Lithuania: Royalties

Starting from 1 July 2011, royalties paid to a company established in another EU member state are exempt from withholding tax, while until this date, a 10% rate was applied. The amounts paid to a company in another EU member state are tax exempt provided they meet the following requirements.

Royalties must be paid to a company which is established in an EU member state and has one of the forms envisaged in Directive 2003/49. The royalties receiving company must be subject to the taxes enlisted in this Directive without being exempt. The royalties receiving company must receive income for its own benefit and not act as an agent of another entity. The royalties paying and receiving companies must be related with a minimum holding of 25% in the capital.

Payments to members of executive or supervisory boards. The Tax Authorities have communicated in a letter that when companies increase the annual payments to the members of the executive board or the supervisory board for their activities, investigations could be launched in order to identify potential cases of tax avoidance.

According to the Tax Authorities there have been cases where a company made such payments not only for the functions performed in the executive or the advisory board, but also for work carried out under an employment agreement, when the person is also employed in the company, or in form of dividends, when such a person is also a shareholder in the company.

Such payments have to be attributed to dividends and taxed at a rate of 20% of personal income tax or treated as salary and taxed accordingly.

Taxpayers Register. According to a supplement of the rules applied to Lithuanian non-residents and foreign nationals regarding the registration with or the deregistration from the Taxpayers Register, registration should take place when foreign nationals are obliged to pay land or immovable property taxes. Furthermore the rules also set out that a foreign national can be deregistered from the Taxpayers Register on the tax authorities’ initiative when he/she does not perform activities or income is not derived in Lithuania during the period of three subsequent years.

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