This country-specific Q&A provides an overview of Private Client laws and regulations applicable in Lithuania.
Which factors bring an individual within the scope of tax on income and capital gains?
Lithuanian personal income tax system (which includes also taxation of capital gains) is based on division of taxpayers into residents and non-residents. Residents are taxed on their worldwide income and capital gains, while non-residents only on Lithuanian sourced income (such as Lithuanian sources salaries, dividends, interest, royalties, Lithuanian real estate rental income etc.) and capital gains from the disposal of immovable property located in Lithuania.
Main factors subjecting an individual to an unlimited (world-wide) taxation in Lithuania are:
place of permanent residence;
center of personal, economic and social interests;
time physically spent in Lithuania (at least 183 days per calendar year or at least 280 days per two subsequent years with at least 90 days in one of them).
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
Lithuanian tax resident individuals are subjected to different taxes and tax rates, depending on the nature of income received:
Employment income and other similar income (director’s fees, remuneration for board memberships etc.): personal income tax at the rates of 20 perc. and 32 perc. (on the part of the annual amount exceeding 60 average monthly salaries); mandatory health insurance contributions at a rate of 6,89 perc; basic rate for social security contributions is 12,52 perc. (ultimate rate varies depending on participation in second pillar pension scheme). Foreigners working on the basis of employment visas are exempt from mandatory health insurance contributions.
Self-employment income: personal income tax at a rate of 15 perc.; mandatory health insurance contributions at a rate of 6,89 perc; basic rate for social security contributions is 12,52 perc. (ultimate rate varies depending on participation in second pillar pension scheme)
Dividends: personal income tax at a rate of 15 perc.
Other income of passive origin, including interest, capital gains, rental income, investment income, gifts: personal income tax rates of 15 perc. and 20 perc. (on the part of the annual total amount of the income of this category exceeding 120 average monthly salaries)
Personal income tax year in Lithuania for natural persons is calendar year. Tax returns for the year ended must be submitted by the 1st of May of the following year. Personal income tax, mandatory health insurance and social security contributions from employment income are subject to taxation on a withholding basis, taxes and contributions deducted and paid to the authorities by the employer. Certain other income of both residents (for e. g. dividends, rental income) and non-residents (for e. g. dividends, interest, income from sale of real estate in Lithuania) are subjected to personal income tax on a withholding basis.
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
In Lithuania income of private individuals for PIT purposes is classified into to two categories – A and B. This classification determines whether the payer of such income is obliged to withhold and pay PIT in Lithuania on behalf of individuals who are Lithuanian tax residents or not:
category income – a Lithuanian entity is obliged to withhold and pay PIT on behalf of an individual. Income recognized as A category income are: income from employment or from similar relations that are essentially compatible with employment relations; dividends of limited liability companies; income from sports activities and artist activities; income from the sale or of standing timber, roundwood, waste and other types of income that are not explicitly recognized as type B income.
category income – a Lithuanian entity is not obliged to withhold and pay PIT on behalf of an individual (only report such income was paid out). B category income are: income from the sale of derivative financial instruments and other assets including other types of financial instruments; income from gambling and lottery winnings; income of a participant of an unlimited civil liability entity; income of a member of a small partnership; income received as remuneration for the provision of services under the service receipt, when the provision of these services is established by the Law on the Provision of Agricultural and Forestry Services under the Service Receipt; income from individual business activities; income from the sale of immovable property classified as related to individual business activities, as well as interest received by a permanent resident of Lithuania (Art. 22 of the Law on PIT).
Withholding regime applies at a lover personal income tax rate applicable on the respective income: 20 perc. from employment income, 15 perc. on dividends, 15 perc. on interest, rental and other income.
Non-resident individuals are subjected to personal income tax on withholding basis in respect of Lithuanian origin employment income, director’s fees, dividends, interest, sale or lease of real estate located in Lithuania, income of sportsmen and artist, royalties.
How does the jurisdiction approach the elimination of double taxation for individuals who would otherwise be taxed in the jurisdiction and in another jurisdiction?
If taxation in Lithuania is applied on a source basis (i. e. on income sourced in Lithuania), no mechanism for elimination of double taxation applies. In cases where Lithuania is taxing on a residence basis, double taxation is eliminated either by application of a tax credit (equal to the tax paid abroad, but not exceeding tax that is due in Lithuania on the same income), or an exemption method, applied on all the income, excluding dividends, interest and royalties) already taxed in a DTA country.
Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting has been signed, ratified and entered into force in Lithuania from 1st of January 2019.
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
No wealth tax is applied in Lithuania.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
Gifts in Lithuania are subjected to personal income tax in the hands of the recipient. Gifts from spouses, children, parents, brothers/sisters, grandparents or grandchildren are tax exempt. Annual amount of 2500 EUR of gifts received from other individuals is also tax exempt.
Lithuanian inheritance tax applies to the recipient of the assets. Object of the tax for Lithuanian residents – their worldwide inheritances. Object of non-residents – inherited real estate assets located in Lithuania as well as movable property if such property is subject to registration in Lithuania. Inheritances from spouses, children, parents, brothers/sisters, grandparents, grandchildren are tax exempt. Inheritances are taxed on the 70 perc. of the assessed value of the inherited assets subjected to inheritance tax, minus first EUR 3000. Tax rate of 5 perc applies if the total taxable value does not exceed EUR 150 000. Otherwise, tax rate of 10 perc. applies.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (eg business or agricultural assets), and how do any such reliefs apply?
Yes, gifts received from the spouse are exempt from personal income tax.
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
Sponsorship / gifts to charitable institutions do not trigger tax implications neither for the donor, nor (usually) for the recipient.
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Real estate tax in Lithuania applies irrespective of the residence of the owner. Residential and agricultural real estate is tax at progressive rates: first EUR 150 000 are tax exempt; 0,5 perc. on the value not exceeding EUR 300 000; 1 perc. on the part of the value between EUR 300 000 and EUR 500 000; and 2 perc. on the part of the value exceeding EUR 500 000. Tax for the year on such properties is to be paid till 15th of December each year.
Commercial and industrial real estate is taxed rates set by the municipalities, within a range from 0,5 perc. to 3 perc. Tax for the year is due by 15th of February of the following year (legal persons must pay quarterly advance instalments)
Most of the properties are subject to mass valuation initiated by the government every five years. Requirement for the value renewal every 5 years applies also for non-mass valued properties. Individual valuations are possible if individually assessed value deviates from the mass valuation at least by 20 perc.
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
Separate land tax may be mentioned. Tax is calculated (and tax returns prepared) by the tax authorities on the basis of assessed value of the land (usually much lower than the market value) at tax rates pre-determined by the municipalities in the range between 0,01 and 4 perc. tax is due by 15th of November each year.
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
Lithuania does not operate any special tax regimes.
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
A person changing tax residence to Lithuania should consider structure one’s income (moment the income is deemed received) in the transitional year so to avoid potential doble taxation on a residence basis. Be sure all the procedures in the country of departure are followed. Possess evidence when the income, earned prior to establishing residence in Lithuania was earned.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
Two types of succession are possible: under the Will (testate succession) or in accordance with the law (intestate succession).
If a person dies intestate, Lithuanian civil code pre-sets certain order of priority of succession. First in line to inherit are the children of the deceased, second in line – his or her parents and grandchildren, third in line – grandparents and great grandchildren, fourth in line –siblings and great grandparents, fifth in line – nephews, nieces, uncles and aunts, sixth in line – first cousins. Relatives of the deceased belonging to a particular line of inheritance may inherit only of there are no relatives (or they have waived their right to inherit) belonging to the line of inheritance above them (for example, the deceased’s grandchildren and parents stand to inherit only if he or she has no children).
If the deceased was married, the intestate succession rules grant his or her spouse certain priority rights over other relatives. If the spouse inherits together with the relatives belonging to the first line of inheritance and there are less than three relatives belonging to the first line of inheritance, the spouse inherits 25% of the entire estate. If there are more than three relatives belonging to the first line of inheritance, the spouse and those relatives share the estate in equal shares. If the spouse inherits together with the relatives belonging to the second line of inheritance, the spouse inherits 50% of the entire estate. If there are no relatives belonging to the first and second line of inheritance, the spouse inherits the entire estate.
If a person died with a valid Will in place, the succession takes place in accordance with the rules set forth in the Will. Subject to forced heirship rules, the testator may distribute his or her estate to any person he or she wishes or take away a right to inherit under intestate rules from any of his or her relatives who otherwise would have had a right to inherit under intestate succession rules. If the Will governs succession of only part of the estate, any remaining assets are inherited in accordance with the intestate succession rules. Testator may appoint an executor of the last will whose main function is to locate the beneficiaries named in the last will and administer the estate until it is assigned to the beneficiaries. The Will may prescribe additional functions to the executor.
