OFFICIAL TRANSLATION
REPUBLIC OF LITHUANIA
LAW ON CORPORATE INCOME TAX
2001 December 20 No IX-675 Vilnius
(As last amended on 3 July 2007 - IX-675)
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 earned profits and/or received income.
3. The provisions of this Law shall be in compliance with the EU legal acts listed in Appendix 3 of this Law.
Article 2. Definitions
1. Taxable entity (hereinafter referred to as the “entity”) shall mean a Lithuanian taxable entity and a foreign taxable entity.
2. Lithuanian taxable entity (hereinafter referred to as the “Lithuanian entity”) shall mean a legal person registered in accordance with the procedure prescribed by the legal acts the Republic of Lithuania.
3. Foreign taxable entity (hereinafter referred to as the “foreign entity”) shall mean any foreign legal entity or organisation having its registered office in a foreign country and established or otherwise organised under the legal acts of that foreign country as well as any other taxable entity established, incorporated or otherwise organised abroad.
4. Controlled taxable entity (hereinafter referred to as the “controlled entity” shall mean any entity deemed to be under the control of another entity or a resident of Lithuania (hereinafter referred to as the “controlling person”), provided that:
2) the controlling person holds directly or indirectly over 50% of the shares (interests, member shares) in the controlled entity or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof,
3) the controlling person, together with related persons, holds over 50% of the shares (interests, member shares) in the controlled entity or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof, and the portion controlled by the controlling person accounts for at least 10% of the shares (interests, member shares) or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof.
5. Non-profit entity shall mean an entity which is established for other than profit-making purposes and which cannot distribute the profits generated under the legal acts regulating its activities 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 rights and/or duties arising from obligations related 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:
2) they may have influence over each other resulting in the conditions of their mutual transactions or economic operations other than those where a maximum economic benefit is sought by each of the said persons.
*9. Fixed rate corporate income tax shall mean corporate income tax, which can be paid in the cases specified in Article 38(1) of this Law and the base whereof shall be calculated depending on the payload capacity of each sea-going vessel whose payload capacity is at least 100 payload capacity units.
*Note. The provisions of paragraph 9 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
10. Deposit shall mean monetary funds kept at 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 conducted by a credit institution or from investment services provided shall not be treated as a deposit.
11. 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, determination of creditworthiness or any other variable.
*12. Payload capacity of a sea-going vessel (net capacity of a sea-going vessel) (hereinafter referred to as the “PC of a sea-going vessel”) shall mean a payload capacity specified in the international tonnage certificate of a sea-going vessel issued in accordance with International Convention on Tonnage Measurement of Ships, signed in London in 1969.
*Note. The provisions of paragraph 12 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
*13. Shipping entity shall mean a Lithuanian taxable entity or a foreign taxable entity registered or otherwise organised in a member state of the European Economic Area that carries out activities in the territory of the Republic of Lithuania through a permanent establishment and is engaged in international carriage by sea-going vessels and the activities directly related thereto.
*Note. The provisions of paragraph 13 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
14. Computer (software) programme shall be interpreted as defined in the Law of the Republic of Lithuania on Copyright and Related Rights.
15. Territory of the Republic of Lithuania shall mean the territory of the Republic of Lithuania and any other 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 sea bed and its sub-soil and their natural resources.
16. Negative 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 is lower than the value of the acquired share evaluated at actual market price of net assets in another entity. 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 will earn economic profit from the assets in the future periods and there was no possibility of reliably determining the acquisition price of the assets) or were received gratuitously from the state, municipality or public legal person whose founder is a state or municipal institution, but have their actual market price.
17. 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 or substantially reducing its value.
18. Permanent establishment shall mean manifestation of activities of a foreign entity in the Republic of Lithuania. A foreign entity is deemed to carry on its activities through a permanent establishment in the territory of the Republic of Lithuania, provided that it: permanently carries on its activities in Lithuania; or carries on its permanent activities in the Republic of Lithuania through a dependent representative (agent); or uses a building site, a construction, assembly or installation project in Lithuania; or makes continuous use of installations or structures in Lithuania for prospecting or extracting natural resources, including wells or vessels used for that purpose. The permanency status and the criteria for establishing the dependent or independent status of a representative (agent) shall be determined by the Government of the Republic of Lithuania or an institution authorised by it.
19. Resident shall be interpreted as defined in the law of the Republic of Lithuania regulating the taxation of personal income.
20. Income shall mean any type of income earned or received in cash and/or in kind from a source in or outside Lithuania.
21. Income from distributed profits shall mean the profit received through the distribution of profits among members of an entity, including dividends. After the profit generated by an entity of unlimited civil liability is subject to taxation, the income received by a member of the said entity or the taking of assets that belong to such a member from the entity shall not be treated as the distribution of profits.
22. Income sourced in the territory of the Republic of Lithuania (hereinafter referred to as “income sourced in the Republic of Lithuania”) shall mean:
1) interest received by foreign entities from Lithuanian residents, Lithuanian entities and permanent establishments, income from distributed profits, royalties, including remuneration for the related rights granted, income received as remuneration for the right to use an object of industrial property or franchise under a license agreement, remuneration for information concerning industrial, commercial or scientific experience (know-how), compensations for violation of copyright or related rights as well as income from the sale, other transfer into ownership or lease of property immovable by nature located in the Republic of Lithuania;
4) 50% of income from transportation that either begins or ends in the territory of the Republic of Lithuania earned through a permanent establishment, except for income listed in subparagraph 1 of this paragraph;
23. Income sourced outside the territory of the Republic of Lithuania (hereinafter referred to as “income sourced outside the Republic of Lithuania”) shall mean all income, except for income sourced in the Republic of Lithuania.
25. Positive income shall mean all income received by a controlled entity, registered or otherwise organised in the countries or zones referred to in paragraph 4 of Article 39 of this Law, or part of such income included in the income of a controlling entity of Lithuania in proportion to the number of the shares (interests, member shares), votes or rights to the profits of the controlled entity held by the Lithuanian entity.
26. 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 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 will earn economic profit from the assets in the future periods and there was no possibility of reliably determining the acquisition price of the assets) or were received gratuitously from the state, municipality or public legal person whose founder is a state or municipal institution, but have their actual market price.
28. Related persons shall be treated 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 managing bodies, other natural persons related to members of the entity or members of its managing 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 managing 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 managing 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), or
6) entity and members of the managing 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 managing bodies, other natural persons related to members of another entity or members of its managing 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 managing 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 managing 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 controls 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 activity with the other entity or has undertaken to be liable for the obligations of the other entity in respect of third persons 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) control directly or indirectly 25% of the shares (interests, member shares) in each of such entities;
11) two entities where one of them holds decision-making rights in the other entity.
*29. Activity directly related to international carriage by sea-going vessels shall mean services required for international carriage by sea-going vessels and 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 the 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 transfer or packaging and/or unpacking before loading or immediately after unloading;
5) leasing or any other supply to a client of containers required for transportation 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, board games and excursions for passengers, etc.) and sale of luxury goods (jewellery, souvenirs, etc.);
8) lease of a sea-going vessel under a charter-party as stipulated in Article 2 of the Law of the Republic of Lithuania on Merchant Shipping where a shipping entity engaged in international carriage by sea-going vessels and managing the vessel retains control over operation and the crew of the sea-going vessel;
9) short-term investment from income earned from international carriage by sea-going vessels and/or types of activities directly related to international carriage by sea-going vessels during a tax period;
10) advertising and marketing services when this activity is related to the use of advertising space on sea-going vessels;
12) disposal of operating assets, if these assets, by their nature, are attributed to maritime transport.
*Note. The provisions of paragraph 29 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
*30. International carriage by sea-going vessels shall mean carriage of passengers and/or cargo performed by a shipping entity using sea-going vessels that belong to that shipping entity by right of ownership or financial lease contract providing for the transfer of ownership rights or under a purchase and sale or lease contract providing for the transfer of ownership rights to the shipping entity only after the total value of the assets has been paid up or under a bareboat charter contract and that are registered at the Lithuanian Maritime Register or in the register of sea-going vessels of any other member state of the European Economic Area, except for the cases when sea-going vessels sail only between the ports of the Republic of Lithuania.
*Note. The provisions of paragraph 30 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
31. Income received from international telecommunications shall mean income received from telecommunications services within the meaning of the Law of the Republic of Lithuania on Telecommunications, provided that signals are conveyed and/or 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.
32. Actual market price shall mean the amount for which assets may be exchanged or mutual obligations settled between willing independent buyers or sellers in a direct transaction.
33. Target territory shall mean a foreign country or zone included in the List of Target Territories established by the Minister of Finance, which meets at least two of the criteria set out in this paragraph:
1) the equivalent tax rate in that territory accounts for less than 75% of the rate set out in subparagraph 1 of paragraph 1 of Article 5 of this Law;
2) different rules for equivalent taxation are applied in that territory, depending on the country where the controlling person is registered or otherwise organised;
3) different rules for equivalent taxation are applied in that territory, depending on the country where activities are carried on;
4) the controlled taxable entity has concluded an agreement with the tax administrator of that country concerning the tax rate or base;
34. 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.), and also from transportation by pipeline. Income from services directly related to the carriage or transportation of goods shall be also attributed to such income.
