Expatriate Salary Taxation in Lithuania
One of the goals of State Inspection in Lithuania recently was to implement the new legal framework for the taxation of expatriates in Lithuania. So far tax law commentaries did not precise the applicability of personal income tax to persons working outside Lithuania, however having the labour relations in Lithuania.
State Tax Inspection under the Ministry of Finance in Lithuania issued letter Reg. No. (18.18-31-1)-R-3512 as of 2011 05 08 which details the taxation of persons residing and working outside Lithuania when holding Lithuanian labour agreement.
According to the Law on Income Tax (Official Gazette, 2002, no. 73-3085; further - PIT), the work-related income tax depends on whether the beneficiary is a resident in Lithuania, temporary resident or permanent Lithuanian resident.
According to general practice, annual tax declaration is due in Lithuania for residents as well as non-residents if the source of income is in Lithuania. Therefore the PIT is at 15% tax rate.
Further to this, the person may become resident by staying 183 or more days in Lithuania during the calendar year or during the 2 calendar years stays more than 280 days in Lithuania. Additionally to this, in case the person does not satisfy the above criteria, he/she may be recognized as Lithuanian resident if he/she has Residence/Domicile in Lithuania or Social and Economic interest is in Lithuania (social and economic interests are considered, as for instance family living place, children domicile, bank accounts, ownership of immovable property in Lithuania, liabilities (as for instance loans from Lithuanian banks) etc.
The object of non-resident income tax in Lithuania is labour relations or relations of similar nature relating to income received for work in Lithuania.
Lithuanian company paying salary to its employee, who may be non-Lithuanian resident, working in a foreign country, is not considered as the object of income received in Lithuania and therefore is not taxed in Lithuania: the PIT rate of 15% will not be applied in Lithuania.
Lithuanian company under the provisions of the PIT does not withhold personal income tax. However this company must have a document which could determine that employee is non-Lithuanian resident (e.g., identity document, a copy of a certificate of residence abroad, etc.) and that the work is completed outside Lithuanian territory (e.g., employment contract, which states that an employee working in a foreign country).
Lithuanian company is however liable for completing the tax declarations as to PIT requirements law even though if it is not subject to personal income tax. This income will be attributed to the Class A income and income tax return form FR0573 must also be completed (approved by the State Tax Inspectorate under the Republic of Lithuania, the Ministry of Finance in July 2004 to26.Nr.VAOrder-145).
Tax Attorney & Founding Partner
Gencs Valters Law Firm, Riga
T: +371 67 24 00 90