Eliminating double taxation of income received abroad under a treaty for the avoidance of double taxation

  • If a foreign country had the right to tax your income under the provisions of a respective treaty for the avoidance of double taxation and taxed it for income tax purposes, then the same income is not taxed again in Lithuania and is exempt from income tax altogether. The exemption applies to dividends, interest and royalties received from the above countries. Double taxation for such income is eliminated as follows: the amount of income tax, not higher than the threshold set out in the respective treaty for the avoidance of double taxation, paid in a foreign country with which the respective treaty applies, is deducted from the amount of income tax calculated in Lithuania, and the difference, if any, is then payable in Lithuania.
  • If income received abroad was not taxed in the respective foreign country (or was taxed in the respective foreign country but not under the provisions of the respective treaty for the avoidance of double taxation), then the obligation to pay income tax in Lithuania on such income arises, unless the income is classified as tax-exempt income in Lithuania. 
  • If income received abroad was not taxed in the respective foreign country due to the applicable tax-free income rate, then it is deemed to have been taxed in the respective foreign country, and therefore is exempt from income tax in Lithuania in accordance with the general procedures.