35. Activity shall mean any type of commercial or productive activity which is pursued to derive and/or earn income or any other economic benefit.
36. Agricultural activity shall mean an activity comprising the production and treatment of agricultural products, the processing of own-produced and treated agricultural products, the production of foodstuffs from own-produced and treated agricultural products and the sale of such foodstuffs, and also the provision of services included in the list of services for agriculture which are subject to a corporate income tax relief as coordinated with the Minister of Agriculture and approved by the Minister of Finance.
37. Other terms in this Law shall be interpreted as they are defined in the Law of the Republic of Lithuania on Tax Administration (hereinafter referred to as the “Law on Tax Administration”) and the Civil Code of the Republic of Lithuania (hereinafter referred to as the “Civil Code”) to the extent that 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 countries, which is sourced inside and outside the Republic of Lithuania.
2. The income of a Lithuanian entity shall also include, in accordance with the procedure laid down in Article 39 of this Law, the positive income of its controlled foreign entity or part of such income. The income of a Lithuanian entity (European Economic Interest Grouping) shall also include, in accordance with the procedure laid down in Article 39(1) of this Law, the income of the relevant European Economic Interest Grouping.
3. The tax base of a foreign entity shall be:
1) income from activities carried on through a permanent establishment situated in the territory of the Republic of Lithuania as well as income earned in foreign countries and attributed to the said permanent establishment in the Republic of Lithuania in the event that such income relates to the activities of a foreign entity carried on through a permanent establishment situated in the Republic of Lithuania;
4. Income sourced in Lithuania and received by a foreign entity otherwise than through a permanent establishment situated in the territory of the Republic of Lithuania shall include:
1) interest, except for interest on securities issued by the Government on international financial markets, interest accrued and paid on deposits, and interest on subordinated loans which meet the criteria set down by the legal acts of the Bank of Lithuania;
3) royalties, including remuneration for the related rights granted and also including the cases specified in paragraph 5 of this Article;
4) income received as remuneration for the right to use an object of industrial property or franchise under a license agreement;
5) remuneration for information concerning industrial, commercial or scientific experience (know-how);
6) income from the sale, other transfer into ownership or lease of property immovable by nature located in the territory of the Republic of Lithuania;
5. In the case of transfer of software, the provisions laid down in subparagraph 3 of paragraph 4 of this Article shall apply where the transfer concerns copyrighted works and where the following rights are granted by the software:
1) the right to reproduce the software in copies with the purpose of distributing them to the public or otherwise transferring into ownership, renting or lending, 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;
2) that part of sponsorship received in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 minimum living standards (hereinafter referred to as the “MLS”).
*7. The provisions of this Article shall not apply to income of a shipping entity earned from international carriage by sea-going vessels and activities directly related thereto if, at the choice of the shipping entity, income from international carriage by sea-going vessels and activities directly related thereto are subject to a fixed rate corporate income tax under the provisions of Article 38(1) of this Law.
*Note. The provisions of paragraph 7 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
Article 5. Tax Rates
Subparagraph 2 of paragraph 1 (version before the expiry of four calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments):
*2) a 10% tax rate shall be imposed on income (without any deductions) listed in paragraph 4 of Article 4, which is sourced in the Republic of Lithuania and received by foreign entities otherwise than through their permanent establishments situated in the Republic of Lithuania;
Subparagraph 2 of paragraph 1 (version after the expiry of four calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments):
*2) a 10% tax rate shall be imposed on income (without any deductions) listed in paragraph 4 of Article 4, which is sourced in the Republic of Lithuania and received by foreign entities otherwise than through their permanent establishments situated in the Republic of Lithuania, unless this Law provides otherwise;
*Note: Member States shall apply the provisions of Council Directive 2003/48/EC from 1 July 2005 (given specific conditions).
4) sponsorship received which is used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and that part of sponsorship received in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 MLS shall be taxed at 15% (without any deductions).
2. Entities (except for non-profit entities), which meet the criteria set out in this paragraph, shall have the right to apply the following rules for the purpose of calculating taxable profits:
1) taxable profits of entities whose number of employees does not exceed 10 and whose income over the tax period does not exceed LTL 500 000 shall be taxed at a rate of 13%, except for the cases specified in paragraph 3 of this Article;
2) that part of taxable profits of entities, whose number of employees does not exceed 10 and whose income over the tax period does not exceed LTL 1 000 000, which amounts to LTL 25 000 shall be taxed at a rate of 0% and the remaining part of taxable profits shall be taxed at a rate of 15%, except for the cases specified in paragraph 3 of this Article; This rule shall apply to individual (personal) enterprises, general partnerships and limited partnerships.
3. Paragraph 2 of this Article shall apply to:
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 entities) whose members and/or family members of such members control, on the last day of the tax period, over 50% of the shares (interests, member shares) in other entities as well as entities in which members of other entities (individual/personal enterprise) and/or family members of such members control, on the last day of the tax period, over 50% of the shares (interests, member shares);
3) entities in which the same member controls, on the last day of the tax period, over 50% of the shares (interests, member shares);
4. That part of taxable profits of non-profit entities, whose income from economic and commercial activity over the tax period does not exceed LTL 1 000 000, which amounts to LTL 25 000 shall be taxed at a rate of 0% and the remaining part of taxable profits shall be taxed at a rate of 15%.
5. Taxable profits of Lithuanian entities shall be taxed at 0% if:
1) over the tax period, the number of employees of an entity who are attributed to the target groups listed in Article 4 of the Law of the Republic of Lithuania on Social Enterprises accounts for not less than 40% of the annual average number of the employees on the staff list; and
2) over the tax period, an entity does not perform the activities included in the list of non-supported activities of social enterprises as approved by the Government of the Republic of Lithuania or the income received from such activities over the tax period accounts for not more that 20% of the total income received by the entity; and
Article 6. Tax Period
1. The tax period shall be the fiscal year. It shall coincide with a calendar year, unless this Article provides otherwise.
2. At the request of the tax payer 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 set a tax period other than specified in paragraph 1 of this Article subject to condition that the tax period is 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 the Lithuanian entity in the Republic of Lithuania or, in the event that the Lithuanian entity has not registered in accordance with the procedure prescribed by the Lithuanian laws, the first tax period shall begin from the start of its activities. The last tax period of a Lithuanian entity shall end when the entity ceases to exist.
4. Where a Lithuanian entity has actually carried on its activities for less than 12 months, the tax period shall begin from its registration in the Republic of Lithuania or, in the event that the Lithuanian entity is not registered in accordance with the procedure prescribed by the Lithuanian laws, 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 on an acccrual basis and in accordance with other accounting principles laid down in the legal acts that regulate accounting, except for the cases where subject to the provisions of this Chapter income may be recognised in accordance with the principle of cash accounting, and also according to the provisions of this Article.
2. Negative goodwill shall be attributed at the moment of its acquisition to income, unless this Article provides otherwise.
3. Where the shares of another entity are acquired for the purpose of controlling its net assets and activity, the negative goodwill determined at the moment of acquisition and included in the accounts separately from other assets shall be attributed to income at the moment of subsequent reorganisation or transfer (if any) of such entities.
Article 8. Recognition of Income and Costs under the Principle of Cash Accounting
1. Where the cash accounting principle is applied, the income of a Lithuanian entity shall be recognised at the actual moment of its receipt. Income specified in Article 37 shall be recognised in the same manner.
2. Where the principle of cash accounting is applied, the costs of a Lithuanian entity shall be recognised in accordance with the same procedure as they are recognised on an accrual basis, but only those costs shall be recognised which are related to the income actually received during the tax period.
Article 9. Applying the Cash Accounting Principle
1. Only those Lithuanian entities which had recognised their income on a cash accounting basis before this Law came into effect and whose income over the last 3 tax periods did not exceed LTL 100 000 for each single tax period as well as newly registered Lithuanian entities whose expected income over the first tax period will not exceed LTL 100 000 may apply the principle of cash accounting.
2. Lithuanian entities which apply the cash accounting principle must adopt the accrual accounting principle in the tax period following the tax period over which their income exceeded LTL 100 000.
Article 10. Selection and Change of Accounting Principles
1. A Lithuanian entity, even though it meets the criterion set out in paragraph 1 of Article 9, may move from cash accounting to accrual accounting as of the beginning of any tax year. The Lithuanian entity shall inform the local tax administrator thereof.
2. Where a Lithuanian entity moves from cash accounting to accrual accounting, the buyers’ debts carried over to the fiscal year during which the said accounting principle was applied shall be included in the income of the Lithuanian entity after repayment, but not later than within 3 years after 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 move from cash accounting to accrual accounting, may not do so 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 income of permanent establishments shall be calculated by deducting from the income earned the non-taxable income, deductions of limited amounts and deductions relating to the income earned by a foreign entity through a permanent establishment. The procedure for making deductions relating to the costs incurred for the purpose of earning income through permanent establishments shall be established 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 a permanent establishment shall include all of its income sourced in the Republic of Lithuania and the obligation to tax it at source (without any deductions) as prescribed in Article 37 of this Law.
