Corporate tax in Lithuania

Summary

Corporate Profit Tax Rate (%) 15 (a)
Capital Gains Tax Rate (%) 15 (b)
Branch Tax Rate (%) 15 (a)
Withholding Tax (%) (c)
Dividends 0 / 15 (d)
Interest 0 / 10 (e) (f)
Royalties and Know-how 0 / 10 (e) (g)
Sale, Rent, or Other Transfer of Real Estate Located in Lithuania 15 (e)
Compensation for Violations of Copyrights or Related Rights 0 / 10 (e) (g)
Net Operating Losses (Years)
Carryback 0
Carryforward 5 / Unlimited (h)

a) This is the standard rate of profit tax. Reduced rates apply to small, agricul­tural, social or nonprofit companies and to companies registered and operating in free-economic zones that satisfy certain conditions.

b) In general, capital gains are included in taxable profit and are subject to tax at the regular profit tax rate. A capital gain derived from the sale of shares of a company registered in a European Economic Area (EEA) country or in a tax treaty country is exempt from tax if either of the following conditions is satisfied:

  • The shares have been held for at least two years and the holding represents more than 25% of shares of the company throughout that period.
  • The shares were transferred in a reorganization (as stipulated in the Law on Profit Tax), the shares have been held for at least three years, and the hold­ing represents more than 25% of the shares of the company throughout that period.

This rule does not apply if the shares are sold to the issuer of the shares.

c) The withholding tax rates may be reduced by applicable tax treaties.

d) The dividend withholding tax is a final tax. Under the participation exemption rule, the rate is 0% if the recipient is a company (not located in a tax haven) that holds at least 10% of the shares of the payer of the dividends for a period of at least 12 months.

e) These withholding taxes apply to payments to nonresident companies.

f) Interest paid to an entity registered in an EEA country or in a tax treaty country is exempt from tax. In other cases, a 10% withholding tax is applied.

g) Royalties, payments for know-how and compensation for violations of copy­rights or related rights are subject to a 0% withholding tax if the criteria stipulated in the Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different member states are met. In other cases, the 10% withholding tax rate applies.

h) Losses from disposals of securities and derivative financial instruments may be carried forward five years to offset gains derived from disposals of such items. Losses from the disposal of shares of companies registered in an EEA country or in another tax treaty country cannot be carried forward if the shares have been held for at least two years and if the holding represents at least 25% of shares of the company throughout that period. However, these losses can be offset against capital gains derived from disposals of securities and derivative financial instruments in the current year. Other losses may be carried forward for an unlimited period, unless the entity ceases to carry on the activity that resulted in the loss. Also, see Section C.

Taxes on corporate income and gains

Profit tax. Under the Law on Profit Tax, Lithuanian companies are subject to profit tax on their worldwide income. Lithuanian (resi­dent) companies are defined as enterprises with the rights of legal persons registered in Lithuania. For purposes of the profit tax, Lithuanian companies include companies formed in Lithuania and companies incorporated in foreign countries that are registered in Lithuania as branches or permanent establishments.

Profits of Lithuanian companies earned through permanent estab­lishments in the EEA or in tax treaty countries are exempt in Lithuania if the profit from activities carried out through these permanent establishments is subject to corporate income tax or equivalent tax in such countries.

Foreign (nonresident) companies, which are defined as companies not incorporated in Lithuania, are subject to profit tax on their Lithuanian-source income only.

A foreign enterprise is deemed to have a permanent establishment in Lithuania if it satisfies any of the following conditions:

  • It permanently carries out activities in Lithuania.
  • It carries out its activities in Lithuania through a dependent representative (agent).
  • It uses a building site or a construction, assembly or installation object in Lithuania.
  • It uses installations or structures in Lithuania for prospecting or extracting natural resources, including wells or vessels used for that purpose.

International telecommunication income and 50% of income de­rived from transportation that begins in Lithuania and ends in a foreign country or that begins in a foreign country and ends in Lithuania are considered to be income received through a per­manent establishment if such activities relate to the activities of a foreign enterprise through a permanent establishment in Lithuania.

