Double Taxation Treaties in Lithuania (2025): How Lithuania Treats Foreign Income

Double taxation treaties in Lithuania matter whenever the same income could be taxed in two countries—typically Lithuania (as your country of residence) and the country where the income arises (the “source” country). For foreigners, expats, entrepreneurs, and investors living or operating in Vilnius, Kaunas, or Klaipėda, this is a practical issue: salaries paid from abroad, dividends from foreign companies, freelance income from international clients, and rental income from property outside Lithuania can all trigger double-tax risks.

Lithuania reduces these risks through a combination of domestic tax rules and its double taxation treaty (DTT) network. The result is often one of two outcomes: Lithuania exempts certain foreign income from Lithuanian tax, or Lithuania taxes the income but provides a foreign tax credit for tax paid abroad. The correct result depends on your tax residency, the type of income, and the specific treaty article that applies.

This guide explains how Lithuania treats foreign income in practice and what you should do to claim treaty relief correctly in 2026 planning and compliance.

Double taxation treaties in Lithuania: Legal Background in Lithuania

Lithuania’s approach to foreign income starts with two questions:

Are you a Lithuanian tax resident for the relevant tax year?
What type of foreign income is it (employment, dividends, interest, royalties, business profits, capital gains, real estate income, etc.)?

1) Tax residency: the main “switch” that changes the outcome

In general terms:

Lithuanian tax residents are typically taxed in Lithuania on their worldwide income (with relief to avoid double taxation).
Non-residents are generally taxed in Lithuania only on Lithuanian-source income (often via withholding tax or specific filing obligations).

Residency is determined under Lithuanian rules, but if two countries claim you as resident at the same time, the treaty tie-breaker rules (commonly based on permanent home, centre of vital interests, habitual abode, and nationality) can decide which country treats you as resident for treaty purposes.

2) Domestic law + treaty rules work together

Lithuania uses:

Domestic tax laws (personal and corporate income taxation, withholding taxes, reporting rules).
Double taxation treaties that allocate taxing rights between Lithuania and the other country and set the method to eliminate double taxation.

Treaties typically address:

Employment income
Business profits
Dividends, interest, royalties
Capital gains
Pensions and government service income

3) Two main relief methods Lithuania uses

Lithuania generally eliminates double taxation through one of these treaty methods:

Exemption method
Foreign tax credit method

Which method applies depends on the specific treaty and the income type.

4) Practical note for 2026 planning

Most disputes arise from incorrect residency assumptions, missing proof of foreign tax paid, and misclassification of income.

Double taxation treaties in Lithuania: Step-by-Step Legal Process

Step 1 — Confirm your Lithuanian tax residency

Determine where you lived, worked, and maintained economic interests.

Step 2 — Identify the income type and source country

Classify income correctly (salary, dividends, freelance, capital gains, rental income).

Step 3 — Check whether a double taxation treaty applies

Confirm the treaty exists and was in force for the tax year.

Step 4 — Identify the correct treaty article

Determine whether Lithuania or the source country has taxing rights.

Step 5 — Apply the correct relief method

Use either the exemption or foreign tax credit method.

Step 6 — File correctly in Lithuania

Report foreign income and claim relief with supporting documentation.

Step 7 — Consider foreign tax refunds

If excess tax was withheld abroad, refund claims may be possible.

Step 8 — Resolve disputes if necessary

Use the Mutual Agreement Procedure (MAP) when double taxation persists.

Double taxation treaties in Lithuania: Key Legal Requirements & Documents

Tax residency certificate
Proof of foreign income
Proof of foreign tax paid
Employment or service contracts
Evidence of work location
Corporate documents (if applicable)
Real estate ownership and lease documents
Lithuanian tax returns and schedules

Double taxation treaties in Lithuania: Common Legal Mistakes to Avoid

Assuming a treaty means no Lithuanian tax
Confusing reduced withholding with exemption
Lacking proof of foreign tax paid
Misclassifying income
Ignoring permanent establishment risks
Incorrect split-year residency analysis
Missing reporting deadlines

Double taxation treaties in Lithuania: Frequently Asked Questions (FAQ)

1) How does Lithuania tax foreign salary income?
Usually based on where work is performed, with treaty relief applied.

2) Are foreign dividends taxable in Lithuania?
Often yes, with a foreign tax credit for tax withheld abroad.

3) What documents are needed to claim treaty relief?
Proof of income, proof of tax paid, and often a residency certificate.

4) Can excess foreign withholding tax be refunded?
In many cases, yes, through source-country refund procedures.

5) How is remote work income treated?
Often taxed where work is physically performed; facts matter.

6) What if both countries tax the same income?
Treaties allow use of the Mutual Agreement Procedure.

Double taxation treaties in Lithuania: Conclusion

Lithuania’s double taxation treaties aim to prevent double taxation but require careful application. Correct residency determination, income classification, and documentation are essential. For internationally active individuals and businesses in Lithuania, treaty compliance should be treated as a structured legal and tax process to minimize risk in 2026 and beyond.