Understanding Lithuania's New Investment Account Tax Exemption in 2025

This article examines the new changes to the income tax law which exempts income held in an investment account and reinvested in it from taxation from 2025.

What is an investment account

According to various sources, Lithuanian citizens currently hold more than EUR 22 billion in banks.

Both in the public press and at various conferences on finance, it can be noted that the trend of Lithuanians increasingly opening bank accounts and keeping their money in foreign countries has been repeatedly mentioned. There is no clear answer as to why: some foreign countries pay slightly higher interest rates for holding funds in a foreign bank; some countries simply have cheaper servicing: commissions, administration and other fees; and in some cases, residents simply find it more convenient, possibly safer, to keep their funds in foreign credit institutions.

People invest in different financial products in different countries. In some countries, the most popular investments are in securities, such as shares in companies listed on stock exchanges; in other countries, the most common investments are in real estate; and in still other countries, a variety of crowdfunding instruments are popular, where a group of people invest in certain projects, such as the construction of a housing complex, by lending funds to the developers and earning interest on the money.

In Lithuania, there is also a wide variety of investment methods. One of them, which is currently gaining in popularity, is to keep one's spare funds on deposit with credit institutions, in various accounts, while interest rates are still relatively high, and to receive a certain amount of interest for this.

From 2025, Lithuania will have an "investment account" exemption. The essence of this account is that residents will not have to open a special account. An investment account will be any account declared to the tax authorities, the funds of which will be used by the resident only for investments in financial products, i.e. the resident will only have to declare the account to the tax authorities.

Prior to the introduction of this account in the Income Tax law, the tax treatment was such that if, for example, a resident opened an account on a particular platform, transferred money from a bank account to it and then bought and then sold, for example, shares or other financial assets, the result for the year (the positive difference between the purchases of shares and the sales of shares, i.e. the profit) would be subject to income tax, even though the resident did not take the profit back to the bank account to use and invest it in buying other shares. However, the exemption remains in place that if the annual profit (the proceeds from the sale of shares or other financial assets less the purchase price) does not exceed €500, except in the case of shares in companies in the target territories, it is exempt from income tax.

By contrast, an investment account, in simple terms, means that only the end result of the investment - the withdrawals of the profits made from the account - will be taxed. As long as they are reinvested for further investment in this investment account, there will be no taxation.

What products are covered by the investment account and how?

The Income Tax law provides that, once the investment account comes into force, income tax will only be payable on the investment returns received if they are not used for reinvestment but withdrawn from the investment account, for example in the form of payments or cash.

Investments in the following financial market products will be allowed through the investment account:

• Transferable securities (e.g. publicly traded shares, bonds) This means that, for example, a resident will not be able to trade shares in an unlisted company through an investment account, as such shares are not eligible financial products;

• savings certificates of Lithuanian and foreign governments

• money market instruments;

• instruments distributed through crowdfunding platforms;

• instruments distributed through peer-to-peer lending platforms;

• securities of collective investment undertakings;

• certain derivative financial instruments.

However, for example, certain investments are exempted from this regime, such as crypto-assets.

Income earned through an investment account will be considered as:

• Interest,

• sale proceeds.

An investment account can be considered as an account opened with:

• in a country of the European Economic Area,

• a member state of the Organisation for Economic Co-operation and Development or a state with which Lithuania has concluded and applies a double taxation agreement.

Highlight - how does an investment account apply? The idea is that the 15% of the tax paid by the investor in the form of an investment tax is not a taxable amount. You will only have to pay the 15 % income tax on the income earned through this account when withdrawing the accumulated funds. If the amount withdrawn from the investment account on that day does not exceed the amount of the contributions in the investment account before the withdrawal, then no income tax will be due. This means that only investment returns that are not used for reinvestment but withdrawn from the investment account, for example in the form of payments or cash, will be subject to income tax.

Therefore, it can be said that the investment account is a long-term investment vehicle and if no cash is withdrawn from the investment account during the tax period, only the total amount will need to be declared as deposited. If you decide to withdraw some of the funds, you will need to declare each contribution and withdrawal separately.