Last modified: 30/12/2024 08:05

Corporate taxation

	Rate
Corporate income tax rate	16
Branch tax rate	16
Capital gains tax rate	15

Residence: The Lithuanian Corporate Income Tax Act (Pelno mokeščio įstatymas) distinguishes between ‘Lithuanian legal persons’ and ‘foreign legal persons’, and does not refer to residence. A Lithuanian legal person is a legal person duly established under Lithuanian law, whereas a foreign legal person is a legal person established under foreign law. These categories are thus broadly equivalent to residence and non-residence.

Basis: In principle, all legal persons and entities, where not specifically exempt, are liable to corporate income tax (actually known as ‘profit tax’). A Lithuanian legal person (see below) is liable to corporate income tax on its worldwide income, whereas a foreign legal person is taxable on its Lithuanian-source income only, unless it has a permanent establishment in Lithuania, in which case that establishment is treated as if it were a separate Lithuanian legal person. A Lithuanian entity with a permanent establishment abroad in a jurisdiction that is either within the European Economic Area or that has a double tax treaty with Lithuania is not taxed in Lithuania on the profits of that permanent establishment if they are taxable in that jurisdiction. A permanent establishment is considered to exist where a foreign entity permanently carries out activities in Lithuania; or carries out its activities in Lithuania through a dependent representative (agent) with the authority to conclude contracts; or uses a building site, a construction, assembly or installation object; or makes use of installations or structures in Lithuania for prospecting or extracting natural resources, including wells or vessels used for that purpose, beyond a certain period of time.

Taxable income: Taxable income includes any type of income earned and/or received in cash and/or in kind from a source in or outside Lithuania. Income and costs are generally recognised on an accruals basis and in accordance with Lithuanian BAS. Companies may opt for cash accounting if their annual income has not exceeded EUR 30 000 in any of the last three taxable periods. When a company’s annual income exceeds that amount in any taxable period, it must switch to accruals accounting from the beginning of the next period, and it may not revert to cash accounting thereafter. Under cash accounting, revenue is not recognised until received and expenditure, determined as for the accruals basis, is recognised in the period in which the income to which it is related is recognised. Taxable income is based on the net profit recognised in the income statement, adjusted as follows: • By deducting non-taxable income • By adding back disallowable expenditure and the appropriate part of expenditure with limited deductibility

Non-taxable income includes:

• Receipts from insurance policies in respect of loss or damage

• Revaluation surpluses from revaluation of fixed assets or securities

Significant local taxes on income: None.

Alternative minimum tax: The standard rate of corporate income tax is 15%. A special reduced rate of 6% (and 0% for the first year) applies to ‘small’ companies, defined as having: • An average number of employees no greater than 10 • And taxable income of no more than EUR 300 000 A 6% rate is also applicable to cooperative companies deriving more than 50% of their income from agricultural activities.

Taxation of dividends: Dividends received by a Lithuanian company from another Lithuanian company are exempt from corporate income tax where the recipient company has held at least 10% of the voting rights in the distributing company for an uninterrupted period of at least 12 months. Dividends that do not qualify for exemption are subject to tax and are paid under deduction of withholding tax of 15%. This withholding tax may be credited against the recipient company’s liability to corporate income tax. Excess credits may be refunded. Dividends received from foreign companies are normally subject to corporate income tax, but a participation exemption exists in respect of dividends where: • The distributing company is subject to a tax equivalent to Lithuanian corporate income tax and is not located in a listed tax haven and • The recipient company has held at least 10% of the voting rights in the distributing company for an uninterrupted period of at least 12 months Any foreign withholding tax on the dividend may be set against the Lithuanian tax due on the dividend.

Capital gains: Capital gains are treated in the same way as ordinary business income and are subject to the standard rate of corporate income tax. There are no inflation adjustments in computing gains. Capital gains from the disposal of shares in a company incorporated in the European Economic Area or a jurisdiction with which Lithuania has a double tax treaty are exempt provided that: • The company whose shares they are is subject to corporate income tax or an equivalent tax • The Lithuanian company making the disposal has held more than 10% of the voting rights in the company concerned for an uninterrupted period of at least two years and • The acquiring party is not the issuing company Losses from a disposal on which a gain would be exempt as above may be set off against taxable gains from the disposal of other shares and securities in the same taxable period, up to the limit of those taxable gains. No carry-forward of excess losses is permitted.

