TAXATION OF THE INTEREST PAID OUT TO THE FOREIGN COUNTRY RESIDENTS
Interest paid to the foreign country residents are classified as the A-class income and the resident income tax (hereinafter – RIT) for them must be deducted and paid by the subject paying out the interest. In this case, it is "NEO Finance".
Profit of the foreign country residents received from the trade of investments in the secondary market or from selling investments to "NEO Finance", is not considered as an object of the income tax in Lithuania. Therefore, foreign country residents do not have to pay taxes in Lithuania for this income.
Submitting the details of residence
Investors of "NEO Finance" will have to fill in the information regarding the confirmation of their country of residence, by signing in to their account. New investors of "NEO Finance" will have to provide these details during the registration.
Changing the details of residence
If the country of residence changes, investors of "NEO Finance" will have to amend their details of residence. They will be able to do so in their "NEO Finance" account settings.
Presenting the application to reduce the deducted tax
Since July 2017, "NEO Finance" automatically deducts residents income tax (RIT) equal to 15% from the interest paid out to the non-residents of Lithuania. When a foreign country resident whose country of residence has a double taxation avoidance agreement (hereinafter - DTAA) with Lithuania presents a DAS-1 form to reduce the tax deducted, "NEO Finance" will apply the reduced RIT rate to the investor and they will be deducted 10% or, in the case of Latvia, Turkmenistan and Cyprus – 0%.
The investor should fill in sections I through IV in the aforementioned application by themselves, section V should be filled by the representative of tax administrator of the respective foreign country, and section VI should be left blank. Section V of the DAS-1 form can be left blank if the foreign country resident provides a certificate of the foreign tax administrator that they are a resident of that country.
The DAS-1 form is valid only in the calendar year indicated by the foreign tax authority, by confirming the information provided in Part V of this form.
Non-residents of Lithuania will be able to submit the aforementioned documents by signing in to their "NEO Finance" investor account
Tax-free Income (For incomes from 2018)
Non-taxable income includes interest from consumer credit provided through P2P platforms not exceeding EUR 500 per tax period. Foreign country residents can only benefit from this tax relief after the tax period has ended. This means that from the interest paid to non-residents, “NEO Finance” automatically deducts income tax, but the person will have the right to apply to the State Tax Inspectorate for a refund of the deducted tax.
Application of the foreign country resident to refund the deducted tax
If the foreign country resident did not exercise their right to submit the DAS-1 form to "NEO Finance", then such investor can apply to the State Tax Inspectorate (hereinafter – STI) with an application of DAS-2 form to refund the deducted tax. Also, the DAS-2 form may be provided for withholding tax on interest received, which did not exceed EUR 500.
Reduction of taxes payable in own country of residence
Foreign country residents will be able to reduce taxes paid in their country of residence for the interest paid out by "NEO Finance", by the amount of income tax deducted and paid in Lithuania.
It should be noted that foreign country residents can reduce the taxes paid in their country by the amount of the deducted and paid tax only if "NEO Finance" is presented with the DAS-1 form. If the form is not presented, foreign country resident will be able to reduce taxes payable in their country of residence by the maximum amount of the income tax rate specified in the respective DTAA. For example, if the foreign country resident earned 1000 EUR of interest but had not submitted application of DAS-1 form before, 15% rate would be applied and 150 EUR deducted. If Lithuania and the country of residence of this investor had DTAA in place with a maximum specified income tax rate of 10%, in this case, taxes payable in their own country of residence could be reduced by 100 EUR. If the foreign country resident had presented the DAS-1 form, then the rate of 10% would have been applied and 100 EUR deducted, and taxes paid in the country of their residence could have been reduced by this amount.
When seeking to reduce taxes paid in your own country of residence, you should contact STI and present them (directly or via mail) with certificate of DAS-3 form about income received and taxes paid in the Republic of Lithuania. Another alternative is to present an application to issue a certificate FR0595. This certificate can be ordered by (1) sending the application via mail, (2) contacting the STI directly, or (3) electronically, by logging into "Mano VMI" (My STI) – a section of authorised electronic services of the State Tax Inspectorate webpage. The certificate received should be presented to the tax administrator of the own country of residence.