BDAR

Corporate Income Tax

Corporate income tax paid by the following taxable entities:

1.   Lithuanian entity – a legal person registered following the procedure established by the legal acts of the Republic of Lithuania, as well as a collective investment undertaking without legal personality established in the Republic of Lithuania;

2.   Foreign entity – a legal person or organisation of a foreign state, whose permanent establishment is in the foreign state and which have been established or otherwise organised following the legal acts of a foreign state, as well as any other taxable entity established, founded or otherwise organised in a foreign state, including collective investment undertakings.

Tax base

Tax base of the Lithuanian entity shall be all income derived in the Republic of Lithuania and foreign states. Income derived from activities through permanent establishments of the Lithuanian entity located in the European Economic Area countries or states with which Lithuania has concluded a treaty for the avoidance of double taxation shall not be attributed to the tax base of the Lithuanian entity, if income derived from activities performed through these permanent establishments is subject to the corporate income tax or adequate tax in these states following the procedure established.

Positive income (income or part thereof of controlled foreign entities) shall also be included into the income of the Lithuanian entity.

Tax base of a foreign entity shall be:

1.   Income of a foreign entity derived from activities performed through permanent establishments within the territory of the Republic of Lithuania;

2.   Income received not through permanent establishments within the territory of the Republic of Lithuania, sourced in the Republic of Lithuania:

  • interest, except for interest on Government securities,  accrued and paid on deposits as well as interest on subordinated loans that satisfy the criteria set in the legal acts of the Bank of Lithuania;

  • income from distributed profits, except for income generated from distributed profits of collective investment undertakings by a foreign entity registered not in the target territory or otherwise organised;

  • gains from sold or otherwise transferred into ownership or leased immovable by nature property located in the territory of the Republic of Lithuania;
  • income from compensations for violation of copyright or adequate rights;

  • income from activities by artistes and sportsmen performed within the territory of the Republic of Lithuania;

  • bonuses for activities of the supervisory board members.

Tax rates

Taxable profits of permanent establishments of the Lithuanian entities and foreign entities shall be taxed at 15 % rate.

Taxable profits of entities whose average number of employees on the staff list does not exceed 10 and whose income during a tax period does not exceed EUR 300 000 shall be taxed at a rate of 0% during the first tax period, and at a rate of 5% during other tax periods, except for the cases specified in the law.

Taxable profits of cooperative societies (cooperatives) more than 50% of whose income during a tax period consists of income from agricultural activities, including income of cooperative societies (cooperatives) from the sold agricultural products acquired from own members and produced by those members, shall be taxed at a rate of 5%.

Dividends and other income from distributed profits shall be taxed at a rate of 15 %.

A 15% tax rate without any deductions shall be imposed on sponsorship received, which is used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship, as well as on a part of sponsorship received in cash from a single provider of sponsorship during the tax period which exceeds the amount of 250 MLS.

Since 1 January 2018 a reduced rate of 5 % on a share of taxable profits calculated by the formula established by the law generated from commercialisation (use, sale or other transfer into ownership) of assets created in performance of R&D activities shall be imposed, if the terms and conditions stipulated in the law are satisfied.

Income sourced in the Republic of Lithuania and received by a foreign entity otherwise than through permanent establishments in the territory of the Republic of Lithuania shall be subject to taxes withheld at source considering the type of income:

  • by applying a 15 % rate on bonuses foractivities of the supervisory board members, income from activities by artistes and sportsmen performed within the territory of the Republic of Lithuania, gains from sold or otherwise transferred into ownership or leased immovableby nature property located in the territory of the Republic of Lithuania;

  • by applying a 10 % rate on taxable income from compensations for violation of copyright or adequate rights, royalties, foreign entities not registered or otherwise organised in a state of the European Economic Area or states with which the Republic of Lithuania has concluded and brought into effect treaties for the avoidance of double taxation, interest paid;

  • interest paid to foreign entities not registered or otherwise organised in a state of the European Economic Area or states with which the Republic of Lithuania has concluded and brought into effect treaties for the avoidance of double taxation shall not be subject to the corporate income tax.

