Tax Incentives for Investment and Innovations

Lithuania pursues a consistent growth-friendly tax policy aimed at promotion of productive investments and innovations supporting regional development.  

Currently available corporate income tax incentives for investments and innovations shall apply for:

• encouraging entrepreneurship– a one-year corporate income tax holiday for small business start-ups applied from 1 January 2018, when the corporate income tax is not paid during the first year of activities;

• promoting innovations – tax incentives targeting companies developing new technologiesand afterwards using them in their activities to generate income:

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

  2) shorter depreciation period for assets used in R&D – the acquisition price of fixed assets used in R&D activities may be written-off within two years (usually it is written-off within 3-8 years);

  3) tax incentive for R&D commercialisation – since 2018 an additional incentive for companies investing in R&D – a reduced 5 % rate of the corporate income tax for commercialisation of inventions created in R&D activities (profits from the use or transfer of assets in R&D activities) has been introduced.

Promotion of investments in technological renewal

In order to increase efficiency, competitiveness and energy efficiency of national companies, in end-2008 Lithuania adopted the corporate income tax incentive allowing to reduce taxable profits of the companies investing in fundamental technological renewal down to 50 %.

Since 2018 the scope of the incentive has been expanded and currently the companies investing in technological renewal are offered an opportunity of decreasing taxable profits by the investment amount up to 100 %.

This incentive may be used by companies investing in fixed assets intended for:

1.   production of new, additional products/supply of services or increasing capacity of the mentioned activities;

2.   implementation of a new production/service supply process;

3.   a substantial change in available process (part thereof);

4.   introduction of technologies protected by international invention patents.

The aforementioned fixed assets shall be:

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

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 may be reduced by expenditure incurred during the period of 2009-2028.

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.

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

1) a free economic zone company, whose 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 company 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 company 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 company, 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 company 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 company 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 and 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 distributable profits – legal entities.

For more detailed information, please contact the State Tax Inspectorate, tel.: (+370 5) 1882.

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