Losses: Losses arising from ordinary operating activities may be carried forward indefinitely, provided that the trade in which they were incurred continues to be carried on. Losses incurred on the disposal of securities or derivative financial instruments may be carried forward for a maximum of five years, but are available for set-off against income from such disposals only. On a change of ownership, losses continue to be available provided that the trade remains the same.

Foreign tax relief: Residents are entitled to a relief from double taxation under effective double taxation treaties (DTTs). According to the domestic legislation, income received by a resident of Lithuania in a foreign country that is an EU member state or with which Lithuania has a valid DTT is tax exempted in Lithuania only if the documentary evidence concerning the income received in that foreign country and the amount of income tax or equivalent tax paid on such income is submitted to the tax authorities.

This rule does not apply for interest, dividends and royalties received. In these cases, tax credit can be taken in Lithuania for PIT (or its equivalent) paid abroad. However, tax credit may not exceed Lithuanian PIT attributable to the income taxed abroad. Also, it cannot be higher than foreseen by the DTT between the two countries (even though the national law may allow taxation at higher rates). Residents can also deduct the tax actually paid on income sourced in third countries (up to the PIT rate applicable to such income in Lithuania), provided that supporting documentation from a foreign tax administrator is provided to the Lithuanian tax authorities.

Participation exemption: See under dividend taxation

Holding-company regime: See under dividend taxation. No special regime

Tax-based incentives: Accelerated depreciation Certain fixed assets, such as machinery, IT equipment and software, where used for the purposes of research and development, may be depreciated at the straight-line rate of 50%. Investment projects Where companies invest in the years 2023-2028 (inclusive) in certain types of fixed asset in order to manufacture new products, provide new services or make substantial changes in existing business processes, they may claim a deduction against taxable income of 100% of their investment, but not so as to reduce taxable income below zero. Any excess deduction may be carried forward for a maximum of four years.

Qualifying investments include the acquisition of plant and machinery, structures, computer and communications equipment, rights to intangible property etc. The assets must be unused and no more than two years old, and must be applied in the company’s business operations for a minimum of three years. Research and development expenditure Qualifying R&D expenditure may be deducted at a rate of 300% (i.e. triple). Tax reliefs in free zones In the seven existing free economic zones (Akmenė, Kaunas, Kėdainiai, Klaipėda, Marijampolė, Panevėžys, Šiauliai), in return for an investment of at least EUR 1 million, special tax reliefs are available. These include: • Exemption from corporate income tax for the first ten years • Profits of the next six years are taxed at 50% of the normal rate (i.e. at 7.5%) • Exemption from immovable property tax (for which see Chapter 8) • Exemption for dividends

Group relief/fiscal unity: Lithuanian tax law recognises the concept of a group of companies, consisting of a parent entity and one or more taxable subsidiaries, in each of which the parent entity holds more than 25% of the shares. There is no consolidated taxation, but current-period losses may be transferred between companies in a group provided that:

• On the day of transfer, the parent company in the group holds, directly or indirectly, at least two-thirds of the shares of each of the subsidiaries taking part in the transfer and

• The losses are transferred between companies that have been members of the group for an uninterrupted period of at least two years immediately preceding the day of transfer

Where a company has been a member of the group since its incorporation but not yet for two years, it may participate in the transfer on condition that it remains a member of the group for an uninterrupted period of at least two years from the date of incorporation. A foreign group member may transfer tax losses (or a part thereof) to a Lithuanian group member only where: • The foreign company is resident in an EU Member State • It takes one of the corporate forms listed in the Annex to the Mergers Directive (90/434/EEC) and is subject to one of the corporate taxes specified in Article 3(c) of that Directive • The losses to be transferred may not be carried forward to the following tax year or deducted from its income or profit under the law of its state of residence and • The losses transferred by the foreign company are calculated in accordance with Lithuanian law A company may not transfer losses of a taxable period in respect of which it is exempt from corporate income tax or subject to a zero rate of that tax.

Small company/alternative tax regimes: A special reduced rate of 6% (since year 2025 the rate will be increased one percent due to threat of war) and 0% rate (for the first year) applies to ‘small’ companies, defined as having: • An average number of employees no greater than 10 • And taxable income of no more than EUR 300 000 A 6% rate is also applicable to cooperative companies deriving more than 50% of their income from agricultural activities.

Corporate taxation: compliance

Tax year: The taxable period is the company’s accounting period, which is normally the calendar year. Provided objective reasons exist, a company may seek STI approval for a different accounting period.

Consolidated returns: None.

