Personal Income Tax

Income tax shall be paid by an individual who has received income. Individuals shall be divided into residents or non-residents of Lithuania. An individual is deemed to be a resident of Lithuania, if he satisfies the requirements set in the Republic of Lithuania Law on Personal Income Tax, e.g. his permanent place of residence is in Lithuania, his place of personal, social or economic interests is in Lithuania, he/she is present in Lithuania for a certain period of time.

The object of the income tax shall be income of individuals.

The object of the income tax of residents of Lithuania shall be income sourced in and outside Lithuania.

The object of the income tax of non-residents of Lithuania shall be:

• income from individual activities carried out through a fixed base;
• income sourced in Lithuania and received otherwise than through a fixed base:
• interest, except for interest on Government non-equity securities;
• income from distributed profits and annual bonuses to the Board and Supervisory Board members;
• income incidental to employment relations or relations in their essence corresponding to employment relations;
• income from sports activities;
• income from performing activities;
• income from rent, sale or other transfer into ownership of immovable property located in Lithuania;
• income from sale or other transfer into ownership of movable property where such type of property is subject to legal registration under legal acts of the Republic of Lithuania;
• royalties;
• compensations for copyright or related rights infringement.

From 1 January 2021 a 20 % income tax rate shall be applied to income incidental to employment relations or relations in their essence corresponding to employment relations, bonuses, income received from the employer under copyright agreement and income of small community leaders, when the annual share of such income is below the amount of 60 average national wages (AW) used to calculate the state social insurance contribution base for 2021 of the insured persons. The annual share of income exceeding the amount of 60 AW shall be subject to a 32 % rate.

A 15% income tax rate shall be applied to sickness, maternity, paternity, childcare and long-term employment allowances, also to dividends.

Income not incidental to employment relations (except for income from individual activities, income from distributed profits, bonuses and etc.) not exceeding 120 AW shall be subject to a 15 % income tax rate and exceeding 120 AW – to a 20 % income tax rate.

Income from individual activities, regardless of the type of activities, shall be subject to a 15 % income tax rate. The final payable income tax rate shall be set by applying the tax credit amount following the procedure established by the Law.

Income from non-individual activities received from sale or other transfer into ownership of waste specified in the Republic of Lithuania Law on Waste Management shall be subject to a 5 % income tax rate, if total share of received income, not incidental to employment relations, does not exceed 120 AW, and to a 20 % income tax rate, if such income exceeds 120 AW. 

Income from activities exercised under a business certificate shall be subject to a fixed rate income tax set by municipal councils.

The income tax period shall be a calendar year.

Procedure for the Calculation of Taxable Income

For the purpose of calculating taxable income, the following shall be deducted from income in accordance with the procedure laid down in this Law:

• non-taxable income;
• income from activities exercised under a business certificate;
• allowable deductions related to income derived or generated from individual activities;
• the acquisition price of property other than that used for the purpose of individual activities and of item immovable by nature attributed to the property used for the purpose of individual activities, which was sold or otherwise transferred into ownership during the tax period, as well as expenses incurred by sale or other transfer into ownership of the said property or item;
• tax-exempt amount of income (only income incidental to employment relations or relations in their essence corresponding to employment relations and only during a tax period);
• expenses incurred by a resident of Lithuania set in the Law (for the purpose of calculating taxable income subject to income tax rates of 15 %, 20 % or 32 % and 15 % or 20 %).

For the purpose of calculating taxable income received by a non-resident of Lithuania from individual activities carried out through a fixed base, non-taxable income from individual activities carried out through a fixed base and/or allowable deductions related to such income derived or generated from individual activities carried out through that fixed base shall be deducted from total income received or generated through a fixed base.

