Corporate Income Tax

Taxable entities that are subject to corporate income tax:

1.   Lithuanian entity, which is a legal person registered in accordance with the procedure laid down 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, which is a foreign legal person or organisation having its registered office in a foreign state and established or otherwise organised under the legal acts of that foreign state as well as any other taxable entity established, incorporated or otherwise organised abroad, including collective investment undertakings.

Tax base

The tax base of a Lithuanian entity shall be all income earned in the Republic of Lithuania and foreign states. Income from activities carried out through permanent establishments of a Lithuanian entity located 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 attributed to the tax base of the Lithuanian entity where, in accordance with the prescribed procedure, income from activities carried out through these permanent establishments is subject to corporate income tax or equivalent tax in those states.

The income of a Lithuanian entity shall also include the positive income (of its controlled foreign entity or part of such income).

The tax base of a foreign entity shall be:

1. Income from activities carried out by a foreign entity through permanent establishments in the territory of the Republic of Lithuania;

2.   Income sourced in the Republic of Lithuania and received otherwise than through permanent establishments in the territory of the Republic of Lithuania:

• interest, except for interest on government securities, interest accrued and paid on deposits and interest on subordinated loans which meet the criteria laid down by the legal acts of the Bank of Lithuania;
• income from distributed profits, except for income from distributed profits of collective investment undertakings received by a foreign entity registered or otherwise organised outside the target territory;
• income from the sale, other transfer into ownership or lease of property immovable by nature located in the territory of the Republic of Lithuania;
• compensations for violation of copyright or related rights;
• income from performing activities and sports activities carried out in the Republic of Lithuania;
• Bonuses to members of the supervisory board.

Tax rates

A 16% tax rate shall be imposed on the taxable profits of Lithuanian entities and permanent establishments of foreign entities.

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 6% during other tax periods, except for the cases specified in the Law on Corporate Income Tax.

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 6%.

Dividends and other income from distributed profits shall be subject to a tax rate of 16%.

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 a part of sponsorship received in cash from a single provider of sponsorship during the tax period which exceeds the amount of 250 minimum living standards (MLS) shall be subject to a 16% tax rate without any deductions.

From 1 January 2018 a preferential tax rate of 6 % is applied according to the formula established by the Law on the part of the taxable profits obtained from the commercialization (use, sale or other transfer of ownership) of assets created in the course of scientific research and experimental development (R&D), if the conditions established by the Law are met.

Income of a foreign entity, sourced in the Republic of Lithuania and received otherwise than through its permanent establishments situated in the Republic of Lithuania shall be subject to taxation at source, taking into account the type of income:

• by a 16 % tax rate on payments for the activities of members of the supervisory board, income from the activities of performers and sports carried out in the Republic of Lithuania, income from sold, otherwise transferred to ownership or leased property immovable by nature located in the territory of the Republic of Lithuania;
• by a 10 % tax rate on income for compensations for violation of copyright or related rights, royalties, interest paid to foreign entities that are not registered or otherwise organized in a country of the European Economic Area or a country with which a double taxation avoidance agreement has been concluded and is applied;
• interest paid to foreign entities that are registered or otherwise organized in a state of the European Economic Area or a state with which a double taxation avoidance agreement has been concluded and is applied is exempt from 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 activities, the local tax administrator may set a different tax period.

Calculation of taxable profits

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

Allowable deductions shall also include:

• all expenses for the benefit of employees, if this benefit received by employees is subject to personal income tax according to the provisions of the Republic of Lithuania Law on Personal Income Tax (the benefit is classified as taxable or non-taxable personal income);
• amounts from which, in accordance with the provisions of the Republic of Lithuania Law on State Social Insurance, state social insurance contributions are calculated and paid by the entity participant (individual company owner, true member of a true partnership, true member of a limited partnership, member of a small partnership).

Limited allowable deductions shall include:

• depreciation or amortisation costs of fixed assets (assets is depreciated over a period of 3-20 years, depending on which asset group it is assigned to);
• depreciation or amortization costs are calculated using straight-line or double-balance (less often – production) methods;
• operating, repair and renovation costs of tangible fixed assets;
• costs of work trips;
• costs of advertising and representation;
• natural losses;
• taxes;
• bad debts;
• expenses for the benefit of employees and/or their family members where the benefit is not the object of personal income tax;
• special provisions of credit institutions and insurance undertakings;
• sponsorship
• membership fees, payments and contributions;
• losses for the tax period;
• interest;
• the acquisition and rental costs of passenger cars, except in cases where these vehicles are used exclusively for rental activities, driving instruction sevices, or transportation services.

Non-allowable deductions shall include:

• value added tax 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 by related persons;
• the part 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 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, etc.

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

Tax relief for investments in R&D activities

The costs of R&D (other than the acquisition of fixed assets) shall be deducted three times from income where R&D works carried out are related to the usual or intended activities of the entity which generate or will generate income or economic benefit.

