Consolidated version valid as of 1 January 2019
REPUBLIC OF LITHUANIA
LAW
ON CORPORATE INCOME TAX
20 December 2001 No IX-675
(As last amended on 28 June 2018 No XIII-1333)
Vilnius
CHAPTER I
GENERAL PROVISIONS
Article 1. Purpose and scope of the Law
1. This Law shall establish the procedure for imposing corporate income tax on profits earned and/or income received.
3. The provisions of this Law have been harmonised with the legal acts of the European Union listed in Appendix 3 to this Law.
Article 2. Definitions
1. Taxable entity (hereinafter: the ‘entity’) shall mean a Lithuanian taxable entity and a foreign taxable entity.
2. Lithuanian taxable entity (hereinafter: the ‘Lithuanian entity’) shall mean 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. Where the management of a collective investment undertaking has been transferred to a management company, the procedure for imposing tax on profits earned and/or income received and paid by the collective investment undertaking, as laid down in this Law, shall be applied by the management company.
3. Foreign taxable entity (hereinafter: the ‘foreign entity’) shall mean 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.
4. Controlled taxable entity (hereinafter: the ‘controlled entity’) shall mean an entity deemed to be under the control of another entity or a permanent resident (hereinafter: the ‘controlling person’), provided that:
2) the controlling person holds, directly or indirectly, over 50% of shares (interests, member shares) in the controlled entity or other rights to a portion of distributable profits or exclusive rights to the acquisition thereof, or
3) the controlling person, together with related persons, holds over 50% of shares (interests, member shares) in the controlled entity or other rights to a portion of distributable profits or exclusive rights to the acquisition thereof, and the portion held by the controlling person accounts for at least 10% of shares (interests, member shares) or other rights to a portion of distributable profits or exclusive rights to the acquisition thereof.
5. Non-profit entity shall mean an entity the purpose of whose activities is not seeking profit and which, under the legal acts regulating its activities, is not entitled to distribute the generated profits among its founders and/or members.
6. Member of an entity shall mean any person who has title to the assets of an entity or any person who fails to secure title to the assets of an entity, but acquires the rights and/or duties arising from the obligations relating to the entity.
7. Group of entities shall mean a group consisting of a parent entity and one or more taxable subsidiaries, in each of which the parent entity holds more than 25% of shares (interests, member shares).
8. Associated persons shall mean persons (entities or natural persons) where they meet at least one of the following criteria:
9. Performing activities shall be interpreted as defined in the Law of the Republic of Lithuania on Personal Income Tax.
10. Fixed rate corporate income tax shall mean corporate income tax which may be paid in the cases specified in Article 381 of this Law and the base of which is calculated depending on the payload capacity of each sea-going vessel whose payload capacity is at least 100 payload capacity units.
101. Production of a part of a film shall mean a stage of implementation of the creative concept of a film during which a part of a film is produced in the Republic of Lithuania by filming a script meeting the criteria established by an institution authorised by the Government of the Republic of Lithuania within the time scale and estimate approved by the institution authorised by the Government of the Republic of Lithuania. The production of an episode of a series in the Republic of Lithuania shall not be considered as production of a part of a film.
11. Royalties shall mean remuneration for the right to use any work under a copyright licensing agreement, remuneration for related rights, income in the form of remuneration for the right, transferred or granted under a licensing agreement, to use an object of industrial property or franchise, remuneration for information concerning industrial, commercial or scientific experience (know-how).
12. Deposit shall mean monetary funds kept in a credit institution, where the credit institution undertakes to return such funds and pay interest on them. Monetary funds in respect of which a depositor has claims arising from financial operations with deposits performed by a credit institution or from investment services provided shall not be considered as a deposit.
121. Investment project shall mean an entity’s investment in the fixed assets specified in Article 461(1)(1) of this Law intended for the production of new, additional products or the provision of services or the increase in the production (service provision) capacity or the introduction of a new process of production (provision of services) or a substantial change in the existing process (a part thereof) also the introduction of technologies protected by international invention patents. The entity’s investment intended only for the replacement of the held fixed assets with fixed assets of an equivalent class shall not be considered as an investment project (or a part thereof).
13. Derivative financial instrument shall mean a financial instrument (a futures contract, forward contract, etc.) the value or price whereof is linked to the value or price of the goods on which the instrument is based as well as a financial instrument (a futures contract, forward contract, etc.) the value or price whereof is linked to the price of securities, exchange rate, interest rate, stock exchange index, assessment of creditworthiness or any other variable.
14. Payload capacity of a sea-going vessel (net capacity of a sea-going vessel) (hereinafter: the ‘PC of a sea-going vessel’) shall mean the payload capacity specified in the international tonnage certificate of a sea-going vessel and issued in accordance with the International Convention on Tonnage Measurement of Ships, signed in London in 1969.
15. Shipping entity shall mean a Lithuanian taxable entity or a foreign taxable entity registered or otherwise organised in any state of the European Economic Area pursuing activities in the territory of the Republic of Lithuania through a permanent establishment and engaged in international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto.
151. Collective investment undertaking shall mean a collective investment undertaking as defined in the Law of the Republic of Lithuania on Collective Investment Undertakings, a collective investment undertaking intended for informed investors as defined in the Law of the Republic of Lithuania on Collective Investment Undertakings Intended for Informed Investors and a collective investment undertaking intended for professional investors as defined in the Law of the Republic of Lithuania on Management Companies of Collective Investment Undertakings Intended for Professional Investors. An entity established or otherwise organised in a foreign state which, mutatis mutandis, meets the requirements for respective collective investment undertakings, as laid down in the legal acts specified in this paragraph, shall also be considered to be a collective investment undertaking. An entity which is covered by Regulation (EU) No 345/2013 of the European Parliament and of the Council of 17 April 2013 on European venture capital funds (OJ 2013 L 115, p. 1) or Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on on European social entrepreneurship funds (OJ 2013 L 115, p. 18), Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-term investment funds (OJ 2015 L 123, p. 98) or Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds (OJ 2017 L 169, p. 8) shall also be considered to be a collective investment undertaking.
16. Computer (software) programme shall be interpreted as defined in the Law of the Republic of Lithuania on Copyright and Related Rights.
161. Lithuanian filmmaker shall mean a natural person who is a permanent resident of Lithuania or a citizen of a state of the European Economic Area operating through a permanent establishment in Lithuania as well as a Lithuanian entity or an entity of a state of the European Economic Area operating through a permanent establishment in Lithuania that are engaged in film production and are in charge of the creative, organisational and financial process of the production of a film.
17. Territory of the Republic of Lithuania shall mean the territory of the Republic of Lithuania and the area adjacent to the territorial waters of the Republic of Lithuania within which, under the laws of the Republic of Lithuania and in accordance with international law, the rights of the Republic of Lithuania may be exercised with respect to exploring and exploiting the natural resources of the seabed and underground natural resources.
18. Scientific research and experimental development shall be interpreted as defined in the Law of the Republic of Lithuania on Higher Education and Research.
181. Benefit from an agreement on the transfer of a sea-going vessel or an agreement on the financing of acquisition shall mean income received by a shipping entity after the person transferring a sea-going vessel waives all or part of claims arising from an agreement regulating the transfer of the sea-going vessel or after the credit institution financing the acquisition of the sea-going vessel waives all or part of claims arising from the credit agreement, including interest and other payments provided for in that agreement.
19. Negative goodwill shall mean the amount by which the price paid in cash by the acquiring entity when acquiring all or one or more branches of activity of another entity in the form of its rights and obligations which from an organisational point of view constitute an independent economic entity, operating and capable of functioning at its own discretion, or with a view to controlling the net assets and activity of another entity through the acquisition of its shares is lower than the value of the acquired share of the net assets in another entity evaluated at the actual market price. When calculating the net assets, the acquired entity’s assets that were not recognised in its accounting shall not be taken into consideration as these assets did not possess features required for recognition (it was reasonably not expected that the entity would derive economic benefit from the assets in future periods and there was no possibility of reliably determining the acquisition price of the assets) or were received gratuitously from the State, a municipality or a public legal person whose founder is a state or municipal institution, but have their actual market price.
20. Property immovable by nature shall mean an object which is immovable by nature, i.e. land or any other object that cannot be transferred from one location to another without changing its nature and substantially reducing its value.
21. Fixed base shall be interpreted as defined in the Law of the Republic of Lithuania on Personal Income Tax.
22. Permanent establishment shall mean a manifestation of activities of a foreign entity in the Republic of Lithuania. A foreign entity shall be considered to be operating through a permanent establishment in the territory of the Republic of Lithuania where: it permanently carries out activities in the Republic of Lithuania; or carries out its activities in the Republic of Lithuania through a dependent representative (agent); or uses a building site, a construction, assembly or installation object in the Republic of Lithuania; or makes use of installations or structures in the Republic of Lithuania for prospecting or extracting natural resources, including wells or vessels used for that purpose. The definition of permanency and the criteria for establishing the dependent or independent status of a representative (agent) shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
23. Permanent resident of Lithuania shall be interpreted as defined in the Law of the Republic of Lithuania on Personal Income Tax.
24. Income shall mean any type of income earned and/or received in cash and/or in kind from a source in or outside Lithuania.
25. Income from distributed profits shall mean income, including dividends, received through the distribution of profits among the members of an entity. Where the profits of an entity of unlimited civil liability are subject to corporate income tax under this Law, the income received by a member of such an entity or taking of the assets belonging to the member of such an entity shall not be considered as distribution of profits. The income received by a member of a collective investment undertaking of unlimited civil liability or a private equity and venture capital undertaking of unlimited civil liability or taking of the assets belonging to the member of such an entity shall also not be considered as distribution of profits, except for the cases where such income is received from a collective investment undertaking of unlimited civil liability or a private equity and venture capital undertaking of unlimited civil liability or the assets belonging to them are taken in such a manner by a foreign entity registered or otherwise organised in a target territory.
26. Income sourced in the territory of the Republic of Lithuania (hereinafter: ‘income sourced in the Republic of Lithuania’) shall mean:
1) interest received from permanent residents of Lithuania, non-permanent residents of Lithuania through their fixed bases, Lithuanian entities and foreign entities through their permanent establishments, compensations for violation of copyright or related rights, royalties as well as income from the sale, other transfer into ownership or lease of property immovable by nature located in the Republic of Lithuania;
2) income from distributed profits of Lithuanian entities and bonuses to members of the supervisory board;
4) income from transportation which starts in the territory of the Republic of Lithuania and ends abroad or starts abroad and ends in the territory of the Republic of Lithuania;
27. Income sourced outside the territory of the Republic of Lithuania (hereinafter: ‘income sourced outside the Republic of Lithuania’) shall mean all income, except for income sourced in the Republic of Lithuania.
281. Income from agricultural activity shall be interpreted as defined in the Law of the Republic of Lithuania on Personal Income Tax.
29. Positive income shall mean all income or part thereof, received by a controlled entity, registered or otherwise organised in the states or zones specified in Article 39(4) of this Law, included in the income of a Lithuanian controlling entity in proportion to the number of shares (interests, member shares), votes or rights to the profits of the controlled entity held by the Lithuanian entity.
30. Goodwill shall mean the amount by which the price paid in cash by the acquiring entity for the purpose of acquiring all or one or more branches of activity of another entity in the form of its rights and obligations which from an organisational point of view constitute an independent business, that is to say an entity capable of functioning by its own means, or for the purpose of controlling the net assets and activity of another entity through the acquisition of its shares exceeds the value of the acquired share evaluated at the actual market price of net assets in another entity, from which the acquiring entity expects to derive economic benefit. When calculating the net assets, the acquired entity’s assets that were not recognised in its accounting shall not be taken into consideration as these assets did not possess features required for recognition (it was reasonably not expected that the entity would derive economic benefit from the assets in future periods and there was no possibility of reliably determining the acquisition price of the assets) or were received gratuitously from the State, a municipality or a public legal person whose founder is a state or municipal institution, but have their actual market price.
301. Private equity and venture capital undertaking shall mean an entity whose principal activity is temporary raising of funds from unrelated persons and their investment in other entities where over 70% of investments of the private equity and venture capital undertaking are investments into equity securities not admitted to trading on a regulated market of entities whose average annual number of employees on the staff list does not exceed 250 and whose income during a tax period does not exceed EUR 50 million or the value of assets indicated in the balance sheet does not exceed EUR 43 million.
32. Sports activities shall be interpreted as defined in the Law of the Republic of Lithuania on Personal Income Tax.
33. Related persons shall be considered as such if on any day of the current tax period or the tax period preceding the current tax period they meet at least one of the following criteria, i.e. they are:
3) an entity and the spouses, fiancés and cohabitants of its members or members of its management bodies, other natural persons related to members of the entity or members of its management bodies by consanguinity (in the direct line up to the second degree, in the collateral line up to the fourth degree) or by marriage (a natural person and the relatives of his spouse (in the direct line up to the second degree, in the collateral line up to the second degree), and also the relatives of the cohabitants of members of the entity or members of its management bodies (in the direct line up to the second degree, in the collateral line up to the second degree), the spouses or cohabitants of the relatives of members of the entity or members of its management bodies (in the direct line up to the first degree, in the collateral line up to the second degree) as well as the relatives of the said spouses or cohabitants (in the direct line up to the first degree, in the collateral line up to the second degree);
6) an entity and members of the management bodies of another entity where such entities comprise a single group of entities;
7) an entity and the spouses, fiancés and cohabitants of members of another entity or members of its management bodies, other natural persons related to members of another entity or members of its management bodies by consanguinity (in the direct line up to the first degree, in the collateral line up to the second degree) or by marriage (a natural person and the relatives of his spouse (in the direct line up to the first degree, in the collateral line up to the second degree), and also the relatives of the cohabitants of members of another entity or members of its management bodies (in the direct line up to the first degree, in the collateral line up to the second degree), the spouses or cohabitants of the relatives of members of another entity or members of its management bodies (in the direct line up to the first degree, in the collateral line up to the second degree) where the said taxable entities comprise a single group of entities;
8) two entities where one of them holds, directly or indirectly, (through a single or several entities or natural persons) over 25% of the shares (interests, member shares) of the other entity or holds the right to over 25% of the decisive votes of the other entity or has undertaken to coordinate its decisions regarding the activities with the other entity or has undertaken to be liable for the obligations of the other entity in respect of third parties or has undertaken to transfer all or part of its profits to the other entity or has granted the other entity the right to use over 25% of its assets;
9) two entities where their members or the spouses, fiancés and cohabitants of such members, natural persons related by consanguinity (in the direct line up to the second degree, in the collateral line up to the fourth degree) or by marriage (a natural person and the relatives of his spouse (in the direct line up to the second degree, in the collateral line up to the second degree)), and also a natural person and the relatives of his cohabitant (in the direct line up to the second degree, in the collateral line up to the second degree), a natural person and the spouses or cohabitants of his relatives (in the direct line up to the first degree, in the collateral line up to the second degree) as well as the relatives of the said spouses or cohabitants (in the direct line up to the first degree, in the collateral line up to the second degree) hold, directly or indirectly, 25% of the shares (interests, member shares) in each of such entities;
34. Activity directly related to international carriage by sea-going vessels shall mean services required for international carriage by sea-going vessels and/or other measures of economic importance:
1) management, administration, operation and maintenance services of a sea-going vessel directly related to international carriage by sea-going vessels (purchase of fuel, hiring of the crew that can be transferred to a third party, reservation of cargo and passengers, repair of a sea-going vessel, its maintenance, ensuring of safety requirements, etc.);
4) services of loading and/or unloading of cargo into and from sea-going vessels, including its transfer or packing and/or unpacking before loading or immediately after unloading;
5) leasing or any other supply to a client of containers required for carriage of goods by a sea-going vessel;
6) provision of services required and performed on a sea-going vessel and sale of goods required for use or used on the sea-going vessel during international carriage of passengers, except for the provision of luxury services (gambling and table games, excursions for passengers, etc.) and sale of luxury goods (jewellery, souvenirs, etc.);
7) rescue and other assistance at sea services when a sea-going vessel provides these services at sea;
8) lease of a sea-going vessel held by a shipping entity by the right of ownership under a bareboat charter out where income under such a contract is received for a period not exceeding three years and the lease is related to temporary surplus tonnage of the shipping entity’s sea-going vessel and the sea-going vessel, leased under a bareboat charter out, was not acquired or leased under a bareboat charter in for the mere purpose of leasing it under a bareboat charter out;
9) short-term investments from income during a tax period received from international carriage by sea-going vessels and/or types of activities directly related to international carriage by sea-going vessels;
10) advertising and marketing services where this activity is related to the lease of advertising space on sea-going vessels;
12) disposal of assets in operation where these assets, by their nature, are attributed to maritime transport;
13) financing of acquisition of a sea-going vessel, including financing of acquisition through a subsidiary of a shipping entity, for the purpose of international carriage by sea-going vessels or activities directly related to international carriage by sea-going vessels;
35. International carriage by sea-going vessels shall mean the carriage of passengers and/or cargo by a shipping entity using sea-going vessels which are held by that shipping entity by the right of ownership or under a financial lease contract providing for the transfer of the ownership right or under a purchase and sale contract or a lease contract providing for the transfer of the ownership right to the shipping entity after the total value of the assets has been paid up or under a bareboat charter or which are used by that shipping entity under a chartering contract (a voyage charter) or a time charter in or a time charter out, as provided for in Article 2 of the Law of the Republic of Lithuania on Merchant Shipping, and which are flying the flag of the Republic of Lithuania or of any other state of the European Economic Area, except for the cases where sea-going vessels sail only between the ports of the Republic of Lithuania.
