Taxation after BREXIT

The State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania has informed that the Parliament of the Republic of Lithuania has adopted a number of legal acts aimed at reducing the negative impact on Lithuanian citizens and business entities, UK citizens residing in Lithuania and UK entities operating in Lithuania after the UK leaves the European Union while ensuring continuity of the tax environment.

The legislation establishes that after the UK leaves the EU, the provisions of the Corporation Tax Act, the Personal Income Tax Act, the Law on Fees and Charges, the Law on Charity and Charitable Donations shall continue to apply to the UK during a transitional period of 2 years to the same extent as to the EU Member States, i.e. during the 2-year period from 1 February 2020 to 31 January 2022, all the exemptions and reliefs granted to the EU Member States shall continue in force to the same extent.  

Several of these legislative changes related to shipping.

In accordance with the provisions of Article 2(15) and (35) of the Law on Corporate Income Tax, shipping taxable units subject to the Lithuanian tonnage tax will also be applied to be UK units (with a permanently established business in the Republic of Lithuania) which, in the course of their international carriage by sea, fly the flag of the Republic of Lithuania, the United Kingdom or any other EEA State.

A new Article 40 has been added to the Law on Personal Income Tax, which provides that from the date of the United Kingdom’s withdrawal from the European Union, for a transitional period of two years (ending on the 31st of January 2022), the provisions of the Law on Personal Income Tax will continue to apply to the United Kingdom to the same extent as to the Member States of the European Union, and will be treated as exempt income: 

in accordance with Article 17(1)(45) of the Income Tax Act, income, as defined in Article 14, derived by seafarers from employment on a voyage on a ship registered in the United Kingdom’s register of seagoing ships;

Please note that the abolition of double taxation of income would not be affected by the withdrawal of the UK from the EU. During the period of application of the amending law and thereafter, the double taxation of personal income would continue to be abolished in accordance with the general procedure laid down in the treaty between the Government of the Republic of Lithuania and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation of income and capital gains and the prevention of tax evasion.

If Lithuanian seafarers working on the UK flagged ships have personal income tax withheld by the UK tax authorities, they can reduce the amount of personal income tax payable in Lithuania by the corresponding amount when declaring their income provided the relevant documentation is presented.

After 31st of January 2022, Lithuanian resident-seafarers will be subject to the 20% (27%) income tax deductions.