The Government of the Republic of Lithuania has approved the description of the procedure for assigning costs to the costs of R&D works, which specifies what costs and how many of them (what part of them) may be attributed to the costs of R&D works.

The acquisition price of fixed assets used in R&D activities, such as "plants and machinery", "installations", "computer and communications equipment", "other tangible assets not listed above", "software", "acquired rights", "other intangible assets", shall be assigned to the limited allowable deductions within a shorter period than usual – 2 years.

Tax relief for investments in technological renewal

The entity carrying out an investment project, making investments in fixed assets for the production of new, additional products or the provision of services, or the increase in the production (or service provision) capacity, or the introduction of a new production (or service provision) process, or a substantial change in the existing process (a part thereof), as well as for the introduction of technologies protected by international invention patents, can reduce the taxable profits calculated for the tax period and the following 4 tax periods (if the amount of expenses exceeds the amount of taxable profits for the tax period) up to 100 %.

The taxable profits shall be reduced if the assets are necessary for the entity to carry out an investment project and:

1. the assets are attributable to the following classes of fixed assets listed in Appendix 1 to the Law on Corporate Income Tax: ‘plants and machinery’, ‘installations (structures, wells, etc.)’, ‘computer and communications equipment (computers, computer networks and hardware)’, ‘software’, ‘acquired rights’ and to the class of fixed assets ‘goods vehicles, trailers and semi-trailers, buses, not older than 5 years’, namely goods vehicles, trailers and semi-trailers, and

2. the assets have not been used and were produced not earlier than two years ago (as calculated from the date when such fixed assets were put into use).

The taxable profits may be reduced only by the costs incurred during the tax periods of 2009-2028.

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

When acquiring goods vehicles, trailers and semi-trailers, the taxable profits may, due to the acquisition of such assets, be reduced only by the amount of up to EUR 300 000 of costs incurred during the tax period.

If the amount of costs of the investment project exceeds the amount of taxable profits calculated for the tax period, the expenses exceeding this amount may be carried forward to reduce the amounts of taxable profits calculated for four subsequent tax periods, respectively reducing the amount of such costs carried forward.

Tax relief for the production of a film or part thereof in Lithuania

Lithuanian entities or foreign entities that have, through a permanent establishment in Lithuania, granted free of charge the funds for the production of a film or a part thereof in the Republic of Lithuania may: 

1. Not more than 75 % of funds granted free of charge for the production of a film or a part thereof in the Republic of Lithuania may be deducted from taxable income for the tax period in which a certificate of conformity of the use of the funds granted free of charge to the filmmaker to the requirements specified in the Law on Corporate Income Tax (investment certificate*), issued in accordance with the procedure established by the Government of the Republic of Lithuania, has been received, and

2. Reduce the corporate income tax calculated for the tax period in which the investment certificate was received by the amount of funds granted by not more than 75 %. If the investment certificate is received before the deadline for submitting the corporate income tax return, the corporate income tax calculated for the previous tax period may be reduced in the tax period in which the investment certificate was received. When in a tax period the amount of funds granted free of charge for the production of a film or part thereof exceeds 75 % of the amount of corporate income tax calculated for the tax period, the costs exceeding this amount can be carried forward to the subsequent two consecutive tax periods to reduce the calculated amounts of corporate income tax, but the amount of corporate income tax calculated for each tax period may not be reduced by more than 75 %.

* investment certificate in the form established by Director of the Lithuanian Film Centre under the Ministry of Culture of the Republic of Lithuania Order No V-3 of 3 January 2014 confirms that a Lithuanian filmmaker has used the funds provided free of charge by the Lithuanian entity or foreign entity operating through a permanent establishment in Lithuania for the production of the film or part thereof, in compliance with the requirements established by the Law, i.e.:

1. the film meets the criteria for cultural content and production assessment established by the Government of the Republic of Lithuania or an institution authorised by it or, and

2. at least 80% of all the expenses of production of the film or a part thereof are incurred in the Republic of Lithuania and the expenses incurred in the Republic of Lithuania, regardless of certain expenses ( the expenses of consultations concerning the preparation of an application, the expenses of the preparation of an application, fines, late payment interest and litigation,  the expenses of acquisition, construction or renovation of fixed assets where this does not relate to the production of a film, the expenses of travel where the Republic of Lithuania is not the point of arrival or departure, the expenses of development of the film, the expenses of advertising and marketing of the film, the expenses of distribution of the film, the remuneration paid to film performers – the amount exceeding 4% of the expenses of production of the film or a part thereof) comprise at least EUR 43 000, and

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

The funds granted free of charge to the Lithuanian filmmaker in the period from 1 January 2014 to 31 December 2028 for the production of the film or a part thereof in the Republic of Lithuania may be deducted from the taxable income of a Lithuanian entity or a foreign entity operating through a permanent establishment in Lithuania.

