Tax Incentives for Investment and Innovations

Incentives for investment and innovation

Lithuania pursues a consistent growth-friendly tax policy aimed at promotion of productive investment and innovation that support regional development.

Currently, the following corporate income tax incentives for investment and innovation shall apply:

•  to promote entrepreneurship – corporate income tax holiday is applied to small business start-ups, exempting them from corporate income tax in the first (from 2026 also in the second) year of activities;
•  to promote innovation – incentives targeting companies developing new technologies and afterwards using them in their activities to generate income:

1) triple deduction of scientific research and experimental development (R&D) costs - expenses incurred for R&D purposes may be deducted three time from income (usually costs are deducted only once);

2) faster depreciation of assets used in R&D activities – it is allowed to write off the purchase price of fixed assets used in R&D activities to costs within two years (usually carried over to costs within 3–8 years);

3) reduced tax rate for R&D commercialization – an additional incentive for companies investing in R&D – a reduced corporate income tax rate of 7 % is applied to the commercialization of inventions created in R&D activities (profits received from the use or transfer of assets created in R&D activities).

Promotion of investments in technological renewal

In order to increase the productivity, competitiveness and energy efficiency of the country's companies, a corporate income tax incentive is applied, which allows to reduce the taxable profits of companies investing in a fundamental technological renewal by up to 100%.

This incentive shall be available to companies investing in fixed assets for:

• production of new, additional products/supply of services or increasing capacity of the mentioned activities;
• implementation of a new production/service supply process;  
• a substantial change in available process (part thereof); 
•  introduction of technologies protected by international invention patents.

The aforementioned fixed assets shall be:

• attributed to the groups of fixed assets specified in Appendix 1 to the Law on Corporate Income Tax: “machinery and equipment”, “facilities (constructions, drilling wells and etc.)”, “computer and communication equipment (computers, their networks and hardware)”, “software”, “acquired rights”, and groups of fixed assets “goods vehicles, semi-trailers and trailers, buses - that are less than 5 years old - goods vehicles, semi-trailers and trailers” (in acquiring goods vehicles, semi-trailers and trailers, taxable profits, due to this acquisition, may be reduced only by EUR 300, 000 of incurred expenses during the tax period), and
•  not used and produced not earlier than 2 years ago (estimating from the beginning of the use of fixed assets).

Taxable profits may be reduced by expenses incurred in the tax periods of 2009 to 2028.  

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

As of 2026, companies that do not benefit from the investment project incentive are allowed to deduct immediately the purchase price of fixed assets, specified in Appendix 1 to the Law on Corporation Tax, classified as “machinery and equipment”, “facilities (constructions, drilling wells and etc.)”, “computer and communication tools (computers, their networks and hardware)”, ‘software”, “acquired rights” and “goods vehicles, trailers and semi-trailers, buses – that are less than 5 years old — goods vehicles, trailers and semi-trailers” in the tax period in which those assets were put into use. Such deduction of the purchase price of fixed assets shall not apply to fixed assets the acquisition costs of which reduce the taxable profits by applying the investment project incentive.

Encouraging investment in large projects

As of 1 January 2021, a corporate income tax incentive entered into force, allowing companies implementing large projects under major project investment contracts (concluded in the period 2021-2035) to be exempted from corporate income tax for 20 tax periods, where the conditions set out in the Investment Law and the Corporate Income Tax Law regarding the number of employees, the amount of private capital investment, the activities carried out, etc. are met. The incentive applies where at least 75 % of the income of the company in the relevant tax period consists of income from data processing, web server services (hosting) and related activities or income from manufacturing.

Regional promotion – corporate income tax incentives for companies registered in free economic zones:

1) a free economic zone enterprise in which capital investments reached at least EUR 1 million during 10 tax periods starting from the tax period in which this amount of investments has been reached, shall not be subject to the corporate income tax, while for next 6 tax periods the enterprise shall be subject to the reduced corporate income tax rate of 50 %. The incentive may apply only in case when at least 75 % of income of relative tax period of the zone enterprise consist of income from production or services supplied in the zone and apply to the extent it is compatible with Commission Regulation (EC) No. 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the common market in application of Articles 107 and 108 of the Treaty;

2) a free economic zone enterprise, whose average number of staff members during the tax year is at least 20 and whose capital investments reached at least EUR 100 thousand during 10 tax periods starting from the tax period in which this amount of investments has been reached, shall not be subject to the corporate income tax, while for next 6 tax periods the enterprise shall be subject to the reduced corporate income tax rate of 50 %. The incentive specified in this paragraph may apply in case when at least 75 % of income relative tax period of the zone enterprise consist of income from production or services supplied in the zone and apply to the extent it is compatible with Commission Regulation (EC) No. 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the common market in application of Articles 107 and 108 of the Treaty.

At present there are 7 free economic zones in Lithuania: Akmenė, Kaunas, Kėdainiai, Klaipėda, Marijampolė, Panevėžys, Šiauliai. 

Free economic zone – a territory for business and financial activities offering special economic and legal conditions for economic entities based on the Republic of Lithuania Law on Free Economic Zones.

Promotion of alternative financing – favourable tax treatment for alternative business financing when all income received by collective investment undertakings and venture and private equity entities is exempt from the corporate income tax and, at the same time, this exemption is applied for the participants of distributed profits – legal entities.

For more information, please contact the State Tax Inspectorate, tel. +370 5 260 5060.