Filing and payment: Annual corporate tax returns must normally be filed within five months of the year-end. Hence the last filing date for the taxable period which is the year ending 31 December 2021 is 1 June 2022. Withholding-tax returns need to be filed on a monthly basis within 15 days of the end of the previous month. Returns of dividends received also need to be filed on a monthly basis, no later than the 10th day of the following month.

Penalties: From amount due 0.3 % per day up to 180 days.

Rulings: It’s not possible to obtain advance rulings, from tax authorities, but it is possible participate in preliminary discussions.

Taxation of individuals

	Rate
	Federal Income Tax
Salaries and wages	20 %
Rent	15 %
Other income	15 %

Residence: An individual is considered to be resident in Lithuania for tax purposes if he or she satisfies any of the following conditions: • The individual has a permanent place of residence in Lithuania. A permanent residence is a flat, house, room or other premises suitable as living accommodation, which the individual has at his or her disposal and in which he or she lives permanently or predominantly (not only when on business trips or holidays). If the individual has such a residence in both Lithuania and another country, the permanent residence is considered to be the one in which the individual resides more or most often • The individual’s personal, social or economic interests are in Lithuania • The individual is present in Lithuania for 183 days or more in the calendar year • The individual is present in Lithuania for 280 or more days over two successive calendar years and was present for at least 90 days in one of those years • The individual is a Lithuanian citizen working abroad and maintained by the Lithuanian state or by a Lithuanian local authority

Basis: Individuals who are resident in Lithuania are liable to personal income tax on all their worldwide income. Non-residents are liable on certain Lithuanian-source income only.

Taxable income: Taxable income is computed separately per recognised type of income. The law recognises the following types of income: • Income from employment and equivalent relationships • Income from independent business activities • Income from the exercise of a profession • Interest • Dividends and other profit distributions • Rents and other income from immovable property • Income from sporting and artistic performances • Proceeds of disposal of movable and immovable property • Miscellaneous other income Exempt income Categories of income exempt from income tax include: • Social security benefits, except sickness benefit and maternity/paternity pay • Lithuanian or foreign state pensions • Interest on Lithuanian or other EEA government securities • Deposit interest from Lithuanian or other EEA credit institutions • Certain gains from the disposal of movable and immovable property

Capital gains: Capital gains from the disposal of assets are generally aggregated with income and taxed accordingly. In calculating the gain, the acquisition cost and taxes and duties associated with both acquisition and disposal are deductible. Exemptions are available in respect of immovable property and shares. In the case of immovable property, the gain is exempt if the property is located in an EEA member state and has been owned for at least 10 years. Also exempt are gains from the sale of residential property, if the individual has lived in it as his or her main residence for at least two years, or less than two years, but the proceeds of the sale are used for the purchase of another residential property within a year, which is to be the individual’s main residence. Gains from the disposal of financial instruments not exceeding EUR 500, unless the instruments disposed of were issued in a blacklisted territory. Gains of any nature are exempt if they do not exceed EUR 2500.

Deductions and allowances: Deductions The law recognises certain expenses of a personal nature as deductible from taxable income. These include: • Private pension contributions on behalf of the taxpayer, the taxpayer’s spouse or minor or fully disabled children • Life assurance premiums on behalf of the taxpayer, the taxpayer’s spouse or minor or fully disabled children (under certain conditions) • Fees and loan repayments for a first undergraduate or postgraduate degree The total deductible under all these headings may not exceed 25% of taxable income. Personal allowances A basic personal allowance is available for all taxpayers provided they have income from employment. The allowance is not available against other forms of taxable income.

Foreign tax relief: Individuals can also deduct the tax actually paid on income sourced in third countries (up to the PIT rate applicable to such income in Lithuania), provided that supporting documentation from a foreign tax administrator is provided to the Lithuanian tax authorities.

Taxation of individuals: compliance

Tax year: Calendar year

Filing and payment: The personal income tax return should be filled and submitted by 1 May of the following calendar year. Payment of outstanding income tax should also be made by 1 May.

Penalties: Fines 0,03 % per day of the unpaid amount of tax liabilities.

Rulings: None.

Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Dividends	0/15	15	0	15
Interest	0	0	10	10
Royalties	0/10	15	0/10	15

Branch remittance tax: None.

Anti-avoidance legislation

Transfer pricing: All transactions between associated parties must be performed at arm’s length. The State Tax Authorities have a right to adjust transaction prices if they do not conform to market prices. The Lithuanian transfer-pricing rules refer to the OECD Transfer Pricing Guidelines, to the extent that they do not contradict the domestic rules. According to the Lithuanian transfer-pricing regulations, companies may apply the following transfer-pricing methods in the order of preference in which they appear:

• The comparable uncontrolled-price method;

• The resale-price method; • The cost-plus method;

• The profit-split method;

• The transactional net-margin method.