Tax rates. The standard profit tax rate is 15%.

A 5% rate applies to small entities with annual income not exceed­ing EUR300,000 and an average number of employees that does not exceed 10 for the tax year.

A 5% rate applies to the taxable profit of agricultural entities. An entity is deemed to be an agricultural entity if more than 50% of its income is derived from agricultural activities.

Entities registered and operating in a free economic zone benefit from 100% exemption from profit tax for 6 years and a further 50% reduction in profit tax for an additional 10 years if they make investments in fixed assets of at least EUR1 million and if at least 75% of the entity’s income is derived from the following activities:

  • Production
  • Processing
  • Storage
  • Manufacturing of aircraft and spacecraft and related equipment
  • Repair and maintenance of aircraft and spacecraft and services related to such activities
  • Computer programming activities
  • Computer consulting activities
  • Management of computer equipment
  • Other information technologies and computer services activi­ties
  • Data analytics
  • Web servers (hosting) and related activities
  • Call center activities
  • Wholesale trade in goods stored in the zone and services related to such activities

Currently, seven free-economic zones are located in Akmene, Kaunas, Kedainiai, Klaipeda, Marijampole, Panevežys and Šiauliai.

Social enterprises, which have 40% or more employees included in target groups (for example, disabled individuals and long-term unemployed), are eligible for a 0% tax rate. In addition, the entity may not perform the activities included in the list of unsupported activities (for example, hunting, and alcohol and tobacco produc­tion) of social enterprises.

Nonprofit entities are subject to profit tax if they engage in bus­iness activities. If the annual business income of a nonprofit entity does not exceed EUR300,000, a 0% tax rate applies to the first EUR7,250 of taxable profit. The remaining part of the tax­able profit is subject to tax at a rate of 15%. Income received from activities carried out to satisfy public interests that is intended to be used for the funding of such activities is not considered income received from business activities of nonprofit entities.

Entities engaged in international transportation by ships or in a directly related activity can elect to be taxed on a special tax base related to the net tonnage of their fleet. The tax on such entities is calculated by applying the 15% corporation tax to the net ton­nage instead of the taxable profit of the entities.

Capital gains. Capital gains are included in taxable profit and are subject to tax at the regular profit tax rate, except for gains and losses derived from disposals of securities and derivatives. Gains and losses on securities and derivatives are included in a separate tax base that is subject to tax at the regular profit tax rate. A capital gain derived from the sale of shares of a company regis­tered in an EEA country or in a tax treaty country is exempt from tax if the shares have been held for an uninterrupted period of at least two years and if the holding represents more than 25% of the shares of the company throughout that period.

The exemption mentioned above does not apply if the shares are transferred to the issuer of the shares.

Capital gains derived from the transfer of shares in a reorganiza­tion or from another transfer specified in the law is exempt from tax if the shares have been held for an uninterrupted period of at least three years and if the holding represents more than 25% of the shares of the company throughout that period.

Administration

Tax year. The tax year is the calendar year. Companies may re – quest permission to use a different 12-month tax year, which must be used continuously.

Profit tax. Companies must file profit tax returns with the tax inspectorate by the first day of the sixth month following the end of the tax year.

Companies must make quarterly advance payments of profit tax by the last day of the first three quarters and by the 25th day of the last quarter. The law specifies two methods that companies may choose to calculate their advance profit tax. The chosen method must be applied consistently throughout the year, but it can be changed once in the tax year. The following are the speci­fied methods:

  • The results of prior financial years. The advance payments for the first nine months are calculated based on the profit tax for the year before the preceding year. Each of these advance payments equals 25% of the profit tax for such year. For the 10th through 12th months of the tax year, the advance payment equals 25% of the profit tax calculated for the preceding tax year.
  • The forecasted profit tax of the current year. Each of the ad­vance payments equals 25% of the forecasted profit tax for such year. However, the total of the advance profit tax payments made during the tax year must total at least 80% of annual profit tax.