36. Income from international telecommunications shall mean income received from telecommunications services (as defined in the Law of the Republic of Lithuania on Electronic Communications) where, in providing the services, signals are transmitted and switched and programmes are emitted from the territory of the Republic of Lithuania abroad or to the territory of the Republic of Lithuania from abroad.
37. Actual market price shall mean the amount for which assets may be exchanged or mutual obligations settled between willing and independent buyers or sellers in a direct transaction.
38. Target territory shall mean a foreign state or a zone included in the List of Target Territories established by the Minister of Finance meeting at least two of the criteria set out in this paragraph:
1) the equivalent tax rate in that territory is less than 75% of the rate set out in Article 5(1)(1) of this Law;
2) different rules for equivalent taxation are applied in that territory, depending on the state in which the controlling person is registered or otherwise organised;
3) different rules for equivalent taxation are applied in that territory, depending on the state in which activities are pursued;
4) the controlled taxable entity has concluded an agreement with the tax administrator of that state concerning the tax rate or tax base;
39. Income from transportation shall mean income received from the carriage of goods by rail, road, waterways or air by means of private or rented vehicles, vessels, aircraft, rolling stock, cargo receptacles (containers, tanks, etc.), as well as from transportation by pipeline. Income from services directly related to the carriage or transportation of goods shall be also attributed to such income.
40. Activity shall mean any type of commercial or production activity which is pursued to derive and/or earn income or any other economic benefit.
41. Other concepts in this Law shall be interpreted as defined in the Law of the Republic of Lithuania on Tax Administration (hereinafter: the ‘Law on Tax Administration’), the Civil Code of the Republic of Lithuania (hereinafter: the ‘Civil Code’), the Criminal Code of the Republic of Lithuania (hereinafter: the ‘Criminal Code’) and the Law of the Republic of Lithuania on Film to the extent they do not contravene this Law (except for the cases explicitly stated in the Civil Code).
Article 3. Taxpayers
2. In accordance with the procedure laid down in this Law, corporate income tax shall not be paid by:
Article 4. Tax base
1. The tax base of a Lithuanian entity shall be all income earned in the Republic of Lithuania and foreign states which is sourced inside and outside of the Republic of Lithuania. 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.
2. The income of a Lithuanian entity shall also include the positive income of its controlled foreign entity or part of such income in accordance with the procedure laid down in Article 39 of this Law. The income of a Lithuanian entity (member of a European Economic Interest Grouping) shall also include the income of the respective European Economic Interest Grouping in accordance with the procedure laid down in Article 391 of this Law.
3. 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, income from international telecommunications earned through permanent establishments in the Republic of Lithuania as well as 50% of income from transportation which starts in the territory of the Republic of Lithuania and ends abroad or starts abroad and ends in the territory of the Republic of Lithuania and income earned in foreign states attributed to the permanent establishments in the Republic of Lithuania, where such income is related to the activities of the foreign entity carried out through the permanent establishments in the Republic of Lithuania;
4. Income sourced in the Republic of Lithuania and received by a foreign entity otherwise than through permanent establishments in the territory of the Republic of Lithuania shall include:
1) 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;
2) 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;
4) income from the sale, other transfer into ownership or lease of property immovable by nature located in the territory of the Republic of Lithuania;
6) income from performing activities and sports activities carried out in the Republic of Lithuania;
5. In the case of transfer of a computer (software) programme, the provisions laid down in point 3 of paragraph 4 of this Article shall apply where the transfer concerns works not protected by copyright and where the following rights are granted by the computer (software) programme:
1) the right to make copies of the computer (software) programme with the purpose of distributing them to the public or otherwise transferring into ownership, leasing or lending, or
2) the right to prepare derivative computer (software) programmes based on the copyrighted computer (software) programmes, or
6. The tax base of an entity shall also be:
1) sponsorship received which is used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship;
7. The provisions of this Article shall not apply to income of a shipping entity received from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto where, at the choice of the shipping entity, the income from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto is subject to fixed rate corporate income tax under the provisions of Article 381 of this Law.
Article 5. Tax rates
1. The following tax rates shall apply:
1) a 15% tax rate shall be imposed on the taxable profits of Lithuanian entities and permanent establishments unless this Law provides otherwise;
2) a 10% tax rate without any deductions shall be imposed on the 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 specified in points 3 and 5 of Article 4(4) of this Law, and a 15% tax rate shall be imposed on the income specified in points 4, 6 and 7 of Article 4(4) of this Law unless this Law provides otherwise. The income of foreign entities which are registered or otherwise organised in a state of the European Economic Area or in a state with which a treaty for the avoidance of double taxation has been concluded and brought into effect, sourced in the Republic of Lithuania and received otherwise than through their permanent establishments in the Republic of Lithuania specified in Article 4(4)(1) of this Law, shall not be subject to taxation. A 10% tax rate without any deductions shall be imposed on the income of foreign entities which are not registered or otherwise organised in a state of the European Economic Area or in a state with which a treaty for the avoidance of double taxation has been concluded and brought into effect, sourced in the Republic of Lithuania and received otherwise than through their permanent establishments in the Republic of Lithuania specified in Article 4(4)(1) of this Law;
4) a 15% tax rate without any deductions shall be imposed on 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 on a part of sponsorship received in cash from a single provider of sponsorship during the tax period which exceeds the amount of 250 MLS.
2. 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 5% during other tax periods, except for the cases specified in paragraph 3 of this Article. The tax rate of 0% set out in this paragraph shall only apply to such an entity whose member/members is/are a natural person/persons and only if during three consecutive tax periods, including the first tax period: the entity’s activities are not suspended, the entity is not liquidated or reorganised and the entity’s shares (interests or member shares) are not transferred to new members.
3. The provisions of paragraph 2 of this Article shall not apply where the average number of employees on the staff list of the associated entities specified in this paragraph exceeds 10 and their income during a tax period exceeds EUR 300 000:
1) entities (individual/personal enterprises) whose members or family members of such members are members of other entities (individual/personal enterprises);
2) entities (individual/personal enterprises) whose members and/or their family members, on the last day of the tax period, hold over 50% of shares (interests, member shares) in other entities, as well as entities in which the members of the entity (individual/personal enterprise) and/or their family members, on the last day of the tax period, hold over 50% of the shares (interests, member shares);
3) entities in which the same member, on the last day of the tax period, holds over 50% of the shares (interests, member shares);
6. 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 5%.
7. The part of taxable profits from the use, sale or any other transfer into ownership, as defined in this paragraph, of assets of a Lithuanian entity or permanent establishments calculated according to the formula set out in this paragraph shall be taxed at a rate of 5% where:
1) income from the above-mentioned use, sale or any other transfer into ownership of assets is received only by the Lithuanian entity or permanent establishment that created the assets and only they incur all the expenditure due to such income generation, and
2) the assets are a copyrighted computer (software) programme or an invention complying with the criteria of patentability (novelty, inventive step and industrial applicability), protected by patents or supplementary protection certificates granted by the European Patent Office in a state of the European Economic Area or in a state with which a treaty for the avoidance of double taxation has been concluded and brought into effect.
The provisions of this paragraph shall also apply in the case where the assets created by the Lithuanian entity or permanent establishment are used by them under an exclusive licence. The relief shall be applied when the copyright already exists, the patent application has been filed, the patent has been granted, the supplementary protection certificate has entered into force or the exclusive licence has been granted.
The formula:
Eligible expenditure – costs incurred in creating assets through scientific research and experimental development activities, attributable to the costs of scientific research and experimental development which may be deducted from income three times. These costs may not be incurred due to activities of associated persons. The amount of the calculated eligible expenditure incorporated into the formula shall be increased by 30%; however, such an increased amount may not exceed the total amount of expenditure calculated.
Total expenditure – total costs attributable to allowable deductions or limited allowable deductions, incurred in creating assets through scientific research and experimental development activities, excluding interest and depreciation costs of buildings.
Profits from the use of assets – taxable profits calculated on the basis of income received from the use, sale or any other transfer into ownership of assets created by the taxpayer himself through scientific research and experimental development activities (including royalties and compensations for violated intellectual property rights), after deducting the allowable deductions or limited allowable deductions with respect to this income.
Article 6. Tax period
1. The tax period shall be a tax year. It shall coincide with a calendar year unless this Article provides otherwise.
2. At the request of a taxpayer and taking into account the characteristics of his activity, the local tax administrator may, in accordance with the procedure established by the central tax administrator, set a tax period other than specified in paragraph 1 of this Article, provided that this tax period equals 12 months. Such a tax period may be changed only for objective reasons with the consent of the local tax administrator.
3. The first tax period shall begin from the registration of a Lithuanian entity in the Republic of Lithuania or, where the Lithuanian entity has not registered in accordance with the procedure prescribed by law, the first tax period shall begin from the start of activities. The last tax period of a Lithuanian entity shall end when the Lithuanian entity ceases to exist.
4. Where a Lithuanian entity has actually carried out its activities for less than 12 months, the tax period shall be calculated from the entity’s registration in the Republic of Lithuania or, where the Lithuanian entity has not registered in accordance with the procedure prescribed by law, from the start of its activities until the Lithuanian entity ceases to exist.
Article 7. Recognition of income and costs
1. Income and costs shall be recognised in accordance with the accrual accounting principle and other accounting principles laid down in the legal acts regulating accounting, except for the cases where, in accordance with the provisions of this Chapter, income may be recognised in accordance with the cash accounting principle and the provisions of this Article.
2. Negative goodwill shall be attributed to income at the moment of its acquisition unless this Article provides otherwise.
Article 8. Recognition of income and costs in accordance with the cash accounting principle
1. Where the cash accounting principle is applied, the income of a Lithuanian entity shall be recognised at the actual moment of its receipt. The income specified in Article 37 of this Law shall be recognised in the same manner.
2. Where the cash accounting principle is applied, the costs of a Lithuanian entity shall be recognised in accordance with the same procedure as they are recognised when applying the accrual accounting principle, however, only the costs related to the income actually received during the tax period shall be recognised.
Article 9. Application of the cash accounting principle
1. The cash accounting principle may only be applied by those Lithuanian entities which had recognised their income using the cash accounting principle before this Law came into effect and whose income during the last three tax periods did not exceed EUR 30 000 for each single tax period, as well as newly registered Lithuanian entities whose expected income during the first tax period will not exceed EUR 30 000.
2. Lithuanian entities applying the cash accounting principle must switch to the accrual accounting principle in the tax period following the tax period during which their income exceeded EUR 30 000.
Article 10. Selection and change of the accounting principle
1. Even if it meets the criterion set out in Article 9(1), a Lithuanian entity may switch from the cash accounting principle to the accrual accounting principle as of the beginning of any given tax year. The Lithuanian entity shall inform the local tax administrator thereof.
2. In cases where a Lithuanian entity switches from the cash accounting principle to the accrual accounting principle, the buyers’ debts carried over to the tax year during which the said accounting principle is applied shall be included in the income of the Lithuanian entity after the repayment of these debts, but not later than within three years from the beginning of the tax period during which the accrual accounting principle was introduced.
3. The Lithuanian entity which had applied the accrual accounting principle before this Law entered into force and the Lithuanian entity which has an obligation under the provisions of this Law to switch from cash accounting to accrual accounting may not switch from accrual accounting to cash accounting until the Lithuanian entity is either liquidated or ceases to exist.
Article 11. Taxable profits
1. Unless this Article provides otherwise, for the purpose of calculating taxable profits of a Lithuanian entity, the following shall be deducted from income:
2. The taxable profits of permanent establishments shall be calculated by deducting from the income earned the non-taxable income, limited allowable deductions and deductions relating to the income earned by a foreign entity through the permanent establishments. The procedure for making deductions relating to the costs incurred for the purpose of earning income through permanent establishments shall be laid down by the Government of the Republic of Lithuania or an institution authorised by it.
3. The taxable profits earned by a foreign entity otherwise than through permanent establishments shall include all of its income sourced in the Republic of Lithuania and the obligation to tax it at source without any deductions, as set forth in Article 37 of this Law.
4. Expenses on the basis of which costs are recognised may only be substantiated with legally valid documents which must contain all the mandatory particulars of accounting documents specified by the legal acts that regulate accounting. In addition to these particulars, the documents substantiating the expenses on the basis of which the costs are recognised must also contain other particulars prescribed by the Government of the Republic of Lithuania or an institution authorised by it.
6. The requirements of paragraph 4 of this Article shall not apply to the documents drawn up by foreign entities or natural persons. Costs shall be recognised on the basis of the documents drawn up by foreign entities or natural persons where such documents allow identification of the content of an economic operation.
7. The provisions of this Article shall not apply to income of a shipping entity from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto where, at the choice of the shipping entity, the income from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto is subject to fixed rate corporate income tax under the provisions of Article 381 of this Law.
Article 12. Non-taxable income
The following income earned and/or received by a Lithuanian entity or a foreign entity through permanent establishments shall not be taxed:
2) insurance benefits received which are not in excess of the value of the property lost or losses/damage incurred; the part of insurance premiums paid for the benefit of employees reimbursed which is in excess of the insurance premiums deducted from the income, and also the part of insurance benefits which is in excess of the insurance premiums paid for the benefit of employees deducted from the income;
4) balance of the organisational fund of an insurance undertaking in accordance with the procedure laid down by the Law of the Republic of Lithuania on Insurance;
5) income of collective investment undertakings and private equity and venture capital undertakings, including dividends and other distributed profits, excluding any income received from foreign entities registered or otherwise organised in target territories or from residents of those territories and income related to investments into target territories;
6) income of health care institutions from services financed from the Compulsory Health Insurance Fund;
7) income resulting from the revaluation of assets and obligations performed in accordance with the procedure prescribed by legal acts, except for income resulting from the revaluation of derivative financial instruments acquired to cover the risks;
8) default interest, except for default interest received from foreign entities registered or otherwise organised in target territories or from residents of such territories;
9) profits or a portion thereof received from legal persons of unlimited civil liability that are corporate income taxpayers whose income is subject to corporate income tax under this Law or is subject to an equivalent tax under the relevant legal acts of foreign states, except for the cases specified in Article 39 of this Law; profits or a portion thereof received from legal persons of unlimited civil liability that are corporate income taxpayers by private equity and venture capital undertakings registered outside the target territories, except for the cases specified in Article 39;
11) corrections of errors and inaccuracies of the previous tax periods in accordance with Article 18 of the Accounting Law of the Republic of Lithuania;
12) compensation for damage received by an entity, except for the cases specified in point 2 of this Article;
14) compensations received under the EU financial support scheme to the Republic of Lithuania for decommissioning of fishing vessels;
15) income from the increase in the value of assets resulting from transfer of shares of an entity, registered or otherwise organised in a state of the European Economic Area or in a state with which a treaty for the avoidance of double taxation has been concluded and brought into effect and which is a payer of corporate income tax or an equivalent tax, to another entity or a natural person where the entity transferring the shares held more than 10% of voting shares in that entity for an uninterrupted period of at least two years or, where the shares were transferred in the cases of reorganisation or transfer referred to in Article 41(2) of this Law, held more than 10% of voting shares in that entity for an uninterrupted period of at least three years. This relief shall not apply if the entity that transfers the shares transfers them to the entity that has issued the shares. The time limits set in this point as regards shareholding shall not be taken into account in the cases where shares are transferred due to requirements of legal acts. The concept of ‘share’ used in this point shall include the rights to a portion of distributable profits of private equity and venture capital undertakings;
16) life insurance premiums of insurance undertakings, where the term of the insurance contract is at least 10 years or where the insurance benefit is paid out to the insured after he has reached retirement age under the provisions of the Law on the Accumulation of Occupational Pensions, investment income from life insurance of insurance undertakings, except for dividends and other distributed profits, and investment income from insurance operations of insurance undertakings under occupational pension life insurance contracts concluded in accordance with the provisions of the Law on the Accumulation of Occupational Pensions;
17) direct and other compensatory benefits, to maintain the income level, in the amount established by the laws and other legal acts of the Republic of Lithuania, received by entities engaged in agricultural activities;
18) income, including income from the increase in the value of assets, dividends and other distributed profits, received from units, shares or contributions held by collective investment undertakings which are not registered or otherwise organised in target territories. The provisions of this point relating to non-taxation of income from the increase in the value of assets shall apply only if such income is received not from foreign entities registered or otherwise organised in target territories or from residents of those territories.
Article 13. Assets of an entity
1. The assets of an entity shall be tangible, intangible and financial valuables acquired by that entity. They shall belong to the entity by the right of ownership or shall be acquired under a leasing (financial lease) contract providing for the transfer of the ownership right or under a purchase and sale or a lease contract providing for the transfer of the ownership right to the entity after the total value of the assets has been paid up or in the manner set out in Article 14(6) of this Law; and, where state and municipal assets have been transferred to the entity by the right of trust, they shall belong to the entity by the right of trust.
2. The assets of an entity shall be divided into fixed and current assets. The entity’s fixed and current assets shall be tangible and intangible.
3. Fixed assets shall mean assets used by an entity to earn income (derive economic benefit) or deliver the benefit specified in Article 26(2) of this Law for a period exceeding one year and the acquisition price whereof is not less than the price set by the entity according to the class of fixed assets listed in Appendix 1 to this Law. The acquisition price of such assets shall be included in the entity’s costs spread over the depreciation or amortisation period. The amounts directly paid by the entity to the educational establishments of states of the European Economic Area and foreign states other than states of the European Economic Area, which have concluded a treaty for the avoidance of double taxation with the Republic of Lithuania, for the training of natural persons who are not connected with the entity by employment relations, which results in post-secondary or higher education and/or qualification, where such education and/or qualification is required by the entity to earn income, may be attributed to intangible fixed assets after these natural persons commence their employment at the entity.
