Tax bonus

The maximum benefit of the personal income tax bonus can be gained if the life insurance policy is signed for at least 10 years and/or premiums are paid on behalf of the client, his/her spouse or a minor; provided that the policy includes provisions stating that the client, his/her spouse or a minor is the beneficiary when the insurance policy reaches maturity.

As of 1 January 2009, after a change in personal income tax regulations, new definitions and terms governing the taxation procedure of life insurance premiums have been applied.  The validity terms of life insurance policies used in the taxation procedure were reduced from ten to five years for retired or disabled persons*.  Furthermore, an additional age criterion for beneficiaries (up to the age of 26) was applied.  As a result these beneficiaries have better taxation conditions upon maturity of a life insurance policy (after five or ten years); only a percentage of the payment is taxed even when using the personal income tax bonus.

As of 1 January 2009, insurance benefit for beneficiaries who are not included in the newly defined groups (i. e. persons under 26 years of age or persons over 55 years of age), but have the use of the personal income tax bonus and choose to terminate valid life insurance policies before the end of the ten-year-period, are taxed at the personal income tax rate (15%).

However, persons in this situation have the right to renew their life insurance contracts up to the age of 55, or name a minor (who must be less than 26 years of age) as the beneficiary who will then become eligible for non-taxable benefits.

The personal income tax bonus enables recovery of personal income tax (15%) from life insurance premiums paid during the previous calendar year.

The personal income tax bonus is applied to the total life insurance premiums which do not exceed 25% of the insured party’s taxable income received during one calendar year.

It is possible to recover the personal income tax bonus by completing a personal income tax declaration and submitting it to the State Tax Inspectorate no later than 1 May each year. The tax bonus is credited to the bank account of the person who submitted the declaration.

*The disabled person whose level of capacity for work is rated 0-25% or 30-40%, or the disabled child who has the special need for permanent care.

More information on personal income tax can be found here: the Law on Income tax of Individuals (which came into effect on 1 January 2003), or www.vmi.lt.