Income tax is payable by every resident who has received income. Residents are grouped into permanent residents and non-permanent residents. A citizen is considered to be a permanent resident of the Republic of Lithuania if he/she meets the requirements set out in the aforesaid taxation system, e. g. his/her permanent place of residence is in Lithuania, his/her personal, social or economic interests are in Lithuania, and he/she stays in Lithuania for certain periods of time.

Income received by a resident is the subject of income tax.

Income received either in Lithuania or abroad is the subject of income tax payable by a permanent resident of Lithuania.

The subject of income tax payable by a non-permanent resident of Lithuania covers:

1) income from individual activities carried out through a fixed base;

2) income received from a source in Lithuania which is not a fixed base, including:

• interest;
• income received as profit allocation;
• income pertaining to labour relations or relations equivalent in substance;
• income from sports activities;
• income from performers‘ activities;
• income received from an immovable object leased out, sold or otherwise transferred to other parties‘ ownership in Lithuania;  
• income received from a movable object registered in accordance with Lithuanian law that has been leased out, sold or otherwise transferred to other parties‘ ownership in Lithuania;
• royalties.

At present, there are two income tax rates in effect — 15% and 24%.  

The following types of income are taxed at 15%:

• income received as profit allocation;
• athletes income;
• performers income;
• royalties;
• income from creative work under authorship agreement;
• income from property lease, sale or other transfer to other parties‘ ownership;
• income received from individual activities provided that allowed deductions were not removed from this income as decided by the resident;
• pensions received in any of the ways provided for in the Republic of Lithuania Law on Supplementary Accumulation of Pensions;  
• pension contributions being repaid to a resident in accordance with the law;
• payments under life insurance contracts that fulfil conditions established by the law;
• life insurance premiums being repaid to a resident under cancelled life insurance contracts that fulfill conditions established by the law.

Other types of income (not specified by the Law on Income Tax of Individuals) are taxed at 24% (from 1 January 2008). A flat-rate income tax is payable on income received from activities carried out under a business licence, the tax rate being set by municipal councils.

The tax period for income tax coincides with the calendar year.

Procedure for the Calculation of Taxable Income. The following allowances are deducted from income for the purposes of calculation of taxable income in accordance with the law:

• income not subject to taxation;
• income received from activities carried out under a business licence;
• allowed deductions related to income from individual activities;
• acquisition price of property which is not used for individual activities and which was sold or otherwise transferred to third parties‘ ownership during the taxable period and expenses related to such sale/transfer;
• income not subject to taxation and supplemental non-taxable income;
• expenses incurred by a permanent resident of Lithuania as established by the law.

For the purposes of calculation of taxable income received by a resident from individual activities carried out through a  fixed base, non-taxable income from such activities and/or allowed deductions related to the earning of income from such activities are deducted from the resident‘s total received income.

Non-Taxable Income. The following types of income are not subject to income tax:

• benefits and compensations established by the law
• insurance indemnities meeting conditions established by the law
• pension payments and pension annuities meeting conditions established by the law
• interest meeting conditions established by the law
• income received as charity
• donations received from spouses, children or parents or donations up to the amount of LTL 7,680 per year
• income received as inheritance which is the subject of taxation in accordance with legislation governing inheritance tax
• income from sale or other transfer of property which is not related to individual activities and which meets conditions established by the law
• income from agricultural activities
• moneys awarded by the court
• student grants meeting conditions established by the law
• prizes, bonuses and lottery winnings meeting conditions established by the law
• donations received in the course of political campaigns and used in accordance with their intended purpose
• moneys received for maintenance of clergymen, assistant clergymen and service personnel from religious associations, communities and centres
• certain types of income received by seamen etc.

Non-Taxable Amount of Income. The basic non-taxable amount of income is LTL 320 per month. A non-taxable amount of income is applied, on individual basis, to Lithuanian residents of certain categories (e. g., disabled persons, workers of agricultural entities, persons raising three or more children etc). For residents raising one or more children (or adopted children) under 18 years of age including older children who study at day-time secondary schools, an additional non-taxable amount of income, which  accounts for 0.1 percent of the basic non-taxable amount of income, is applied for each child (adopted child).

Expenses Deductible from Income. A permanent resident of Lithuania may deduct the following expenses for the purposes of calculation of taxable income: life insurance premiums, contributions to pension funds, interest on housing credit (for purchase or construction of a living area), fees paid for certain types of studies, purchase of a personal computer and software (limited to one every three years), and payment for the provision of Internet access up to the amount of LTL 4,000.

The total amount deducted may not exceed 25% of the resident‘s total taxable income.

Administration. Residents’ income is categorised as Class A or Class B income according to tax payment procedures.

Class A income includes:

1) income received from a Lithuanian entity, from a foreign entity through its permanent establishment, and from a non-permanent resident of Lithuania through their fixed base excluding the set exceptions;

2) income received from a permanent resident of Lithuania pertaining to labour relations or relations equivalent in substance, from sports activities, performers‘ income, interest and royalties.

All income not categorised as Class A is considered to be Class B income.

Income tax on payments categorised as Class A must be calculated, deducted and paid to the state budget by the persons responsible for the payment of income. Income tax on payments categorised as Class B must be calculated, declared and paid by the Lithuanian resident himself/herself or a person authorised by him/her.

Permanent residents of Lithuania — for whom filing of an annual income tax return is obligatory — must pay any resulting difference between  the tax amount calculated in the return, and the tax amount actually paid, by 1 May of the calendar year following the relevant tax period.

The Law on Income Tax of Individuals was adopted on 2 July and came into effect on 1 January 2003. This Law has replaced the Republic of Lithuania Temporary Law on Income Tax of Natural Persons which had been in effect since 1990.   

Information from the website www.finmin.lt of The Ministry of Finance of the Republic of Lithuania.