Tax relief for companies implementing large projects

From 1 January 2021 corporate income tax relief came into effect, exempting from corporate income tax companies implementing large-scale projects under large-scale project investment contracts (concluded in the period 2021 - 2025), when the conditions laid down in the Law on Corporate Income Tax are met regarding the number of employees, the amount of private capital investments, activities carried out, etc. The relief applies where at least 75 % of the company's income for the relevant tax period consists of income from data processing, internet server services (hosting) and related activities, or income from manufacturing.

From January 1, 2025, the scope of the tax incentive for manufacturing investment projects has been expanded - the employee number requirement has been reduced, and a requirement for the average salary of employees has been introduced.

Tax relief for companies in free economic zones

A free economic zone enterprise in which capital investment has reached an amount of at least EUR 1 million shall not pay corporate income tax for 10 tax periods, starting with the tax period in which this investment amount was reached, and for the next 6 tax periods it shall be subject to a 50 % reduced rate of corporate income tax, if other conditions set out in the Law on Corporate Income Tax are also met. The relief established in this paragraph may be applied only if at least 75 % of the income of the zone enterprise for the relevant tax period consists of income from service provision or production activities carried out in the zone. If service provision activities are carried out in the zone, the relief may also be used in the case where the average number of employees in the free economic zone enterprise in the tax year is at least 20 and in which capital investments have reached an amount of at least EUR 100, 000.

Carrying forward 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 carried forward for an unlimited period of time, however such carry-forward 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 carried forward 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 the commercialization (use, sale or other transfer of ownership) of assets created in R&D activities, calculated according to the formula established by the Law, shall be carried forward to the next tax year, but shall be covered only by the share of the taxable profits obtained from the commercialization of assets created in R&D activities calculated according to the formula established by the Law.

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

The amount of deducted tax-related losses carried forward, except for tax-related losses of small entities (whose taxable profits are taxed at a rate of 6%), may not be in excess of 70 % of a taxpayer’s income during a tax period, calculated after deducting non-taxable income, allowable deductions and limited allowable deductions from income, except for losses from the previous tax period.

Taxation of dividends

Dividends and other income from distributed profits shall be subject to taxation at a 16 % tax rate. The Law establishes that the amount of corporate income tax deducted from the dividends paid by the Lithuanian entity is set off and reduces the amount of corporate income tax payable by the Lithuanian entity receiving the dividends during the tax period in which the tax was deducted from the dividends paid to it.

According to the principle of participation exemption, dividends paid by an entity to another Lithuanian or foreign entity or received from a foreign entity shall not be subject to corporate income tax, if the entity receiving the dividends holds at least 10 % of voting shares (interests, member shares) for at least 12 months without interruption. Dividends received by a Lithuanian entity for shares, capital share or other rights owned by a Lithuanian entity or a permanent establishment assigned to it by foreign entities that are registered or otherwise organized in a European Economic Area state and whose profit is subject to corporate income tax or similar tax shall not be subject to taxation.

Exemptions from the taxation of dividends shall not apply to an arrangement or a 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 2011 on 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 comprise more than one step or part. An arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.

Exemptions from the taxation of dividends received from foreign entities shall not apply to dividends by which foreign entities reduce profits subject to corporate income tax or similar tax.

Taxation of non-profit entities

Starting from 2019, non-profit entities may reduce taxable profits by the funds (with the exception of funds received from the State and municipal budgets, the State Social Insurance Fund budget, the Compulsory Health Insurance Fund budget, other public money funds, EU and other financial support, support, member fees, contributions and contribution funds) directly allocated in the current tax period or to be directly allocated in two subsequent and successive tax periods for financing of activities in the public interest.

Where the amount of funds directly allocated in the current tax period for financing of activities in the public interest exceeds the amount of taxable profits calculated for that tax period, the funds exceeding this amount may be carried forward to reduce the amounts of taxable profits calculated for two subsequent and successive tax periods, respectively reducing the amount of such funds carried forward.

Reorganisation, transfer or liquidation of an entity

The aspects of entity reorganization, property transfer taxation are aligned with the provisions of Directive 90/434/EEC. Taxation of income from the increase in the value of assets resulting from transactions listed in the Law is deferred for both participants and entities until the actual sale of the property. If the entity in liquidation distributes assets to its participants, such distribution shall be deemed to be the sale of that assets for the actual market price of that assets, and the difference between the purchase price and the sale price of that assets shall be deemed to be income from the increase in the value of assets of the entity. When liquidating an entity, losses incurred by the entity due to the transfer of assets shall be considered losses of the entity being liquidated.

