IMPOSITION OF INCOME TAX ON EMPLOYMENT INCOME RECEIVED BY A NON-RESIDENT

ECOVIS Miškinis, Kvainauskas ir partneriai advokatų kontora

The State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania, in searching for a uniform practice in taxation for personal income tax purposes, has clarified the imposition of personal income tax on employment income gained by an employee of a foreign company working in a Lithuanian company. 
Independent of the fact of who pays non-residents for their work in Lithuania, their employment income is subject to personal income tax from the first working day in Lithuania.

When such an employee is a resident of a foreign country with which Lithuania has an agreement for the avoidance of double taxation, the imposition of personal income tax on his foreign-source income for his work performed in Lithuania is regulated by article 15 of such agreement, i.e. such employee is subject to personal income tax only if he is present in Lithuania for a period, or periods, not exceeding in the aggregate 183 days in any twelve month period; the remuneration is paid by the company which is not a resident of Lithuania, and the remuneration is not borne by a permanent establishment which the employer has in Lithuania.

However, when an employee is a resident of a foreign country with which Lithuania has an agreement for the avoidance of double taxation and his actual employer is a Lithuanian company in accordance to the content of his work performed in Lithuania, but not the form, it shall be considered that his work in Lithuania fails to satisfy clause 2 of article 15 of the agreement, and the rule of 183 days’ stay in Lithuania shall not be applied. Thus income sourced in Lithuania of a non-resident is subject to personal income tax from his first working day in Lithuania.