Concerning the permanent establishment of a Belarusian company in Lithuania

Concerning the permanent establishment of a Belarusian company in Lithuania

The provisions of Article 5(1) of the Treaty between the Republic of Lithuania and the Republic of Belarus on the Avoidance of Double Taxation of Income and Capital and on the Prevention of Tax Evasion (hereinafter referred to as the “DTC”) provide for the definition of a permanent establishment, which consists of three necessary elements:

1. the company has a place of business in Lithuania;
2. the place of business is fixed, i.e. established in a specific place and with sufficient continuity;
3. the company carries out its economic and commercial activities (or part thereof) through this place of establishment.

The provisions of the Republic of Lithuania Law on Corporate Income Tax (hereinafter referred to as the “CIT”) provide for 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 the CIT, foreign entities are considered to be operating through a permanent establishment in the territory of the Republic of Lithuania where: the foreign entity permanently carries out its activities in the Republic of Lithuania; or carries out its activities in the Republic of Lithuania through a dependent representative (agent); or uses a building site, a construction, assembly or installation object in the Republic of Lithuania; or makes use of installations or structures in the Republic of Lithuania for prospecting or extracting natural resources, including wells or vessels used for this purpose. 

Foreign entities are deemed to have a permanent establishment in Lithuania if the activities of the foreign entity are pursued, either fully or partly, for at least six months.

Accordingly, Article 5(5) of the DTC provides the following: where persons, other than with the status of independent agents, act on behalf of an enterprise and have in a Contracting State the power to conclude contracts on behalf of the enterprise and habitually exercise that power, such enterprise is regarded as having a permanent establishment in the respective Contracting State. Enterprises are deemed to have their permanent establishment in the Republic of Lithuania if the activities of the agent are of a continuous nature.

According to the provisions of the DTC, where foreign entities are not considered to be conducting their business in the Republic of Lithuania through a permanent establishment, but are considered to be conducting business through a permanent establishment in accordance with the provisions of the CIT, such permanent establishment must be registered in the Republic of Lithuania. However, the enterprise is obliged to submit its reports and tax returns and pay corporate income tax only if it meets the permanent establishment criteria set out in the DTC.  

In view of the above, if a Belarusian company provides services or other activities with a fixed place of business (customer or leased premises) for at least six months, or operates on a continuous basis through a dependent agent, the activities of the company are then considered under the CIT and the provisions of the DTC to suffice a permanent establishment in Lithuania, consequently arising the obligation to pay corporate income tax.

Permanent establishments are attributed income to the extent of the income they would derive as a single unit, taking into account the rights and obligations it assumes in the performance of the tasks assigned to it, the functions it performs, and the risks assumed by the employees of the permanent establishment in performing those tasks and functions.

Belarusian companies which have paid corporate income tax to the budget of the Republic of Lithuania on profits earned in the Republic of Lithuania are entitled to eliminate such double taxation in Belarus (provided that the same income is subject to corporate income tax in the Republic of Belarus). 

Please note that the tax administrator, in assessing the existence of a permanent establishment, analyses in each case all the circumstances of the particular situation and takes into account all the aspects of the economic and commercial activity carried out by the respective permanent establishment.

According to the provisions of Article 15(2) of the DTC, employment income received by residents of the Republic of Belarus from a Belarusian company in respect of employment exercised in the Republic of Lithuania is not taxable in the Republic of Lithuania, provided that all three of the following criteria are met:

• a resident of the Republic of Belarus is present in the Republic of Lithuania for a period or periods in the aggregate for less than 183 days in any twelve-month period; and
• wages are paid by the employer who is not a resident of the Republic of Lithuania; and
• wages paid to the resident are not attributable to the permanent establishment of the employer in the Republic of Lithuania.

Therefore, employment income received by residents of the Republic of Belarus from a Belarusian company for work in the Republic of Lithuania is taxable in the Republic of Lithuania, provided that:

• the Belarusian company conducts business through a permanent establishment in the Republic of Lithuania, and the wages of the resident are attributable to that permanent establishment; or

• the Belarusian company is not considered to be conducting business through a permanent establishment in the Republic of Lithuania, but the resident stays in the Republic of Lithuania for 183 days or more, either continuously or intermittently, in any twelve-month period.

In both cases provided above, the wages are taxable in the Republic of Lithuania from the first day of employment in the Republic of Lithuania.

Residents of the Republic of Belarus who have paid income tax to the budget of the Republic of Lithuania on wages received from a Belarusian company for work in the Republic of Lithuania are entitled to eliminate double taxation of such wages in the Republic of Belarus (provided that the same income is subject to income tax in the Republic of Belarus).

If Belarusian companies are not considered to be operating through a permanent establishment in the Republic of Lithuania, the employees of such Belarusian company who are non-residents of the Republic of Lithuania and who stay in the Republic of Lithuania for less than 183 days in a twelve-month period are not obliged to pay personal income tax in the Republic of Lithuania, or to declare the income earned in the Republic of Lithuania.