Cancellation of the Double Taxation Agreement with Lithuania

In early 2025, Lithuania officially notified Belarus of the denunciation of the Double Taxation Agreement (DTA) concluded between the two countries in 1995. According to the notification, the agreement will expire on January 1, 2026. This decision reflects the current geopolitical tensions and changing economic relations between Belarus and Lithuania. The abolition of DTA will affect the tax liabilities of individuals and legal entities with income in both countries.

In this article, we will review the history and content of DTA, the consequences of the abolition of the agreement for taxpayers and possible actions to minimize tax risks.

History and Content of the Agreement between Belarus and Lithuania

The Agreement between the Government of the Republic of Belarus and the Government of the Republic of Lithuania on Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital was signed on February 18, 1995 and came into effect on December 26 of the same year.

The main objectives of the agreement were as follows:

• Elimination of the situation in which the income of the same person was taxed twice – both in the country of origin of income and in the country of tax residence.
• Creation of favorable conditions for mutual investments and cross-border activities of individuals and legal entities.
• Development of economic relations between the two countries.
• Combating tax abuse and tax evasion.

Key provisions of the agreement:

• Priority taxation: it was determined in which country and what types of income were taxed – for example, dividends, interest, royalties, real estate income, business profits, income from international transportation, etc.
• Methods of eliminating double taxation: as a rule, the credit method was used – tax paid in one country was credited when calculating tax in another country.
• Tax exemptions: reduced tax rates were established for certain types of income (in particular, passive income – dividends, interest, royalties).
• Exchange of tax information: the parties committed to exchange data to prevent tax evasion and ensure transparency.

For nearly 30 years, this agreement has provided a predictable tax environment for companies and individuals who have operated in both countries. DTA has been used extensively in cross-border employment and investment activities, including the establishment of subsidiaries, the payment of dividends and the provision of services.

Consequences of the DTA abolition for taxpayers

The abolition of the Double Taxation Avoidance Agreement (DTA) between Belarus and Lithuania, which will come into force on January 1, 2026, will be a significant change for companies and individuals who conduct economic activities between the two countries. After the agreement lapses, taxpayers will have to take into account new risks and increased tax burden. Here are what consequences await businesses and individuals.

1. Double taxation of income

Before the abolition of DTA, Belarusian and Lithuanian residents could count on a tax credit: if income was received abroad and taxed in that country, in their country of residence they could pay only the amount of tax based on the difference between the rates (or be exempted from taxation altogether). Once the treaty is abolished, this mechanism will no longer work – theoretically, the same income can be taxed twice.

Example:

A Belarusian company receives income from the provision of services to a Lithuanian counterparty.

Previously – the tax was paid either in Lithuania or in Belarus, with offsetting.

After 2026 – possibility of taxation in both countries without offset.

2. Increase of tax rate on cross-border payments

The treaty limited the maximum tax rates for certain types of income:

1. Dividends:

Under the treaty, dividends paid by a company resident in one state to a resident of another state could be taxed in both states. However, if the recipient of the dividend was an actual owner and resident of another state, the tax rate was not to exceed:

5% of the gross amount of dividends if the recipient was a company (not a partnership) that owned at least 25% of the capital of the company paying the dividends and the amount of direct investment was at least $100,000 or the equivalent in local currency.

10% of the gross amount of the dividend in all other cases.

2. Interest:

Interest arising in one state and paid to a resident of another state could be taxed in both states. However, if the recipient of the interest was the actual owner thereof and a resident of the other State, the rate of tax was not to exceed 10% of the gross amount of the interest.

3. Royalties:

Royalties arising in one state and paid to a resident of another state could be taxed in both states. However, if the recipient of the royalties was the actual owner thereof and a resident of the other state, the rate of tax was not to exceed:

5% of the gross amount of royalties for the use of industrial, commercial, or scientific equipment.

10% of the gross amount of royalties in all other cases.

4. Income from international transportation:

Income derived from the operation of ships or aircraft in international transportation was only taxable in the state where the actual management of the enterprise was located.

From 2026, Lithuania and Belarus will be able to apply national tax rates, which are generally higher:

In Lithuania, for example, the tax rate on dividends is 15%.

In Belarus it is 12%, but in the absence of a DTA agreement, a rate of up to 15% may apply in some cases.