4. Current assets shall mean assets that may be used by an entity to earn income (derive economic benefit) or deliver the benefit specified in Article 26(2) of this Law for a period of less than one year and the acquisition price whereof is included in the deductible costs of the entity for the tax period in which such assets are put into use.
Article 14. Acquisition price of assets
1. The acquisition price of assets shall comprise expenses incurred in the course of acquiring the assets, including the commissions and taxes (levies) paid, except for VAT, relating to the acquisition of the assets.
2. The acquisition price of assets acquired for goods and services shall comprise the respective amount included in the income received by an entity from such goods and services as well as expenses incurred in the course of acquiring the assets, including the commissions and taxes (levies) paid, relating to the acquisition of the assets.
3. Where assets are exchanged for other assets, the acquisition price of the newly acquired assets shall be the acquisition price of the assets exchanged. Where the acquisition price of the assets exchanged cannot be determined, the acquisition price of the newly acquired assets shall be the actual market price of such assets.
4. Where a member (holder of interests or member shares) of an entity uses assets to pay for its shares (interests, member shares), the acquisition price of such assets for the entity shall be the same as the acquisition price paid by the member (holder of interests or member shares). The above-mentioned acquisition price of assets may be increased by the amount of income resulting from the increase in the value of a shareholder’s (holder’s of interests or member shares) assets earned from the transfer of such assets and included in the shareholder’s (holder’s of interests or member shares) taxable income.
5. Where securities are exchanged into other assets, the acquisition price of such assets shall be the actual market price of these securities at the moment of acquisition of the assets.
6. Where a person terminates individual activities and transfers the unsold goods to a new entity established by him or his spouse, the acquisition price of these goods for the entity shall be the acquisition price specified in the acquisition documents of the goods of the person engaged in individual activities, except for the cases when these assets are used to pay up for this entity’s shares (interests or member shares).
Article 15. Selling price of assets
1. The selling price of assets or the price of other transfer into ownership thereof shall comprise all income earned from the sale or other transfer into ownership of the assets after deducting the taxes (levies) paid, except for VAT, relating to the sale or other transfer into ownership of such assets.
Article 16. Income from the increase in the value of assets
1. Income from the increase in the value of assets shall be income earned which comprises the difference between the price of the sale or other transfer into ownership of the assets and the acquisition price of such assets. Expenses relating to the acquisition of the assets must be substantiated with the documents specified in Article 11 of this Law and/or with valid transactions.
2. In the event of the transfer of an entity’s assets in respect of which depreciation or amortisation was estimated for the purpose of calculating corporate income tax, in calculating income from the increase in the value of the assets, the acquisition price of such assets shall be reduced by the amount of the depreciation or amortisation included in the limited allowable deductions.
5. Where an entity transfers a bond, such transfer shall result, with respect to the transferring entity, in the reduction of income from the increase in the value of assets by the amount of discount already included in the income of the transferring entity.
6. In certain cases, where entities are reorganised, liquidated or converted or where a Lithuanian entity (a European company with registered office in the Republic of Lithuania (hereinafter: the ‘European company’) established pursuant to Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) and Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees or a European cooperative society with registered office in the Republic of Lithuania (hereinafter: the ‘European cooperative society’) established pursuant to Council Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE) and Council Directive 2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative Society with regard to the involvement of employees transfers its registered office to another EU Member State, the procedure for the recognition and taxation of income from the increase in the value of assets shall be laid down in Chapter IX of this Law.
Article 17. Procedure for recognition of allowable deductions
1. Allowable deductions shall be all the usual costs that an entity actually incurs for the purpose of earning income or deriving economic benefit unless this Law provides otherwise. All expenses for the benefit of employees shall be also attributed to allowable deductions where the benefit received by the employees is the object of personal income tax in accordance with the provisions of the Law of the Republic of Lithuania on Personal Income Tax. Additional deductions allowed by the Government of the Republic of Lithuania for the Ignalina Nuclear Power Plant shall be attributed to allowable deductions. The amount from which state social insurance contributions of a member of an entity (owner of an individual enterprise, full member of a partnership or of a limited partnership, member of a small partnership) are calculated and paid in accordance with the provisions of the Law of the Republic of Lithuania on State Social Insurance shall also be attributed to allowable deductions of the entity (individual enterprise, partnership, limited partnership or small partnership).
2. Limited allowable deductions shall be:
8) expenses for the benefit of employees and/or their family members where the benefit is not the object of personal income tax;
Article 171. Costs of scientific research and experimental development
1. In calculating corporate income tax, the costs of scientific research and experimental development, except for depreciation or amortisation costs of fixed assets, shall be deducted three times from income for the tax period during which they are incurred where the scientific research and/or experimental development works carried out are related to the usual or intended activities of the entity which generate or will generate income or economic benefit.
2. Depreciation or amortisation costs of fixed assets used to carry out scientific research and experimental development shall be deducted from income in accordance with the procedure laid down in Article 18 of this Law.
3. Where scientific research and experimental development works are acquired from another entity or a natural person, the costs incurred due to such acquisition shall be deducted from income under provisions of paragraph 1 of this Article only if the acquired scientific research and experimental development works have been carried out in a state of the European Economic Area or a state outside the European Economic Area which has concluded and brought into effect a treaty for the avoidance of double taxation with the Republic of Lithuania.
Article 172. Reduction of taxable income due to funds granted free of charge for the production of a film or a part thereof
1. In calculating corporate income tax, funds granted free of charge to a Lithuanian filmmaker during the period from 1 January 2014 until 31 December 2018 for the production of a film or a part thereof in the Republic of Lithuania may, in accordance with the procedure laid down in this Article, be deducted from the taxable income where:
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, 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 the expenses specified in paragraph 3 of this Article, comprise at least EUR 43 000, and
2. 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. The funds granted shall be deducted from the 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 this Article (hereinafter: an ‘investment certificate’), issued in accordance with the procedure established by the Government of the Republic of Lithuania, has been received.
3. The funds specified in paragraph 1 of this Article may not be deducted from taxable income in accordance with the procedure laid down in this Article, if the funds have been used to cover:
4) the expenses of acquisition, construction or renovation of fixed assets where this does not relate to the production of a film;
Article 18. Depreciation or amortisation costs of fixed assets
1. Fixed assets and goodwill of an entity shall be depreciated or amortised unless this Law provides otherwise. The acquisition price of fixed assets shall be charged to costs and deducted from income in portions over the depreciation or amortisation period of such assets established in accordance with paragraph 2 of this Article. In calculating corporate income tax, the costs of scientific research and experimental development shall be deducted from income for the tax period during which they are actually incurred.
2. Classes of fixed assets and their maximum depreciation or amortisation rates (in years) are set out in Appendix 1 to this Law. Fixed assets which are registered in the respective property register may be attributed to a certain class of fixed assets taking into consideration solely the purpose of use of such assets. The entity itself shall determine (select) the depreciation or amortisation periods for its fixed assets, which may not be less than the depreciation or amortisation rates (in years) for fixed assets set out in Appendix 1 to this Law, and their liquidation value, which may not exceed 10% of the acquisition price.
3. Entities whose average number of employees on the staff list does not exceed 10 and whose income during the tax period does not exceed EUR 150 000 and which do not meet the criteria set out in Article 5(3) of this Law may themselves determine the maximum depreciation or amortisation rates for classes of fixed assets, irrespective of the rates set out in Appendix 1 to this Law, except for new buildings used in operations and except for renovations completed in buildings listed in the Register of Immovable Cultural Property of the Republic of Lithuania, where such buildings were constructed or renovated after 1 January 2002, and except for dwelling houses and other buildings.
4. Depreciation or amortisation of fixed assets shall be calculated according to the straight-line (linear) method (hereinafter: the ‘linear method’), the double diminishing balance (double declining balance) method (hereinafter: the ‘double declining balance method’) or the units of production method in accordance with Appendix 1 to this Law. The selected method must be applied consistently: the same depreciation or amortisation method selected by the entity shall be applied to every class of fixed assets set out in Appendix 1 to this Law and each item of assets within that class over the total depreciation or amortisation period for the fixed assets.
5. Where the linear method is applied, the annual amount of depreciation or amortisation shall be calculated as a ratio of the difference between the acquisition price of fixed assets to the liquidation value of such assets and the depreciation or amortisation period (in years).
6. Where the double declining balance method is applied:
1) the depreciation or amortisation coefficient (hereinafter: the ‘depreciation coefficient’) shall be calculated by multiplying by two the ratio between 100% and the depreciation or amortisation period (in years) for fixed assets;
2) when calculating the amount of depreciation or amortisation for the tax period during the first year, the acquisition price of the fixed assets shall be multiplied by the depreciation coefficient;
3) as regards the depreciation or amortisation of the fixed assets during all other years, except for the last year, the amount of depreciation or amortisation of such assets for the tax period shall be calculated by multiplying the residual value of the fixed assets at the beginning of the tax period by the depreciation coefficient;
7. Where the units of production method is applied, the annual amount of depreciation shall be calculated by multiplying the difference between the acquisition price of tangible fixed assets and the liquidation value of such assets by the ratio between the amount of output produced or raw materials processed during the tax period and the maximum amount of output which can be produced or raw materials which can be processed using these assets. Irrespective of other provisions of this Article, the entity itself shall determine (select) the date from which the depreciation or amortisation by the units of production method of the fixed assets acquired and put into use by the entity shall start.
8. Where an entity acquires fixed assets and puts them into use before the last day of the sixth month of the tax period, the depreciation or amortisation of such assets shall start in the same tax period. Where an entity acquires fixed assets and puts them into use after the last day of the sixth month of the tax period, the depreciation or amortisation of such assets shall start in the tax period following the tax period during which the assets were acquired and put into use.
9. Where an entity transfers fixed assets, for consideration or free of charge, before the last day of the sixth month of the tax period, depreciation or amortisation during the said tax period shall not be calculated. Where an entity transfers fixed assets, for consideration or free of charge, after the last day of the sixth month of the tax period, 1/2 of the annual amount of depreciation or amortisation, calculated according to the prescribed rates, shall be charged to the costs of the entity during the said tax period.
10. Where all or one or more branches of activity of another entity in the form of its rights and obligations which from an organisational point of view constitute an independent economic entity engaged in activities and capable of functioning at its own discretion are acquired, the accumulated goodwill shall be included in the limited allowable deductions similarly as fixed assets in accordance with the procedure laid down in this Article. Where the shares of another entity are acquired for the purpose of controlling its net assets and activity, the accumulated goodwill shall be included in the limited allowable deductions similarly as fixed assets in accordance with the procedure laid down in this Article only after the subsequent merger of these entities or merger by acquisition of one entity by another, if any.
11. The entity may select to calculate the depreciation or amortisation of all fixed assets from the first day of the following month after such assets were put into use by applying the linear method according to the rates set out in Appendix 1 to this Law.
12. Entities that have renovated or repaired fixed assets, which has resulted in a prolonged useful life of such assets or improvement of their useful characteristics, or have changed the purpose of use of the fixed assets or have acquired other part thereof may adjust depreciation or amortisation rates; they may also do so for objective reasons with the consent of the local tax administrator.
Article 19. Limits on calculating depreciation or amortisation
1. The depreciation or amortisation of land acquired under a leasing (financial lease) contract providing for the transfer of the ownership right and under a purchase and sale or a lease contract providing for the transfer of the ownership right to the buyer after the total value of the assets has been paid up, as well as the depreciation or amortisation of transferred fixed assets, library stocks and fixed assets listed in the Register of Cultural Property shall not be calculated, except for the depreciation of renovations completed in buildings listed in the Register of Immovable Cultural Property of the Republic of Lithuania.
2. The amortisation of intangible fixed assets generated by the entity itself and listed in classes of assets specified in Appendix 1 to this Law, i.e., acquired rights, other intangible assets and goodwill, shall not be calculated, unless this Law provides otherwise.
3. The depreciation or amortisation of fixed assets not in use, held in reserve or in conservation, as well as the depreciation or amortisation of the revaluation results of fixed assets shall not be calculated.
4. In cases where the owner of fixed assets transfers such assets into the ownership of another person (acquirer), while the acquirer had earlier transferred the said assets into the ownership of the transferring owner, the acquirer of fixed assets shall continue to calculate the depreciation or amortisation of such assets applying the same method to the acquisition price, not depreciated or amortised, of the said assets before their first transfer, except for the cases where the new acquisition price is lower than the acquisition price, not depreciated or amortised according to the provisions of this Law, of the said assets before their first transfer.
Article 20. Costs of operation, repair or renovation of tangible fixed assets (own assets, assets leased or used under loan for use)
1. Where tangible fixed assets used by an entity are renovated or repaired, which results in a prolonged useful life of such assets or improvement of their useful characteristics, the acquisition price of the repaired or renovated tangible fixed assets shall be increased by the value of the repair or renovation.
2. In all other cases, expenses related to the repair of tangible fixed assets used by an entity shall be attributed to the costs of repair and deducted from income for the tax period during which they are actually incurred.
3. The costs of renovation or repair, resulting in a prolonged useful life of the assets or improvement of their useful characteristics, of tangible fixed assets held under a lease contract, which does not provide for the transfer of the ownership right to the buyer after the total value of the assets has been paid up, or under a loan for use contract shall be deducted in equal parts from the income of the lessee or the recipient of a loan for use over the term of the lease or the loan for use, beginning with the following month after the end of the renovation or repair works and, in the event of an open end contract, over the period set out in Appendix 1 to this Law for the respective class of assets, which may not be less than three years. Where the lease or the loan for use contract is terminated before it expires, the remaining part of the costs of renovation or repair which has not yet been included in allowable deductions may not be deducted from the income of the lessee or the recipient of the loan for use. Where the tangible fixed assets leased or used under the loan for use have been repaired or renovated, which has resulted in a prolonged useful life of the assets or improvement of their useful characteristics, the lessor or the grantor of the loan for use shall increase the acquisition price of the tangible fixed assets by the value of the repair or renovation works in the tax period during which the repair or renovation works have been completed and shall tax them in accordance with the procedure laid down in this Law.
4. The costs of operation and repair of tangible fixed assets which belong by the right of ownership to members of partnerships and owners of individual enterprises and to their family members and which are used in the activities of such entities shall be deducted from income in accordance with the procedure established by the Minister of Finance.
Article 21. Costs of work trips
1. A work trip shall mean travelling of an employee from his permanent workplace to perform job functions, business orders or improve qualifications, documented by an order/decision of the head of an entity or a person authorised by him, specifying the purpose of the work trip, its location/locations, duration (if several foreign states are visited during the work trip – the duration of stay in each foreign state) and the types of expenditure intended to be covered by the entity. A work trip shall also mean travelling, documented in accordance with the procedure established in this paragraph, of the owner of an individual enterprise or a full member of a partnership or a member of a small partnership, from his permanent workplace to perform job functions or improve qualifications, as well as travelling of members of a special negotiating committee established under the provisions of the Law of the Republic of Lithuania on the Involvement of Employees in the European Companies, the Works Council of a European company and its committee, documented by a decision of the special negotiating committee (in case of the first meeting of the special negotiating committee – by a decision of a competent body of entities participating in the establishment) or a decision of the Works Council of a European company or its committee, specifying the location and duration of the meeting, to take part in the meetings of the special negotiating committee, the Works Council of a European company or its committee, also travelling of members of a special negotiating committee established under the provisions of the Law of the Republic of Lithuania on the Involvement of Employees in the European Cooperative Societies, the Works Council of a European Cooperative Society or its committee, documented by a decision of the special negotiating committee (in case of the first meeting of the special negotiating committee – by a decision of a competent body of entities participating in the establishment) or a decision of the Works Council of a European Cooperative Society or its committee, specifying the location and duration of the meeting, to take part in the meetings of the special negotiating committee, the Works Council of a European Cooperative Society or its committee, as well as travelling of members of a special negotiating committee and of the administrative, supervisory or other body established under the provisions of the Law of the Republic of Lithuania on the Involvement of Employees in a Company Resulting from Cross-border Mergers of Limited Liability Companies, documented by a decision of the special negotiating committee (in case of the first meeting of the special negotiating committee – by a decision of a competent body of entities participating in the establishment) or a decision of the administrative, supervisory or any other body, specifying the location and duration of the meeting, to take part in the meetings of the special negotiating committee or of the administrative, supervisory or any other body.
2. The travelling of an employee from the Republic of Lithuania abroad where he spends more than 183 days in a single place abroad, except for the employees whose job is related to travelling or who hold mobile job positions or perform shift work, shall not be considered as a work trip.
Article 22. Advertising and promotional costs
1. The costs incurred by an entity for the purpose of disseminating, in any form and by any means, information related to the activities of the entity and promoting the purchase of goods or use of services to current or potential buyers, except for controlled entities, controlling persons or members of a group of entities, shall be recognised as advertising costs.
2. Promotional costs shall mean the funds of an entity allocated to establish new business relations or improve the existing relations with other entities or natural persons, except for the employees, shareholders and owners of the entity as well as controlled or controlling entities or controlling permanent residents. Promotional costs shall be incurred for the benefit of particular persons.
3. Not more than 50% of promotional costs may be deducted from income and the amount of such deducted costs may not be in excess of 2% of the entity’s income during a tax period.