4. Expenses on the basis of which costs are recognised shall be supported by legally valid documents containing all the mandatory requisites of accounting documents provided for by the legal acts that regulate accounting. In addition to such requisites, the supporting documents shall also contain other requisites 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 executed by foreign entities or natural persons. Costs shall be recognised on the basis of documents executed by foreign entities or natural persons where such documents allow identifying the content of the economic operation.
*7. The provisions of this Article shall not apply to income of a shipping entity earned from international carriage by sea-going vessels and activities directly related thereto if, at the choice of the shipping entity, income from international carriage by sea-going vessels and activities directly related thereto are subject to a fixed rate corporate income tax under the provisions of Article 38(1) of this Law.
*Note. The provisions of paragraph 7 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
Article 12. Non-Taxable Income
The following income earned and/or received by a Lithuanian or 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; that part of insurance premiums reimbursed which is in excess of insurance premiums deducted from income in accordance with the procedure laid down in Article 26 of this Law, and also that part of insurance benefits which is in excess of insurance premiums deducted from income in accordance with the procedure laid down in Article 26 of this Law;
4) balance of the organisational fund of an insurance undertaking in accordance with the procedure laid down in the Law of the Republic of Lithuania on Insurance;
*5) investment income of variable capital investment companies operating in accordance with the Law of the Republic of Lithuania on Undertakings for Collective Investment, except for dividends and other distributed profits, and also life insurance premiums received by insurance undertakings, provided that the term of the insurance contract exceeds 10 years or the insurance benefit is paid out to the insured after he has reached retirement age under the provisions of the Law on Supplementary Voluntary Accumulation of Pensions, as well as investment income of insurance undertakings, except for dividends and other distributed profits;
*Note. The provisions of paragraph 5 shall apply for the purpose of calculating profits for the tax period beginning before 2007.
*5) investment income of variable capital investment companies operating in accordance with the Law of the Republic of Lithuania on Undertakings for Collective Investment, except for dividends and other distributed profits, and also life insurance premiums of insurance undertakings, provided that the term of the insurance contract exceeds 10 years or 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, as well as investment income of insurance undertakings, except for dividends and other distributed profits and investment income of insurance undertakings under life assurance contracts under which occupational pensions are accumulated concluded in accordance with the provisions of the Law on the Accumulation of Occupational Pensions;
*Note. The provisions of subparagraph 5 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
6) income received by 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 part of profits received from legal persons of unlimited civil liability that are corporate income taxpayers under this Law and whose income is subject to corporate income tax under this Law or an equivalent tax under the respective legal acts of foreign countries, except for the cases specified in Article 39 of this Law;
10) seaport and airport charges, air navigation charges and funds collected from the lease of seaport land;
11) correction of errors and inaccuracies of the previous tax periods in accordance with Article 18 of the Law on Accounting;
12) compensations for damage received by an entity, except for the cases specified in subparagraph 2 of this Article;
14) compensations received under the EU financial support to the Republic of Lithuania programmes for handing over fishing vessels for metal scrap;
*15) income from the increase in the value of assets resulting from transfer of 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, if the entity that transfers the shares held more than 25% of voting shares in that entity for an uninterrupted period of at least two years.
*Note. The provisions of paragraph 15 shall apply for the purpose of calculating corporate income tax for 2007 and subsequent tax periods.
Article 13. Entity’s Assets
1. The assets of an entity consist of tangible, intangible and financial valuables acquired by the said entity. They belong to the entity by the right of ownership or they were acquired under a leasing (financial lease) contract providing for the transfer of ownership rights or under a purchase and sale or lease contract providing for the transfer of ownership rights to the entity only after the total value of the assets has been paid up or in the manner prescribed by paragraph 6 of Article 14 of this Law; or they belong to the entity by the right of trust where state and municipal assets have been transferred to such entity on the basis of 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 (receive economic benefit) 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 over the depreciation or amortisation period. The amounts directly paid by the entity to the educational establishments of EEA Member States and foreign countries other than EEA Member States, which have concluded a treaty for the avoidance of double taxation with the Republic of Lithuania, for the education of natural persons connected with the said entity by employment relations or for the education of natural persons who have assumed an obligation under an agreement concluded with the said entity to work therein after completing education where such education provides for higher or college-level education and/or qualification, may be attributed to intangible fixed assets.
Article 14. Acquisition Price of Assets
1. The acquisition price of assets shall comprise expenses incurred in the course of acquiring assets, including the commissions and taxes (levies) paid, except for VAT, in connection with the acquisition of such assets.
2. The acquisition price of assets acquired for goods and services shall comprise the relevant amount included in the income received by an entity for such goods and services as well as expenses incurred in the course of acquiring assets, including the commissions and taxes (levies) paid in connection with the acquisition of such 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. In the event that 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. In the event that a member of the entity uses assets to pay for its shares (interests, member shares), the acquisition price of such assets with respect to the entity shall be 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 shareholder’s (interest or member-share holder’s) assets, which was earned from the transfer of such assets and included in the shareholder’s (interest or member-share holder’s) taxable income.
5. Where securities are exchanged for other assets, the acquisition price of such assets shall be the actual market price of securities at the moment of the acquisition of 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 a person who was engaged in individual activities, except for the cases when these assets are used to pay up for the shares of this entity (interests and 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 assets after deducting from it the taxes (levies) paid, except for VAT, in connection with 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 assets and the acquisition price of such assets. Expenses relating to the acquisition of assets must be supported by documents specified in Article 11 of this Law and/or by valid transactions.
2. For the purpose of calculating income from the increase in the value of assets where an entity’s assets, in respect of which depreciation or amortisation was estimated to calculate corporate income tax, are transferred, the acquisition price of such assets shall be reduced by the amount of depreciation or amortisation included in the deductions of limited amounts.
5. In the event that an entity transfers a bond, such a 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 which has been already included in the income of the transferring entity.
6. In certain cases where entities are reorganised, liquidated or transformed or where a Lithuanian entity (a European company with registered office in the Republic of Lithuania (hereinafter referred to as 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 referred to as 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 paid down in Chapter IX of this Law.
Article 17. Procedure for the Recognition of Allowable Deductions
1. Allowable deductions shall include all the usual costs that an entity actually incurs for the purpose of earning income or receiving economic benefit, unless this Law provides otherwise. Additional deductions allowed by the Government of the Republic of Lithuania for the Ignalina Nuclear Power Plant shall be attributed to allowable deductions.
2. Deductions of limited amounts:
Article 18. Depreciation or Amortisation Costs of Fixed Assets
1. Fixed assets and the value of goodwill 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 for such assets determined according to paragraph 2 of this Article. For the purpose of calculating corporate income tax, research and development costs shall not be accrued and included in deductions of limited amounts; they shall be deducted from income as allowable deductions for the tax period in which they were actually incurred and they shall meet the criteria prescribed for allowable deductions in this Law.
2. Classes of fixed assets and their maximum depreciation or amortisation rates (in years) are set out in Appendix 1 to this Law. 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 be lower than LTL 1 and 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 over the tax period does not exceed LTL 500 000, but which do not meet the criteria set out in paragraph 3 of Article 5 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 also except for dwelling houses and other buildings.
*4. Depreciation or amortisation of fixed assets shall be calculated according to the directly proportionate (linear) method (hereinafter referred to as the “linear method”) or double declining value (double declining balance) method (hereinafter referred to as the “double declining balance method) pursuant to Appendix 1 to this Law. The method selected should 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 fixed assets.
*Note. The provisions of paragraph 4 shall apply for the purpose of calculating taxable profits for the tax period beginning before 2007.
*4. Depreciation or amortisation of fixed assets shall be calculated according to the directly proportionate (linear) method (hereinafter referred to as the “linear method”), double declining value (double declining balance) method (hereinafter referred to as the “double declining balance method) or production methods pursuant to Appendix 1 to this Law. The method selected should 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 fixed assets.
*Note. The provisions of paragraph 4 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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 referred to as the “depreciation coefficient”) shall be calculated by multiplying the ratio between 100% and the depreciation or amortisation period (in years) for fixed assets by 2;
2) for the purpose of calculating the amount of depreciation or amortisation for the tax period during the first year, the acquisition price of fixed assets shall be multiplied by the depreciation coefficient;
3) as regards the depreciation or amortisation of fixed assets during the 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 fixed assets at the beginning of the tax period by the depreciation coefficient;
4) during the last year of depreciation or amortisation, the difference between the residual value of fixed assets at the beginning of the tax period and the liquidation value of the entity as determined according to paragraph 2 of this Article shall be depreciated or amortised.
*7. Where applying the production method, 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 the output produced or raw materials processed during the tax period and the maximum amount of output that can be produced or raw material that can be processed using these assets.
*Note. The provisions of paragraph 7 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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, for consideration or free of charge, fixed assets before the last day of the sixth month of the tax period, depreciation or amortisation shall not be calculated during the said tax period. Where an entity transfers, for consideration or free of charge, fixed assets after the last day of the sixth month of the tax period, ½ 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 by its own means, are acquired, the accumulated value of goodwill shall be included in the deductions of limited amounts in a manner similar to fixed assets subject to 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 value of goodwill shall be included in the deductions of limited amounts in a manner similar to fixed assets subject to the procedure laid down in this Article only after subsequent merger of these entities or merger by acquisition of one entity by another, if any.