Lithuanian succession law has forced heirship rules. According to these rules, if testator’s surviving spouse, children or parents at the time of testator’s death are in need of financial support, they are entitled to a forced share of testator’s assets which is equal to 50% of the share that the specific forced heir would have otherwise been entitled to inherit if the testator had died intestate. Need of financial support is not presumed and must always be proved in court by the person claiming the forced share. Minor children and surviving spouses with no alternative sources of income (e.g., due to illness or other objective circumstances) are usually successful in claiming the forced share.
The general rule under Lithuanian succession law is that the entire estate is inherited by the legal heirs and/or beneficiaries under the Will directly and unconditionally, i.e., all assets of the deceased are inherited together with all his or her liabilities (pursuant to the so-called principle of universal succession). This means that legal heirs and/or beneficiaries have a duty to discharge the debts of the estate. As an alternative to universal succession, legal heirs and/or beneficiaries have a right to opt for a conditional inheritance up to the value of the deceased’s net assets only. In such a case, upon request of the legal heir and/or beneficiary under the Will, a procedure similar to wind up of the estate known in other jurisdictions can be initiated during which debts and obligations of the deceased are discharged and only the residual net assets (if any) are distributed to the legal heirs and/or beneficiaries.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
Assets subject to matrimonial property regime usually are owned by the spouses in equal shares (certain exceptions apply, for example, if one of the spouses has improved the asset using his or her own personal funds, it may increase such spouse’s share in the asset). If one of the spouses dies, the surviving spouse’s share of such asset subject to matrimonial property regime is not included in the deceased spouse’s estate.
Lithuanian law does not establish any specific regime applicable to property acquired during civil partnership. General principles of property law apply in such case, i.e., partners may acquire assets as co-owners in which case the share of such asset belonging to one partner may not be included in the estate of the other partner and vice versa.
Lithuanian law does not foresee any situation where a rule of survivorship known in certain other jurisdictions would apply.
What factors cause the succession law of the jurisdiction to apply on the death of an individual?
The two main factors are the habitual residence of the deceased and the location of assets comprising the estate.
Lithuania has accepted and is bound by the EU Succession Regulation (EU/650/2012) (the “Regulation”), which was adopted with the aim to remove obstacles to the free movement of persons in relation to cross-border estates, to allow EU citizens to organise succession matters in advance and to effectively guarantee the rights of beneficiaries, other persons close to the deceased and creditors. The main rule under Regulation is that the law of the state (not necessarily an EU member state) in which the deceased died habitually resident applies to succession matters, unless the deceased was manifestly more closely connected with another state or had chosen to apply the law of the state of his nationality in his or her Will.
Regulation does not provide for an explicit definition of the ‘habitual residence’ of the deceased, but it provides guidance to member states on how to determine it. According to the Regulation, in order to determine the habitual residence, the authority dealing with the succession should make an overall assessment of the circumstances of the life of the deceased during the years preceding his or her death and at the time of his or her death, taking account of all relevant factual elements, in particular the duration and regularity of the deceased’s presence in the state concerned and the conditions and reasons for that presence. The habitual residence thus determined should reveal a close and stable connection with the state concerned taking into account the specific aims of the Regulation.
In cases where the Regulation does not apply, the general rule under Lithuanian private international law is that all questions of succession relating to movable assets are governed by the law of the deceased’s domicile at death and those relating to immovable assets by the law of the jurisdiction where the particular immovable asset is located. Different rules may apply under bilateral international treaties.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
In succession matters involving two or more states which have accepted and are bound by the Regulation, the guiding factor usually is the habitual residence of the deceased, unless the deceased was manifestly more closely connected with another state or had chosen to apply the law of the state of his nationality. If the deceased had its habitual residence in one of such states, was manifestly more closely connected with any such state or had chosen to apply the law of the state of his nationality, the law of one of such states will apply to all succession matters, including matters related to succession of immovable property. Renvoi is allowed only in exceptional circumstances explicitly detailed in the Regulation.