Anti-avoidance provisions

The following basic rules shall apply to the calculation of corporate income tax as preventive tax policy measures to combat aggressive tax planning and avoidance:

1. general anti-avoidance rule - when calculating the corporate income tax, an arrangement (transaction, financial transaction, economic operation) or several arrangements, the main purpose or one of the main purposes of which is to obtain a tax advantage, is not taken into account, and therefore they are considered not genuine having regard to all the relevant facts and circumstances. An arrangement may comprise more than one step or part. An arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality;

2. property transfer taxation rule - in cases of property removal (transfer) from Lithuania, a tax is paid in Lithuania on the value of the property created in Lithuania, applying the same taxation rules as in cases of property sale, i.e. the increase in the economic value of the moved (transferred) property shall be subject to taxation;

3. the rule of taxation of controlled foreign entities: in certain cases (if the controlled foreign entity is registered or otherwise organized in the target territory or the profits of such an entity is subject to taxation at a level lower than 50 % of the taxation level applicable in Lithuania and the majority of the income of the entity consists of passive income) the corporate income tax base of the Lithuanian controlling entity, in proportion to the number of shares held by it, shall include the calculated income of its controlled foreign entity;

4. interest deduction limitation rule - the amount of interest costs exceeding interest income is deductible up to 30 % of the entity’s taxable EBITDA (taxable corporate income calculated from income after deducting non-taxable income, allowable and limited allowable deductions, except for depreciation and amortization amounts, the amount of increased deductions for R&D costs, the amount of the reduction of taxable income due to the production of the film or part thereof, the amount of funds provided free of charge, the deductible amount of the support granted, the amount of the losses of the previous tax periods, deductible from the income of the tax period, and the interest costs in excess of the interest income) or EUR 3,000,000 (the higher amount of these two is deducted);

5. rules for elimination of consequences caused by discrepancies in the tax procedure - a set of rules intended for different financial instruments, the classification of payments made according to them or their transfer, as well as the legal regulation or treatment of entities, permanent establishments or the income (costs) attributed to them for tax purposes, for the avoidance of double taxation of income arising in different states to eliminate cases where the same payment is tax deductible in one country and not taxed in another, or tax deductible in both countries. Cases of double non-taxation of income are eliminated by limiting the deduction of certain payments or by including income in the tax base;

6. dividends taxation rule:

• dividends taxation exemptions shall not apply to an arrangement or several 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 2011 on 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 comprise more than one step or part. An arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality;
• exemptions from the taxation of dividends received from foreign entities shall not apply to dividends by which foreign entities reduce the profits subject to a corporate income tax or similar tax;

7. the so-called thin capitalization rule: the interest paid for the use of controlled borrowed capital, calculated by applying the principle of the ratio of equity to borrowed capital (4:1), is considered unrelated to the earning of income, and when calculating the taxable profits of the controlled Lithuanian entity, the part of this interest is not deducted from the income of the Lithuanian entity;

Transfer pricing

In order to ensure an adequate distribution of the global corporate income tax base, the Law on Corporate Income Tax stipulates that all transactions must take place at the actual market price, i.e. entities shall recognize the amount received from any transaction or from any economic operation corresponding to the actual market value of such transaction or such economic operation as income or allowable deductions. In the event that transactions or economic operations between associated persons are not carried out at the actual market price, the tax administrator has the right to adjust the prices of such transactions or economic operations. The rules for the implementation of these provisions in accordance with the Transfer Pricing Recommendations of the Organization for Economic Cooperation and Development (OECD) for international companies and tax administration were established by the Order of the Minister of Finance and have been applied in Lithuania since 2004.

Administration

Corporate income tax shall be paid according to annual corporate income tax returns. The corporate income tax return shall be submitted and the corporate income tax shall be paid no later than the 15^th day of the sixth month of the next tax period.

Advance corporate income tax

The amount of advance corporate income tax shall be calculated by the taxpayer in accordance with the following procedure:

a) based on the results of activity for the previous year (in such a case, the advance corporate income tax return 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 return for the seventh-twelfth months of the tax period shall be submitted not later than on the 15th  day of the ninth month) or

b) based on the implicit results of the tax period (in such a case, the advance corporate income tax return shall be submitted not later than on the 15th  day of the third month of the tax period).

Taxpayers shall be exempt from advance payments of corporate income tax during the first tax year. Where the taxable income for the previous tax period did not exceed EUR 300 000, a taxpayer shall not be under an obligation to pay advance corporate income tax for the tax period. Advance corporate income tax must be paid not later than by the 15th day of the last month of each quarter of the tax period.

Elimination of double taxation

A Lithuanian entity may deduct the amount of corporate income tax or an equivalent tax paid in a foreign country on the income received in that country from the amount of corporate income tax calculated in accordance with the procedure established by this Law.

The Law on Corporate Income Tax was adopted on 20 December 2001, entered into force on 1 January 2002. This law replaced the Law on Corporate Income Tax of Legal Entities, which had been valid since 1990.