11. The entity may choose to calculate the depreciation or amortisation of all fixed assets from the first day of the next month after such assets were put into use by using the linear method according to the rates set out in Appendix 1 of this Law.
12. Entities that renovated or repaired fixed assets, which has resulted in a prolonged useful life of such assets or improvement of their useful characteristics, or changed the purpose of use of fixed assets or acquired yet another 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 ownership rights, or under a purchase and sale or lease contract, providing for the transfer of ownership rights to the buyer only after the total value of the assets has been paid up, as well as the depreciation or amortisation of fixed assets transferred, library funds 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 created by the entity and listed in classes of assets specified in Appendix 1 (rights acquired, other intangible assets and value of goodwill), unless this Law provides otherwise.
3. The depreciation or amortisation of fixed assets not used, held in reserves or in conservation as well as the depreciation or amortisation of fixed assets’ revaluation results 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 by applying the same method to the acquisition price, not depreciated or amortised, of the said assets before their first transfer, except for 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 Operating, Repairing and Renovating Tangible Fixed Assets (Own Assets, Leased Assets or Assets Lent 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 value of their repairs or renovation shall be increased by the acquisition price of the repaired or renovated tangible fixed assets.
2. In other cases, expenses related to the repairs of tangible fixed assets used by an entity shall be attributed to repair costs and deducted from income for the tax period during which they were actually incurred.
3. The renovation or repair, resulting in a prolonged useful life of the assets or improvement of their useful characteristics, costs of tangible fixed assets held under a lease contract, which does not provide for the transfer of ownership rights 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 portions from the income of the lessee or the borrower for use during the lease or loan for use period beginning with the next month after the end of renovation or repair works and, in the event of a open end contract, during the period set out in Appendix 1 to this Law for the relevant class of assets, which however may not be less than 3 years. Where the lease or loan for use contract is terminated before it expires, the remaining portion of renovation or repair costs, which has not as yet been included in allowable deductions, may not be deducted from the income of the lessee or the borrower for use. Where leased or borrowed for use tangible fixed assets have been repaired or renovated, which resulted in a prolonged useful life of the assets or improvement of their useful characteristics, the lessee or the borrower for use shall increase the value of repair or renovation works by the acquisition price of tangible fixed assets in the tax period during which the repair or renovation works were completed and tax them in accordance with the procedure laid down in this Law.
4. The operating and repair costs of tangible fixed assets, which belong by the right of ownership to members of partnerships and owners of individual enterprises as well as to members of their families 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 Business Trips
1. A business trip shall mean an official mission, documented in accordance with the procedure prescribed by legal acts and carried out by an employee travelling from his permanent workplace by order of the head of the entity’s administration or a person authorised by him or by order of the owner of an individual enterprise to perform job functions, business orders or improve qualifications. A business trip shall also mean the travelling of the owner of an individual enterprise or a general partner of a partnership whose working arrangements and procedure of remuneration are provided for in the partnership agreement from his permanent workplace to perform job functions as well as the 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 European company or its committee to take part in the meetings of the aforementioned bodies 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 Cooperative Societies (SCEs), the Works Council of the SCE or its committee to take part in the meetings of the aforementioned bodies .
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 those employees whose job is related to travelling or who hold mobile job positions or perform shift work, shall not be treated as a business 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 services, and also for the purpose of providing information 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 residents. Promotional costs are incurred for the benefit of particular persons.
4. Expenses incurred through the entity’s shareholders and/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 of goods (resources, products) due to their storage, transfer, packaging, carriage, loading and sale, including losses resulting from buyers neglect.
Article 24. Taxes
1. The taxes prescribed by the Law on Tax Administration and the levies and mandatory contributions prescribed by other laws of the Republic of Lithuania or Government resolutions shall be deducted from income.
Article 25. Bad Debts
1. The amount of bad debts incurred during the tax period shall be deducted from income recognised under the accrual accounting principle if such amounts were included in the taxpayer’s income and the balance sheet of an entity, where the entity must draw it up in accordance with the procedure prescribed by the legal acts, before the tax period. The portion of costs attributed to bad debts incurred during the tax period shall be deducted from income recognised under a cash accounting principle if the appearance of such debts was recorded in the taxpayer’s accounting documents before the tax period. In the event that the taxpayer had recognised income under a cash accounting principle at the moment when bad debts were created and had later on moved to accrual accounting 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 an accrual accounting principle if the appearance of such debts was recorded in the taxpayer’s accounting documents before the tax period 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 in the event that the taxpayer cannot recover them after a lapse of at least one year from including the amount of the debt in the taxpayer’s income or recording of the appearance of such debts in the taxpayers’ accounting documents or in the event that 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 of providing proof that debts are bad and that efforts have been made to recover them as well as the procedure for the calculation of the amounts of such debts shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
3. Where later on the debtor repays the bad debts deducted, the total amount of the debts repaid shall be attributed to income.
4. The provisions of this Article shall not apply to credit institutions in the event that the debtor and the creditor are related persons or have become such in the tax period following the tax period during which the debt was recognised as a bad debt and included in allowable deductions in accordance with the procedure laid down in this Article.
Article 26. Contributions for the Benefit of Employees
1. The amount of contributions paid for the benefit of the employees of a Lithuanian entity during the tax period may be deducted from income, provided that:
1) such contributions are made to pension accounts held by pension funds, or
*2) such contributions are life insurance premiums where the term of the insurance contract exceeds 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 Supplementary Voluntary Accumulation of Pensions, or
*Note. The provisions of subparagraph 2 of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning before 2007.
*2) such contributions are life insurance premiums where the term of the insurance contract exceeds 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, or
*Note. The provisions of subparagraph 2 of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
3) such contributions are insurance premiums paid in respect of additional (voluntary) health insurance where such premiums cover the payment of health care services provided in respect of the insured person, and
2. The provisions of paragraph 1 of this Article shall apply to contracts concluded before 30 April 2004 where the recipient of contributions under such contracts is not a foreign entity registered or otherwise organised in target territories.
Article 27. Special Provisions of Credit Institutions and Insurance Undertakings
1. Banks, including foreign commercial bank branches, 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 in accordance with the rules laid down by the Bank of Lithuania establish specific provisions for covering doubtful assets of credit institutions, shall be allowed to deduct during the tax period from income the specific 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 meets its liabilities linked to the repayment of debts, the amount of the debt or a portion thereof, which matches the amount of the specific provision set up in respect of such a debt, shall be recognised as income at the moment the claim is settled.
Article 28. Sponsorship
1. The taxpayers who are entitled to provide charity and sponsorship under the Law of the Republic of Lithuania on Charity and Sponsorship may 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 the tax period), including the assets transferred and services supplied, which are intended for charity and sponsorship in accordance with the procedure laid down in the Law on Charity and Sponsorship, unless this Article provides otherwise.
2. The taxpayers who are entitled to provide only sponsorship under the Law of the Republic of Lithuania on Charity and Sponsorship, may deduct twice from their income the payments made (except for cash payments which exceed the amount of 250 MLS in respect of a single recipient of sponsorship during the tax period), including the assets transferred and services supplied, which are intended for sponsorship in accordance with the procedure laid down in the Law on Charity and Sponsorship, but not in excess of 40% of the taxpayer’s income calculated by deducting non-taxable income, allowable deductions and deductions of limited amounts, except for sponsorship, from income.
3. Where sponsorship is provided in the form of tangible fixed assets, the amount of sponsorship shall be equal to the residual value of such assets. Where sponsorship is provided in the form of other assets, the amount of sponsorship shall be equal to the acquisition value of such assets. Where sponsorship is provided in the form of services, the amount of sponsorship shall be equal to the cost price of such services. Where sponsorship is provided in the form of tangible fixed assets lent for use, the amount of sponsorship shall be equal to the calculated amount of depreciation of such assets over the period during which they were used by the recipient of sponsorship.
Article 29. Membership Fees, Payments and Contributions
1. The amount of entry membership 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 payments, fees and special fees are paid to entities whose activities are regulated by special laws and which do not seek profit, while the profit received cannot be attributed to their founders and/or holders of interest and/or members, shall be deducted from income.
2. Contributions by members of the Motor Insurers’ Bureau of the Republic of Lithuania from 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 losses for the tax period are calculated by deducting non-taxable income, allowable deductions and deductions of limited amounts from income during the fiscal year, the amount of such losses shall be carried forward to the following fiscal year, except for losses incurred from the transfer of securities and/or derivative financial instruments.
*2. Losses incurred as a result of transferring securities or derivative financial instruments shall be carried forward to the following fiscal year, however, such losses will cover only the income received from the transfer of securities and/or derivative financial instruments.
*Note. The provisions shall apply when calculating corporate income tax for 2006.
*2. Losses incurred as a result of transferring securities or derivative financial instruments shall be carried forward to the following fiscal year, however, such losses will cover only 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, if the entity that transfers the shares held more than 25% of voting shares in that entity for an uninterrupted period of at least two years shall be deducted from taxable income received from the transfer of securities during the tax period, but the amount of losses deducted in this manner can not exceed the amount of 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 fiscal year.
*Note. The provisions of paragraph 2 shall apply for the purpose of calculating corporate income tax for 2007 and subsequent tax periods.