4. Expenses incurred through an entity’s shareholders or holders of member shares, except for the cases where such persons are employees of the entity, shall not be attributed to promotional costs.
Article 23. Natural losses
1. Natural losses shall mean a natural decrease in goods (raw materials, products) due to their storage, transfer, packaging, carriage, loading and sale, including losses resulting from buyers’ neglect.
2. The amount of actual natural losses, except for natural losses of fresh fruit, berries, mushrooms and vegetables, shall be deducted from income, but not in excess of 1% of the entity’s income. The amount of actual natural losses of fresh fruit, berries, mushrooms and vegetables deducted from income may not be in excess of 3% of the entity’s income.
Article 24. Taxes
1. Taxes prescribed by the Law on Tax Administration and levies and mandatory contributions prescribed by other laws of the Republic of Lithuania or Government resolutions shall be deducted from income unless this Law provides otherwise.
Article 25. Bad debts
1. The amount of bad debts incurred during a tax period shall be deducted from income recognised under the accrual accounting principle if that amount was included in the taxpayer’s income. The portion of costs attributed to bad debts incurred during the tax period shall be deducted from income recognised under the cash accounting principle where the appearance of such debts was recorded in the taxpayer’s accounting documents. Where the taxpayer recognised income under the cash accounting principle at the moment of appearance of bad debts and subsequently switched to the accrual accounting principle pursuant to the provisions of this Law, the portion of costs attributed to bad debts incurred during the tax period shall be deducted from income recognised under the accrual accounting principle if the appearance of such debts was recorded in the taxpayer’s accounting documents and the portion of costs attributed to bad debts was not included in the entity’s costs before this Law entered into force. Debts shall be considered as bad debts if the taxpayer cannot recover them after a period of at least one year from including the amount of debt in the taxpayer’s income or recording of the appearance of such debts in the taxpayers’ accounting documents or if the debtor has died or has been pronounced dead or has been liquidated or has gone bankrupt. In all of the above cases, the taxpayer must prove that the debts are bad and that efforts have been made to recover such debts.
2. The procedure for providing proof of bad debts and of efforts made to recover them as well as the procedure for calculating the amounts of such debts shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
3. Where a debtor or another person on his behalf later repays the bad debts deducted, the total amount of debts repaid shall be attributed to income.
4. The provisions of this Article shall not apply to credit institutions also where the debtor and the creditor are related persons or have become related during the tax period following the tax period during which the debt was recognised as a bad debt and was included in allowable deductions in accordance with the procedure laid down in this Article.
Article 26. Expenses for the benefit of employees and/or their family members
where the benefit is not the object of personal income tax
1. The amounts directly paid by an entity to the educational establishments in the states of the European Economic Area and foreign states other than states of the European Economic Area, which have concluded a treaty for the avoidance of double taxation with the Republic of Lithuania, for the training of natural persons connected with the said entity by employment relations, which results in higher education and/or qualification, where such education and/or qualification is required by the entity to earn income, may be deducted from income during a tax period.
2. Where, in delivering benefit for an entity’s employees and/or their family members (spouses, children/adopted children), it is impossible to determine the individual benefit received by a specific employee and/or his family members (spouses, children/adopted children), the expenses incurred in the course of delivery of such benefit, which are not attributed to allowable deductions or limited allowable deductions in accordance with other provisions of this Law, may be deducted from income during the tax period only where the delivery of such benefit is provided for in the collective agreement of the entity and all the employees of that entity are entitled to enjoy such benefit without discrimination and restrictions. The amount of expenses deducted from income, as specified in this paragraph, may not be in excess of 5% of the amount of the employees’ salary calculated during the tax period (on which state social insurance contributions are payable).
Article 27. Special provisions of credit institutions and insurance undertakings
1. Banks, including branches of foreign commercial banks, operating under the Law of the Republic of Lithuania on Commercial Banks, credit unions operating under the Law of the Republic of Lithuania on Credit Unions and the Central Credit Union operating under the Law of the Republic of Lithuania on the Central Credit Union which establish special provisions for covering doubtful assets of credit institutions in accordance with the rules laid down by the Bank of Lithuania shall, during a tax period, be allowed to deduct from income special provisions for doubtful assets set up to cover the losses arising from a particular doubtful asset/group of doubtful assets.
2. Where a credit institution settles its claims relating to repayment of debts, the amount of the debt or a part thereof corresponding to the amount of the special provision set up in respect of such debt shall be recognised as income at the moment of settlement of the debt claim.
Article 28. Sponsorship
1. Taxpayers who are entitled to provide charity and sponsorship under the Law of the Republic of Lithuania on Charity and Sponsorship shall be allowed to deduct from their income all of the payments made (except for cash payments which exceed the amount of 250 MLS in respect of a single recipient of sponsorship or charity during a tax period), including assets transferred and services rendered, which are intended for charity and sponsorship in accordance with the procedure laid down in the Law of the Republic of Lithuania on Charity and Sponsorship, unless this Article provides otherwise.
2. Taxpayers who are entitled to provide only sponsorship under the Law of the Republic of Lithuania on Charity and Sponsorship shall be allowed to deduct from their income two times the payments made (except for cash payments which exceed the amount of 250 MLS in respect of a single recipient of sponsorship during a tax period), including assets transferred and services rendered, which are intended for sponsorship in accordance with the procedure laid down in the Law of the Republic of Lithuania on Charity and Sponsorship, but not in excess of 40% of the taxpayer’s income, calculated by deducting non-taxable income, allowable deductions and limited allowable deductions, except for sponsorship and losses from the previous tax periods.
3. Where sponsorship is provided in the form of tangible fixed assets, the amount of the sponsorship provided shall be equal to the residual value of such assets. Where sponsorship is provided in the form of other assets, the amount of the sponsorship provided shall be equal to the acquisition price of such assets. Where sponsorship is provided in the form of services, the amount of the sponsorship shall be equal to the self-cost of such services. Where sponsorship is provided in the form of tangible fixed assets being lent for use, the amount of the sponsorship shall be equal to the calculated amount of depreciation of such assets during the period of use by the recipient of sponsorship.
Article 29. Membership fees, payments and contributions
1. The amount of admission fees and the amount of membership fees, which is not excess of 0.2% of income, as well as the amount of special membership fees, which is not in excess of 0.2% of income, where such fees, payments and special fees are paid to entities whose activities are regulated by special laws and which do not seek profit while the profit received may not be allocated to their founders and/or stakeholders and/or members, shall be deducted from income.
2. Contributions by members of the Motor Insurers’ Bureau of the Republic of Lithuania payable on the written premiums of compulsory insurance against civil liability in respect of the use of motor vehicles, which are not in excess of 15% of the total amount of such premiums, shall be deducted from income.
Article 30. Carrying forward of losses for the tax period
1. Where, after deducting non-taxable income, allowable deductions and limited allowable deductions from income during the tax year, losses for the tax period are incurred, the amount of such losses shall be carried forward to the following tax year, except for losses from the transfer of securities and/or derivative financial instruments.
2. Losses from the transfer of securities or derivative financial instruments shall be carried forward to the following tax year, however, such losses shall only be covered from the income received from the transfer of securities and/or derivative financial instruments. Losses incurred as a result of transferring the shares of an entity registered or otherwise organised in a member state of the European Economic Area or in a state with which a treaty for the avoidance of double taxation has been concluded and brought into effect and which is a payer of corporate income tax or an equivalent tax, where the entity that transfers the shares has held more than 10% of voting shares in that entity for an uninterrupted period of at least two years, shall be deducted from the income received from the transfer of taxable securities during the tax period, however the amount of losses deducted in this manner may not exceed the amount of income received from the increase in the value of assets of taxable securities during that tax period and the non-deducted amount of such losses shall not be carried forward to the following tax year.
3. Where tax-related losses are incurred by a taxpayer for a period exceeding one tax year, the losses incurred during the tax period of the previous year shall be carried forward first. Losses incurred subsequently shall be carried forward only after the losses for the previous tax periods have been covered.
4. 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. The amount of deducted tax-related losses carried forward, as specified in this paragraph, except for tax-related losses of entities whose taxable profits are taxed at a rate of 5% under the provisions of Article 5(2) of this Law, 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 periods.
5. 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, starting from the tax period following the tax period during which the losses were incurred.
6. Losses for the tax period incurred by permanent establishments of Lithuanian entities which are considered to be taxpayers under the laws other than those of the Republic of Lithuania shall not be carried forward.
7. Where entities are reorganised, liquidated or restructured, or where a Lithuanian entity (European company or European cooperative society) transfers its registered office to another EU Member State, losses incurred in certain specific cases shall be carried forward as specified in Chapter IX of this Law.
Article 31. Non-allowable deductions
1. The following may not be deducted from income:
3) default interest, fines and late payment interest paid to the budget and state funds and other sanctions for violations of legal acts of the Republic of Lithuania;
4) interest or other payments made in respect of defaulting on contractual obligations of related persons;
8) costs included in allowable deductions more than 18 months before where the goods actually received from or the services actually provided by entities registered or otherwise organised in target territories have not been paid for;
9) sponsorship, except for the cases specified in Article 28 of this Law, and gifts, except gifts for employees;
10) payments which are not supported by the evidence specified in paragraph 2 of this Article and payments which are not taxed in accordance with the procedure laid down in Article 37 of this Law;
12) 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 or for provision of the benefit specified in Article 26(2) of this Law shall not be considered to be distributed profits);
13) 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;
14) corrections of errors and inaccuracies of the previous tax periods in accordance with Article 18 of the Accounting Law of the Republic of Lithuania;
15) costs resulting from the revaluation of assets and liabilities carried out in accordance with the procedure prescribed by legal acts, except for costs resulting from the revaluation of derivative financial instruments acquired to cover the risks;
18) costs related to income from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto where, at the choice of the shipping entity, the income from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto is subject to fixed rate corporate income tax under the provisions of Article 381 of this Law;
19) allowable deductions and limited allowable deductions attributed to income from activities carried out through permanent establishments of Lithuanian entities located in a state of the European Economic Area or states with which the Republic of Lithuania has concluded and brought into effect a treaty for the avoidance of double taxation where income from the activities carried out through these permanent establishments is subject to corporate income tax or equivalent tax in those states in accordance with the prescribed procedure;
2. Payments made by a Lithuanian entity or permanent establishment (except for payments made in respect of material valuables where the Lithuanian entity or permanent establishment has documents evidencing the entry of such valuables) to foreign entities registered or otherwise organised in target territories shall be considered to be non-allowable deductions where the paying Lithuanian entity or permanent establishment does not supply to the local tax administrator, in accordance with the procedure established by the central tax administrator, evidence that:
Article 32. Dividends and distributed profits
1. This Chapter shall lay down the procedure for taxation of dividends paid by an entity and of other distributed profits. All of the provisions applicable to dividends shall be also applicable to distributed profits, even though distributed profits are not legally documented as dividends received by the entity in accordance with the procedure laid down in the Law of the Republic of Lithuania on Companies, the Law of the Republic of Lithuania on Cooperative Companies (Cooperatives) and the Law of the Republic of Lithuania on Agricultural Companies unless this Law provides otherwise.
2. Shares (interests, member shares) issued free of charge from the funds of an entity or due to an increase in the value of assets to members of the entity in proportion to the number of shares (interests, member shares) held by them or the amount by which the nominal value of the shares or the value of member shares issued earlier has been increased shall not be considered to be dividends or distributed profits.
3. The acquisition price of the assets of a member of an entity which have been transferred to him as distributed profits shall be the actual market price of such assets determined on the day of transfer.
4. Where an entity distributes profits in the form of assets and not in cash and the actual market price of such transferred assets, as determined on the day of their transfer to a member of the entity, exceeds their acquisition price, the difference shall be considered to be income from the increase in the value of assets unless this Law provides otherwise.
5. Where the authorised capital of an entity is reduced, the funds or a portion of such funds paid out to members of the entity, which are attributed to the reduced portion of the authorised capital formed otherwise than from the contributions made by the members of the entity, shall be considered to be dividends and shall be subject to taxation in accordance with the procedure laid down in Articles 33 and 34 of this Law. Where the authorised capital of the entity is reduced, it shall be considered that members of the entity are first paid out the portion of the authorised capital which was formed by increasing such capital from the entity’s funds – not from contributions made by the members of the entity. The positive difference in the acquisition price of the shares cancelled and the amount of funds paid as specified in this paragraph, which resulted from the reduction of the portion of authorised capital formed otherwise than from the contributions made by the members of the entity, may be attributed by the member of the entity to the losses incurred from the transfer of securities.
6. The provisions of Article 34(2) and Article 35(2) and (3) of this Chapter relating to non-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.
Article 33. Procedure for taxation of dividends paid to Lithuanian entities
1. Dividends received by a Lithuanian entity for the shares, portion of capital or other rights held in Lithuanian entities shall be subject to a corporate income tax rate of 15%. The tax shall be calculated, withheld and paid to the budget by the Lithuanian entity paying the dividends not later than by the 15th day of the month following the month during which the dividends were paid.
2. Dividends received by a Lithuanian entity from the Lithuanian entities in which the recipient holds for an uninterrupted period of at least 12 months, including the moment of distribution of the dividends, at least 10% of voting shares (interests, member shares) shall not be subject to corporate income tax and shall not be included in the income of the entity receiving the dividends.
3. Where an entity distributes profits by paying dividends in cash in accordance with the procedure laid down in the Law of the Republic of Lithuania on Companies, the Law of the Republic of Lithuania on Cooperative Companies (Cooperatives) and the Law of the Republic of Lithuania on Agricultural Companies, the amount of corporate income tax withheld shall be set off against the amount of corporate income tax to be paid by the entity receiving the dividends for the tax period during which the tax on the dividends paid to the entity was withheld. Where, in the tax period during which the tax on the dividends paid out was withheld, the amount of the offset tax withheld by the Lithuanian entity receiving the dividends exceeds the amount of corporate income tax to be paid by the entity, the difference between the two amounts shall be refunded (credited) to the entity in accordance with the procedure for refunding (crediting) of tax overpayment laid down in the Law of the Republic of Lithuania on Tax Administration.
4. Where a Lithuanian entity receives dividends in accordance with the procedure laid down in the Law of the Republic of Lithuania on Companies, the Law of the Republic of Lithuania on Cooperative Companies (Cooperatives), the Law of the Republic of Lithuania on Collective Investment Undertakings, the Law of the Republic of Lithuania on Collective Investment Undertakings Intended for Informed Investors and the Law of the Republic of Lithuania on Agricultural Companies, the entity shall not include in its income the dividends received from another Lithuanian entity.
Article 34. Dividends paid to foreign entities
1. Dividends received by foreign entities for the shares, portion of capital or other rights held in a Lithuanian entity shall be subject to a corporate income tax rate of 15%. The tax shall be calculated, withheld and paid to the budget by the Lithuanian entity paying the dividends not later than by the 15th day of the month following the month during which the dividends were paid.
2. Dividends paid by a Lithuanian entity to a foreign entity which holds for an uninterrupted period of at least 12 months, including the moment of distribution of dividends, at least 10% of voting shares (interests, member shares) in the Lithuanian entity shall not be subject to taxation, except for the cases where the foreign entity receiving the dividends is registered or otherwise organised in target territories.
3. Dividends received by a permanent establishment for the shares, portion of capital or other rights held in Lithuanian entities and attributed to the permanent establishment shall be taxed in accordance with the procedure of taxation applicable in respect of dividends received by a Lithuanian entity for the shares, portion of capital or other rights held in Lithuanian entities.
Article 35. Dividends of foreign entities
1. Dividends received by a Lithuanian entity or a permanent establishment for the shares, portion of capital or other rights held or attributed to the permanent establishment in foreign entities shall be subject to a corporate income tax rate of 15%, except for the cases specified in paragraphs 2 and 3 of this Article. The tax shall be calculated and paid to the budget by the Lithuanian entity or the permanent establishment receiving the dividends not later than by the 15th day of the month following the month during which the dividends were received.
2. Dividends received by a Lithuanian entity or a permanent establishment for the shares, portion of capital or other rights held or attributed to the permanent establishment in foreign entities which are registered or otherwise organised in a state of the European Economic Area and whose profits are subject to corporate income tax or an equivalent tax shall not be taxed.
3. Dividends received by a Lithuanian entity or a permanent establishment from foreign entities not specified in paragraph 2 of this Article in which the Lithuanian or foreign entity whose permanent establishment (to which the dividend paying shares, portion of the capital or other rights are attributed) receives such dividends holds for an uninterrupted period of at least 12 months, including the moment of distribution of dividends, at least 10% of voting shares (interests, member shares) shall not be subject to taxation, provided that the dividends are received from a foreign entity whose profits are subject to corporate income tax or an equivalent tax and which is not registered or otherwise organised in target territories.
Article 36. Declaration of dividends
A declaration concerning the payment of dividends to an entity or the receipt of dividends from an entity as well as a declaration concerning the calculation of corporate income tax shall be submitted to the local tax administrator in the territory whereof the entity or permanent establishment calculating and paying corporate income tax is registered, by the 15th day of the month following the month during which the dividends were paid or received.
Article 37. Taxation of foreign entities
Corporate income tax on the income (amounts) specified in Article 4(4), except for the case referred to in Article 371 of this Law, shall be withheld at source and paid to the budget by the paying person, i.e. a Lithuanian entity, a permanent establishment or a permanent resident of Lithuania. In this case, the income of a foreign entity shall be recognised in accordance with the principle set out in Article 8(1) of this Law.
