Israel – Lithuania Tax Treaty

Business Activity in Lithuania

The manufacturing, green energy, and information technology (IT) sectors are the primary focus of the Lithuanian economy. Both domestic and foreign investors consider Lithuania to be an ideal site for company operations due to its advantageous location and pro-business laws, which include low corporate tax rates. Lithuanian market also includes efficient and well-connected transport infrastructure, a multilingual and educated population, and advanced Information Communications Technology infrastructure. Moreover, the development of a highly skilled labor force has made Lithuania a very desirable destination for foreign companies. As to the green energy sector, Lithuania’s renewable energy policies are consistent with international standards and the global shift toward clean energy.

Bilateral Agreements between Israel and Lithuania

• Double Taxation Agreement
• International Investment Agreement

Reciprocal Promotion and Protection of Investments

The Reciprocal Promotion and Protection of Investments (RPPI) was signed on the 1^st of October 2024 and went into effect on the 10^th of July, 1996. The RPPI is an agreement between Israel and Lithuania that is designed to encourage and safeguard investments made by individuals and companies from each country in the territory of the other. These agreements typically include provisions related to non-discrimination, compensation for expropriation, dispute resolution, and the transfer of funds. 

To read the agreement in English, click here. 

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Lithuania regarding avoiding double taxation was signed on May 10, 2006, and entered force on December 31, 2006.

To read the agreement in English, click here.

Applicability of the MLI

Both Lithuania and Israel have signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (MLI). Israel signed the agreement on June 7, 2017, and ratified it on September 13, 2018. Lithuania also signed the MLI on June 7, 2017, and ratified it on January 1^st, 2019.

Residency for Tax Purposes in Lithuania

Individuals

A person is considered a Lithuanian tax resident if they meet any of the following conditions:

1. Their permanent home is in Lithuania during the tax year.
2. Their personal, social, or economic ties are closer to Lithuania than to any foreign country during the tax year.
3. They stay in Lithuania for 183 days or more (continuously or intermittently) within the tax year.
4. Over several consecutive tax years, they stay in Lithuania for a total of 280 days or more, including at least 90 days in one of those years.

To learn how an individual is considered a resident of Israel, click here.

Companies

A company is considered a tax resident in Lithuania if it is incorporated there. It can also be taxed if it has a permanent establishment (PE) for tax purposes or earns income in Lithuania that is subject to withholding tax.

To learn how a company is considered a resident of Israel, click here.

The Tax System in Lithuania

Lithuania’s tax authority is called the  State Tax Inspectorate.

Income taxation: 15%, 20% and 32%

Taxation of companies and branches: 15%

VAT: 21%

Capital Gains Tax: 20%

Withholding Tax

Inheritance Tax in Lithuania

Immovable real estate, personal property, securities, and money are defined for inheritance tax purposes. Foreigners pay the same tax as Lithuanian citizens, but only for inherited real estate or movable property that needs to be registered in Lithuania.

No inheritance tax is applied if:

1. The right is passed down to a surviving spouse upon the death of the partner.
2. The property is inherited by close relatives (children, parents, siblings, grandparents, grandchildren, or legal guardians).

The monetary value of the family property is not more than €3,000.

If tax applies:

1. The rate is 5% for a value up to €150,000.
2. The rate is 10% for property valued over €150,000.

Relocation to Lithuania

Lithuania, and in particular its capital Vilnius, provides a compelling blend of economic benefits and a high quality of life and thus is a good option for relocation or expansion projects for businesses. Reintegrating is facilitated by the presence of a full support package for relocations, including International House Vilnius, which helps by coordinating residence permit applications, schooling for children, and obtaining health insurance. The city is also an extremely cheap place to live, with cheap living expenses, short travel time, and a strongly diverse cultural life embodied by its UNESCO-listed Old Town. Top-ranked in terms of the work-life balance by the OECD, Vilnius possesses modern infrastructures coupled with an outstanding quality of life.

The city is an innovation city and a center of innovation with an active FinTech scene and locally-founded companies, such as Vinted and Tesonet, as well as more than 150 international companies, including Google and Uber. Lithuania is the FinTech leader in the EU in terms of licensed companies, whereas Vilnius is the home of major business clusters and accelerators. Furthermore, Lithuania is at the forefront of digitalization, as 90% of the services provided by the public are online accessible and one of the world’s fastest broadband connections. When coupled with green transport and a culture of shared economy, with its image as a European innovation capital, Vilnius provides a stimulating context for businesses to find it conducive to growth and success.

As of 2023, the Lithuanian Jewish community has 2,400 members and lives peacefully within broader Lithuanian society. In recent years, Jewish education has grown, and while occasional antisemitism occurs, Jews generally feel safe in Lithuania.

Real Estate Taxation in Lithuania

Real property, which developers use commercially, is subject to taxation at a rate from 0.5 to 3 percent per year, (the rate varies from year to year) as established annually by local Municipal Councils. Second, immovables bought or received by adults are taxed with real estate tax if the value is more than EUR 150,000. For properties in the range between EUR 150,000 and EUR 300,000, there is a 0.5% tax on the amount over EUR 150,000. In case of property value ranging from EUR 300,000 to EUR 500,000, a 1% tax is levied on the excess over EUR 300,000. Tax at 2% of the value exceeding EUR 500 000 is levied. Families with three or more children under 18, or those with older disabled children requiring constant care, are taxed only on property values exceeding EUR 200,000.

Transfer of Funds from Israel to Lithuania

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax. 

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more. 

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us. 

For more information on money transfers abroad, click here. 

Types of Business Entities in Lithuania

• Public Liability Company: The company must have a minimum share capital of EUR 40,000.00. The shares are available for public offering and trading. Shareholders in a company have rights incidental to their shares.
• Private Limited Liability Company: The company needs a minimum share capital of EUR 2,500.00. A company must have a general meeting of shareholders and a single-person management body, which is the manager of the company. The number of shareholders cannot exceed 249.
• Small Partnership: At least 1 but no more than 10 shareholders. There are no law requirements for a minimum authorized capital. Only individuals can be shareholders. If a shareholder decides to leave the partnership, there is an option to redeem their contribution of authorized capital.
• Individual Enterprise: There’s just one owner. The owner has unlimited civil liability. There are no rules about a minimum share capital.

Incentive Laws in Lithuania

Lithuania provides a diversity of tax encouragement measures and tax benefits to stimulate investment, innovation, and business development. Corporations can offset (reduce) the amount of tax owed on foreign source income by claiming foreign tax credit (if there is proper compliance with limitations). For companies planning investment, taxable profits may be reduced by up to 100% of the acquisition costs of qualifying long-term assets, with unclaimed deductions carried for up to four years. Research and development (R&D) activities are entitled to substantial tax relief, including the possibility to offset R&D costs three times, as well as apply the reduced corporate income tax (CIT) rate of 5% (to 6% in 2025) on income generated by patented innovations.

Big-ticket investment projects may benefit from up to 20 years of CIT exclusion if they conform to a series of criteria relating to job creation, salary eligibility, and capital outlays. Furthermore, the Free Economic Zones (FEZs) of Lithuania provide companies with a 10-year CIT relief and a 6-year reduced rate, plus real estate tax exemption if the right operational and investment criteria are fulfilled. The country also sponsors cultural projects where tax relief can be claimed on local production costs. Together with Lithuania’s streamlined administrative procedures, green corridor projects, and availability of Free Economic Zones, these incentives offer an attractive opportunity to expand or relocate businesses.

Lithuania Double Tax Treaties