3. Where losses taken into account for tax purposes are incurred by the taxpayer for a period exceeding one fiscal year, the losses incurred over the tax period of the previous year shall be carried forward first of all. The losses incurred later on shall be carried forward only after the losses for the previous tax periods have been covered.
4. Losses for the tax period may be carried forward no longer than for 5 consecutive tax periods, beginning with the tax period following the tax period during which the losses were incurred, except for the cases where losses were incurred as a result of transferring securities and/or derivative financial instruments. In the event that losses for the tax period or part of such losses were incurred as a result of transferring securities and/or derivative financial instrument, such losses or part thereof may be carried forward no longer than for 3 consecutive tax periods, beginning with the tax period following the tax period during which the losses were incurred. After the expiry of 5 years (in the event that losses are incurred as a result of transferring securities and/or derivative financial instruments, after the expiry of 3 years), losses may not be carried forward.
5. Losses for the tax period incurred by the permanent establishments of Lithuanian entities, which are treated as taxpayers under the laws other than those of the Republic of Lithuania, shall not be carried forward.
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 violating the legal acts of the Republic of Lithuania;
4) interest or other payments made in respect of defaulting on contractual obligations by related persons;
7) that part of costs incurred by related persons as a result of damaged or inadequately manufactured products, which exceeds income received from the sale of such products;
8) costs included in allowable deductions earlier than 18 months ago 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;
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;
13) other costs unrelated to the earning of income, costs of exceptional nature and costs which are not treated as allowable deductions under this Law;
14) correction of errors and inaccuracies of the previous tax periods in accordance with Article 18 of the Law on Accounting;
15) costs resulting from the revaluation of assets and obligations performed 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;
*16) social tax;
*Note. The provisions of subparagraph 16 shall apply for the purpose of calculating taxable profits for the tax periods of 2006 and 2007.
17) allowable deductions attributed to non-taxable income and deductions of limited amounts;
*18) costs related to income from international carriage by sea-going vessels and activities directly related thereto if, at the choice of the shipping entity, income from international carriage by sea-going vessels and activities directly related thereto are subject to a fixed rate corporate income tax under the provisions of Article 38(1) of this Law.
*Note. The provisions of subparagraph 18 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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 can provide documents evidencing the entry of such valuables into the country) to foreign entities registered or otherwise organised in target territories shall be treated as non-allowable deductions where the paying Lithuanian entity or permanent establishment does not supply, in accordance with the procedure established by the central tax administrator, evidence to the local tax administrator that:
Article 32. Dividends and Distributed Profits
1. This Chapter shall lay down the procedure of taxation applicable to dividends paid by an entity and to 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 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 as dividends received by the entity, unless this Law provides otherwise.
2. Shares (interests, member shares) issued free of charge from its funds or due to an increase in the value of assets to members of the entity in proportion to the number of the 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 treated as dividends or distributed profits.
3. The acquisition price of the assets of a member of the 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 (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 treated as 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 part 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 members of the entity, shall be treated as dividends and subject to taxation in accordance with the procedure laid down in Articles 33-34 of this Law. Where the authorised capital of an entity is reduced, it shall be deemed that members of the entity are paid out, first of all, that part of the authorised capital which was formed by increasing such capital from the entity’s funds – not from contributions made by members of the entity.
Article 33. Procedure of Taxation Applicable to 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 by the 10th day of the month following the month during which the dividends were paid out.
2. Dividends received by a Lithuanian entity from Lithuanian entities, in which the recipient controls for an uninterrupted period of at least 12 months, including the moment of distribution of dividends, more than 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. This provision shall not apply where taxable profits of the Lithuanian entity paying the dividends are not taxed at a rate of 15 or 13% as specified in Article 5 of this Law.
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 and paid to the budget shall be set off against the amount of corporate income tax to be paid by the entity paying the dividends for the tax period during which the tax on the dividends paid to Lithuanian entities was withheld and paid out. Where in the tax period during which the tax on the dividends paid out was withheld and paid the amount of the offset tax withheld and paid to the budget by the entity paying the dividends exceeds the amount of corporate income tax to be paid by the entity, the difference between the two amounts shall be carried forward to the subsequent tax periods. The amounts of the offset tax withheld and paid may be carried forward no longer than for five consecutive tax periods beginning with the tax period following the tax period during which the tax on the dividends paid out was withheld and paid.
4. Where a Lithuanian entity receives 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 and such dividends are subject to taxation in accordance with the procedure laid down in this Law (net dividends), the entity shall not include in its income the dividends received from another Lithuanian entity from which the tax has been withheld. The net dividends received shall be recorded in a separate account of the entity receiving the dividends. The amounts specified in paragraph 3 of this Article shall not be deducted from the dividends paid by the recipient to its members. However, in the event that the recipient pays out dividends the amount of which exceeds the balance of net dividends recorded in a separate account for the relevant tax period, the difference shall be subject to taxation in accordance with the procedure laid down in paragraphs 1 or 2 of this Article, while the entitlement or obligation specified in paragraph 3 of this Article shall be valid in respect of that part of the amount paid out in dividends which exceeds the balance of net dividends in the account.
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 by the 10th day of the month following the month during which the dividends were paid out.
2. Dividends paid by a Lithuanian entity to a foreign entity, which controls for an uninterrupted period of at least 12 months, including the moment of distribution of dividends, more than 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. This provision shall not apply where taxable profits of the Lithuanian entity paying the dividends are not taxed at a rate of 15 or 13% as specified in Article 5 of this Law, except for the cases where the Lithuanian entity paying the dividends is an undertaking situated in a free economic zone.
Article 35. Dividends of Foreign Entities
1. Dividends received by a Lithuanian entity or permanent establishment for the shares, portion of capital or other rights held in foreign entities or attributed to a permanent establishment shall be subject to a corporate income tax rate of 15%. The tax shall be calculated and paid to the budget by the Lithuanian entity receiving the dividends by the 10th day of the month following the month during which the dividends were received.
2. Dividends received by a Lithuanian entity or permanent establishment from foreign entities, 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 controls for an uninterrupted period of at least 12 months, including the moment of distribution of dividends, more than 10% of voting shares (interests, member shares), shall not be subject to taxation, provided that the dividends are received from a foreign entity which is not registered or otherwise organised in target territories. This provision shall not apply where taxable profits of a Lithuanian entity or permanent establishment receiving the dividends are not taxed at a rate of 15 or 13% as specified in Article 5 of this Law.
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 about the calculation of corporate income tax shall be submitted to the local tax administrator in the territory whereof the withholding and paying entity or permanent establishment is registered by the 10th day of the month following the month during which the dividends were paid or received.
Version before the expiry of six calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments):
*Article 37. Taxation of Foreign Entities
Corporate income tax on income (amounts) specified in paragraph 4 of Article 4 shall be withheld at source and paid to the budget by the paying person, i.e. Lithuanian entity, permanent establishment or resident of Lithuania. In this case, the income of a foreign entity shall be recognised in accordance with the principle set out in paragraph 1 of Article 8 of this Law.
Version after the expiry of six calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments:
*Article 37. Taxation of Foreign Entities
Corporate income tax on income (amounts) specified in paragraph 4 of Article 4, except for the case referred to in Article 37(1) of this Law, shall be withheld at source and paid to the budget by the paying person, i.e. Lithuanian entity, permanent establishment or resident of Lithuania. In this case, the income of a foreign entity shall be recognised in accordance with the principle set out in paragraph 1 of Article 8 of this Law.
*Note: Member States shall apply the provisions of Council Directive 2003/48/EC from 1 July 2005 (given specific conditions).
The Law will be supplemented by Article 37(1) after the expiry of six calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments:
Article 37(1). Criteria and Requirements for Exempting Tax at Source on Income (Amounts) Paid to Foreign Entities or Their Permanent Establishments
1. The amounts specified in subparagraphs 1, 3, 4, 5 and 7 of paragraph 4 of Article 4 which are paid by a Lithuanian entity or a permanent establishment situated in a Member State of the European Union of a foreign entity 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 referred to as the “entity of a Member State”) or a permanent establishment situated in another Member State of the entity of a Member State.
2. The following shall be treated as the beneficial owner of income:
1) any entity of a 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 referred to as “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, for some other person;
2) any permanent establishment situated in another EU member state of an entity of a 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 debt-claim, use or right to use in respect of which the payment of amounts specified in subparagraphs 1, 3, 4, 5 and 7 of paragraph 4 of Article 4 of this Law arises is effectively connected with that permanent establishment and provided that the amounts specified in subparagraphs 1, 3, 4, 5 and 7 of paragraph 4 of Article 4 of this Law are recognised as income in respect of which that permanent establishment is subject to one of the taxes mentioned 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 a tax which is identical and which arises later or in place of those existing taxes.
3. The provisions of this paragraph shall apply where at the time of payment of amounts to the entity of a Member State or its permanent establishment and for an uninterrupted period of at least two years before the payment is made, the entities of Member States meet one of the following criteria:
1) the paying Lithuanian entity or the entity of a Member State, whose permanent establishment situated in the Republic of Lithuania pays out such amounts, controls directly at least 25% percent of the shares (interests, member shares) in the receiving entity of a Member State or in the entity of a Member State whose permanent establishment receives such income; or
2) the receiving entity of a Member State or the entity of a Member State, whose permanent establishment receives such income, controls directly at least 25% percent of the shares (interests, member shares) in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment in the Republic of Lithuania pays such amounts; or
3) any other entity of a Member State controls directly at least 25% percent of the shares (interests, member shares) in the receiving entity of a Member State or the entity of a Member State whose permanent establishment receives such income and also in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment situated in the Republic of Lithuania pays such amounts.