Article 371. Criteria and requirements for exemption from tax at source on income (amounts) paid to foreign entities or their permanent establishments
1. The amounts specified in points 3 and 5 of Article 4(4) of this Law which are paid by a Lithuanian entity or a permanent establishment of a foreign entity situated in a Member State of the European Union shall be exempt from corporate income tax at source, provided that the recipient (beneficial owner) of the amounts is a foreign entity which is considered to be resident, for tax purposes, only in a Member State of the European Union (hereinafter: the ‘entity of an EU Member State) or a permanent establishment of the entity of the EU Member State is situated in another EU Member State.
2. The following shall be considered to be the beneficial owner of income:
1) any entity of an EU Member State, which takes on one of the forms of business organisation listed in Annex to 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 (hereinafter: ‘Directive 2003/49/EC’) and which is subject to taxes specified in Article 3(a)(iii) of Directive 2003/49/EC without being exempt from such taxes, provided that it receives income for its own benefit and not as an intermediary, such as an agent, trustee or authorised signatory, etc;
2) any permanent establishment of an entity of an EU Member State situated in another EU Member State, which takes on one of the forms of business organisation listed in Annex to Directive 2003/49/EC and which is subject to taxes specified in Article 3(a)(iii) of Directive 2003/49/EC without being exempt from such taxes, provided that the granting for use or the right to use in respect of which the payment of amounts specified in points 3 and 5 of Article 4(4) of this Law arises is effectively connected with that permanent establishment and provided that the amounts specified in points 3 and 5 of Article 4(4) of this Law are recognised as income in respect of which that permanent establishment is subject to taxes specified in Article 3(a)(iii) or in the case of Belgium to the ‘impôt des non-résidents/belasting der niet-verblijfhouders’ or in the case of Spain to the ‘Impuesto sobre la Renta de no Residentes’ or to an identical tax which arises later or in place of the existing taxes.
3. The provisions of this Article shall apply where at the time of payment of amounts to an entity of an EU Member State or its permanent establishment and for an uninterrupted period of at least two years before the payment is made the entities of the EU Member States meet one of the following criteria:
1) the paying Lithuanian entity or the entity of an EU Member State whose permanent establishment situated in the Republic of Lithuania pays out such amounts has a direct holding of at least 25% of shares (interests, member shares) in the receiving entity of an EU Member State or in the entity of an EU Member State whose permanent establishment receives such income; or
2) the receiving entity of an EU Member State or the entity of an EU Member State whose permanent establishment receives such income has a direct holding of at least 25% of shares (interests, member shares) in the paying Lithuanian entity or in the entity of an EU Member State whose permanent establishment in the Republic of Lithuania pays out such amounts; or
3) any other entity of an EU Member State has a direct holding of at least 25% of shares (interests, member shares) in the receiving entity of an EU Member State or the entity of an EU Member State whose permanent establishment receives such income and also in the paying Lithuanian entity or in the entity of an EU Member State whose permanent establishment in the Republic of Lithuania pays out such amounts.
4. Where a permanent establishment is considered to be the payer or the beneficial owner of the amounts specified in points 3 and 5 of Article 4(4) of this Law, no other part of that foreign entity shall be considered to be the payer or the beneficial owner of those amounts.
5. The provisions of this Article shall apply to a permanent establishment which is the payer of the amounts specified in points 3 and 5 of Article 4(4) of this Law where such amounts may be deducted from the income of the permanent establishment in accordance with the provisions of this Law and other legal acts.
6. A Lithuanian entity or a permanent establishment which is the payer of the amounts specified in points 3 and 5 of Article 4(4) of this Law must have documents evidencing fulfilment of the criteria laid down in paragraphs 1, 2 and 3 of this Article. The requirements for such documents shall be established by the central tax administrator.
Article 373. Taxation of sponsorship received which is used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and of sponsorship received in cash
An entity shall, in accordance with the procedure laid down in this Law, calculate and pay to the budget corporate income tax on sponsorship received which is used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and on the part of sponsorship received in cash from a single provider of sponsorship during the tax period which exceeds the amount of 250 MLS.
Article 38. Taxation applicable to the lease of assets or sets of assets
1. Where assets or a set of assets of an entity are transferred under a lease transaction, for the purpose of calculating corporate income tax, such transfer of assets or a set of assets may, by a decision of the tax administrator, be taxed as the sale of assets, provided that the lease transaction meets at least one of the following criteria:
1) the term of lease exceeds 30 years, except for the cases when the land leased in accordance with the procedure laid down in the laws of the Republic of Lithuania or the lessee of assets is specified in Article 3(2) of this Law;
2) the schedule of regular rentals establishes that the larger portion of the actual market price of the fixed assets leased by the entity shall be paid within a shorter period of the lease term;
3) the lease contract restricts the rights of the lessee of fixed assets or a set of assets in respect of taking on loans and/or distributing profits or paying dividends;
2. Income from the sale of the assets specified in paragraph 1 of this Article shall be included in the income for the tax period during which the said assets were transferred to the lessee at their actual market price.
3. The provisions of point 2 of paragraph 1 of this Article shall not apply to leasing (financial lease) transactions.
Article 381. Taxation of income from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto
1. Income received by a shipping entity from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto may be taxed in accordance with the provisions of this Article where, during the whole tax period of a Lithuanian taxable entity or a tax period of a permanent establishment through which a foreign taxable entity registered or otherwise organised in a state of the European Economic Area carries out its activities in the territory of the Republic of Lithuania, the shipping entity meets the following criteria:
1) the shipping entity holds sea-going vessels (cargo vessels, container vessels, tankers, ro-ro passenger ships or cruise passenger ships), which are flying the flag of the Republic of Lithuania or of any other state of the European Economic Area and are used for international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto, by the right of ownership or under a financial lease contract providing for the transfer of the ownership right or under a purchase and sale contract or a lease contract providing for the transfer of the ownership right to the shipping entity after the total value of the assets has been paid up or under a bareboat charter or the shipping entity uses such vessels under a chartering contract (a voyage charter) or a time charter in or a time charter out, as provided for in Article 2 of the Law of the Republic of Lithuania on Merchant Shipping;
2) the PC of sea-going vessels held by the shipping entity by the right of ownership is not less than 10% of the total PC of the sea-going vessels held by the shipping entity;
3) the PC of sea-going vessels used by the shipping entity under chartering contracts (a voyage charter) or a time charter in, as provided for in Article 2 of the Law of the Republic of Lithuania on Merchant Shipping, does not exceed 75% of the total PC of the sea-going vessels held by the shipping entity, and the PC of the sea-going vessels held by the shipping entity by the right of ownership and leased under a bareboat charter out does not exceed 30% of the total PC of the sea-going vessels held by the shipping entity;
4) the shipping entity provides strategic, commercial or technical management services in a state of the European Economic Area to sea-going vessels that are used for international carriage by sea-going vessels, except for the cases when sea-going vessels are used under a chartering contract (a voyage charter) or a time charter in, as provided for in Article 2 of the Law of the Republic of Lithuania on Merchant Shipping, and when the sea-going vessels of the shipping entity (held by the right of ownership) are leased under a bareboat charter out;
5) sea-going vessels held by the shipping entity by right of ownership or under a financial lease contract providing for the transfer of the ownership right or under a purchase and sale or a lease contract providing for the transfer of the ownership right to the shipping entity after the total value of the assets has been paid up or under a bareboat charter or which are used by the shipping entity under a chartering contract (a voyage charter) or a time charter in, as provided for in Article 2 of the Law of the Republic of Lithuania on Merchant Shipping, that are used for international carriage by sea-going vessels and activities directly related thereto comply with safety requirements laid down in legal acts of the Republic of Lithuania and the European Communities.
2. After a shipping entity acquires the right and opts for payment of fixed rate corporate income tax, the fixed rate corporate income tax shall be applied for a period not shorter than until the date specified in paragraph 5 of this Article, except for the cases when the shipping entity no longer meets the criteria set out in paragraph 1 of this Article. The fixed rate corporate income tax must be applied to all sea-going vessels of a shipping entity, including its subsidiaries, that meet the criteria set out in point 1 of paragraph 1 of this Article and are used for international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto.
3. Where during the chosen period of payment of fixed rate corporate income tax (this period is calculated starting from the tax period during which the shipping entity first acquired the right and opted for payment of fixed rate corporate income tax), a shipping entity forfeits the right to pay fixed rate corporate income tax (i.e., it no longer meets the criteria set out in paragraph 1 of this Article) or waives the right to pay corporate income tax on income received from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto, then starting from the tax period during which this right was forfeited (except for the cases specified in paragraph 4 of this Article) or during which this right was waived, general provisions for the calculation of corporate income tax shall apply in respect of income of this shipping entity and such a shipping entity shall not be granted the right to opt for payment of fixed rate corporate income tax during all the remaining tax periods in a period of ten years (this period is calculated starting from the tax period during which the shipping entity first acquired the right and opted for payment of fixed rate corporate income tax).
4. Where a shipping entity that complies with the criteria set out in paragraph 1 of this Article during the chosen period of payment of fixed rate corporate income tax (this period is calculated starting from the tax period during which the shipping entity first acquired the right and opted for payment of fixed rate corporate income tax) ceases to comply with the criteria set out in paragraph 1 of this Article due to force majeure (i.e. due to reasons beyond the control of the shipping entity), such a shipping entity shall not forfeit the right to taxation with fixed rate corporate income tax if, until the end of the next tax period following the tax period during which the shipping entity forfeited the right to pay fixed rate corporate income tax on income received from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto due to force majeure, the shipping entity complies with the criteria set out in paragraph 1 of this Article.
5. The fixed rate corporate income tax shall apply in respect of a shipping entity that complies with the criteria set in paragraph 1 of this Article until 31 December 2026. The shipping entity that complies with the criteria set in paragraph 1 of this Article and which has chosen to apply the fixed rate corporate income tax shall notify, in accordance with the procedure established by the central tax administrator, the local tax administrator about the decision to apply the fixed rate corporate income tax before the last day of the first quarter of the tax period during which the shipping entity acquired the right and chose to pay the fixed rate corporate income tax.
Article 382. Calculation of fixed rate corporate income tax
1. Where, at the choice of the shipping entity, income received from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto is subject to fixed rate corporate income tax under the provisions of Article 381 of this Law, the base of fixed rate corporate income tax shall be calculated by applying a fixed daily amount for each 100 units of the PC of the sea-going vessel and multiplying the received amount by the number of days of the taxable period of the shipping entity. The fixed amount shall be:
1) for each 100 units of the PC of a sea-going vessel up to 1 000 units of the PC of a sea-going vessel – EUR 0.93 per day;
2) for each 100 units of the PC of a sea-going vessel starting from 1 001 up to 10 000 units of the PC of a sea-going vessel – EUR 0.67 per day;
3) for each 100 units of the PC of a sea-going vessel starting from 10 001 up to 25 000 units of the PC of a sea-going vessel – EUR 0.43 per day;
2. The base of fixed rate corporate income tax without any deductions shall be subject to a tax rate of 15%.
3. Limits on calculating depreciation or amortisation:
1) where, at the choice of the shipping entity, under the provisions of Article 381 of this Law, income from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto was subject to provisions for the calculation of fixed rate corporate income tax, after the start of application of general provisions for the calculation of corporate income tax on such income, the depreciation or amortisation of the assets used to carry out these activities shall not be calculated if, from the start of use of these assets until the end of the period of payment of fixed rate corporate income tax, these assets would have been depreciated or amortized according to the standards established in Appendix 1 to this Law;
2) where, under the provisions of Article 381 of this Law, during the chosen period of payment of fixed rate corporate income tax (this period is calculated starting from the tax period during which the shipping entity first acquired the right and opted for payment of fixed rate corporate income tax), the shipping entity forfeits the right to pay fixed rate corporate income tax (i.e., it no longer meets the criteria set out in Article 381(1) of this Law) or waives the right to pay corporate income tax, then starting from the tax period during which this right was forfeited (except for the cases provided for in Article 381(4) of this Law) or during which this right was waived, the depreciation or amortisation of the assets used for international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto shall be calculated from the acquisition price of the assets reduced by the amount of depreciation or amortisation which would have been calculated if the shipping entity had applied general provisions for the calculation of corporate income tax throughout the whole period. In this case, the depreciation or amortisation of such assets shall be calculated according to the standards that are not smaller than those established in Appendix 1 to this Law, including the tax period/periods during which these assets have already been used at that shipping entity.
4. Where, at the choice of the shipping entity, income from international carriage by sea-going vessels or international carriage by sea-going vessels and activities directly related thereto is subject to fixed rate corporate income tax under the provisions of this Article, advance fixed rate corporate income tax shall not be paid.
5. An institution authorised by the Government of the Republic of Lithuania shall establish the procedure for attributing income from the transfer of assets in operation attributable to maritime transport to income from international carriage by sea-going vessels and activities directly related thereto.
Article 39. Taxation of income of controlled foreign entities
1. The tax period of controlled foreign entities shall be a calendar year, however, where the tax period of a controlled foreign entity does not coincide with the calendar year or where the tax period is not established, the tax period of a controlled foreign entity shall coincide with the tax period of the controlling entity.
2. The procedure for calculating and attributing positive income to the income of the controlling entity as well as the types of income not included in positive income shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
3. The same income of a controlled foreign entity may, in accordance with the procedure laid down in this Article, be taxed in the Republic of Lithuania only once.
4. The income of a controlled foreign entity shall be taxable under the provisions of this Article, provided that:
1) the entity is not registered or otherwise organised in the states or zones included in the list approved by the Minister of Finance;
5. The provisions of this Article shall not apply in the following cases:
1) the income of a controlled foreign entity comprises only payments made by the controlling entity which are considered to be non-allowable deductions under Article 31(1)(12) of this Law, or
6. A Lithuanian entity shall have the right to reduce corporate income tax on the positive income included in its income, which is payable to the budget and calculated according to this Law, by the amount of corporate income tax on the positive income of a controlled foreign entity included in the income of the Lithuanian entity, which was paid in a state or zone wherein the controlled foreign entity is registered or otherwise organised, proportionately to the number of shares (interests, member shares), votes or rights to the profit of the controlled entity held by the Lithuanian entity. Where the tax paid in the said state or zone exceeds the amount provided for in the laws of that state or zone, the Lithuanian entity shall have the right to reduce corporate income tax on the positive income included in its income, which is payable to the budget and calculated according to this Law, by the amount of tax on the positive income of a controlled foreign entity to be included in the income of the Lithuanian entity, which had to be paid in the state or zone wherein the controlled foreign entity is registered or otherwise organised.
7. A Lithuanian entity shall have the right to reduce corporate income tax on the positive income included in the income of the Lithuanian entity, which is payable to the budget and calculated according to this Law, by the amount of corporate income tax on the positive income of a controlled foreign entity included in the income of the Lithuanian entity, which was paid in a foreign state with which the Republic of Lithuania has concluded an agreement for the avoidance of double taxation and the prevention of fiscal evasion and under the relevant law whereof the positive income of the controlled foreign entity is included in the income of the entity of that state and taxed in accordance with the rules analogous to those laid down in this Law.
Article 391. Apportionment of income and costs of the European Economic Interest Grouping among its members and taxation thereof
1. The income of a European Economic Interest Grouping shall be apportioned among its members in the proportions laid down in the memorandum of association of the Grouping or, in the absence of any such provisions, in equal shares.
2. A member of a European Economic Interest Grouping shall attribute the Grouping’s income to his own income on the last day of the Grouping’s financial period during which the income was earned and/or received.
3. A member of a European Economic Interest Grouping shall attribute his share of the Grouping’s income to his own income, irrespective of whether or not the Grouping’s profits have been paid out to him, and shall pay taxes on such income in accordance with the procedure laid down in this Law.
4. The costs incurred by a European Economic Interest Grouping shall be apportioned among its members in accordance with the principles laid down in paragraph 1 of this Article.
5. A member of a European Economic Interest Grouping shall deduct from his income the costs incurred by the Grouping which, under the provisions of this Law, are attributed to allowable deductions and limited allowable deductions.
6. The attributable income and costs of a European Economic Interest Grouping shall be expressed in Euro according to the official exchange rate of the Euro against foreign currencies established pursuant to the Accounting Law of the Republic of Lithuania on the day of attribution of income and costs.
Article 40. Adjustment of the value of transactions or economic operations and
requalification of income or benefits
1. For the purpose of calculating taxable profits in accordance with the procedure laid down in this Law, entities must recognise the amount which is in line with the actual market price of a transaction or economic operation as income from such a transaction or economic operation and they must recognise the total amount of costs incurred during any transaction or economic operation which is in line with the actual market price of such transaction or economic operation as allowable deductions or limited allowable deductions.
2. Where the conditions created or prescribed by mutual transactions or economic operations between associated persons are other than those created or prescribed by a mutual transaction or economic operation between non-associated persons, any profits (income) that would be attributed, if no such conditions existed, to one of such persons but due to such conditions is not attributed to him may be included in the income of that person and taxed accordingly. The rules for implementing the provisions of this paragraph shall be established by the Minister of Finance.
3. For the purpose of calculating taxable profits in accordance with the procedure laid down in this Law, entities must requalify their income or benefits in the cases and according to the procedure established by the Government of the Republic of Lithuania or an institution authorised by it.
Article 401. Repealed as of 24 December 2016.