All companies with an annual revenue exceeding EUR 2.896 million as well as banks, insurance companies and credit institutions are required to prepare transfer-pricing documentation in a specifically prescribed form. The documentation may be in a foreign language, but upon request has to be translated into Lithuanian. As of 1 January 2012, a possibility to apply for a binding ruling or advance pricing agreement (APA) from the State Tax Authorities in respect of future transactions is available for taxpayers.

Interest restriction: Thin-capitalisation rules apply in respect of borrowings from related parties as well as borrowings guaranteed by related parties. The maximum ‘safe-harbour’ debt-to-equity ratio is 4:1. Where this ratio is exceeded, the whole of the interest (not just that part attributable to the excess) is disallowed, with no facility for carry-forward. The rules apply to loans made by a party that directly or indirectly holds more than 50% of the dividend-bearing shares of the debtor company or by a party that directly or indirectly holds no less than 10% alone, and more than 50% in association with related parties. The thin-capitalization rules do not apply if the Lithuanian company can prove that a loan on the same conditions would have been granted between non-related parties.

Controlled foreign companies: Lithuania also has Controlled foreign company (CFC) rules. A CFC is any foreign company in which a Lithuanian-resident person: • directly or indirectly holds more than 50% of the dividend-bearing shares of the foreign company or • together with related parties holds more than 50% of such shares and himself holds no less than 10% alone The CFC’s income is attributable only where it is not in an exempt jurisdiction and it is subject to a rate of corporate tax on profits that is less than 75% of the Lithuanian rate (hence less than 11.25%). Only the CFC’s passive income is attributed (pro rata) to the Lithuanian controlling party. Passive income excludes the CFC’s normal operating income and any undistributed dividends (subject to conditions).

Hybrid mismatches: Yes.

Exit taxes: It is taxed when the property is transferred to another country and the owner of the property does not change.

Digital services tax and Other significant anti-avoidance legislation: None

Value-added tax/Goods and services tax

Type of tax: As a Member State of the European Union, Lithuania has a value added tax (VAT) régime similar to other VAT régimes throughout the European Union. In general, VAT is due on supplies of goods and services, the import of goods from outside the European Union and the ‘intra-EU acquisitions’ of goods from other EU Member States. If these transactions take place in Lithuania, they are in principle subject to Lithuanian VAT. Businesses (‘taxable persons’) charging VAT to their customers are liable to report and pay this VAT to the Lithuanian tax authorities. Any VAT incurred in the course of the taxable person’s taxable activity (e.g. charged by the taxable person’s suppliers), can in principle be deducted or set off against the VAT due. Only the net amount must be paid to the tax authorities. If there is a balance of deductible VAT, the amount is in principle recoverable from the tax authorities (but see below). Consequently, the real burden of VAT falls on the final consumer, with the intervening business effectively acting as a collecting agent for the tax authorities. Although most taxable persons are businesses and most businesses are taxable persons, a taxable person is any person independently carrying on an economic activity. The definition of ‘economic activity’ is quite wide, so that on occasion, even persons not carrying on a business in the generally understood sense of the word may have to charge and pay over VAT.

Standard rate: 21%

Reduced rates: 5%, 9%

Registration: Anyone who is liable to pay VAT to the Lithuanian tax authorities and any taxable person ‘established’ in Lithuania (whether based in Lithuania or having a fixed establishment in Lithuania from which taxable transactions are carried out) must in principle register for VAT purposes and obtain a VAT identification number. The Lithuanian identification number consists of the letters LT followed by a nine or twelve-digit number. Foreign taxable persons with a fixed establishment for VAT purposes in Lithuania must register in the same way as a Lithuanian taxable person. Foreign taxable persons without a fixed establishment in Lithuania from which taxable transactions are carried out should only register for Lithuanian VAT purposes if they carry out taxable activities in Lithuania for which they are liable to pay Lithuanian VAT (i.e. where there is no application of the reverse charge, which makes the customer liable for payment of the tax due). This can, for example, be the case where the taxable person: • imports goods from outside the European Union • makes intra-EU acquisitions of goods from other Member States • makes local supplies of goods or services to non-taxable persons or • carries on a property business (selling or letting immovable property) Foreign taxable persons without a fixed establishment in Lithuania from which taxable transactions are carried out who need to register may either do so directly or appoint a tax representative to act on their behalf. However, non-EU businesses without an establishment in the European Union do not have this choice and must register by appointing a tax representative.