Non-Taxable Income

Non-taxable income shall include the following:

• allowances and compensations set in the Law;
• insurance benefits satisfying the conditions established in the Law;
• pensions and annuity payments satisfying the conditions established in the Law;
• interest satisfying the conditions established in the Law;
• income received as charity;
• gifts received from spouses, children, parents, brothers, sisters, grandchildren and grandparents; gifts from other individuals not exceeding EUR 2,500 per year;
• gifts and awards received from a person connected with an individual by employment relations not exceeding EUR 200 per year and rail or road transport tickets paid by the employer for an individual to arrive at/ departure from the place of work ;
• income received by way of inheritance, which is subject to tax under legal acts regulating the inheritance tax;
• income received from sale or other transfer into ownership of property other than that used for the purpose of individual activities in accordance with the conditions established in the Law;
• income received from agricultural activities in accordance with the conditions laid down in the Law;
• amounts awarded by court;
• scholarships satisfying the conditions laid down in the Law;
• prizes, premiums and lottery winnings satisfying the conditions laid down in the Law;
• donations and gifts received during a political campaign and used for their intended purpose;
• income received by the clergy, servers at religious ceremonies and service staff from religious communities and centres as maintenance;
• income received as reward for services supplied under service vouchers in accordance with the conditions established in the Law;
• certain items of income received by seafarers and etc.;
• non-taxable income rate.

In 2021 the annual tax-exempt amount of income (hereinafter − ANTEA) shall be EUR 4,800 (EUR 400 per month), if annual income of an individual does not exceed the amount of twelve minimum monthly wages valid on 1 January of the current calendar year. If income of an individual is higher, he is subject to ANTEA calculated by the following formula: ANTEA = 4,800 – 0.18 x (annual income of an individual – twelve minimum monthly wages valid on 1 January of the current calendar year).

TEA shall be applied only to income incidental to employment relations or relations in their essence corresponding to employment relations. Monthly TEA applied over the tax period shall be calculated considering only basic salary, supplements and allowances by the following formula: monthly TEA = 400 – 0.18 x (annual income incidental to employment relations or relations in their essence corresponding to employment relations of an individual – one minimum monthly wage  valid on 1 January of the current calendar year).

Following the end of the tax period, TEA applicable to an individual shall be recalculated considering also other taxable income received over the year (a 15 % income tax rate shall be applied to income from individual activities, income from transfer of assets of non-individual activities, income from distributed profits, royalties, pensions and etc.) and too small amount of tax withheld due to applied excessively high TEA during the tax period shall be refunded.

Deductible Expenses

When calculating taxable income, a permanent resident of Lithuania may deduct from his income the following incurred expenses: life insurance premiums, contributions to pension funds, interest paid on one credit taken before 1 January 2009 to build or acquire one housing, amounts paid for higher education or vocational study. When declaring personal income, a resident of Lithuania may deduct from income the amounts paid for car repair services supplied for his own benefit or for the benefit of his spouse, finishing and repair work of buildings and constructions, and care (nursing) services for minor children under the age of 18, as well as for contributions to pension funds paid as additional cumulative pension contributions and which exceed 3 % of personal income from which the state social insurance contributions are calculated.
Total amount of deducted expenses shall not exceed 25 % of total amount of taxable income of a resident subject to an income tax rate of 15 %, 20 % or 32 % and 15 % or 20 %. Total annual amount deducted for life insurance premiums and contributions to pension funds may not exceed EUR 1,500, and the amount for repair work of buildings, cars and nursing services – EUR 2,000.

Administration

According to the tax payment procedure, personal income shall be divided into two classes: A and B.

Income of A class shall comprise:

• income received from a Lithuanian taxable entity, foreign taxable entity through its fixed base and from a non-resident of Lithuania through his fixed base, subject to the exceptions specified;
• income received from a resident of Lithuania which is incidental to employment relations or relations in their essence corresponding to employment relations, income from sports activities, income from performing activities, interest and royalties, income from individual and  non-individual activities received from a resident of Lithuania engaged in individual base metal scrap business for sold or otherwise transferred into ownership base metal scrap, as well as income from rent of items immovable by nature received from a resident of Lithuania engaged in individual activities, except for income from which a fixed income tax rate is paid.

Income of B class shall include all income, which is not attributed to A class.

The income tax on benefits attributed to A class income must be calculated, withheld and paid to the budget by individuals paying this income. The income tax on income attributed to B class income shall be declared, calculated and paid by a resident of Lithuania himself or his authorised person.

A resident of Lithuania who has an obligation to file the annual income tax return must pay to the State budget the difference between the amount of income tax calculated in the return and actually paid amount of income tax by 1 May of the calendar year following this tax period.

The Law on Personal Income Tax  was adopted on 2 July 2002 and came into effect on 1 January 2003. This Law substituted the Republic of Lithuania Law on Income Tax of Natural Persons valid since 1990.