CHAPTER IX
TAXATION APPLICABLE TO REORGANISATIONS, TRANSFERS AND LIQUIDATIONS. RECOGNITION OF INCOME AND LOSSES RESULTING FROM CERTAIN REORGANISATIONS, LIQUIDATIONS AND TRANSFERS
Article 41. Participants and cases of reorganisation and transfer
1. Income and losses of entities and their members shall be recognised in accordance with the procedure laid down in the other Articles of this Chapter in the cases of reorganisation or transfer where:
1) the assets, rights and obligations of the entities are transferred between Lithuanian entities the taxable profits of which are taxed at a rate of 15% or 5%, as specified in Article 5 of this Law, or between foreign entities considered to be resident in EU Member States for tax purposes which take on one of the forms of business organisation listed in Annex to Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (hereinafter: ‘Directive 90/434/EC) and which are subject to taxes specified in Article 3(c) of Directive 90/434/EC; or
2) the assets, rights and obligations of the entities are transferred between Lithuanian entities the taxable profits of which are taxed at a rate of 15 or 5%, as specified in Article 5 of this Law, and between foreign entities considered to be resident in EU Member States for tax purposes which take on one of the forms of business organisation listed in Annex to Council Directive 90/434/EEC and which are subject to taxes specified in Article 3(c) of Directive 90/434/EC; or
2. Cases of reorganisation or transfer:
1) entities are reorganised by means of a merger by acquisition, i.e. one or more entities, on being dissolved without going into liquidation (hereinafter: the ‘acquired entities’) are merged with another existing entity (hereinafter: the ‘acquiring entity’) and, at the time of the merger, all the assets, rights and obligations of the acquired entities are transferred to the acquiring entity and members of the acquired entity, in exchange for the shares (interests, member shares) held in the acquired entity, receive shares (interests, member shares) issued by the acquiring entity, to which all the assets, rights and obligations of the acquired entity are transferred; where, during the exchange, the difference in the price of the shares of the acquired entities and acquiring entity is covered by a cash payment, it shall not exceed 10% of the nominal value of the shares, or, in the absence of a nominal value, it shall not exceed 10% of their accounting par value;
2) entities are reorganised by means of a merger by the formation of a new entity, i.e. one or more entities, on being dissolved without going into liquidation, (hereinafter: the ‘acquired entities’) are merged into a new entity (hereinafter: the ‘acquiring entity’) and, at the time of the merger, all the assets, rights and obligations of the acquired entities are transferred to the acquiring entity and members of the acquired entity, in exchange for the shares (interests, member shares) held in the acquired entity, receive shares (interests, member shares) issued by the acquiring entity, to which all the assets, rights and obligations of the acquired entity are transferred; where, during the exchange, the difference in the price of the shares of the acquired entities and acquiring entity is covered by a cash payment, it shall not exceed 10% of the nominal value of the shares, or, in the absence of a nominal value, it shall not exceed 10% of their accounting par value;
3) an entity, on being dissolved without going into liquidation, (hereinafter: the ‘acquired entity’) transfers all its assets, rights and obligations to another entity which holds 100% of its authorised capital (100% of the shares representing its capital) (hereinafter: the ‘acquiring entity’);
4) entities are reorganised by means of a division, i.e. an entity, on being dissolved without going into liquidation, (hereinafter: the ‘acquired entity’) divides all its assets, rights and obligations into two or more parts and at the same time transfers them to two or more existing or new entities (hereinafter: the ‘acquiring entities’) and members of the acquired entity, in exchange for the shares (interests, member shares) held in the acquired entity, receive pro rata shares (interests, member shares) issued by the acquiring entities; where, during the exchange, the difference in the price of the shares of the acquired entity and acquiring entities is covered by a cash payment, it shall not exceed 10% of the nominal value of the shares, or, in the absence of a nominal value, it shall not exceed 10% of their accounting par value;
5) an entity, without being dissolved, transfers (hereinafter: the ‘transferring entity’) one or more branches of its activity in the form of assets, rights and obligations which from an organisational point of view constitute an independent economic entity, carrying out its activities and capable of functioning by its own means (hereinafter: the ‘branch of activity’) to one or more new or existing entities (hereinafter: the ‘acquiring entities’), which results in a reduction of its authorised capital and members of the transferring entity, in exchange for the shares (interests, member shares) held in the transferring entities, receive pro rata shares (interests, member shares) issued by the acquiring entities; where, during the exchange, the difference in the price of the shares of the transferring entity and acquiring entities is covered by a cash payment, it shall not exceed 10% of the nominal value of the shares, or, in the absence of a nominal value, it shall not exceed 10% of their accounting par value;
6) an entity, without being dissolved, transfers (hereinafter: the ‘transferring entity’) its activity as a set or one or more branches of its activity to another entity (hereinafter: the ‘acquiring entity’) in exchange for the shares (interests, member shares) of the acquiring entity;
7) an entity which, seeking to obtain complete control over another entity by acquiring the majority of votes (i.e. holding the shares conferring more than 1/2 of the voting rights) (hereinafter: the ‘acquiring entity’) or, holding the majority of votes (i.e. the shares conferring more than 1/2 of the voting rights) and seeking to acquire more of the entity’s shares, transfers the issued shares (interests, member shares) to the members of the acquired entity in exchange for their shares in the acquired entity; where, during the exchange, the difference in the price of the shares of the acquired entity and acquiring entity is covered by a cash payment, it shall not exceed 10% of the nominal value of the shares, or, in the absence of a nominal value, it shall not exceed 10% of their accounting par value;
8) an entity, without being dissolved, transfers (hereinafter: the ‘transferring entity’) one or more parts of its assets, rights and obligations to one or more new entities (hereinafter: the ‘acquiring entities’) dividing its assets, rights and obligations in proportion to the number of the shares transferred;
3. Where, in the cases specified in paragraph 2 of this Article, the acquiring entity is a foreign entity specified in point 2 of paragraph 1 of this Article, the provisions of this Chapter shall apply, provided that following the reorganisation or transfer referred to in paragraph 2 of this Article, with the exception of points 7 and 9 of paragraph 2 of this Article, the said foreign entity continues, on the basis of the assets, rights and obligations acquired, to carry out its activities through a permanent establishment in the territory of the Republic of Lithuania. Where, in the cases specified in point 9 of paragraph 2 of this Article, the entity specified in point 3 of paragraph 1 of this Article (a European company or European cooperative society) transfers its registered office, the provisions of this Chapter shall apply, provided that following the transfer of its registered office the entity continues, on the basis of the assets, rights and obligations formerly attributed the Lithuanian entity, to carry out its activities through a permanent establishment in the territory of the Republic of Lithuania.
Article 42. Income from the increase in the value of assets resulting from reorganizations and transfers
1. Where, in the cases specified in Article 41 of this Law, members of an entity receive shares (interests, member shares) of another entity in exchange for the shares (interests, member shares) held in the entity, the increase in the value of assets shall not be considered to be income of such members. In this case, the acquisition price of the new shares (interests, member shares) received by the members of the entity shall be the acquisition price of the shares (interests, member shares) exchanged before the transfer was effected.
2. Where, in the cases specified in Article 41 of this Law, an entity transfers its assets to another entity, the increase in the value of assets shall not be considered to be income of the transferring entity. In this case, the acquisition price of such assets with respect to the receiving entity shall be the acquisition price of the assets before the transfer was effected.
3. Where, in the cases specified in Article 41 of this Law, a foreign entity transfers a permanent establishment situated in Lithuania to another entity, the increase in the value of assets with respect to the permanent establishment shall not be considered to be its income. In this case, the acquisition price of such assets with respect to the receiving entity shall be the acquisition price of the assets before the transfer was effected.
4. Where, in the cases specified in Article 41 of this Law, a Lithuanian entity transfers a branch of activity in a Member State of the European Union to a foreign entity, the increase in the value of assets shall not be considered to be income of the transferring entity.
5. Where, in the cases specified in Article 41 of this Law, a Lithuanian entity transfers a branch of activity to another Lithuanian entity, the increase in the value of assets shall not be considered to be income of the transferring entity. In this case, the acquisition price of such assets with respect to the receiving entity shall be the acquisition price of the assets before the transfer was effected.
6. Where, in the cases specified in Article 41 of this Law, a foreign entity transfers a branch of activity in a Member State of the European Union to a Lithuanian entity, the acquisition price of such assets with respect to the receiving Lithuanian entity shall be the acquisition price of the assets before the transfer was effected.
7. Where, in the case specified in Article 41(2)(9) of this Law, a Lithuanian entity transfers its registered office, the increase in the value of assets shall not be considered to be income of the Lithuanian entity, while the acquisition price of such assets with respect to the permanent establishment situated in the Republic of Lithuania through which the entity continues to carry out its activities in the Republic of Lithuania shall be the acquisition price of the assets before the transfer of the registered office was effected.
8. Where, in the cases specified in Article 41 of this Law, an entity transfers assets to another entity, the receiving entity shall continue to calculate the depreciation or amortisation of such assets according to the rules applied by the transferring entity before the transfer was effected. Where, in the case specified in Article 41(2)(9) of this Law, a Lithuanian entity transfers its registered office, the assets attributed to the permanent establishment in the Republic of Lithuania due to the transfer of the registered office shall be depreciated and amortised according to the rules applied by the Lithuanian entity before the transfer was effected.
9. In the cases specified in Article 41 of this Law, the difference which arises at the moment of reorganisation or transfer (the amount by which the price paid by the acquiring entity exceeds the value of the net assets acquired) shall not be deducted from income, while the negative difference (the amount by which the value of the net assets acquired exceeds the price paid by the acquiring entity) shall not be attributed to income.
10. The provisions of this Article shall apply only where, in the cases specified in points 4, 5, 6 and 7 of Article 41(2) of this Law, an entity or its members do not sell or otherwise transfer into ownership the shares (interests, member shares) received by means of an exchange for a period of three years, except for the cases where the shares (interests, member shares) are transferred due to requirements of legal acts or in subsequent cases specified in points 4, 5, 6 and 7 of Article 41(2) of this Law.
Article 43. Losses resulting from reorganisations, transfers and conversions
1. In cases of reorganisation or transfer, unless this Article provides otherwise, the acquiring entity or entities, in continuing to carry forward the losses, may carry forward the losses for the tax periods of the acquired or transferring entity or entities (except for the losses of entities (not financial institutions) resulting from transfer of the securities and/or derivative financial instruments) and incurred before the completion of the reorganisation or transfer and not carried forward to the following year in accordance with the procedure established by this Law if the acquiring entity or entities continue to carry out the activity taken over or a branch thereof for a period not shorter than three years. Only the losses for the tax periods that are related to the activity, or a branch thereof, transferred by the acquired or transferring entity or entities and continued by the acquiring entity may be transferred to the acquiring entity or entities.
2. After the end of a three-year period specified in paragraph 1 of this Article, the losses for the tax period transferred to the acquiring entity and related to the activity, or a branch thereof, of the acquired or transferring entity or entities shall not be carried forward starting from the tax period during which the acquiring entity ceases to carry out the activity taken over or a branch thereof.
3. The transferring entity shall reduce the losses for the tax period incurred before the completion of the transfer and not carried forward to the following tax year in accordance with the procedure established by this Law in respect of the acquiring entity by the amount of tax-related losses attributed to the transferred activity or a branch thereof.
4. Where reorganisation is carried out in the case specified in Article 41(2)(7), entities shall continue carrying forward the losses irrespective of the provisions of paragraphs 1, 2 and 3 of this Article.
5. Where the entity is converted during the tax period, the losses for the previous tax periods shall be carried forward only in the cases where the conversion does not result in the change of owners of the entity and the converted entity continues to carry out the same activity as before the conversion for a period of three years.
6. Where, in the case specified in Article 41(2)(9) of this Law, a Lithuanian entity transfers its registered office, the losses of this Lithuanian entity for the tax period incurred before the transfer of the registered office and not carried forward to the next year in accordance with the procedure laid down in this Law may be carried forward by the entity that continues to carry out its activities in the Republic of Lithuania through a permanent establishment.
7. The carrying forward of tax-related losses specified in paragraphs 4, 5 and 6 of this Article shall continue in accordance with the procedure laid down in Article 30 of this Law. The carrying forward of tax-related losses specified in paragraphs 1 and 2 of this Article shall continue in such a manner that the amount of tax-related losses, deducted both in accordance with the procedure laid down in this Article and in Article 30 of this Law, except for tax-related losses of entities whose taxable profits are taxed at a rate of 5% under the provisions of Article 5(2) of this Law, 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 periods.
Article 44. Repealed as of 1 January 2006.
Article 45. Income and losses from the increase in the value of assets resulting from liquidations
1. Where an entity in liquidation distributes assets to its members, such distribution shall be considered to be the sale of the assets for their actual market price, determined on the day of transfer of the ownership right, and the difference between the acquisition and the selling price of the assets shall be considered to be income from the increase in the value of assets of the entity unless this Law provides otherwise. Where an entity is being liquidated, the losses incurred by the entity in respect of the transfer of assets shall be considered to be the losses of the entity in liquidation.
2. Members of the entity in liquidation shall recognise income from the increase in the value of assets/losses in respect of the value of assets at the moment of receipt of the assets of the entity in liquidation or a part of its assets. Such income/losses shall comprise the difference between the acquisition price of the ownership rights (interests, member shares, shares) of members of the entity and the market price of the assets received from the entity in liquidation. The acquisition price of the assets received from the entity in liquidation with respect to members of the entity shall be the actual market price of those assets.
Article 46. Accounting reports
1. The explanatory notes drawn up by the acquiring entity for the tax period during which the operations referred to in Article 41 of this Law were carried out shall specify the tax period during which the transfer of the assets and rights from the acquired entity or entities was effected. Subsequent explanatory notes must specify which of the notes provide information referred to in this paragraph.
2. The explanatory notes shall be accompanied by the last balance sheet of the acquired entity/balance sheets of the acquired entities.
3. The explanatory notes shall be filed together with an estimation of the difference between the residual value of the assets depreciated or amortised, as recorded with respect to the acquired entity/entities and the acquiring entity.
4. Members of entities (owners of shares (interests, member shares)) shall specify in the explanatory notes the nominal value of the shares of the acquired entity or entities and the price of the shares (interests, member shares) received as recorded in the accounts of that entity.
Article 461. Reduction of taxable profits due to an ongoing investment project
1. An entity carrying out an investment project may reduce the taxable profits in accordance with the procedure laid down in this Article. The taxable profits may be reduced during the tax period for which the calculated taxable profits are reduced by the amount of the actual costs incurred for the acquisition of assets meeting the requirements specified in this paragraph (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). 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 this Law: ‘plants and machinery’, ‘installations (structures, wells, etc.)’, ‘computer and communications equipment (computers, computer networks and hardware)’, ‘software’ and ‘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 taxable profits may be reduced by up to 100%. Where the amount of costs specified in paragraph 1 of this Article exceeds the amount of taxable profits calculated for a tax period, the costs 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. The taxable profits calculated for each tax period may be reduced by up to 100%.
3. The amount of actual costs incurred as specified in paragraph 1 of this Article must be reduced by the amount of funds used for that purpose from the national budget, the budget of the State Social Insurance Fund, the budget of the Compulsory Health Insurance Fund, other state monetary funds, municipal funds, European Union and other financial support schemes where such funds or such financial support have been received.
4. The taxable profits may be reduced in accordance with the procedure laid down in this Article only by the costs incurred during the tax periods of 2009-2023.
5. Fixed assets for the acquisition of which the taxable profits have been reduced in accordance with the procedure laid down in this Article must be used in the activities of the entity for at least three years. Where such fixed assets are used in the activities of the entity for a shorter period, except when the entity ceases to exist and in cases where the assets are not used or are transferred due to requirements of legal acts or where the assets are lost due to force majeure or criminal activity by third parties, the corporate income tax that has not been calculated due to reduction of taxable profits must be paid to the state budget, re-calculating and taxing the taxable profits of the previous tax periods. Such re-calculation shall not be carried out where fixed assets are used in the activities of the entity for a period shorter than three years because they are transferred to the acquiring entity in cases of reorganisation or transfer; however, only if the acquiring entity uses the assets taken over until three years have elapsed from the start of use of the fixed assets in the transferring entity. After taking over the fixed assets in cases of reorganisation or transfer or due to requirements of legal acts, the acquiring entity may continue the reduction of taxable profits, as it would have been done by the entity that has transferred the fixed assets and lost the opportunity to reduce the taxable profits due to the acquisition of the said fixed assets.
Article 462. Reduction of taxable income due to funds granted free of charge for the production of a film or a part thereof
1. A Lithuanian entity or a foreign entity that has, through a permanent establishment in Lithuania, granted free of charge the funds meeting the requirements laid down in Article 172 of this Law for the production of a film or a part thereof in the Republic of Lithuania may, in accordance with the procedure laid down in this Article, reduce the corporate income tax, calculated for the tax period in which an investment certificate was received, by the amount of such funds. Where the investment certificate is received before the end of the time limit for filing tax returns, the corporate income tax calculated for the previous tax period and payable during the tax period in which the investment certificate was received may also be reduced.
2. The corporate income tax payable for the tax period may be reduced by not more than 75% with the amount of funds granted free of charge for the production of a film or a part thereof in the Republic of Lithuania. If the amount of the funds specified in paragraph 1 of this Article exceeds 75% of the amount of corporate income tax payable for the tax period, the excess amount may be used to reduce the corporate income tax payable for two subsequent uninterrupted tax periods; however, the amount of the corporate income tax calculated for each tax period may not be reduced by more than 75%.
Article 463. Reduction of taxable profits by the funds directly allocated for financing of activities in the public interest
1. Non-profit entities may reduce taxable profits by the 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.
2. 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.