If companies choose to pay the advance profit tax based on the results of prior financial years, they must file two profit tax ad­vance payment returns. The first return covers the first nine months of the tax year and must be filed by the last day of the first month of the tax year. The second return covers the last 3 months of the tax year and must be filed by the last day of the 10th month of the tax year.

If the advance profit tax payment is based on the forecasted profit tax of the current year, the profit tax advance payment return must be filed by the last day of the first month of the tax year.

Newly registered enterprises in their first tax year and enterprises with taxable profit not exceeding EUR300,000 in the preceding tax year are not required to make advance payments of profit tax.

Any balance of tax due for a tax year must be paid by the first day of the sixth month following the tax year. If the total of the ad – vance payments exceeds the tax due for the tax year, a company may obtain a refund or apply the excess to future taxes. Taxes must be paid in euros.

Withholding taxes. Withholding taxes together with returns for such taxes must be submitted to the tax inspectorate by the 15th day of the month following the month in which the taxes are withheld.

Withholding taxes. Withholding tax at a rate of 10% is imposed on the following types of payments to nonresident companies:

  • Interest
  • All types of royalties
  • Compensation for violations of copyrights or related rights

Interest paid to an entity registered in an EEA country or in a tax treaty country is exempt from tax.

Royalties, payments for know-how and compensation for viola­tions of copyrights or related rights are exempt from withholding tax if the criteria stipulated in the Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated compa­nies of different member states are met.

Withholding tax at a rate of 15% is imposed on the following types of payments to nonresident companies:

  • Dividends (for further details, see Dividends)
  • Payments with respect to the sale, rent or other transfer of immovable property located in Lithuania
  • Payments for performance and sport activity in Lithuania
  • Directors’ fees to members of the Supervisory Board

Dividends. Dividends received from Lithuanian and foreign com­panies are subject to corporate profit tax at a rate of 15%. The 15% tax on dividends paid by Lithuanian companies is withheld at source.

For dividends paid by Lithuanian companies to other Lithuanian companies, profit tax for the preceding tax year is reduced for the company receiving dividends by the withholding tax calculated on the dividends. However, the amount of the reduction may not exceed the amount of profit tax for the preceding tax year. The amount of the withholding tax not used to reduce the preceding year’s tax may be set off against other taxes or refunded by the tax authorities. Payers of dividends must pay the withholding tax on the dividends to the tax authorities by the 10th day of the month following the month of payment of the dividends.

Lithuanian resident companies receiving dividends from foreign companies must pay the tax on the dividends to the tax authori­ties by the 10th day of the month following the month of receipt of the dividends.

Under the participation exemption rule, dividends are not subject to profit tax if the recipient is a company (not located in a tax haven) that holds at least 10% of the shares of the payer of the dividends for a period of at least 12 months. The participation exemption does not apply to dividends distributed to individuals from the following types of profit:

  • Profits that were subject to a 0% tax rate
  • Profits that were reduced by investment relief
  • Profits that were not taxed because of specific exemptions indi­cated in the law

Dividends paid by foreign companies to Lithuanian companies are not subject to tax if the company paying the dividends is reg­istered in an EEA country and if the company’s profits were sub­ject to corporate profit tax or an equivalent tax.

The participation exemption also applies to the following:

  • Dividends that are attributed to the permanent establishment of a foreign company in Lithuania
  • Cash payments made to reduce the company’s capital that was formed using the company’s earnings

Foreign tax relief. In general, a foreign tax credit may be claimed in an amount not exceeding the amount of Lithuanian profit tax pa yable on the foreign income. Special rules apply to particular types of income, unless a double tax treaty provides otherwise.

The exemption method is applied to profit from activities carried out through permanent establishments of Lithuanian entities in EEA countries or in tax treaty countries if profit from activities carried out through these permanent establishments is subject to corporate income tax or equivalent tax in such countries.

Determination of taxable income

General. Profit before tax equals gross revenue, minus expenses in curred in earning such revenue.

