Lithuania signs double taxation treaties with countries in target territories list: UAE, Cyprus, Morocco, Kuwait, Turkmenistan
On April 2014 Lithuanian president passed decree‘s which enacted 5 Treaty‘s on avoidance of double taxation signed between Republic of Lithuania and United Arab Emirates, Republic of Cyprus, Kingdom of Morocco, State of Kuwait and Turkmenistan.
Taxation method
All treaties are drafted under OECD and UN model treaties, and establish credit method for avoidance of double taxation. In general treaties provide for taxation in country of one’s residence and refrain from taxation on source, except when income gained via permanent establishment, fixed base, as well as income from capital gains and immovable property.
Residence and profit taxation
Treaties establish that company profits gained in Lithuania by foreign entity are taxed only in the country of residence of such entity, except for cases when entity is having a permanent establishment in Lithuania i.e. place of management, branch, an office, factory, workshop or place of extraction of natural resources. In later case profit attributable to such permanent establishment may be taxed at source country (Lithuania).
Taxation of professional’s income
Income derived in Lithuania from professional activity carried by foreign natural persons (lawyers, doctors, accountants etc.) shall be taxed only in the country of residence, except for cases when person pursues professional activity being physically present in Lithuania for more than 183 days during consecutive 12 month period. In this case income attributable to such fixed base may be taxed at source.
All other income expressively not mentioned in treaties shall be taxed in country of residence save that entity does not have permanent establishment or fixed base in Lithuania.
Taxation of dividends
Dividends paid out to foreign entity may be taxed in the country of residence of receiving entity or country of residence of paying entity. In later case withhold taxes apply if receiving entity does not have permanent establishment /fixed base in country that pays dividends. If it does have, and such permanent establishment /fixed base participates in control of dividend paying entity, dividends are taxed under above mentioned rules on profit/income taxation.
WITHHOLD TAXES
(if income is chosen to be taxed in source country).
|
|
Royalties |
Dividends (company owns 10 % or more share capital) |
Dividends (company owns less than 10 % share capital) |
Interest |
|
United Arab Emirates |
5 % |
0 % |
5 % |
N/A |
|
Cyprus |
5 % |
0 % |
5 % |
N/A |
|
Morocco |
10% |
5 % |
10% |
10% |
|
Kuwait |
10 % |
5 % |
15 % |
10% |
|
|
Royalties |
Dividends (company owns 25 % or more share capital) |
Dividends (company owns less than 25 % share capital) |
Interest |
|
Turkmenistan |
10% |
5 % |
10% |
10% |
Withhold taxes for dividends are not applicable to partnerships.
United Arab Emirates and Kuwait are still in Lithuania’s target territories list, however recent tax developments shall trigger the change of list, thus eliminating administrative and compliance burdens UAE and Kuwait investors face today.
Andrius Apanavičius, lawyer of the Gencs Valters Law Firm in Vilnius.
Practising in fields of Double taxation treaties and Royalty taxation in Latvia, Lithuania and Estonia
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