tax payer conducting economic activity.

The standard VAT rate is 21%. In some cases, reduced rates of 9%, 5% and 0% apply.

Normally, income of a foreign legal entity in Lithuania received not through a permanent establishment is considered to be income from a source in Lithuania and is subject to withholding tax at the following rates:

• interests on any type of debt obligations, including securities, – 10%;
• income from sale, transfer (with ownership right) or lease of real estate located in Lithuania – 15%;
• income from distributed profit – 15%;
• royalties – 10%;
• annual payments (bonuses) to members of the board or supervisory board – 15%.

The real estate tax rate varies between 0.5% and 3%. The tax shall be paid by owners of real estate (i.e. individuals and legal entities of Lithuania and foreign countries). Every year municipal councils set a special tax rate for real estate located in their territory.

Stamp duties do not apply in Lithuania. However, insignificant fees may be charged for services of state institutions, such as issue of legally binding documents and other deeds (for example, notarial fees apply to share purchase agreements that meet certain criteria).

Employer in Lithuania pays and withholds from employees the following social contributions:

• social security contributions of 1.45% to 2.71% (for fixed-term employment contracts – 2.17% to 3.43%) shall be paid by the employer (no threshold applies);
• social insurance contributions of 19.5% (including medical insurance contributions of 6.98%) are withheld from employees’ income for the calendar year (not more than EUR 114 162).

Employers (with some exceptions) also pay an additional contribution to the Guarantee Fund amounting to 0.16% and to the Long-term Employment Fund amounting to 0.16% on employee remuneration.

An enterprise is considered a controlled foreign company (CFC) if over 50% of its voting rights or shares are directly or indirectly held by a Lithuanian enterprise.

Positive income of a CFC, i.e. its income not received from operations (including interests, royalties, leasing, dividends, etc.) is included in taxable income of the controlling Lithuanian company if:

• the CFC is incorporated or organized in a country included in the black list;
• passive income of the CFC exceeds 1/3 of the aggregate taxable income; and
• effective profit tax of the CFC in the country of its location is under 50% of the actual profit tax that will be calculated on the income of that CFC based on provisions of law of Lithuania.

A Lithuanian company may decrease tax payable in Lithuania by the amount of tax paid in a foreign country on the positive income of a CFC included in the tax base of that Lithuanian company.

All related party transactions must be made according to the arm’s length principle. Tax authorities has the right to adjust transaction prices if they are not in line with market prices.

Lithuanian rules refer to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations to the extent that provisions of the Guidelines do not contradict national regulations.

Lithuania has concluded 59 Double Tax Convention / DTCs with the following jurisdictions:

59 DTCs: Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Great Britain and Northern Ireland, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Kazakhstan, Korea, Kosovo, Kuwait, Kyrgyzstan, Latvia, Liechtenstein, Luxembourg, Macedonia, Malta, Mexico, Moldova, Morocco, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United States of America, Uzbekistan.

In addition, Lithuania signed and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The Multilateral Convention entered into force for Lithuania on January 1, 2019.

There are no currency controls in Lithuania.