In succession matters involving a state where the Regulation is not applicable, the law applicable to succession matters is established based on the type and location of the assets comprising the estate. Succession of movable assets are governed by the law of the deceased’s domicile at death and those relating to immovable assets by the law of the jurisdiction where the asset is located. Renvoi in such cases is allowed. Different rules may apply under bilateral international treaties.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
Individuals are usually advised to make a Will in cases where intestate succession rules do not sufficiently address the various concerns that the individual may have. Examples of some of such circumstances are described below:
In the Will the testator can assign specific assets to beneficiaries, thus, allowing the testator to avoid situations where beneficiaries become co-owners of the assets comprising the estate (for example, assign family house to beneficiary 1 and shares in the company to beneficiary 2, etc.). Under intestate succession rules, legal heirs collectively share in all the assets comprising the estate (for example, if the deceased has a spouse and four children, they collectively inherit the assets comprising the estate in equal shares and, thus, become co-owners of all such assets).
In the Will the testator can appoint any beneficiary he or she wishes, whereas under the intestate succession rules only relatives and the spouse may inherit. Subject to forced heirship rules, the testator in the Will may take away the right to inherit from any relative who otherwise would have had such right under intestate succession rules.
In the Will the testator can appoint an executor whose main function is to administer the estate until it is assigned to beneficiaries and to perform other functions set forth in the Will. For example, the testator in the Will may authorize the executor to sell all or part of assets comprising the estate and distribute the proceeds to beneficiaries named in the Will.
In the Will the testator may oblige the beneficiaries to perform certain actions with the estate or related thereto. For example, the Will may require the beneficiaries to transfer certain assets to persons named in the Will or to enter into specific agreements (such as shareholders’ agreement of the company which shares are included in the estate).
There are two forms of Wills recognized by Lithuanian law – personal Will and official Will. Personal Wills are simple Wills drawn up by the testator by hand and signed by him or her. If a personal Will is not handed over for safekeeping to the notary public or a consular officer in a foreign state, after the testator’s death the beneficiaries of the personal Will have to prove the authenticity of the personal Will in the court. For this reason, individuals in Lithuanian rarely rely on personal Wills in planning their succession. Most of the Wills concluded in Lithuania are official Wills. Official Wills are Wills drawn up in two counterparts and certified by a notary public or a consular officer in a foreign state. Official Wills have to comply with certain statutory requirements to be valid. Once certified by a notary public or a consular officer in a foreign state, the fact of existence of the official Will cannot be disputed.
A form of official Will is a joint Will of the spouses. Under such joint Will, the surviving spouse inherits all the assets of the spouse who had died first. The joint Will also sets forth the order of succession after the death of the surviving spouse. The surviving spouse cannot amend or terminate the joint Will after death of the first spouse.
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
In Lithuania there is no one person responsible for administering a deceased person’s estate such as personal representatives known in other jurisdictions. Once legal heirs and/or beneficiaries under the Will accept the inheritance (the law prescribes a procedure for that), they become legal owners of the assets comprising the estate and responsible for paying all debts of the deceased (this is subject to exception of conditional inheritance described in answer to question 13 above). An executor may be appointed in the Will whose function may be to assist the beneficiaries in performing such tasks. If the executor was not appointed in the Will, the beneficiaries may apply to court with a request to appoint an administrator of the estate. The legal heirs also have such right in case of intestate succession.
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
Lithuanian laws do not provide for any specific structures designed for succession / inheritance purposes. Lithuanian law allows to appoint executor of the Will for a maximum period of 20 years. Thus, depending on the assets, it is not uncommon to use private holding companies with tailored articles, long-term shareholder’s agreements, joint wills, also structures allowed by foreign countries, also make use of life insurance contracts (also potentially generating certain tax benefits).
How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?
Usual practice is to combine foreign structures (trusts / foundations) as instrument to handle relations between the heirs, beneficiaries, and Lithuanian limited liability companies as tool pool the assets, ring-fence the risks, manage tax exposure, etc.
What information is required to be made available to the public regarding such structures and the ultimate beneficial ownership or control of such structures or of private assets generally?
Lithuanian companies are obliged to collect and possess their beneficial ownership information: on natural persons (directly or indirectly) having more than 25 perc. interest in their capital, profits, revenues, voting rights or other significant control. No public state register of beneficial owners (as foreseen by the EU Directive) is operational in Lithuania yet.
What is the jurisdiction's approach to information sharing with other jurisdictions?
Lithuania, as EU and OECD member, applies all the respective directive and convention-based information exchange mechanisms (automatic exchange and request based exchange). International rules for collection of financial information (FATCA, CRS) are implemented even wider than provided for in the respective documents (for e.g., include e-money institutions and accounts).
