Lithuania

Taxable period

The tax year in Lithuania is a calendar year.

Tax returns

Under the tax payment procedure, an individual’s income (including income that is non-taxable) is divided into two classes, Class A (where the tax is calculated and withheld by the person making the payment, e.g. the employer) and Class B (where tax is paid personally by an individual filing a personal tax return).

Class A income includes the following income received from a Lithuanian entity, a foreign entity through its permanent establishment (PE), or a non-resident of Lithuania through one’s permanent base:

• Employment-related income.
• Income from sports and performing activities.
• Proceeds from the sale or other transfer with title of movable property if that property is subject to legal registration in Lithuania and is (or must be) registered in Lithuania or immovable property located in Lithuania, when such income is received by a non-resident of Lithuania.
• Interest income received by a Lithuanian tax non-resident.

Class A income also includes the following income received from a resident of Lithuania:

• Employment-related income.
• Income from sports and performing activities.
• Immovable property rental income received from a Lithuanian tax resident performing individual activities (except for income received under business certificate).
• Interest income.
• Royalties.

Class B income includes the following income:

• Gambling and lottery winnings.
• Income from individual activities (with certain exceptions).
• Income from the sale or other transfer of financial instruments.
• All other income not attributable to Class A.

Monthly returns of income tax withheld from Class A income (including Class B income, on which PIT was incorrectly withheld/paid) must be filed by employers on or before the 15th day of the next month. The summarised annual report on income tax withheld from Class A income must be submitted on or before the 15th day of the second month of the following tax period (i.e. 15 February).

A Lithuanian entity, a foreign entity through its PE, or a non-resident of Lithuania through their permanent base that has paid out Class B income must submit the annual statement on Class B income paid out on or before 15 February of the next calendar year.

At the close of the tax period, a resident of Lithuania who, during the tax period, derived income that, subject to the tax payment procedure, is attributable to both Class A and Class B income is obligated to submit an annual income tax return to the tax administrator on or before 1 May of the following year and declare therein total income derived during the previous tax period and the amount of income tax computed thereon.

Individuals who do not wish to take advantage of the allowable deductions or who received only Class A income (when income tax is correctly withheld and paid to the state budget by the companies paying this income to the individuals) and whose tax exempt amount does not have to be recalculated, as well as if the higher PIT rate should not apply, may choose not to file an annual income return.

When an individual becomes a Lithuanian tax resident due to more than 280 days spent in Lithuania in two successive tax periods, the tax return and tax payment for the first period are due by 31 December of the second year.

Lithuanian tax non-residents are obligated to file tax returns on a monthly basis and pay PIT within 25 days from the receipt of income derived under employment contracts from foreign entities not having their PEs in Lithuania and non-residents of Lithuania not having their fixed bases. Individuals have an obligation to file the annual non-resident’s tax return if the higher PIT rate should be applied to the Lithuanian-source income amounts exceeding the established thresholds. Such annual tax return submission deadline is 1 May of the following year.

Payment of tax

Income tax withheld by employers must be paid to the state budget on or before the 15th day of the respective month (if a portion of income has been paid out on or before the 15th day of that month) or on or before the last day of the respective month (if the last portion of income has been paid on or before the last day of that month).

Lithuanian tax residents filing their annual income tax returns have to pay the related PIT on or before 1 May.

Lithuanian tax non-residents who file tax returns on a monthly basis have to pay PIT within 25 days from the receipt of income that is reported. In case an individual should pay the additional PIT amount due to the fact that income amounts exceed the established thresholds, PIT should be paid by 1 May of the following year.

Tax audit process

Generally, the Lithuanian tax system for individuals is based on self-assessment; however, the tax authorities can undertake special activities to ensure that individual taxpayers meet their tax obligations. Such activities can be of various forms, including general reviews of submitted individual tax returns, sending reminders for income reporting/tax payment due to income related information received from third parties (e.g. companies that made payments to individual taxpayers, foreign tax administrators), questionnaires for specific areas (e.g. for self-employed individuals), initiating the reviews of specific issues, and tax audits.

Statute of limitations

The statute of limitations in Lithuania is the current and five previous tax periods for PIT (except for individuals performing registered individual activities, to whom a three-year open period applies) and the current and three previous tax years for social security contributions. However, the statute of limitations may be extended if a criminal case has been initiated against the taxpayer and it requires determining the damage caused to the state. 

Topics of focus for tax authorities

Topics of focus for the tax authorities include:

• Income re-classification issues in order to reach more favourable taxation (e.g. employment income is replaced by income from individual activities, employers pay a part of salary in different forms of remuneration [e.g. car rental income]).
• Non-taxable employers' benefits to employees (e.g. employee events, contributions to life insurance companies).
• Unreported foreign income. 
• Tax avoidance cases in general.

Moreover, the PE investigation is a 'hot topic' of the Lithuanian tax authorities, which may result in individual taxation-related issues.