    Tax period

    The tax period shall be a calendar year. At the request of a taxpayer and taking into account the characteristics of his activity, the local tax administrator may set a different tax period.

    Calculation of taxable profits

    For the purpose of calculating taxable profits of a Lithuanian entity, non-taxable income and allowable deductions, including limited allowable deductions, shall be deducted from income received during the tax period. Allowable deductions shall be all usual costs that an entity actually incurs for the purpose of earning income or deriving economic benefit.

    Allowable deductions shall also be:

  • all expenses for the benefit of employees where the benefit received by the employees is the object of personal income tax in accordance with the provisions of the Law of the Republic of Lithuania on Personal Income Tax (the benefit is attributed to taxable or non-taxable income of individuals);

  • amount from which state social insurance contributions of a member of an entity (owner of an individual enterprise, full member of a partnership or of a limited partnership, member of a small partnership) are calculated and paid in accordance with the provisions of theRepublic of Lithuania Law on State Social Insurance.

    Limited allowable deductions shall be:

  • depreciation or amortisation costs of fixed assets (assets, depending on the group of assets it is attributed to, are depreciated within the period of 3–20 years); for the purpose of calculating the tax, the linear method or double declining balance method shall be used;

  • operating, repair and renovation costs of tangible fixed assets;

  • costs of work trips;

  • costs of advertising and representation;

  • natural losses;

  • bad debts;
  • expenses for the benefit of employees and/or their family members where the benefit is not the object of the personal income tax;

  • special provisions of credit institutions and insurance undertakings;

  • membership fees, payments and contributions;
  • losses for the tax period;

  • VAT paid to the budget and corporate income tax;
  • default interest, fines and late payment interest paid to the budget and state funds and other sanctions;

  • interest or other payments made in respect of defaulting on contractual obligations of related persons;

  • the portion of limited deductions which exceeds the prescribed amounts;

  • dividends or profits distributed in any other way (the share of profits intended for the payment of annual bonuses to members of the board or the supervisory board, for the benefit of employees or for provision of the benefit shall not be considered to be distributed profits);

  • allowable deductions and limited allowable deductions attributed to non-taxable income;

  • other costs not related to earning income, costs relating to unusual activities of an entity and costs which are not considered to be allowable deductions under this Law and etc.

Payments made by a Lithuanian entity or permanent establishment to foreign entities registered or otherwise organised in target territories shall be considered to be non-allowable deductions, if there is a lack of evidence that such payments are related to usual activities of the paying and receiving entity and there is a link between the payment and the economically feasible operation.

Tax incentives for investments to scientific research and experimental development

Costs of entities (other than acquisition of fixed assets) incurred in scientific research and experimental development (hereinafter - R&D) shall be deducted from income three times, if R&D work is linked to the entity’s usual activities performed or planned to be performed which generate or will generate income or economic benefit.   

The Government has approved the Description of the Procedure for Attributing Costs to R&D Costs which specify which costs and their quantity (part thereof) may be attributed to R&D work costs.

The acquisition costs of fixed assets such as “machines and equipment”, “facilities”, “hardware and communication equipment”, “other not elsewhere classified tangible assets”, “software”, “acquired rights”, “other non-tangible assets” used in R&D activities shall be attributed to limited allowable deductions within a shorter than usual period, i.e. within the 2 –year period.

Tax incentive for investments to technological renewal

An entity implementing the investment project – making investments to fixed assets directed towards the production of new, additional products or provision of services or capacity building of production (or provision of services), or implementation of a new production (or provision of services) process, or a substantial change of available process (part thereof), as well as implementation of technologies protected by international invention patents, may reduce taxable profits calculated for a tax period and subsequent 4 tax periods (if the amount of expenditure exceeds the amount of taxable profits for a tax period) by 100 %.

