Tax Residency in Lithuania
1. Criteria for Determining Tax Residency in Lithuania
According to Article 2 of the Law on Personal Income Tax of the Republic of Lithuania, an individual is considered a tax resident of Lithuania if they meet any of the following criteria:
- They have their permanent place of residence in Lithuania.
- They are present in Lithuania for more than 183 days in a calendar year.
- They are employed in Lithuania and have a permanent place of residence outside Lithuania, but their spouse and minor children reside in Lithuania.
For legal entities, tax residency is determined based on their place of registration or management. A legal entity is considered a tax resident of Lithuania if it is registered in Lithuania or if its management is located in Lithuania.
2. Impact of International Tax Treaties on Tax Residency Criteria
Lithuania has entered into numerous tax treaties with other countries to avoid double taxation and promote cross-border trade and investment. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
For example, the Lithuania-United States tax treaty provides that an individual is considered a resident of Lithuania if they have a permanent home in Lithuania and spend more than 183 days in Lithuania in a calendar year. However, if the individual also has a permanent home in the United States and spends more than 183 days in the United States in a calendar year, they will be considered a resident of both countries. In such cases, the treaty provides tie-breaker rules to determine which country has the primary right to tax the individual's income.
Another example is the Lithuania-United Kingdom tax treaty, which provides that an individual is considered a resident of Lithuania if they have a permanent home in Lithuania and spend more than 183 days in Lithuania in a calendar year. However, if the individual also has a permanent home in the United Kingdom and spends more than 183 days in the United Kingdom in a calendar year, they will be considered a resident of both countries. In such cases, the treaty provides tie-breaker rules to determine which country has the primary right to tax the individual's income.
These treaty-specific modifications aim to provide clarity and prevent double taxation by establishing clear rules for determining tax residency in cases involving cross-border activities. They reflect the mutual agreement between Lithuania and the other country to facilitate tax compliance and enhance economic cooperation between the two countries.
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