4. Where a permanent establishment is treated as the payer, or as the beneficial owner, of the amounts specified in subparagraphs 1, 3, 4, 5 and 7 of paragraph 4 of Article 4 of this Law, no other part of the foreign entity shall be treated as the payer, or as 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 subparagraphs 1, 3, 4, 5 and 7 of paragraph 4 of Article 4 of this Law if 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 subparagraphs 1, 3, 4, 5 and 7 of paragraph 4 of Article 4 of this Law must have documents evidencing the fulfilment of the requirements laid down in paragraphs 1-3 of this Article. The requirements for such documents shall be set forth by the central tax administrator.
*Note: Member States shall apply the provisions of Council Directive 2003/48/EC from 1 July 2005 (given specific conditions).
The Law will be supplemented by this Article after the expiry of four calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments and it will be valid for two calendar years:
Article 37(2). Special Conditions Governing the Taxation of Income Received by Foreign Entities Otherwise than through Permanent Establishments in the Republic of Lithuania, which is Specified in Subparagraph 1 of Paragraph 4 of Article 4 of this Law
1. A 5% tax rate shall be imposed at source on amounts (without any deductions) specified in subparagraph 1 of paragraph 4 of Article 4 of this Law, which are paid by a Lithuanian entity or a permanent establishment situated in a Member State of a foreign entity, 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 referred to as the “entity of a Member State”) or a permanent establishment situated in another Member State of the entity of a Member State.
2. The following shall be treated as the beneficial owner of income:
1) any entity of a 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 it receives income for its own benefit and not as an intermediary, such as an agent, trustee or authorised signatory, for some other person;
2) any permanent establishment situated in another EU member state of an entity of a 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 referred to as “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 debt-claim in respect of which the payment of amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law arises is effectively connected with that permanent establishment and provided that the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law are recognised as income in respect of which that permanent establishment is subject to one of the taxes mentioned 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 a tax which is identical and which arises later or in place of those existing taxes.
3. The provisions of this paragraph shall apply where at the time of payment of amounts to the entity of a Member State or its permanent establishment and for an uninterrupted period of at least two years before the payment is made, the entities of Member States meet one of the following criteria:
1) the paying Lithuanian entity or the entity of a Member State, whose permanent establishment situated in the Republic of Lithuania pays out such amounts, controls directly at least 25% percent of the shares (interests, member shares) in the receiving entity of a Member State or in the entity of a Member State whose permanent establishment receives such income; or
2) the receiving entity of a Member State or the entity of a Member State, whose permanent establishment receives such income, controls directly at least 25% percent of the shares (interests, member shares) in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment in the Republic of Lithuania pays such amounts; or
3) any other entity of a Member State controls directly at least 25% percent of the shares (interests, member shares) in the receiving entity of a Member State or the entity of a Member State whose permanent establishment receives such income and also in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment situated in the Republic of Lithuania pays such amounts.
4. Where a permanent establishment is treated as the payer, or as the beneficial owner, of the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law, no other part of the foreign entity shall be treated as the payer, or as 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 subparagraph 1 of paragraph 4 of Article 4 of this Law if 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 subparagraph 1 of paragraph 4 of Article 4 of this Law must have documents evidencing the fulfilment of the requirements laid down in paragraphs 1-3 of this Article. The requirements for such documents shall be set forth by the central tax administrator.
*Note: Member States shall apply the provisions of Council Directive 2003/48/EC from 1 July 2005 (given specific conditions).
Article 37(3). 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 calculate and pay to the budget, in accordance with the procedure laid down in the this Law, 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 that 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 the assets or a set of assets of the entity are transferred under a lease transaction, such a transfer of assets or a set of assets may be taxed by the decision of a tax administrator as the sale of assets for the purpose of calculating corporate income tax, 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 paragraph 2 of Article 3 of this Law;
2) the schedule of regular rentals states that the larger portion of the actual market price of 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 or/and distributing profits or paying dividends;
2. Income from the sale of 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.
Article *38(1). Taxation of Income Received from 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 and activities directly related thereto may be taxed in accordance with the provisions of this Article, if, during the whole tax period of a Lithuanian entity or a tax period of a permanent establishment through which a foreign entity registered or otherwise organised in a member state of the European Economic Area carry on its activities in the Republic of Lithuania:
1) the shipping entity owns sea-going vessels (cargo vessels, container vessels, tankers, ro-ro passenger or cruise vessels) by right of ownership or financial lease contract providing for the transfer of ownership rights or under a purchase and sale or lease contract providing for the transfer of ownership rights to the shipping entity only after the total value of the assets has been paid up or under a bareboat charter contract that are registered at the Lithuanian Maritime Register or in the register of sea-going vessels of any other member state of the European Economic Area and that are used for international carriage or the activities directly related thereto, and
2) the PC of sea-going vessels owned by the shipping entity by right of ownership is not less than 25% of the total PC of sea-going vessels owned by the shipping entity, and
3) the shipping entity provides strategic, commercial or technical management services in Lithuania to sea-going vessels that are used for international carriage by sea-going vessels, and
4) sea-going vessels owned by the shipping entity by right of ownership or financial lease contract providing for the transfer of ownership rights or under a purchase and sale or lease contract providing for the transfer of ownership rights to the shipping entity only after the total value of the assets has been paid up or under a bareboat charter contract that are used for international carriage or the activities directly related thereto comply with safety requirements set in legal acts of the Republic of Lithuania and the European Communities.
2. After a shipping entity acquires the right and chooses to pay a 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 in paragraph 1 of this Article.
3. Where a shipping entity loses the right to pay a fixed rate corporate income tax (i.e., it no longer meets the criteria set in paragraph 1 of this Article) or waives the right to pay corporate income tax from income received from international carriage by sea-going vessels and the activities directly related thereto during the chosen period of payment of the fixed rate corporate income tax (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax), then, starting from the tax period during which this right was lost (except for cases stipulated in paragraph 4) or during which this right was waived, general provisions of calculation of corporate income tax shall be applied in respect of income of such shipping entity and it shall not be granted the right to choose to pay the fixed rate corporate income tax for the remaining tax periods in the period of 10 forthcoming years (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax).
4. Where a shipping entity that complies with the criteria set in paragraph 1 of this Article ceases to comply with the criteria set in paragraph 1 of this Article due to force majeure (i.e. due to reasons beyond the control of the shipping entity) during the chosen period of payment of the fixed rate corporate income tax (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax), such shipping entity shall not loose its right to apply the fixed rate corporate income tax, if, until the end of the next tax period following the tax period during which the shipping entity lost the right to pay the fixed rate corporate income tax from income received from international carriage by sea-going vessels and the activities directly related thereto due to force majeure, the shipping entity complies with the criteria set in paragraph 1 of this Article.
5. The fixed rate corporate income tax shall be applied in respect of a shipping entity that complies with the criteria set in paragraph 1 of this Article until 31 December 2016. 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 became entitled and chose to pay the fixed rate corporate income tax.
*Note. The provisions of Article 38(1) shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
Article *38(2). Calculation of the Fixed Rate Corporate Income Tax
1. If, at the choice of the shipping entity, income from international carriage by sea-going vessels and activities directly related thereto are subject to a fixed corporate income tax rate under the provisions of Article 38(1) of this Law, then the base of the fixed rate corporate income tax shall be calculated by applying a fixed daily amount for each 100 units of the PC of a 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 – LTL 3.2 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 – LTL 2.3 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 – LTL 1.5 per day;
2. The base of the 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, income from international carriage by sea-going vessels and activities directly related thereto was subject to the provisions of calculation of the fixed corporate income tax rate under the provisions of Article 38(1) of this Law, then, after starting applying general provisions of calculation of such income, depreciation or amortisation of the assets used when carrying out the activities shall not be calculated if, from the beginning of use of these assets till the end of the period of payment of the fixed rate corporate income tax, these assets would have been completely depreciated or amortized pursuant to rates stipulated in Appendix 1 to this Law.
2) where a shipping entity loses the right to pay a fixed rate corporate income tax (i.e., it no longer meets the criteria set in paragraph 1 of Article 38(1) of this Law) or waives the right to pay corporate income tax during the chosen period of payment of the fixed rate corporate income tax under the provisions of Article 38(1) of this Law (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax), then, starting from the tax period during which this right was lost (except for cases stipulated in paragraph 4 of Article 38(1) of this Law ) or during which this right was waived, then depreciation or amortisation of the assets used for international carriage by sea-going vessels and the activities directly related thereto shall be calculated from the acquisition price of assets reduced by the amount of depreciation or amortisation which would have been calculated, if the shipping entity applied general provisions of calculation of corporate income tax throughout the whole period. In such case, depreciation or amortisation of such assets shall be calculated pursuant to rates that are not smaller than those stipulated in Appendix 1 of this Law, including the tax period(s) during which this asset has already been used in this particular shipping entity.