3. The amount of funds specified in paragraph 1 of this Article must be reduced by the amount of funds directly used for financing of activities in the public interest from the state and municipal budgets, the budget of the State Social Insurance Fund, the budget of the Compulsory Health Insurance Fund, other state monetary funds, European Union and other financial support schemes, sponsorship under the Law of the Republic of Lithuania on Charity and Sponsorship, membership fees, contributions and fees, where such funds or such sponsorship have been received.
4. Where the funds of a non-profit entity have not been allocated for financing of activities in the public interest in the period specified in paragraph 1 of this Article, the corporate income tax that has not been calculated due to reduction of taxable profits must be paid to the state budget, re-calculating and taxing the taxable profits of the previous tax periods.
Article 47. Calculation and advance payment of corporate income tax
1. Advance corporate income tax shall be calculated in accordance with the procedure laid down in this Article. The amount of advance corporate income tax shall be calculated by the taxpayer.
2. The amount of advance corporate income tax shall be calculated by the taxpayer in accordance with the following procedure:
1) based on the results of activity for the previous year. For the first six months of the tax period, advance corporate income tax shall be calculated on the basis of the amount of corporate income tax actually calculated for the tax period preceding the previous tax period. For the 7th –12th months of the tax period, advance corporate income tax shall be calculated on the basis of the amount of corporate income tax actually calculated for the previous tax period. The advance corporate income tax for each quarter shall comprise respectively 1/4 of the amount of corporate tax actually calculated for the above-mentioned tax periods;
2) based on the implicit amount of corporate income tax for the tax period. The taxpayer may choose to make quarterly advance payments of corporate income tax by instalments equal to 1/4 of the implicit amount of corporate income tax for the tax period. The amount of advance corporate income tax calculated on the basis of the implicit amount of corporate income tax for the tax period must account for not less than 80% of the actual amount of the annual corporate income tax. Where the implicit amount of corporate income tax calculated in the advance corporate income tax return is less than 80% of the amount of corporate income tax calculated in the annual corporate income tax return, late payment interest shall, in accordance with the procedure laid down in the Law on Tax Administration, be calculated in respect of the amount of advance corporate income tax which was not paid for each quarter. The taxpayer may adjust the advance corporate income tax return when calculating the amount of advance corporate income tax for each quarter in equal portions as of the beginning of the tax period.
3. The amount of advance corporate income tax shall be calculated irrespective of the amount of corporate income tax calculated on sponsorship received which was used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and on the part of sponsorship received in cash from a single provider of sponsorship during the tax period which exceeds the amount of 250 MLS.
4. Registered entities shall be exempt from advance payments of corporate income tax during the first tax year, and in the second tax year the taxpayer, where it has chosen to make advance payments of corporate income tax based on the results of activity for the previous year, shall begin making advance payments from the 7th month of the tax period. Where the tax period preceding the previous tax period was shorter than 12 months, for the purpose of calculating advance payment of corporate income tax, the amount of corporate income tax actually paid shall be considered to be the amount of corporate income tax calculated for that tax period divided by the number of months of that tax period and multiplied by 12.
5. Where the taxable income for the previous tax period did not exceed EUR 300 000, an entity shall not be under an obligation to pay advance corporate income tax for the tax period.
Article 48. Moment of calculation of corporate income tax
Corporate income tax shall be calculated on the basis of the financial position on the last day of the tax period.
Article 49. Entry in the budget of corporate income tax
Corporate income tax shall be entered in the state budget.
Article 50. Corporate income tax returns and reports
1. Corporate income tax returns shall be of the following types:
3) tax return on income (amounts) paid to a foreign entity and on corporate income tax calculated and paid to the budget;
4) corporate income tax return of a foreign entity (permanent establishment) carrying out its activities in the Republic of Lithuania;
5) tax return on corporate income tax calculated and paid in respect of the dividends received and paid out;
2. Reports shall be supplements to the annual corporate income tax return:
3. Other reports shall be:
4. The reports and tax returns specified in points 3, 5 and 6 of paragraph 1, point 1 of paragraph 2 and point 1 of paragraph 3 of this Article shall be submitted only in the event that respective economic operations have been carried out by an entity during the tax period.
Article 51. Filing of annual corporate income tax returns, annual fixed rate corporate income tax returns and advance corporate income tax returns
1. Lithuanian entities and permanent establishments whose income is subject to taxation in accordance with the procedure laid down in this Law must complete annual corporate income tax returns and/or annual fixed rate corporate income tax returns and advance corporate income tax returns and file them with the local tax administrator in the territory whereof they are situated or must be registered as taxpayers. Entities that have used the sponsorship received for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and entities that have received sponsorship in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 MLS, must complete annual corporate income tax returns and file them with the local tax administrator in the territory whereof they are situated or must be registered as taxpayers.
2. Annual corporate income tax returns and/or annual fixed rate corporate income tax returns shall be filed after the end of the tax period and by the 15th day of the sixth month of the following tax period. A Lithuanian entity or permanent establishment shall file the annual corporate income tax return and/or annual fixed rate corporate income tax return for the last tax period within 30 days after the end of activity.
3. Filing of advance corporate income tax returns:
1) where advance corporate income tax is calculated on the basis of the results of activity for the previous year, the advance corporate income tax return for the first six months of the tax period shall be filed not later than by the 15th day of the 3rd month of the tax period. For the 7th–12th months of the tax period, the advance corporate income tax return shall be filed not later than by the 15th day of the 9th month of the tax period;
Article 52. Filing of tax returns on income (amounts) paid to foreign entities and
on corporate income tax calculated and paid to the budget
1. Where the income of a foreign entity is subject to corporate income tax in accordance with the procedure laid down in Article 37 of this Law, the withholding person, namely a Lithuanian entity or a permanent establishment, shall complete a tax return and file it with the local tax administrator in the territory whereof the withholding person is situated or must be registered as a taxpayer.
Article 53. Payment and refunding of corporate income tax
1. Corporate income tax and/or fixed rate corporate income tax shall be paid on the basis of the annual corporate income tax return and/or fixed rate corporate income tax return. Corporate income tax and/or fixed rate corporate income tax must be paid not later than by the 15th day of the 6th month of the following tax period. Corporate income tax and/or fixed rate corporate income tax of taxpayers who cease to exist must be paid on the basis of the annual corporate income tax return and/or fixed rate corporate income tax return for the last tax period not later than on the last day of the time limit for filing of the annual corporate income tax return and/or annual fixed rate corporate income tax return. Where the amount of corporate income tax calculated in the annual corporate income tax return exceeds the amount of advance corporate income tax paid for the tax period, the taxpayer must pay the difference to the budget. Tax overpayments shall be refunded in accordance with the procedure laid down in the Law on Tax Administration.
2. Corporate income tax calculated in respect of the income (amounts) paid to foreign entities must be paid not later than on the last day of the time limit for filing of the tax return. Where a Lithuanian entity or permanent establishment has withheld and paid corporate income tax calculated in respect of the amounts (income), which may be subject to the provisions of Article 371 of this Law, paid to a foreign entity or its permanent establishment, such tax shall be refunded (credited) to the foreign entity in accordance with the procedure laid down in the Law on Tax Administration. A foreign entity must submit a written application to refund (credit) the tax, accompanied by documents evidencing the fulfilment of the criteria set forth in paragraphs 1-3 of Article 371 of this Law, within two years from the date of payment of the said amounts (income) to it. Corporate income tax paid must be refunded (credited) not later than within one year from the date of receipt of the written application to refund (credit) the tax and the documents evidencing the fulfilment of the criteria set forth in paragraphs 1-3 of Article 371 of this Law.
Article 54. Re-calculation of corporate income tax calculated and paid by a foreign entity
1. After having received income from performing activities or sports activities (hereinafter in this Article: the ‘activities’) carried out in the Republic of Lithuania and from the sale or other transfer into ownership of property immovable by nature located in the territory of the Republic of Lithuania (hereinafter in this Article: the ‘property’), a foreign entity shall have the right to apply to the local tax administrator in the territory whereof the withholding person is registered for re-calculation of corporate income tax that has been calculated and paid in respect of the activities carried out in the Republic of Lithuania and/or the property sold or otherwise transferred into ownership. In this case, corporate income tax would be calculated in respect of the income from the increase in the value of the property and/or taxable profits from the activities carried out in the Republic of Lithuania.
2. Applications for re-calculation of corporate income tax and documents substantiating the acquisition price of the property shall be submitted to the local tax administrator in the territory whereof the withholding person is registered. Upon verifying the legality of such documents and transactions, the local tax administrator shall calculate the income from the increase in the value of the property, earned from the sale or other transfer into ownership of the property, and corporate income tax. Tax overpayments shall be refunded in accordance with the procedure laid down in the Law on Tax Administration.
3. Applications and documents based on which taxable profits from the activities carried out in the Republic of Lithuania have been calculated shall be submitted to the local tax administrator in the territory whereof the withholding person is registered. Tax overpayments shall be refunded in accordance with the procedure laid down in the Law on Tax Administration.
Article 55. Deductions of corporate income tax paid in foreign states
1. A Lithuanian entity may deduct the amount of corporate income tax or an equivalent tax paid in a foreign state on income received in that state during the relevant tax year from the amount of corporate income tax calculated in accordance with the procedure laid down in this Law, except for the amount of corporate income tax calculated on sponsorship received which was used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and on the part of sponsorship received in cash from a single provider of sponsorship during the tax period which exceeds the amount of 250 MLS, taking account of the dividends which are not included in the income of the entity, except for the amount of corporate income tax or an equivalent tax paid on the income from activities carried out through permanent establishments of a Lithuanian entity in a state of the European Economic Area or states with which the Republic of Lithuania has concluded and brought into effect a treaty for the avoidance of double taxation, unless this Article provides otherwise.
2. Where the amount of corporate income tax calculated in respect of the income received in a foreign state in accordance with the procedure laid down in this Law is smaller than the amount of corporate income tax or an equivalent tax paid on that income in the said foreign state, only the amount of corporate income tax calculated in accordance with the procedure laid down in this Law shall be deducted.
3. Where a taxpayer receives income in several foreign states during a tax year, the amount of income tax to be deducted shall be calculated separately for every state in which the income was received.
5. Deductions from the calculated amount of corporate income tax shall be allowed in accordance with the procedure laid down in this Article only where documents certified by the tax administrator of a foreign state have been issued concerning the income received in that state during the relevant tax year and the amount of corporate income tax or an equivalent tax calculated and paid on that income unless this Article provides otherwise.
6. A Lithuanian entity may deduct the amount of corporate income tax or an equivalent tax paid in a foreign state on positive income received by a controlled entity in that state during the relevant tax year, as specified in paragraphs 6 and 7 of Article 39 of this Law, from the amount of corporate income tax calculated in accordance with the procedure laid down in this Law on the positive income included in the income of the Lithuanian entity. Deductions from the calculated amount of corporate income tax shall be allowed in accordance with the procedure laid down in this Article only where documents certified by the tax administrator of a foreign state have been issued concerning the income received in that state during the relevant tax year and the amount of corporate income tax or an equivalent tax calculated and paid on that income and where the Lithuanian entity provides the following to the local tax administrator:
7. The Lithuanian entity shall submit the documents specified in paragraph 6 of this Article in accordance with the procedure established by the central tax administrator.
Article 56. Liability for Violations of this Law
Where the provisions of this Law are violated, except for the cases referred to in Article 46(5), fines shall be imposed and late payment interest shall be charged in accordance with the procedure laid down in the Law on Tax Administration.
Article 561. Transfer of tax losses between entities within a group of entities
1. An entity may, in accordance with the procedure laid down in this Article, transfer tax losses (or a part thereof) calculated for the tax period to another entity of a group of entities who shall be entitled to reduce, by the losses transferred, the amount of taxable profits calculated for the tax period for which the losses (or a part thereof) transferred thereto by the other entity were calculated, provided that:
1) on the day of transfer of the tax losses, the parent entity in the group of entities holds, directly or indirectly, at least 2/3 of shares (interests, member shares) or other rights to distributable profits of each of the subsidiaries taking part in the transfer of the tax losses, and
2) tax losses are transferred between the entities within a group of entities which have been part of that group for an uninterrupted period of at least two years calculating until the day of transfer of the tax losses, or
3) tax losses are transferred or taken over by the entity (entities) of the group of entities which have been part of the group since the date of the entity’s/entities’ registration and will be part of the group of entities for an uninterrupted period of at least two years calculating from the date of the entity’s/entities’ registration.
2. Only the amount of taxable profits resulting from the transfer of securities and/or derivative financial instruments, transferred in accordance with the procedure established in this Article, may be reduced by the tax losses incurred from the transfer of securities and/or derivative financial instruments.
3. An entity which has transferred tax losses in accordance with the procedure laid down in this Article may not attribute these losses to limited allowable deductions in accordance with the procedure laid down in Article 30 of this Law.
4. A foreign entity may transfer tax losses (or a part thereof) to a Lithuanian entity in accordance with the procedure laid down in this Article only where:
1) the foreign entity is a resident in EU Member States for tax purposes, which takes on one of the forms of business organisation listed in Annex to Council Directive 90/434/EEC and which is subject to tax specified in Article 3(c) of Directive 90/434/EC, and
2) the tax losses transferred by the foreign entity may not be carried forward to the following tax year (or deducted from its income/profits) under the requirements of legal acts of the EU Member State a resident of which the transferring foreign entity is for tax purposes, and
5. Where it transpires that tax losses by which the amount of calculated taxable profits of a Lithuanian entity taking them over has been reduced were calculated incorrectly, the taxable profits of the Lithuanian entity which has taken over the tax losses by which the amount of the taxable profits was reduced must be increased accordingly. Where the entity which has transferred the tax losses calculated them incorrectly and has transferred only a part of the losses to another entity, it shall be considered that the losses calculated incorrectly have been transferred first.
6. Where, in accordance with the procedure laid down in this Article, tax losses (or a part thereof) are transferred for remuneration, the remuneration received for such transfer shall not be treated as income of the Lithuanian entity which received it, and the losses incurred shall not be treated as allowable deductions of the Lithuanian entity which incurred them.
7. An entity which has any arrears in payments may not transfer tax losses to another entity in accordance with the procedure laid down in this Article.
8. An entity may not transfer tax losses calculated for the tax period in accordance with the procedure laid down in this Article where, in the case of calculation of taxable profits for that tax period, the entity would not pay corporate income tax or an equivalent tax due to tax reliefs applicable to it (taxable profits would have been taxed at a tax rate of 0% or the entity would have been exempt from paying tax).
Article 57. Requirements for keeping of accounts
1. Taxpayer’s accounts must be kept in a manner that would provide sufficient information for the purpose of calculating corporate income tax.
2. Taxpayers shall keep their accounts and financial statements in compliance with the Accounting Law of the Republic of Lithuania and other legal acts.
3. For the purpose of calculating corporate income tax, an entity may use the universally accepted methods of recognising income and costs as well as methods of measuring inventories unless this Law provides otherwise.
4. For the purpose of calculating corporate income tax, inventories shall be recorded by using the accounting method ‘first-in, first-out (FIFO)’. At the request of the taxpayer and taking into account the characteristics of its activity, the local tax administrator may, in accordance with the procedure established by the central tax administrator, allow to record the inventories by using the method provided for in the legal acts regulating accounting which is used by the entity when drawing up financial statements.
Article 58. Procedure for abandoning calculation and taxation of entities’ profits or income in accordance with the Law on Taxes on Profits of Legal Persons and Chapter IV of the Provisional Law on Income Tax of Natural Persons
1. Continuity shall not be applied in respect of tax reliefs provided for in the Law of the Republic of Lithuanian on Taxes on Profits of Legal Persons and the Provisional Law of the Republic of Lithuania on Income Tax of Natural Persons, including investment incentives applicable to tangible fixed assets and computer (software) programmes unless this Article provides otherwise.
2. Tax reliefs relating to foreign capital investments, as specified in Article 8 of the Law of the Republic of Lithuania on Taxes on Profits of Legal Persons and Article 24 of the Provisional Law of the Republic of Lithuania on Income Tax of Natural Persons, which applied for taxpayers before the date of entry into force of this Law, shall apply within the time limits and in accordance with the procedure set out in the said laws until the end of the tax period beginning with 2003.
3. In the event that tangible fixed assets or computer (software) programmes subject to the investment incentive referred to in Article 21 of the Law of the Republic of Lithuania on Taxes on Profits of Legal Persons are lent for use or invested in another entity after the date entry into force of this Law, the entity’s income shall be increased by the acquisition price of such assets in the tax period during which the assets were lent for use or invested in another entity. In the event that tangible fixed assets or computer (software) programmes subject to the investment incentive referred to in Article 24 of the Provisional Law of the Republic of Lithuania on Income Tax of Natural Persons are lent for use, invested in another entity or the purpose of their use is changed, including the cases where members of partnerships and owners of individual/personal enterprises pay themselves the part of income which was used by the partnerships and individual/personal enterprises for such investments, after the date of entry into force of this Law, the income of the partnership and individual/personal enterprise shall be increased by the amount corresponding to the part of taxable income used for investments in the tax period during which the assets were lent for use, invested in another entity or the purpose of their use was changed.
4. Depreciation or amortisation of tangible fixed assets or computer (software) programmes subject to the investment incentive specified in Article 21(1)(2) of the Law of the Republic of Lithuania on Taxes on Profits of Legal Persons and in Article 24 of the Provisional Law of the Republic of Lithuania on Income Tax of Natural Persons shall not be calculated. Where such an investment incentive was applied to a part of the value of tangible fixed assets or computer (software) programmes, depreciation or amortisation shall be calculated as of the moment when the amount of depreciation or amortisation, which would be calculated under the provisions of this Law if no investment incentives were applied when the assets were acquired, reaches the part of the value to which the investment incentive was applied.