Taxable profits may be reduced, if the property is necessary for the implementation of the entity’s investment project and:

1.   property is attributable to the group of fixed assets “machines and equipment”, “facilities (constructions, drilling wells and etc.)”, “hardware and communication equipment (computers, their networks and equipment)”, “software”, “acquired rights” referred to in Annex 1 to the Law on Corporate Income Tax, and groups of fixed assets “lorries, semi-trailers and trailers, buses - that are less than five years old - lorries, semi-trailers and trailers”, and

2.   property is not used and produced not earlier than 2 years ago (estimating from the beginning of the use of fixed assets).

Taxable profits maybe reduced only by expenditure incurred over the tax periods during 2009-2023.

Fixed assets for the acquisition of which taxable profits have been reduced, shall be used in the entity’s activities at least for three years.

In acquiring lorries, semi-trailers and trailers, taxable profits for acquisition of this type of assets may be reduced by the amount of up to EUR 300, 000 of expenditure incurred during the tax period.

If the amount of expenditure of the investment project is higher than the amount of taxable profits calculated for a tax period, the expenditure exceeding this amount maybe transferred to reduce the amounts of taxable profits of subsequent four consecutive tax periods, by reducing the transferred amount of such expenditure accordingly.

Tax incentive for production of a film or part thereof in Lithuania

The Lithuanian entities or foreign entities acting through the permanent establishment in Lithuania which donated their funds to the producer of the Lithuanian film for the production of a film or part thereof shall be granted the possibility of:

1.   deducting not more than 75% of funds donated for the production of a film or part thereof in the Republic of Lithuania from taxable income for the tax period in which a certificate of conformity of the use of the funds donated to the producer to the requirements specified in the law (hereinafter - an Investment Certificate*) issued in accordance with the procedure established by the Government of the Republic of Lithuania, has been received, and

2.   reducing the corporate income tax calculated for the tax period in which the Investment Certificate has been received by the donated amount, but not more than by 75%. If the Investment Certificate is received before the end of the deadline for the submission of the corporate income tax declaration, the corporate income tax taxable for the previous tax period maybe reduced also during the tax period in which the Investment Certificate has been received. When during the tax period the amount of funds donated for the production of a film or part thereof is higher than 75 % of the amount of the corporate income tax calculated for the tax period, the expenditure exceeding this amount maybe transferred to reduce the amounts of the corporate income tax calculated in subsequent two consecutive tax periods. However, the amount of the corporate income tax calculated for each tax period may not be reduced by more than 75 %.

* The Investment Certificate in the format established by Order No. V-3 of the Director of the Lithuanian Film Centre under the Ministry of Culture of the Republic of Lithuania of 3 January 2014 confirms that the Lithuanian film producer used the funds donated by the Lithuanian entity or foreign entity acting through the permanent establishment in Lithuania for the production of a film or part thereof following the requirements set in the law, i.e.:

1.   a film satisfies the cultural content and production evaluation criteria established by the Government of the Republic of Lithuania or its authorised institution, and

2.   at least  80 % of total costs of a film or part thereof are incurred in the Republic of Lithuania and costs incurred in the Republic of Lithuania, excluding respective costs (expenses of consultations on preparation of the certificate, expenses of the preparation of the certificate, fines, default payments, costs of litigation, acquisition of fixed assets, construction, reconstruction costs if related to the film production, travel expenses when the Republic of Lithuania is not the point of arrival and departure, costs of preparatory works of the film, film advertising, marketing expenses, film distribution expenses, remuneration for artists – the amount exceeding 4 % of total costs of production of a film or part thereof), amounted at least EUR 43, 000, and

3.   total amount of funds donated by all Lithuanian entities or foreign entities acting through their permanent establishments in the Republic of Lithuania does not exceed 30 % of total costs incurred for the production of a film or part thereof.

The funds donated to the Lithuanian film producer for the production of a film or part thereof during the period of 1 January 2014 – 31 December 2023 may be deducted from taxable income of the Lithuanian entity or foreign entity acting through their permanent establishments in the Republic of Lithuania.

