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Amendments to Law on Individual Income Tax — Orbitax Tax News & Alerts

On 27 June 2013, the parliament adopted amendments to the Law on Individual Income Tax (the Law). The amendments will apply from 1 January 2014. The following major amendments were made to the Law.

Interest

The following types of interest will become taxable at the general flat rate of individual income tax, i.e. 15% (currently exempt, with certain exceptions):

-   interest on securities issued by a government or other public authority of Lithuania or another EEA country;
-   interest on deposits with EEA banks and other credit institutions established in Lithuania or another EEA country;
-   interest on loans if the repayment of the loan commences not earlier than 366 days after its issuance; and
-   interest on securities if their redemption commences not earlier than 366 days after their issuance.

However, (i) interest on non-equity securities (except securities issued by the recipient's employer bearing an interest rate higher than that on similar securities held by others), (ii) interest on non-equity securities issued by the governments of Lithuania or foreign countries as well as (iii) interest received for deposits held in the banks or other credit institutions established in Lithuania or foreign countries not exceeding LTL 10,000 per tax year, will be exempt.

Under the transitional rules, interest on securities issued by the governments of Lithuania or other EEA countries as well as interest received for deposits held in the banks or other credit institutions established in Lithuania or other EEA countries will remain exempt if these securities will be acquired or deposit contracts will be concluded before 31 December 2013.

Dividends

From 2014, taxation of dividends in the hands of individual shareholders will become more favourable. Dividends will be taxed at the rate of 15% on the gross amount. Currently, dividends are taxed at the rate of 20% on the gross amount.

Capital gains

From 2014, any gains from the disposal of financial instruments or from the financial derivatives will become taxable at the rate of 15%. However, such gains not exceeding LTL 10,000 per tax period will remain exempt.

Accordingly, the following gains exceeding LTL 10,000 per tax period will become subject to 15% individual income tax (currently exempt):

-   gains from the disposal of securities (including shares) acquired prior to 1 January 1999; and
-   gains from the disposal of securities (including shares) acquired after 1 January 1999 and held continuously for at least 366 days, if the seller's participation, during the previous 3 years, did not exceed 10% of the share capital and if the shares were not sold back to their issuer.

Transactions with financial instruments (including the disposal of financial derivatives) will no longer be treated as self-employed activity. Therefore, income from financial transactions will become subject to 15% individual income tax and the deductions applicable to income from independent individual activities will no longer be available.

Allowances

With effect from 1 January 2014, if the monthly employment income does not exceed LTL 1,000 (currently LTL 800), the monthly allowance will be LTL 570 (currently LTL 470). Accordingly, if the annual income in 2014 does not exceed LTL 12,000, the annual allowance will be LTL 6,840.

An additional tax-exempt amount (additional personal allowance) of LTL 200 will be available to a resident parent in respect of each child up to 18 years or older if the child studies in secondary school. This allowance may, alternatively, be divided equally between two parents. Currently, the additional personal allowance for the first child is LTL 100 and for the second and each additional child – LTL 200.

Taxation of non-residents

Payments made by the Lithuanian company to non-resident members of the supervisory council or management board for their activity therein will be subject to individual income tax at the general rate, irrespective of the year of activity in respect of which the payments are made. Currently, only annual bonuses paid to non-resident individuals who are members of the management board or the supervisory council in Lithuanian companies are taxed.