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 include 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 Lithuania and Israel

Several agreements were signed between Israel and Lithuania:

1. Agreement For Promotion and Reciprocal Protection of Investments.
2. Double Taxation Agreement.

Reciprocal Promotion and Protection of Investments

The agreement between the government of the State of Israel and the government of the Republic of Lithuania for the promotion and reciprocal protection of investments, was signed in 1994.

To view the full agreement in English click here.

Convention on the Prevention of Double Taxation

The agreement between the governments of Israel and the governments Lithuania regarding the avoidance of double taxation was signed in 10.05.2006 and entered into force in January 2007.

The agreement aims to prevent double taxation of income earned in one country by a resident of the other country. The agreement also aims to uphold cooperation between Israel and Lithuania in the administration and enforcement of their respective tax laws. The agreement covers taxes on income, including taxes on gains from the sale of movable or immovable property, and taxes on capital. It also includes provisions for the exchange of information between the tax authorities of Israel and Lithuania.

To read the agreement in English click here.

Applicability of the MLI

Lithuania and Israel have both signed the MLI, simplifying the exchange of tax-related information between these two countries. The signing of Lithuania and Israel on the MLI in 2017, is consistent with the global efforts of fighting tax evasion and increase cross-border tax compliance.

Residency for tax purposes in Lithuania

Residence of an individual

The following criteria define individuals as Lithuanian tax residents:

1. An individual whose permanent residence is in Lithuania during the tax period.
2. An individual whose personal, social, or economic interests are more aligned with Lithuania than with a foreign country during the tax period.
3. An individual who spends 183 days or more in Lithuania, continuously or intermittently, throughout the tax period.
4. An individual who, over a series of successive tax periods, stays in Lithuania for 280 days or more, with at least 90 days spent continuously or intermittently during one of these periods.

An individual who is a Lithuanian citizen and does not meet the criteria in (3) or (4) above. This applies when the individual receives remuneration for work under an employment contract or a substantially similar agreement, and their living expenses in another country are covered by Lithuania’s state or municipal budgets. To read about how an individual is considered a resident of Israel, click here.

Residency of a company

A corporation is considered a tax resident of Lithuania if it is established or registered in the country, as stipulated by the Law on Corporate Income Tax. The term ‘Lithuanian taxable entity’ or ‘tax resident’ encompasses a legal person registered in accordance with the legal acts of the Republic of Lithuania. This definition also applies to Lithuanian hybrid entities and collective investments established in Lithuania, even if they lack legal person status.

To learn about how a company can be considered a resident of Israel, click here.

The tax system in Lithuania

Lithuania Tax Authority is called The State Tax Inspectorate. It is an agency under the Ministry of Finance.

Click here for the official website of the Lithuania tax authority.

 Income taxation: 20%/32%

Taxation of companies and branches: 15% (Standard CIT rate)

0% or 5% (Small companies, based on specific conditions)

20% (15% plus an additional 5%) (companies above 2 million Euro)

VAT: 21%

Capital gains tax: 20%

Withholding Tax

Inheritance tax and estate tax in Lithuania

When inheriting property, both resident and temporary residents of Lithuania are subject to inheritance tax. Cash, securities, and any inherited property, movable or immovable are all subject to tax for permanent residents.

Real estate situated in Lithuania, along with inherited movable property requiring legal registration, is subject to taxation for non-permanent residents. The tax amount is calculated as a percentage of the taxable value of the inherited property. For values up to EUR 150,000, the tax rate is 5%. However, when the taxable value of the inherited property exceeds EUR 150,000, the tax rate increases to 10%

Relocation to Lithuania

Lithuania is home to 3500 Jewish people. Most Lithuanian Jews today live in the capital city of Vilnius, but there are also several smaller communities that live in different cities in Lithuania.

In Vilnius, there is Sholom Aleichem ORT Gymnasium, which operates as a Jewish day school for almost all primary educational levels and includes a focus on the study of Hebrew. Religious education includes Sunday schools and classes organized by the Chabad House. The Vilnius Yiddish Institute, Eastern Europe’s first post-Holocaust Yiddish center, offers secondary education program covering Jewish history, culture, and Yiddish-based linguistic courses. The center’s annual summer programs delve into the richness of Yiddish language and culture.

If you are considering a move to Lithuania, you will discover a whole new world along the stunning Baltic Sea. You will have lovely summers and snowy winters thanks to the region’s mix of maritime and continental climate. Moreover, Lithuania has excellent infrastructure, including notable features such as Vilnius International Airport, three significant ports, and direct train connections with neighboring nations.

Real estate taxation in Lithuania

Both local and international businesses, as well as individuals, are subject to real estate tax in Lithuania. While there are a few exceptions, this tax primarily impacts residential properties within the country. Notably, assets and properties acquired through public and private partnerships (PPP) enjoy an exemption, provided they are used for their original purpose during the construction phase.

For houses, gardens, garages, farms, greenhouses, and other similar properties owned by individuals that are worth more than EUR 150 thousand, the following tax rates apply:

• 5% tax rate for property worth between EUR 150 thousand to EUR 300 thousand;
• 1% tax rate for property worth between EUR 300 thousand to EUR 500 thousand;
• 2% tax rate for property worth more than EUR 300 thousand.

For families with three or more children under 18 years of age, or families with a disabled child under 18 years of age or an older disabled child with special needs, who own property, the following tax rates apply:

• 5% tax rate for property worth between EUR 200 thousand to EUR 390 thousand;
• 1% tax rate for property worth between EUR 390 thousand to EUR 650 thousand;
• 2% tax rate for property worth more than EUR 650 thousand.

Other types of property may be subject to a real estate tax rate anywhere between 0.5% to 3%. The exact rate will be decided by municipal councils based on certain criteria.

Transfer of funds from Israel to Lithuania

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduces or dismiss the withholding tax. Our firm has extensive expertise in managing and navigating withholding tax matters with the Israeli Tax Authority.

Since the two countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

When offering guidance on transferring money abroad, our office not only addresses withholding tax concerns but also manages compliance with requirements set by foreign banks. This includes obtaining accountant approval for tax payments and evaluating additional steps needed in accordance with the Common Reporting Standard (CRS). The CRS involves the automatic exchange of information between countries, initially facilitated through banks and subsequently between the tax authorities of the respective countries. The banks raise many difficulties and  for transferring money between states, so it is important to consult with experts in order to minimize the fees and time spent for that purpose – 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.
• It is necessary for a company to 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.

The owner has the freedom to use the enterprise asset for personal matters. You can find the official page of State Enterprise Centre of Registers here.

Incentive laws in Lithuania

Lithuania is dedicated to fostering innovation, economic expansion, and regional development through its tax policy. It supports these objectives with a variety of corporate income tax advantages. Since 2018, Small business and start-ups are given a one-year tax exemption from corporate income tax for their first year of operations. Triple deductions for scientific research and experimental development (R&D), accelerated asset depreciation for R&D, and a lower corporate income tax rate for discoveries that are commercialized because of R&D activities. Furthermore, Lithuanian free economic zones provide corporation income tax breaks to businesses that fulfill employment and investment requirements. There are now seven of these zones in the nation, all of which offer advantageous business environments.

Double Tax Treaties