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
There are no specific tax rules designed for such structures, respective actors in such structures or transactions carried out using such structures. Each case requires separate assessment and tailoring. Taxation regime of the structure is mostly determined based on its economic substance, particular relation / function / authority of an actor of that structure. Usually, in respect of trustees, directors, protectors – analogy of third-party assets managed under a right of administration applies (they are not considered to act as taxpayers in respect of the assets in or revenues of the structure). In most cases founders and beneficiaries share the obligations of an ultimate taxpayer.
Are foreign trusts, private foundations, etc recognised?
Foreign private foundations, having separate legal personality, are recognized and most common. However, legal and economic composition of such foundation might determine that despite this it is not considered to act as taxpayer in respect of the assets managed.
Lithuania is not a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition. This also complicates tax treatment of trusts: in some cases this might trigger double taxation, in others – information mismatch based non-taxation or tax deferral (until respective assets remain in trust).
For withholding tax purposes trustees should not present them-selves as respective taxpayers and be eligible for the reduced tax rates or exemptions, while declaration of settlors or beneficiaries would also not guarantee entitlement of respective advantageous regime they would be entitled to if were direct owners. As for residence-based taxation – establishment (imposition) of a trust might not guarantee the assets and income still in trust (and not accessible to settlors or beneficiaries) would not be attributed to them for tax purposes.
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
Please refer to question no. 23.
To what extent can trusts, private foundations, etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
General universal requirement to act in good faith (bona fide) applies. Otherwise, general civil law defensive measures to dispute a transaction (such as actio Pauliana) may be invoked. Foreign foundations and trusts may also in general complicate creditor’s abilities to invoke legal measures against settlor or beneficiary (including seizure of assets), make the whole dispute process rather expensive.
What provision can be made to hold and manage assets for minor children and grandchildren?
This can be done under title of administration (applicable under the law to parents or guardians) or by, for e.g., appointment of the executor of the Will (in respect of all the assets or the part to be inherited by the minors). Tax wise the actual owner of the assets would still be considered to be the taxpayer, while respective representative would have an obligation to both, file a tax return and pay the tax on behalf of the minor.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
Creation of documents or taking other steps (arrange decision-making mechanisms) in view of possible mental incapacity is advisable. Especially in cases of sophisticated business matters where family members, vested with certain authority and responsibilities in such instances under general provisions of the law, might be neither highly involved, informed on the matters, nor competent to make decisions. Steps to be considered (depending on the situation) might vary from issuance of the PoA’s of general or specific nature, authorisations to decide on the medical treatment or simply receive sensitive personal medical data, to creation of specific collective council’s (form relatives and independent trusted professionals) to make and implement the most important decisions, or, in some cases, simply introduction of a management board in the business, to manage decision gaps in case someone currently acts both as sole shareholder and director in the business.
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
Usual legal forms for charitable activities in Lithuania are charitable and sponsorship foundations or a public institution. Both entities are eligible to receive sponsorship / donations directly from individual’s private assets or business without any adverse tax implications for the donor and themselves and then use those funds for various philanthropic purposes falling into category of public interest: support of arts, sciences, education, social support initiatives etc. Sponsorship provided by the business under certain circumstance might even create additional tax benefits: double deduction (up to 40 perc. of the taxable profit in total) of the donated amount.
Have any specific tax policies or approaches been implemented, on a temporary or permanent basis, to take account of the Covid 19 pandemic?
Main tax related measures introduced by Lithuanian government during Covid 19 pandemic related to universal temporary deferral of the tax payment deadlines, automatic interest free payment postponements for the most affected businesses, simplified procedures and rather positive approach on individual situations and requests for such postponements (if not falling under automatic mechanisms). Absolute majority of such measures related to business taxes paid either by the companies or self-employed individuals.
What important legislative changes do you anticipate so far as they affect your advice to private clients?
Tax reviews and changes are usual agenda for almost any Lithuanian government. Current government is not an exception. Number of public discussions have been carried out, some of those also related to taxation of passive (investment) income of private individuals. While no specific proposals that might affect private clients have been published yet, possible changes in relation to taxation of (tax exemption for) gifts between close relatives, inheritance taxation, tax benefits for life insurance contracts as well as possible introduction of an investment account regime for private investment income should be monitored and potentially reacted to.
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