4. Where, at the choice of a shipping entity income from international carriage by sea-going vessels and activities directly related thereto are subject to the fixed corporate income tax rate under the provisions of this Article, then, the advance fixed rate corporate income tax shall not be paid.
*Note. The provisions of Article 38(2) shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
Article 39. Taxation of Income of Controlled Foreign Entities
1. The tax period of controlled foreign entities shall be the 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 shall be taxable, in accordance with the procedure laid down in this Article, 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 countries 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 the payments made by the controlled entity, which are treated as non-allowable deductions under subparagraph 12 of paragraph 1 of Article 31 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 country or zone wherein the controlled foreign entity is registered or otherwise organised, in proportion to the number of the 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 country or zone exceeds the amount provided for in the laws of that country 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 included in the income of the Lithuanian entity, which had to be paid in the country 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 its 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 country with which the Republic of Lithuania has concluded a treaty 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 country and taxed subject to the rules analogous to those laid down in this Law.
Article 39(1). Apportionment of Income and Costs of the European Economic Interest Grouping among 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 provision, 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 in 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 the costs incurred by the grouping, which are attributed under the provisions of this Law to allowable deductions and deductions of limited amounts, from his own income.
6. The attributable income and costs of a European Economic Interest Grouping shall be expressed in litas according to the official exchange rate of the litas against foreign currencies established by the Bank of Lithuania on the day of attribution of income and costs.
Article 40. Adjustment of Transaction or Economic Operation Value and Revaluation of Income or Benefits
1. For the purpose of calculating taxable profits in accordance with the procedure laid down in this Law, entities shall 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; they shall recognise the total amount of costs incurred by a transaction or economic operation which is in line with the actual market price of such a transaction or economic operation as allowable deductions or deductions of limited amounts.
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 are 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 set forth by the Minister of Finance.
CHAPTER IX
TAXATION APPLICABLE TO REORGANISATIONS, TRANSFERS AND LIQUIDATIONS. RECOGNITION OF INCOME AND LOSSES RESULTING FROM REORGANISATIONS, LIQUIDATIONS AND TRANSFERS
Article 41. Reorganisations and Transfers
1. The 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 following cases:
1) the assets, rights and obligations are transferred between Lithuanian entities the taxable profits of which are taxed at a rate of 15 or 13% as specified in Article 5 of this Law; or
2) the assets, rights and obligations are transferred between Lithuanian entities the taxable profits of which are taxed at a rate of 15 or 13% as specified in Article 5 of this Law and 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 referred to as “Directive 90/434/EC”) and which are subject to taxes specified in Article 3(c) of Directive 90/434/EC; or
2. Cases of reorganisation and 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 referred to as the “acquired entities”) are merged with another existing entity (hereinafter referred to as the “acquiring entity”) and transfer to the latter at the time of the merger all their assets, rights and obligations in exchange for the issue to the members of the entities being acquired of shares (interests, member shares) in the acquiring entity; where the difference in the price of the shares exchanged 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, 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 referred to as the “acquired entities”) are merged into a new entity (hereinafter referred to as the “acquiring entity”) and transfer to the latter at the time of the merger all their assets, rights and obligations in exchange for the issue to their members of shares (interests, member shares) in the new entity; where the difference in the price of the shares exchanged 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, of their accounting par value;
3) an entity, on being dissolved without going into liquidation, (hereinafter referred to as the “acquired entity”) transfers all its assets, rights and obligations to another entity which controls 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 referred to as 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 referred to as the “acquiring entities”) in exchange for the pro rata issue to their members of shares (interests, member shares) in the acquiring entities; where the difference in the price of the shares exchanged 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, of their accounting par value;
5) an entity transfers without being dissolved (hereinafter referred to as 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 business, that is to say an entity capable of functioning by its own means, (hereinafter referred to as a “branch of activity”) to one or more existing or new entities (hereinafter referred to as the “receiving entities”), which results in a reduction of its authorised capital, in exchange for the pro rata issue to its members of shares (interests, member shares) in the receiving entities; where the difference in the price of the shares exchanged 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, of their accounting par value;
6) an entity transfers without being dissolved (hereinafter referred to as the “transferring entity”) all or one or more branches of its activity to another entity (hereinafter referred to as the “receiving entity”) in exchange for the shares (interests, member shares) of the receiving entity;
7) an entity, which seeks to obtain complete control over another entity by obtaining a qualified majority of votes (i.e. a holding of shares conferring 2/3 or more of the voting rights) (hereinafter referred to as the “acquiring entity”) or, holding such a majority (i.e. a holding of shares conferring 2/3 or more of the voting rights) seeks to acquire a further holding, transfers the issue to the members of the latter entity, in exchange for their shares, of shares (interests, member shares) in the former entity; where the difference in the price of the shares exchanged 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, of their accounting par value;
8) an entity transfers without being dissolved (hereinafter referred to as the “transferring entity”) one or more parts of its assets, rights and obligations to one or more new entities (hereinafter referred to as the “receiving entities”) and divides all its assets, rights and obligations in proportion to the number of the shares left in the transferring entity and transferred to the receiving entity;
3. Where, in the case specified in paragraph 2 of this Article, the acquiring entity is a foreign entity indicated in subparagraph 2 of paragraph 1, the provisions of this Chapter shall apply provided that following the reorganisation or transfer referred to in paragraph 2, with the exception of subparagraphs 7 and 9 thereof, the said foreign entity continues on the basis of the assets, rights and obligations acquired to carry on its activities through a permanent establishment in the territory of the Republic of Lithuania. Where, in the case specified in subparagraph 9 of paragraph 2 of this Article, the entity indicated in subparagraph 3 of paragraph 1 (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 on 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 those held in the former entity, the increase in the value of assets shall not be treated as income of such members. In this case, the acquisition price of the new shares (interests, member shares) received by the members of an 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 assets to another entity, the increase in the value of assets shall not be treated as 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 treated as 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 treated as 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 treated as 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 entity shall be the acquisition price of the assets before the transfer was effected.
7. Where, in the case specified in subparagraph 9 of paragraph 2 of Article 41 of this Law, a Lithuanian entity transfers its registered office, the increase in the value of assets shall not be treated as 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 on 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 subparagraph 9 of paragraph 2 of Article 41 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 subparagraphs 4, 5, 6 and 7 of paragraph 2 of Article 41 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 subsequent cases prescribed in subparagraphs 4, 5, 6 and 7 of paragraph 2 of Article 41 of this Law.
*Article 43. Losses Resulting from Reorganisations, Transfers and Transformations
1. Where a reorganisation or transfer is carried out, the losses of either the acquiring or transferring or acquired entity or entities for the tax period incurred before their reorganisation or transfer shall not be carried forward to the next year, except for the cases specified in this Article where the acquired entity or entities are merged with the acquiring entity, unless this Law provides otherwise.
2. Where the acquired entity or entities are merged with the acquiring entity and more than 66% of the owners of the acquiring entity are the same persons who were its owners before the merger was effected and where the acquiring entity continues to carry on the same activities that had been carried on before the merger was effected, while income from such activities accounts for not less than 85% of the income of the said entity and the tax period does not change, the losses incurred during the tax period shall be carried forward in accordance with the procedure laid down in this Article. The losses of the acquired entities shall not be carried forward.
3. In the event that the acquiring entity does not meet the criteria set out in paragraph 2, the losses incurred before the merger of the entity or entities was effected, beginning with the tax period during which the acquiring entity fails to meet at least one of the said criteria, shall not be carried forward.
4. Where the entity is transformed during the tax period, the losses for the previous tax periods shall be carried forward only in the event that the owners of the entity remain the same persons and the transformed entity continues to carry on the same economic and commercial activities that had been carried on before the transformation was effected.
5. Where, in the case specified in subparagraph 9 of paragraph 2 of Article 41 of this Law, a Lithuanian entity transfers its registered office, the losses of the 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 on its activities in the Republic of Lithuania through a permanent establishment.
*Note. The provisions of paragraph 43 shall apply for the purpose of calculating taxable profits for the tax period beginning before 2007.
*Article 43. Losses Resulting from Reorganisations, Transfers and Transformations
1. In cases of reorganisation or transfer, unless this Article provides otherwise, the acquiring entity or entities, when continuing carrying 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 carrying on the activity taken over or a part thereof for a period not shorter than three years. Only the losses for the tax periods that are related to the transferred activity, or a part thereof, transferred by the acquired or transferring entity or entities and continued in the acquiring entity can be transferred to the acquiring entity or entities.
2. After the end of a three-year period stipulated in paragraph 1 of this Law, the losses for the tax period transferred to the acquiring entity and related to the activity, or a part 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 on the activity taken over or a part 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 fiscal year in accordance with the procedure established by this Law in respect of the acquiring entity by the amount of the losses in respect of the transferred activity or a part thereof.
4. Where reorganisation is carried out in the case specified in subparagraph 7 of paragraph 2 of Article 41, 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 transformed during the tax period, the losses for the previous tax periods shall be carried forward only in the event that the owners of the entity remain the same persons and the transformed entity continues to carry on the same economic and commercial activities that had been carried on before the transformation was effected.