Taxable profit is calculated by taking the following actions:

  • Subtracting non-taxable income (for example, after-tax divi­dends, revenues from the revaluation of fixed assets under cer­tain circumstances and payments received from insurance com­panies up to the amount of incurred losses) from the ac counting profit
  • Taking into account nondeductible expenses and deductible ex­penses of a limited amount

Deductions are allowed if they are incurred during the usual busi­ness activity and are necessary to earn revenues or obtain eco­nomic benefits, provided that documentary evidence is presented.

Expenses incurred for the benefit of employees are allowable deductions if the benefit received by employees is subject to per­sonal income tax.

Expenses that may be deducted up to certain limits include, among others, the following:

  • Depreciation and amortization
  • Business trip expenses
  • Representation expenses
  • Provisions for bad debts
  • Natural losses

A double deduction is allowed for sponsorship payments (except payments in cash exceeding EUR9,750 to a single sponsorship recipient), up to a maximum deduction equal to 40% of the tax­able profit.

A triple deduction is allowed for research and development (R&D) costs if the scientific R&D activities are related to the usual or intended activities of the entity that generate or will generate income or economic benefits.

Nondeductible amounts include dividends and costs that are incurred outside the usual business operations, that are inappro­priately documented or that are related to earning non-taxable income.

Payments to tax havens may be deducted only if the Lithuanian enterprise can prove that certain conditions evidencing the eco­nomic basis of the transaction were met.

Other taxes (for example, social insurance contributions and real estate tax) may be deducted from taxable income.

The income and expenses of enterprises must be converted to euros.

Inventories. Inventories must be valued at actual cost, which is cal culated using the first-in, first-out (FIFO) method. On approv­al of the tax authorities, a taxpayer may apply the average cost or last-in, first-out (LIFO) method.

Tax depreciation. To calculate tax depreciation, companies may select the straight-line method, double-declining value method or production method. The selected depreciation method must be applied for all assets of the same type. To change the depreciation method, companies must obtain the approval of the local tax authorities.

Under the straight-line method, depreciation is claimed each year in equal portions. Under the double-declining value method, the de preciation or amortization coefficient is calculated by multi­plying the straight-line rate by two. For the purpose of calculating the amount of depreciation or amortization for the tax period during the first year, the acquisition price of long-term assets is multiplied by the depreciation coefficient. To calculate the depre­ciation or amortization of long-term assets during the other years, except for the last year, the residual value of long-term assets at the beginning of the tax year is multiplied by the depreciation coefficient. Under the production method, depreciation is calcu­lated based on the number of units produced over the asset’s useful life.

Accelerated depreciation may be claimed for assets used in R&D activities. The law sets the maximum depreciation rates. These rates determine the minimum number of years over which assets may be depreciated. The following are some of the minimum periods.

Assets R&D Other
Minimum period for depreciation (Years) Minimum period for depreciation (Years)
Intangible assets 2 to 15 3 to 15
Buildings and premises
Constructed or reconstructed on or after 1 January 2002 8 8
Constructed or reconstructed before 1 January 2002 15 to 20 15 to 20
Plant and machinery 2 to 15 5 to 15
Computers 2 3
Vehicles 4 to 10 4 to 10
Other assets 2 4

Relief for research and development works. In the calculation of profit tax, three times the amount of R&D expenses, except for depreciation or amortization costs of fixed assets, may be deduct­ed from income in the corresponding tax year. Fixed assets that are used for R&D may be depreciated or amortized applying ac­celerated depreciation (amortization) rates.

Relief for investment projects. The taxable profit of a Lithuanian entity may be reduced by up to 50% by the amount of expenses that are incurred in the acquisition of fixed assets used in an “in­vestment project.” For this purpose, an “investment project” is investment in certain categories of fixed assets (machinery, equip­ment, information technology hardware and software, acquired intellectual property rights and lorries, trailers and semitrailers that are not older than five years), required for the manufacturing or supply of new products (or services), increasing production volume, the implementation of a new process of production (or supply of services), essential changes to an existing process (or part of the process) and the implementation of new technologies that are protected by international patent law. Acquisition costs of lorries, trailers and semitrailers purchased during a tax year may reduce taxable profit only up to EUR300,000; the 50% taxable profit reduction rule still applies. This relief may be applied in the 2009 though 2018 tax years, and the balance of unused relief may be carried forward to the subsequent four years.