Transfer of losses

Losses for the tax period, except for losses from the transfer of securities and/or derivative financial instruments (not financial institutions), may be transferred for an unlimited period of time, however such a transfer shall be terminated if the entity ceases its activities due to which the losses were incurred, except for the cases where the entity ceases the activities for reasons beyond its control.

Losses from the transfer of securities and/or derivative financial instruments (not financial institutions), shall be transferred for no longer than five consecutive tax periods, however, such losses shall only be covered from the income received from the transfer of securities and/or derivative financial instruments.

Losses incurred due to commercialisation (use, sale or other transfer into ownership) of assets created in R&D activities calculated by the formula established by the law shall be transferred to the next tax year; however they shall be offset only by the share of taxable profits derived from commercialisation of assets calculated by the formula established by the law.

Entities may, under certain conditions, transfer taxable profits calculated for 2010 and later tax periods to other entities of the group of entities that have the right to reduce the amount of taxable profits by the losses transferred to them.

The amount of transferred deductible tax losses, except for tax losses of small entities (subject to a reduced tax rate of 5 %) may not be higher than 70 % of the taxpayer’s income during the tax period calculated by deducting non-taxable income, allowable deductions and limited allowable deductions, except for losses of previous tax periods, from income.

Taxation of dividends

Dividends and other income from distributed profits shall be subject to a corporate income tax rate of 15%. The law provides for that the amount of the corporate income tax deducted from the dividends paid by the Lithuanian entity shall be offset and shall reduce the amount of the corporate income tax payable by the Lithuanian entity receiving dividends during the tax period in which the tax has been deducted from dividends paid to it.

Pursuant to the participation exemption principle, dividends paid by an entity to other Lithuanian or foreign entity or dividends received from a foreign entity are not subject to the corporate income tax, if an entity receiving dividends holds for an uninterrupted period of at least 12 months at least 10% of voting shares (interests, member shares). Dividends received for shares, share capital or other rights held by the Lithuanian entity or assigned to it by foreign taxable entities registered or otherwise organised in any state of the European Economic Area and profits of which are subject to the corporate income tax or adequate tax shall be non-taxable.

Tax exemptions for dividends shall not apply to an arrangement or series of arrangements, which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of Council Directive 2011/96/EU of 30 November 2011on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, are not genuine having regard to all relevant facts and circumstances. An arrangement may include more than one phase or part. An arrangement or series of arrangements shall be deemed non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.

Tax exemptions for dividends received from foreign entities shall not apply to dividends by which foreign entities reduce profits subject to the corporate income tax or adequate tax.

Taxation of non-profit entities

Since 2019 non-profit entities may reduce taxable profits by the funds (except for the support received from State and municipal budgets, SSIF budget, CHIF budget, other state monetary funds, EU and other financial assistance, member fees, contributions and instalments) directly allocated in the current tax period or to be directly allocated in two subsequent and consecutive tax periods for financing of activities in the public interest.

Reorganisation, transfer or liquidation of an entity

Taxation aspects of reorganisation, transfer of entities are in line with the provisions of Directive 90/434/EEC. Deferral of the taxation of the capital gains occurred during the transactions specified in the law shall apply both to participants and entities till the date of their actual sale.
If a liquidated entity distributes the property to its participants, such a distribution shall be deemed to be as sale of property for its actual market price, and the difference between the acquisition price of this property and selling price will be deemed to be capital gains of an entity. In liquidating the entity, losses incurred by the entity as a result of the transfer of property shall be treated as losses of the liquidated entity.