5. Dividends received as of the tax period beginning with 2002 shall be subject to the following corporate income tax rates:
1) dividends received by Lithuanian entities from other Lithuanian and foreign entities shall be subject to a corporate income tax rate of 29% and shall not be subject to the provisions of Article 33(2) and Article 34(2) of this Law;
6. In the event that the amount of debts regarded as bad debts was accumulated before the date of entry into force of this Law, the provisions of Article 25(1) of this Law shall apply only to the debts that were included in the taxpayer’s income from sales or where the appearance of such debts was recorded in the taxpayer’s accounting documents not earlier than in 1996. However, where the amount of bad debts was included in the taxpayer’s income from sales or the appearance of such debts was recorded in the taxpayer’s accounting documents between 1 January 1996 and 31 December 1999, the amount of bad debts or the portion of costs attributed to bad debts shall be included in the limited allowable deductions of the entity in equal portions over a period of five years as of the tax period beginning with 2000.
7. Insurance benefits received from insurance undertakings (insurers) shall not be subject to taxation under insurance contracts concluded before 1 January 2002.
8. Advance corporate income tax for the tax period beginning with 2002, which the taxpayer must pay based on the submitted advance corporate income tax return, shall be calculated in accordance with the following procedure:
1) for the first four months of the tax period, advance corporate income tax shall be calculated on the basis of the amount of corporate income tax actually calculated for the tax period preceding the previous tax period. For the 5th –12th months of the tax period, advance corporate income tax shall be calculated on the basis of the amount of corporate income tax actually calculated for the previous tax period. Advance corporate income tax for each month shall respectively comprise 1/12 of the amount of corporate income tax actually calculated for the above mentioned tax periods;
2) an entity which provides evidence that its income for the tax period beginning with 2002 is at least 25% less than that for the tax period beginning with 2001 shall have the right to apply, not later than one month before the deadline set in this paragraph for making a regular payment of advance corporate income tax, to the local tax administrator for reduction of the remaining advance corporate income tax or exemption from it. The local tax administrator must reduce the amount of advance corporate income tax in respect of such entity in proportion to the decreased income or exempt the entity from advance corporate income tax. Where the income of the said entity for the tax period beginning with 2002 increases by at least 25%, it must apply, not later than one month before the deadline set for making a regular payment of advance corporate income tax, to the local tax administrator for the remaining advance corporate income tax to be increased.
3) the entity may choose to make advance payments of corporate income tax based on the amount of corporate income tax calculated for each month of the tax period beginning with 2002;
9. The advance corporate income tax return for the first four months of the tax period beginning with 2002 shall be filed before the last day of the first month of the tax period. The advance corporate income tax return for the 5th-12th months of the tax period beginning with 2002 shall be filed before the last day of the fifth month of the tax period. Where an entity has chosen to pay advance corporate income tax based on the amount of corporate income tax calculated for each month of the tax period beginning with 2002, the advance corporate income tax return shall be filed not later than by the 15th day of the following month after the end of each month of the tax period beginning with 2002. Advance corporate income tax must be paid within 15 days after the end of each month of the tax period beginning with 2002.
10. An income tax return or a corporate income tax statement for the tax period beginning with 2001 shall be filed together with the financial accounts specified in the Accounting Law of the Republic of Lithuania after the end of the tax year and before 1 May 2002 or before the first day of the fifth month of the tax period beginning with 2002. Corporate income tax for the tax period beginning with 2001 shall be paid on the basis of a corporate income tax statement or an income tax return. Where the amount of corporate income tax calculated in the corporate income tax statement or the income tax return exceeds the amount of corporate income tax paid for the tax period on the basis of advance corporate income tax statements, the taxpayer must pay the difference to the budget on the next working day after the end of the deadline for filing of the corporate income tax statement or the income tax return.
11. The depreciation or amortisation rates set out in Appendix 1 to this Law shall apply to tangible fixed assets, intangible assets and goodwill acquired after the date of entry into force of this Law.
12. Entities which had, before 1 January 2002, recognised income at the actual moment of its receipt but no longer meet the prescribed criteria for the application of the cash accounting principle under the provisions of this Law, may switch to the accrual accounting principle from the tax period beginning with either 2002 or 2003.
13. Interest paid on bonds of a Lithuanian entity shall be subject to taxation under the provisions of Article 4 of this Law provided that they are issued after the date of entry into force of this Law. Interest on loans issued by banks of foreign countries and by international financial institutions (institutions or organisations all members or founders of which are governments of several countries, also funds and state financial institutions of foreign countries in which over 50% of the block of shares are held by the governments of foreign countries), included in the list approved by an order of the Minister of Finance of the Republic of Lithuania, shall, under the provisions of Article 4 of this Law, be subject to taxation from 1 January 2003, including premiums and bonuses relating to such liabilities, but excluding loans issued to the Republic of Lithuania under loan agreements concluded after the date of entry into force of this Law. Interest on loans by banks of foreign countries and by international financial institutions (institutions or organisations all members or founders of which are governments of several countries, also funds and state financial institutions of foreign countries in which over 50% of the block of shares are held by the governments of foreign countries), included in the list approved by an order of the Minister of Finance of the Republic of Lithuania, issued to the Republic of Lithuania under loan agreements concluded after 1 January 2003 shall be subject to taxation under the provisions of Article 4 of this Law.
14. Interest on securities issued by the Government and municipalities of the Republic of Lithuania as well as by international financial organisations in which Lithuania holds membership and whose articles of incorporation have been ratified under the Law of the Republic of Lithuania on Treaties shall be subject to taxation under the provisions of Article 4 of this Law where agreements on the distribution of securities are concluded after 1 January 2003.
15. The following shall not be subject to taxation before 1 January 2003:
1) interest on securities issued by the Government and municipalities of the Republic of Lithuania as well as by international financial organisations in which Lithuania holds membership and whose articles of incorporation have been ratified under the Law of the Republic of Lithuania on Treaties, and also interest on securities issued by the Nordic Investment Bank;
2) income from the sale in the secondary market of securities issued by the Government and municipalities of the Republic of Lithuania as well as by international financial organisations in which Lithuania holds membership and whose articles of incorporation have been ratified under the Law of the Republic of Lithuania on Treaties, and also of securities issued by the Nordic Investment Bank, except for income from brokering services relating to the trading of such securities on the secondary market.
16. Until a separate decision is adopted by the Seimas of the Republic of Lithuania, the taxable profits of enterprises of free economic zones and legal persons in which persons with limited capacity for work are employed shall be subject to taxation in accordance with the procedure laid down in this paragraph:
1) a free economic zone enterprise in which capital investments amount to at least EUR 1 million shall not pay corporate income tax for ten tax periods starting from the tax period in which such an amount of investment was reached and shall be subject to a 50% reduction in corporate income tax rate for the other six tax periods. The relief set out in this paragraph may be applied only when income from activities carried out in the zone constitutes at least 75% of the zone’s enterprise’s income for the relevant tax period. The relief laid down in this paragraph may be applied only in the event that the enterprise of a free economic zone has an auditor’s report confirming the required amount of capital investments. Where the amount of capital investments decreases and no longer amounts to EUR 1 million before the end of the time limit for the application of the relief set out in this paragraph, the application of the relief shall be suspended for the tax period in which the amount of capital investments so decreased and it may be renewed in the tax period when the capital investment once again reaches EUR 1 million. The relief specified in this paragraph shall not apply to an enterprise engaged in trade and shall be applicable in so far as it is compatible with the provisions of Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ 2014 L 187, p. 1);
2) a free economic zone enterprise whose average number of employees during a tax year is not less than 20 and in which capital investments amount to at least EUR 100 000 shall not pay corporate income tax for ten tax periods starting from the tax period in which such an amount of investment was reached and shall be subject to a 50% reduction in corporate income tax rate for other six tax periods. The relief set out in this paragraph may be applied only when income from service delivery operations carried out in the zone constitutes at least 75% of the zone’s enterprise’s income for the relevant tax period. The relief laid down in this paragraph may be applied only in the event that the enterprise of a free economic zone has an auditor’s report confirming the required amount of capital investments. Where the amount of capital investments decreases and no longer amounts to EUR 100 000 before the end of the time limit for the application of the relief set out in this paragraph and/or the average number of employees during the tax year is less than 20, the application of the relief shall be suspended for the tax period in which the amount of capital investments and/or the average number of employees so decreased and it may be renewed in the tax period when the capital investment once again reaches EUR 100 000 and/or the average number of employees during the tax year is not less than 20 again. The relief specified in this paragraph shall be applicable in so far as it is compatible with the provisions of Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ 2014 L 187, p. 1);
3) legal persons whose income from own production exceeds 50% of the total income received and which employ persons with limited capacity for work shall reduce the calculated corporate income tax as follows:
| Share of persons with limited capacity for work in the total number of persons in employment |
Reduction of calculated corporate income tax |
| More than 50% |
100% |
| 40-50% |
75 % |
| 30-40 % |
50 % |
| 20-30 % |
25 % |
The categories of persons who are subject to the status of persons with limited capacity for work, the methodology for calculating the share of such persons in the total number of persons in employment and the procedure for applying the said relief shall be established by the Government of the Republic of Lithuania.
161. The tax reliefs specified in points 1 and 2 of paragraph 16 of this Article shall apply in accordance with the same procedure and under the same conditions also to investors that meet the conditions set in points 1 and 2 of paragraph 16 of this Article for an enterprise of a free economic zone regarding the application of tax reliefs and to whom land parcels or parts thereof located within the territory of the zone have been leased under the conditions and in accordance with the procedure laid down in the Civil Code of the Republic of Lithuania, the Law of the Republic of Lithuania on Land and specific laws of the Republic of Lithuania on free economic zones until the establishment of a management company of the zone, as laid down in the Law of the Republic of Lithuania on the Fundamentals of Free Economic Zones. After the establishment of a management company of the zone, the terms and conditions of tax reliefs applicable to investors who have acquired the status of an enterprise of a free economic zone shall not be changed.
17. For the purpose of calculating corporate income tax in the cases specified in Article 38 of this Law, the transfer of assets or a set of assets of the entity under a lease transaction shall be taxed as the sale of such assets if the assets or the set of assets were transferred after 1 January 2002.
18. Advance corporate income tax paid by individual (personal) enterprises and partnerships in 2002 as well as corporate income tax withheld (and paid) at source in 2002 shall be entered in the budget of the municipality in the territory whereof the said individual (personal) enterprises and partnerships are registered.
19. Banks whose special provisions for doubtful assets set up between the start of the tax period beginning with 1997 and the start of the tax period beginning with 2002 were not included in the costs reducing taxable profits shall include such amounts (upon coordination with the central tax administrator) in equal portions in the limited allowable deductions during the tax periods beginning with 2002, 2003, 2004 and 2005. Where a bank settles its claims relating to repayment of debts, the amount of the debt or a part thereof corresponding to the amount of the special provision for doubtful assets set up in respect of such debt shall be recognised as income at the moment of settlement of the debt claim.
Article 59. Entry into force and application of the Law
1. The Law shall enter into force as of 1 January 2002, with the exception of Article 2(18)(5), Article 40 and Article 42(4)(3).
5. The provisions of Article 58(3) shall apply until the start of the tax period beginning with 2003.
7. The Law of the Republic of Lithuania on Taxes on Profits of Legal Persons shall apply to entities whose tax period does not coincide with the calendar year until the end of the tax period ending in 2002, except where such entities calculate taxes and pay them to the budget acting in the capacity of a person withholding tax.
8. To recommend that the Government of the Republic of Lithuania prepare the legal acts necessary for the implementation of this Law.
9. Any arrears in payments discharged by/recovered from individual (personal) enterprises and partnerships as of 1 July 2002 in respect of personal income tax, advance personal income tax and personal income tax withheld at source (except for personal income tax withheld from the amounts paid to natural persons) shall be entered in accordance with the same procedure as corporate income tax, advance corporate income tax and corporate income tax withheld at source.
Article 60. Repealed legal acts.
The following legal acts shall be repealed as of 1 January 2003:
2) the Law of the Republic of Lithuania on the Exemption of Undertakings Engaged in Agricultural Production and Agricultural Services from Profit Tax of Legal Persons (Valstybės žinios (Official Gazette) No 117-2998, 1997);
3) the Law of the Republic of Lithuania on the Exemption of Partnerships and Individual (Personal) Enterprises Engaged in Agricultural Production and Agricultural Services from Profit Tax of Legal Persons (Valstybės žinios (Official Gazette) No 117-2999, 1997);
I promulgate this Law passed by the Seimas of the Republic of Lithuania.
PRESIDENT OF THE REPUBLIC VALDAS ADAMKUS
Appendix 1 to
Republic of Lithuania
Law No IX-675 of
20 December 2001
DEPRECIATION OR AMORTISATION RATES (IN YEARS) FOR FIXED ASSETS
| Class of fixed assets |
Method |
Rate (in years) |
Rate (in years) if assets are intended for use and are used for scientific research and experimental development |
| TANGIBLE ASSETS |
|
|
|
| New buildings used for business and renovations of buildings listed in the Register of Immovable Cultural Property of the Republic of Lithuania where such buildings were constructed or renovated after 1 January 2002. |
linear or double declining balance |
8 |
8 |
| Residential buildings |
linear |
20 |
20 |
| Buildings other than listed above |
linear |
15 |
15 |
| Plant and machinery |
linear or double declining balance |
5 |
2 (except when applying the double declining balance method) |
| Installations (structures, wells, etc.) |
linear |
8 |
2 |
| Power transmission and communications facilities (except for computer networks) |
linear |
8 |
8 |
| Rolling stock (locomotives, rail wagons, rail tankers), ships |
linear |
8 |
8 |
| Pipelines, aircraft, weapons |
linear |
15 |
15 |
| Furniture (other than used for hotel business) |
linear |
6 |
6 |
| Inventory, furniture used for hotel business |
linear or double declining balance |
6 |
6 |
| Computer and communications equipment (computers, computer networks and software) |
linear or double declining balance |
3 |
2 (except when applying the double declining balance method)
|
| Passenger cars: |
|
|
|
| 1) used for short-term car rentals, driving school services or transport services, not older than 5 years |
linear or double declining balance |
4 |
4 |
| 2) other passenger cars, not older than 5 years |
linear |
6 |
6 |
| 3) other passenger cars |
linear |
10 |
10 |
| Goods vehicles, trailers and semi-trailers, buses, not older than 5 years |
linear or double declining balance |
4 |
4 |
| Other goods vehicles, trailers and semi-trailers, busses |
linear |
4 |
4 |
| Tangible assets other than listed above
|
linear or production |
4 (except when applying the production method) |
2 (except when applying the production method) |
| INTANGIBLE ASSETS |
|
|
|
| Software |
linear or double declining balance |
3 |
2 (except when applying the double declining balance method) |
| Acquired rights |
linear or double declining balance |
3 |
2 (except when applying the double declining balance method) |
| Other intangible assets |
linear |
4 |
2 |
| GOODWILL |
|
|
|
| Goodwill |
linear |
15 |
15 |
Appendix 2 was repealed on 2 September 2004:
Appendix 3 to
Republic of Lithuania
Law on Corporate Income Tax
LEGAL ACTS OF THE EUROPEAN UNION IMPLEMENTED BY THIS LAW
1. Council Regulation (EEC) No 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG).
2. Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.
3. Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States.
4. Act concerning the conditions of accession under the treaty between the Kingdom of Belgium, the Kingdom of Denmark, the Federal Republic of Germany, the Hellenic Republic, the Kingdom of Spain, the French Republic, Ireland, the Italian Republic, the Grand Duchy of Luxembourg, the Kingdom of the Netherlands, the Republic of Austria, the Portuguese Republic, the Republic of Finland, the Kingdom of Sweden, the United Kingdom of Great Britain and Northern Ireland (Member States of the European Union) and the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia, the Slovak Republic, concerning the Accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic to the European Union Act concerning the conditions of accession of the Kingdom of Belgium, the Kingdom of Denmark, the Federal Republic of Germany, the Republic of Greece, the Kingdom of Spain, the Republic of France, Ireland, the Republic of Italy, Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is founded.
5. 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.
6. Council Directive 2003/123/EC of 22 December 2003 amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.
7. Council Directive 2004/66/EC of 26 April 2004 adapting Directives 1999/45/EC, 2002/83/EC, 2003/37/EC and 2003/59/EC of the European Parliament and of the Council and Council Directives 77/388/EEC, 91/414/EEC, 96/26/EC, 2003/48/EC and 2003/49/EC, in the fields of free movement of goods, freedom to provide services, agriculture, transport policy and taxation, by reason of the accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia.
8. Council Directive 2004/76/EC of 29 April 2004 amending Directive 2003/49/EC as regards the possibility for certain Member States to apply transitional periods for the application of a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
9. Council Directive 2005/19/EC of 17 February 2005 amending Directive 90/434/EEC on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States.
10. Council Directive 2006/98/EC of 20 November 2006 adapting certain Directives in the field of taxation, by reason of the accession of Bulgaria and Romania (OJ 2006, L 363, p. 129).
11. Council Directive 2013/13/EC of 13 May 2013 adapting certain Directives in the field of taxation, by reason of the accession of Bulgaria and Romania (OJ 2013, L 141, p. 30).
12. Council Directive 2014/86/EC of 08 July 2014 amending Directive 2011/96/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.