This means that cross-border payments, especially passive income (dividends, interest, royalties), will become significantly less favorable for both Belarusian and Lithuanian companies and individuals.

3. Limitations on tax crediting

Without the effect of DTA, it will become difficult or impossible to offset taxes paid in another country against Belarusian tax when filing a tax return. This will lead to increased tax liabilities and reduced efficiency of international tax planning.

4. Increased administrative burden

Businesses and individuals will have to:

• Prove the fact of tax payment in another jurisdiction.
• Obtain additional certificates and supporting documents from tax authorities.
• Consult with tax specialists on the application of the new rules.

5. Increased tax risks

Companies which previously operated using DTA will find themselves in some legal uncertainty. This is especially true for:

• Holding entities.
• Companies that provide cross-border services.
• Specialists who work under contract abroad (remotely or on business trips).

Recommendations for taxpayers

As 2026 approaches a s well as the cancellation of the Double Tax Treaty between Belarus and Lithuania, taxpayers – both legal entities and individuals – should prepare in advance for the new conditions. Below you’ll find the key recommendations that will help minimize tax risks and adapt business processes.

1. Conduct a tax audit of cross-border transactions

The first step is to analyze the existing schemes of interaction between Belarusian and Lithuanian companies:

• Where is the income generated (in which country)?
• What tax is withheld now?
• What obligations will arise after the agreement is canceled?
• Are there any risks of double taxation?

Such an audit will help to understand how much the tax burden will change and which transactions need restructuring.

2. Analyze the business structure

Companies with Lithuanian partners, holding entities or branches should consider:

• Alternative jurisdictions for incorporation of parent companies.
• Changing the routes of dividend or license payments.
• The possibility of establishing a permanent representative office in Lithuania or Belarus (if necessary).

This will partially preserve tax efficiency and avoid excessive taxes.

3. Prepare supporting documents in advance

In the absence of the agreement, credit for taxes paid in another country is possible only if there are proper supporting documents drawn up in accordance with the requirements of Belarusian and Lithuanian tax legislation.

It is recommended to:

• Request certificates of income and withheld taxes in advance.
• Have them issued with an apostille or consular legalization.
• Keep such documents for at least 5 years in case of audits.

4. Revise contracts with counterparties

Contracts that previously specified terms based on the provisions of the DTA (e.g., “payment shall be made net of 5% tax in accordance with the Agreement…”) need to be updated.

It is recommended that contracts be amended:

• To specify that taxes are now withheld under domestic law.
• Define who bears the tax liability (payer or income recipient);
• Add gross/net payment terms, if relevant.

5. Consult with tax specialists

Due to the complexity of interstate taxation and possible changes in the approach of the tax authorities, it is important to:

• Seek advice from specialists who have experience in international tax law.
• Engage experts both in Belarus and Lithuania, if necessary.
• Discuss the possibility of applying other treaties if the company operates not only with Lithuania.

6. Follow legislative changes

Belarus has already suspended a number of double tax treaties with “unfriendly” countries, and both tightening and partial relaxation of the regime are possible in the future.

Recommendations:

• Subscribe to updates from the Ministry of Taxes and Duties of Belarus.
• Monitor clarifications on the official websites of the Lithuanian tax authorities (VMI – Valstybinė mokesčių inspekcija).
• Monitor opinions and interpretations of international consultants.

The earlier a taxpayer starts preparing for the abolition of DTA, the higher the chance of keeping the tax burden manageable and avoiding conflicts with the tax authorities in 2026.

Conclusion

The abolition of the Double Taxation Agreement between Belarus and Lithuania from January 1, 2026 will be an important tax event that may affect a wide audience – from individual professionals and remote employees to large international companies with cross-border operations. Growing tax burden, absence of previous exemptions, increased risks of double taxation and increased administrative requirements require a systematic approach to business planning and management in the new environment.

It is important not to leave adaptation until the last moment. You can already analyze your contracts, tax structure, ways of working with Lithuanian partners and personnel to minimize possible losses and maintain business stability.

EOR provides comprehensive services for business and personnel management abroad, including:

• Selection of the right form of interaction with foreign employees and counterparties.
• Support of cross-border payments and taxes.
• Advice on working in the new tax environment.

We will help you to build a competent strategy and offer practical solutions in the context of changing legislation. Contact us to prepare for 2026 with confidence.