Anti-avoidance provisions

In calculating the corporate income tax, the following basic rules are considered as preventive tax policy instruments in combat against tax avoidance:

1. general anti-avoidance rule - in calculating the corporate income tax, an arrangement (transaction, economic transaction) or series of arrangements whose the main purpose or one of the main purposes of obtaining a tax advantage, are not taken into consideration, and therefore, they are deemed non-genuine having regard to all relevant facts and circumstances. An arrangement may include more than one phase or part. An arrangement or series of arrangements shall be deemed non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality;

2. ‘thin capitalization’ rules: interest paid for the use of controlled leverage calculated under the leverage ratio principle (4:1) is deemed not related to generation of income and in calculating taxable profits of a controlled Lithuanian entity, a share of this interest shall not be deducted from income of the Lithuanian entity;

3. rules of ‘taxation of controlled foreign entities’: in some cases (if a controlled foreign entity is registered or otherwise organised in the target territory, or profits of such an entity is taxed at a lower rate than 50 % of taxable rate applied in Lithuania and the major share of the entity’s income consists of passive income), calculated income of a controlled foreign entity is included into the corporate income tax base of the Lithuanian controlled entity in proportion to the number of its disposed shares;

4. ‘interest limitation’ rule – a deductible amount of interest costs exceeding interest revenue up to 30 % of taxable EBITDA of the entity (taxable profits calculated by deducting non-taxable income, allowable and limited allowable deductions, except for depreciation and amortisation amounts, amount of increased deductions of R&D work costs, amount of reduced taxable income due to donated funds for the production of a film or part thereof, deductible granted sponsorship amount, amount of losses of previous tax periods deducted from income of a tax period and interest costs exceeding interest revenue from income) or EUR 3, 000, 000 (a larger amount out of the two is deducted);

5. Taxation of dividends:

  • Tax exemptions for dividends shall not apply to an arrangement or series of arrangements, which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of Council Directive 2011/96/EU of 30 November 2011on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, are not genuine having regard to all relevant facts and circumstances. An arrangement may include more than one phase or part. An arrangement or series of arrangements shall be deemed non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality;

  • Tax exemptions for dividends received from foreign entities shall not apply to dividends by which foreign entities reduce profits subject to the corporate income tax or adequate tax.

Transfer pricing

In order to ensure adequate distribution of the global corporate income tax base, the Law on Corporate Income Tax provides for that all transactions shall be made at actual market price, i.e. entities shall acknowledge the amount received from any transaction or any economic transaction corresponding to the actual market price of such a transaction or economic transaction as income or allowable deductions. In case when transactions or economic transactions between associated persons are made at actual market price, a tax administrator shall have the right to correct prices of such transactions or economic transactions. Based on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration, the rules of the implementation of these provisions are established by the order of the Minister of Finance and applied in Lithuania since 2004.

Administration

The corporate income tax shall be paid based on annual corporate income tax declarations. The corporate income tax declaration shall be submitted and corporate income tax paid no later than by the 15th day of the sixth month of the next tax period.

Advance corporate income tax

Taxpayers may calculate the amount of the advance corporate income tax based on:

a) operational results of the previous tax period (in such case the advance corporate income tax declaration for the first six months of the tax period shall be submitted not later than on the 15th day of the third month of the tax period. The advance corporate income tax declaration for seventh-twelfth months of the tax period shall be submitted no later than on the 15th day of the ninth month of the tax period) or

b) projected tax period results (in such case the advance corporate income tax declaration shall be submitted no later than on the 15th day of the third month of the tax period).

During the first tax year taxpayers shall be exempt from the advance corporate income tax. If taxable income of the previous tax period did not exceed EUR 300,000, a taxpayer is not obliged to pay the advance corporate income tax during the tax period. The advance corporate income tax shall be paid no later than on the 15th day of the last month of the quarter of each tax period.

Avoidance of double taxation

The Lithuanian entity may deduct the amount of the corporate income tax or adequate tax paid in a foreign state from income derived in this state from the amount of the corporate income tax calculated in accordance to the procedure established in this Law.

The Law on Corporate Income Tax was adopted on 20 December 2001 and came into force on 1 January 2002. This law substituted the Law on Corporate Income Tax of Legal Entities which was in effect since 1990.

Last updated: 19-11-2020