Relief for film production. A Lithuanian entity or a foreign entity operating through a permanent establishment in Lithuania that makes a contribution to a Lithuanian film producer for the pro­duction of a film or parts of a film may deduct 75% of the con­tribution from its taxable income and reduce its profit tax payable by the amount of the contribution if certain conditions are met. Profit tax payable for the tax year may be reduced up to 75%, and the balance of unused relief may be carried forward to the subse­quent two years. This tax relief may be applied in the 2014 through 2018 calendar years.

Relief for losses. Losses, except losses resulting from disposals of securities and derivative financial instruments, may be carried forward for an unlimited period. Effective from the 2014 tax year, taxpayers except for small entities can cover only up to 70% of their taxable profit with accumulated tax losses. The carry-forward of such losses is no longer allowed if the activity that resulted in the loss ceases. Loss resulting from disposals of secu­rities and/or derivative financial instruments may be carried for­ward for five years. However, such losses may be covered only by future gains from the disposal of securities and/or derivative financial instruments.

For a reorganization or transfer, the acquiring entity may carry forward the acquired losses, except for losses of entities (non­financial institutions) resulting from the disposal of securities and derivatives, incurred before the completion of the reorganization or transfer if the acquiring entity continues to carry on the activ­ity taken over or a part of such activity for a period of at least three years. Effective from the 2014 tax year, taxpayers except for small entities can cover only up to 70% of their taxable profit with tax losses acquired during a reorganization or transfer.

Groups of enterprises. Corporations are taxed separately in Lith­uania. Consolidated returns are not allowed. The transfer between group entities of tax losses incurred in the 2010 tax year and sub sequent tax years is allowed. Certain conditions apply.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax; intra-EU supplies and
exports are zero-rated
0 / 5 / 9 / 21
Real estate tax, on the taxable value
of real estate (the value is calculated
by real estate registry institutions
using methodology established by
the government); maximum rate
3
Social security tax; paid by
Employer 27.98
Employee 3
(An employee can write a request to the
pension accumulation company that it pay
additional contributions from his or her salary
to the pension accumulation fund (1% until
1 January 2016 and 2% from that date); in
such cases, an employer must withhold 4%
(5%, from 1 January 2016) as social security contributions.)
Health insurance contributions; paid by
Employer 3
Employee 6

Other significant taxes include excise duty, land and land lease tax, tax on the use of Lithuanian natural resources and pollution tax.

Miscellaneous matters

Foreign-exchange controls. The Lithuanian currency is the euro (EUR).

If agreed to by the parties, foreign currency may be used for bank payments between business entities, and the euro may be used for both bank and cash payments. Commercial operations involving foreign currency, such as purchasing, selling and exchanging, may be performed by the following:

  • Credit, payment and electronic money institutions or other pay­ment service providers if it is related to provision of payment service
  • Financial brokerage companies if it is related to provision of investment service
  • Currency exchange operators working under the Law on Cur­rency Exchange Operators

Transfer pricing. Entities operating in Lithuania that had revenues exceeding EUR2,896,200 for the tax year preceding the tax year during which transactions with related parties are undertaken are subject to the Lithuanian transfer-pricing rules. Under these rules, they must maintain supporting documentation establishing that all transactions with associated parties are carried out on an arm’s-length basis. Lithuanian transfer-pricing rules are based on the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

Companies must file with the tax inspectorate a return reporting the transactions entered into with associated parties, together with their profit tax returns, if the total value of the transactions exceeds EUR90,000.

Controlled foreign companies. Certain income of controlled enti­ties located in countries or zones included in the special list approved by the Minister of Finance is added to taxable income of Lithuanian entities and taxed at the standard profit tax rate.

Treaty withholding tax rates

The following table lists the maximum withholding rates under Lithuania’s tax treaties.

