Regarding the permanent establishment of the Belarusian company in Lithuania

The provisions of Article 5 (1) of the Agreement between the Republic of Lithuania and the Republic of Belarus for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital (hereinafter ‒ DTC) consist of three necessary elements:

  1. a foreign company has a fixed place of business in Lithuania through which the business of an enterprise is carried on;
  2. the place of performance of this activity is permanent, i. y. established in a specific place and with sufficient continuity;
  3. through this place of activity the enterprise carries out its economic and commercial activity (or a part thereof).

The provisions of the Law on Corporate Income Tax (hereinafter ‒ CIT) also establish the definition of a permanent establishment, which applies insofar as it does not conflict with the provisions of the DTC.

According to Article 2 (22) of Law on Corporate Income Tax of the Republic of Lithuania (hereinafter – CIT), a foreign entity is considered to operate through a permanent establishment in the territory of Lithuania where: it permanently carries out its activities in Lithuania; carries out its activities in Lithuania through a dependent representative (agent); uses a building site, a construction, assembly or installation object in Lithuania; makes use of installations or structures in Lithuania for prospecting or extracting natural resources, including wells or vessels used for that purpose. 

A foreign company is considered to be permanently operating through a permanent establishment in Lithuania if its activities or part thereof have been carried out for at least six months.

Accordingly, Article 5 (5) of the DTC provides that where a person other than an independent agent is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that Contracting State. Thus, a company is considered to have a permanent establishment in Lithuania if the agent's activity is of a permanent nature.

If, according to the provisions of the DTC, a foreign entity is not considered to be operating in Lithuania through a permanent establishment, but is considered to be operating through a permanent establishment in accordance with the provisions of the CIT, such permanent establishment must be registered in Lithuania, but reports and declarations must be submitted, when it fulfills the conditions for permanent establishment set out in the DTC.

In view of the above, if a Belarusian company provides services or other activities with a fixed location (customer or leased premises) for at least six months, or operates on a permanent basis through dependent agent, such activities would be considered under the CIT and the provisions of the DTC create a permanent establishment in Lithuania and this would create an obligation to pay income tax.

The profits should be attributed to permanent establishment as it would receive as a separate entity, having regard to the rights and obligations which it assumes in carrying out the tasks assigned to it, the functions it performs and the risks assumed by the permanent staff in performing those tasks and functions.

A Belarusian company that has paid income tax on the earned profit in Lithuania to the Lithuanian budget will have the right to eliminate such double taxation in Belarus (if the same income is subject to income tax in Belarus).

It should be noted that in assessing the fact of the existence of a permanent establishment, the tax administrator in each case analyzes all the circumstances of the specific situation and takes into account all aspects specific to the economic and commercial activities of the permanent establishment.

Regarding the Tax liabilities for employees of Belarus company

According to the provisions of Article 15 (2) of DTC (Income from Employment) remuneration derived by a Belarus resident (individual) from Belarus company in respect of employment exercised in Lithuania shall not be taxable in Lithuania if the following all three conditions are met:

  • Belarus resident is present in Lithuania for a period or periods in the aggregate for less than 183 days in any twelve-month period and
  • the remuneration is paid by the employer who is not a resident of Lithuania, and
  • the remuneration is not borne by a permanent establishment which the employer has in Lithuania.

Accordingly, the remuneration received by individual – Belarus resident from Belarus company for the employment exercised in Lithuania is taxable in Lithuania if:

  • Belarus company carries on business through a permanent establishment in Lithuania and the remuneration is assigned to that permanent establishment or
  • Individual (Belarus resident) is staying in Lithuania for more than 183 days in any twelve month period.

In both cases provided above the remuneration is taxable in Lithuania from the first day of employment.

Belarus resident who paid income tax in Lithuania (whereas following the DTC provisions Lithuania is entitled to tax such remuneration) has a possibility to eliminate double taxation in Belarus.

If employer – Belarus company does not perform business activity through the permanent establishment in Lithuania and employee - Belarus resident is presented in Lithuania for less than 183 days in any twelve month period, he will not pay income tax in Lithuania.