Filing and payment: The standard return period for legal persons is one calendar month. Legal persons whose turnover in the previous calendar year did not exceed EUR 60 000 may apply to transfer to a six-month period. The standard return period for natural persons, on the other hand, is six months, although they may file a request for monthly periods. Returns must be filed no later than the 25th day of the month following the end of the return period, which is when payment is also due. Large VAT payers whose VAT payments have exceeded EUR 3 million for three successive months are obliged to make advance payments if they are not on a calendar-month period. If there is an excess of input tax over output tax for a period, the excess is normally carried over, but the taxable person may apply to have the excess refunded, in which case the authorities will first set the excess against any other tax liabilities the taxable person may have.

Social security contributions

	Employer	Employee
	Rate (%)	Rate (%)
Social security	1.77	19.5

Self-employed

Unless they are subject to the special lump-sum régime for microbusinesses, the self-employed pay Social Insurance contributions of 12.52% and Health Insurance contributions of 6.98% multiplied by minimum monthly wage (EUR 730 in 2022) (may be based on their taxable income, depending on the type of activity).

Other taxes

Capital duty: Dividends Dividends and other profit distributions are taxed at a flat rate of 15%. Interest Interest from bank deposits is exempt from income tax up to EUR 500. Where it is taxable, it is liable at the single general rate of tax on the gross amount. Royalties Royalties are liable to tax at the single general rate on the gross amount. Capital gains Capital gains from the disposal of assets are generally aggregated with income and taxed accordingly. In calculating the gain, the acquisition cost and taxes and duties associated with both acquisition and disposal are deductible. Exemptions are available in respect of immovable property and shares. In the case of immovable property, the gain is exempt if the property is located in an EEA member state and has been owned for at least 10 years. Also exempt are gains from the sale of residential property, if the individual has lived in it as his or her main residence for at least two years, or less than two years, but the proceeds of the sale are used for the purchase of another residential property within a year, which is to be the individual’s main residence. Gains from the disposal of financial instruments not exceeding EUR 500, unless the instruments disposed of were issued in a blacklisted territory, are exempted from income tax. Gains of any nature are exempt if they do not exceed EUR 2500.

Immovable property taxes: Immovable property tax is payable by a natural person who is the owner or lessee (on a lease of over one month’s duration) of commercial property or property put to certain specific uses at a rate of between 0.3% and 3% of the taxable value of the property. The exact rate is set by the relevant local authority, which may also introduce exemptions. Failure to set a rate by 1 June of the tax year results in a default rate of 0.3% In the case of residential property progressive tax rates are applied: • Property with a value of up to EUR 220 000 is exempt; • A 0.5% tax rate applies to the total value of property valued between EUR 220 000 and EUR 300 000; • A 1% tax rate applies to the total value of property valued between EUR 300 000 and EUR 500 000; • A 2% tax rate applies to the total value of property valued in excess of EUR 500 000.

Transfer tax: None

Stamp duty: None

Net wealth/worth tax: There is no wealth tax in Lithuania.

Inheritance/gift taxes: Inheritance tax Extent and scope Resident taxpayers are liable to inheritance tax on the transfer to them mortis causa of all property wherever situated. Non-residents are liable in respect of immovable property located in Lithuania and of movable property that has to be legally registered in Lithuania. Assets are normally valued at their market value for the purposes of the tax. Exemptions and reliefs The following transfers are exempt: • Transfers from a spouse • Transfers to children, adopted children, parents, foster parents, persons under guardianship, guardians, grandparents, grandchildren and siblings • Any property of a value no greater than EUR 3000 Double tax relief is normally available on a per-country basis, if payment of the foreign tax is properly documented. Gifts Most lifetime gifts received by taxpayers are subject to income tax at the normal 15% rate. The main exemptions include gifts: • From spouses, children, adopted children, parents, adoptive parents, siblings, grandparents and grandchildren or • Not exceeding EUR 2500

Other: Land tax Land tax is payable by both natural and legal persons on immovable property that is not a building or construction. The rate of the tax varies from 0.01% to 4%, and is set by each local authority independently on the market value of the land. Certain classes of person are exempt. These include: • Persons who have reached retirement age • Minors and • Persons with no more than 40% capacity for work provided that no members of their immediate family have a capacity for work and own land above a de minimis area.

Tax treaties

Lithuania has tax trieties with 57 countries. The list of trieties are provided in the internet page of Ministry of Finance (https://finmin.lrv.lt/en/competence-areas/taxation/tax-