Dividends

%

Interest

%

Royalties

%

Armenia 5/15 (a) 10 10
Austria 5/15 (a) 10 5/10 (b)
Azerbaijan 5/10 (a) 10 10
Belarus 10 10 10
Belgium 5/15 (a) 10 5/10 (b)
Bulgaria 0/10 (c) 10 10
Canada 5/15 (a) 10 10
China 5/10 (a) 10 10
Croatia 5/15 (d) 10 10
Cyprus 0/5 (c) 0 5
Czech Republic 5/15 (a) 10 10
Denmark 5/15 (a) 10 5/10 (b)
Estonia 5/15 (e) 10 10
Finland 5/15 (a) 10 5/10 (b)
France 5/15 (d) 10 5/10 (b)
Georgia 5/15 (f) 10 10
Germany 5/15 (a) 10 5/10 (b)
Greece 5/15 (a) 10 5/10 (b)
Hungary 5/15 (a) 10 5/10 (g)
Iceland 5/15 (a) 10 5/10 (b)
India 5/15 (d) 10 10
Ireland 5/15 (a) 10 5/10 (b)
Israel 5/10/15 (d) 10 5/10 (b)
Italy 5/15 (d) 10 5/10 (b)
Kazakhstan 5/15 (a) 10 10
Korea (South) 5/10 (a) 10 5/10 (b)
Kyrgyzstan 5/10 (e) 10 10
Latvia 0/15 (h) 0 0
Luxembourg 5/15 (a) 10 5/10 (b)
Macedonia 0/10 (k) 10 10
Malta 5/15 (a) 10 10
Mexico 0/15 (k) 10 10
Moldova 10 10 10
Netherlands 5/15 (a) 10 5/10 (b)
Norway 5/15 (a) 10 5/10 (b)
Poland 5/15 (a) 10 10
Portugal 10 10 10
Romania 10 10 10
Russian Federation 5/10 (i) 10 5/10 (b)
Serbia 5/10 (i) 10 10
Singapore 5/10 (a) 10 7.5
Slovak Republic 10 10 10
Slovenia 5/15 (a) 10 10
Spain 5/15 (a) 10 5/10 (b)
Sweden 5/15 (a) 10 5/10 (b)
Switzerland 5/15 (e) 10 5/10 (b)
Turkey 10 10 5/10 (b)
Turkmenistan 5/10 (a) 10 10
Ukraine 5/15 (a) 10 10
       
United Arab Emirates 0/5 (c) 0 5
United Kingdom 5/15 (a) 10 5/10 (b)
United States 5/15 (d) 10 5/10 (b)
Uzbekistan 10 10 10
Non-treaty
countries
0/15 (j) 10 10

 

a) The 5% rate applies if the recipient owns more than 25% of the authorized capital of the payer.

b) The 5% rate applies to royalties paid for the use of industrial, commercial or scientific equipment. The 10% rate applies to other royalties.

c) The 0% rate applies if the recipient owns more than 10% of the authorized capital of the payer.

d) The 5% rate applies if the recipient owns at least 10% of the authorized capital of the payer.

e) The 5% rate applies if the recipient owns at least 20% of the authorized capital of the payer.

f) The 5% rate applies if the recipient owns more than 25% of the authorized capital of the payer and if the total value of the recipient’s investment is at least USD75,000.

g) The 5% rate applies to royalties paid for the use of industrial, commercial or scientific equipment or for transmission by satellite, cable, optic fiber or similar technology. The 10% rate applies to other royalties.

h) The 0% rate applies if the recipient owns more than 25% of the authorized capital of the payer.

i) The 5% rate applies if the recipient owns more than 25% of the authorized capital of the payer and if the total value of the recipient’s investment is at least USD100,000.

j) The 0% rate applies if the recipient holds more than 10% of the shares of the payer of the dividends for a period of at least 12 months.

k) The 0% rate applies if the recipient owns at least 10% of the authorized capital of the payer.

l) The 5% rate applies if the recipient owns at least 25% of the authorized capital of the payer.