6. Where, in the case specified in subparagraph 9 of paragraph 2 of Article 41 of this Law, a Lithuanian entity transfers its registered office, the losses of the 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 on its activities in the Republic of Lithuania through a permanent establishment.
*Note. The provisions of Article 43 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
Article 44. Repealed on 1 January 2006.
Article 45. Income and Losses from the Increase in the Value of Assets Resulting from Liquidation
1. Where an entity in liquidation distributes assets to its members, the distribution shall be treated as the sale of such assets for their actual market price determined on the day of transfer of ownership rights, while the difference between the acquisition and the selling price of the assets shall be treated as 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 treated as 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 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 shall specify which of the notes discloses the 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 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 9 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 10-12 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 ¼ 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 ¼ 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 shall 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 accounts for less than 80% of the amount of corporate income tax calculated in the annual corporate income tax return, late payment interest shall be calculated, in accordance with the procedure laid down in the Law on Tax Administration, in respect of each amount of advance corporate income tax which was not paid for the quarter. The taxpayer may make adjustments in 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 that 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 fiscal year, while 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 tenth month of the tax period. Where the tax period preceding the previous tax period was shorter than 12 months, the amount of corporate income tax actually paid shall be, for the purpose of calculating the advance payment of corporate income tax, 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 taxable income for the previous tax period did not exceed LTL 100 thousand, entities do not have 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 are of the following types:
3) tax return on income (amounts) paid to a foreign entity and on corporate income tax calculated and entered in the budget;
4) corporate income tax return of a foreign entity carrying on its activities in the Republic of Lithuania (permanent establishment);
5) tax return on corporate income tax calculated and paid in respect of the dividends received and paid out;
*6) annual fixed rate corporate income tax return.
*Note. The provisions of subparagraph 6 of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
2. Reports are supplements to the annual corporate income tax return:
3. Other reports:
2) other returns and reports in the form established by the central tax administrator.
*4. Reports specified in subparagraph 3 and 5 of paragraph 1, subparagraph 1 of paragraph 2 and subparagraph 1 of part 3 shall be submitted only in the event that respective economic operations were carried out by the entity during the tax period.
*Note. The provisions of paragraph 4 shall apply for the purpose of calculating taxable profits for the tax period beginning before 2007.
*4. Reports and tax returns specified in subparagraph 3, 5 and 6 of paragraph 1, subparagraph 1 of paragraph 2 and subparagraph 1 of part 3 shall be submitted only in the event that respective economic operations were carried out by the entity during the tax period.
*Note. The provisions of paragraph 4 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
6. The forms of tax returns and reports, the procedure for completing them and the cases where the report specified in subparagraph 1 of paragraph 3 of this Article has to be filed shall be established by the central tax administrator. The form of the report specified in subparagraph 1 of paragraph 2 of this Article, the procedure for completing and filing it shall be established by the central tax administrator, after coordination with the Minister of Finance.
*Article 51. Filing of Annual Corporate Income Tax Returns and Advance Corporate Income Tax Returns
*Note. The provisions of the title of the Article shall apply for the purpose of calculating taxable profits for the tax period beginning before 2007.
*Article 51. Filing of Annual Corporate Income Tax Returns, Annual Fixed Rate Corporate Income Tax Return and Advance Corporate Income Tax Returns
*Note. The provisions of the title of this Article shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
*1. Lithuanian entities and permanent establishments whose income is subject to taxation in accordance with the procedure laid down in this Law shall complete annual corporate income tax returns and advance corporate tax returns and file them with the local tax administrator in the territory whereof they are situated or have to be registered as taxpayers. Entities that had used the sponsorship received for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and entities that had received sponsorship in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 minimum living standards, shall complete annual corporate income tax returns and file them with the local tax administrator in the territory whereof they are situated or have to be registered as taxpayers.
*Note: The provisions of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2006.
*1. Lithuanian entities and permanent establishments whose income is subject to taxation in accordance with the procedure laid down in this Law shall complete annual corporate income tax returns and/or annual fixed rate corporate income tax returns, and advance corporate tax returns and file them with the local tax administrator in the territory whereof they are situated or have to be registered as taxpayers. Entities that had used the sponsorship received for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and entities that had received sporsorship in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 minimum living standards, shall complete annual corporate income tax returns and file them with the local tax administrator in the territory whereof they are situated or have to be registered as taxpayers.
*Note. The provisions of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
2. The annual corporate income tax return accompanied by financial accounts (where such financial accounts have to be drawn up in accordance with the procedure prescribed by the legal acts) shall be filed after the end of the tax period and before the first day of tenth months of the next tax period. A Lithuanian entity or permanent establishment shall file the annual corporate income tax return accompanied by financial accounts (where such financial accounts have to be drawn up in accordance with the procedure prescribed by the legal acts) for the last tax period within 30 days after the end of activity.
*Note. The provisions of paragraph 2 shall apply for the purpose of calculating taxable profits for the tax period beginning before 2007.
2. The annual corporate income tax return and/or annual fixed rate corporate tax return accompanied by financial accounts (where such financial accounts have to be drawn up in accordance with the procedure prescribed by the legal acts) shall be filed after the end of the tax period and before the first day of tenth months of the next tax period. A Lithuanian entity or permanent establishment shall file the annual corporate income tax return and/or annual fixed rate corporate tax return accompanied by financial accounts (where such financial accounts have to be drawn up in accordance with the procedure prescribed by the legal acts) for the last tax period within 30 days after the end of activity.
*Note. The provisions of paragraph 2 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
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 nine months of the tax period shall be filed by the last day of the first month of the tax period. For the 10-12 months of the tax period, the advance corporate income tax statement shall be filed by the last day of the tenth month of the tax period;
Article 52. Filing Tax Returns on Income (Amounts) Paid to Foreign Entities and on Corporate Income Tax Calculated and Entered in the Budget
1. Where the income of a foreign entity is subject to corporate income taxation in accordance with the procedure laid down in Article 37 of this Law, the withholding agent – 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 agent is situated or has to be registered as a taxpayer.
Article 53. Payment and Refunding of Corporate Income Tax
*1. Corporate income tax shall be paid on the basis of the annual corporate income tax return. Corporate income tax shall be paid not later than the last day of the term for filing the annual 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.
*Note. The provisions of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning before 2007.
*1. Corporate income tax and/or a fixed rate corporate income tax shall be paid on the basis of the annual corporate income tax return and/or annual fixed rate corporate tax return. Corporate income tax and/or fixed rate corporate income tax shall be paid not later than the last day of the term for filing the annual corporate income tax return and/or the 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.
*Note. The provisions of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods.
Paragraph 2 (version before the expiry of six calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments):
*2. Corporate income tax calculated in respect of the income (amounts) paid to foreign entities shall be paid not later than the last day of the term for filing the tax return.
Paragraph 2 (version after the expiry of six calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments):
*2. Corporate income tax calculated in respect of the income (amounts) paid to foreign entities shall be paid not later than the last day of the term for filing 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 37(1) of this Law, paid to a foreign entity or its permanent establishment, such tax shall be refunded (credited) in accordance with the procedure laid down in the Law on Tax Administration. A foreign entity must submit a written request to refund (credit) the tax accompanied by documents evidencing the fulfilment of the criteria set forth in paragraphs1-3 of Article 37(1) of this Law within two years after the date of payment of the said amounts (income). Corporate income tax paid must be refunded (credited) not later than within one year after the date of receipt of the written request to refund (credit) the tax and documents evidencing the fulfilment of the criteria set forth in paragraphs1-3 of Article 37(1) of this Law.
*Note: Member States shall apply the provisions of Council Directive 2003/48/EC from 1 July 2005 (given specific conditions).
3. In the cases specified by the Government of the Republic of Lithuania or an institution authorised by it and where it is necessary to ensure an adequate fulfilment of tax obligations, the local tax administrator shall have the right to request that the taxpayer submit, before the deadline for filing an annual profit tax return and paying profit tax expires, a document of suretyship or guarantee issued by an entity established and operating in the Republic of Lithuania (a banking institution or an insurance undertaking) under which the said entity undertakes to discharge the taxpayer’s obligations related to corporate income tax in the event that such corporate income tax is not paid within the period laid down in this Article. The procedure for calculating and adjusting the amount of suretyship or guarantee as well as the procedure for submitting and cancelling the documents of suretyship or guarantee shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
Article 54. Re-Calculation of Corporate Income Tax Calculated and Paid by Foreign Entity
1. A foreign entity, after having received income 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 referred to as “property”), shall have the right to apply to the local tax administrator in the territory whereof the withholding agent is registered for re-calculation of corporate income tax that has been calculated and paid in respect of the property sold or otherwise transferred into ownership. In this case, corporate income tax shall be calculated in respect of the income received due to the increase in the value of property.
2. Requests for re-calculation of corporate income tax and documents supporting the acquisition price of property shall be submitted to the local tax administrator in the territory whereof the withholding agent is registered. The local tax administrator, after having verified the legality of such documents and transactions, shall calculate the income received due to the increase in the value of property, which was earned from the sale or other transfer into ownership of assets, and also corporate income tax. 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 Countries
1. A Lithuanian entity may deduct the amount of corporate income tax or equivalent tax paid in a foreign country on income received in that country during the relevant fiscal year from the amount of corporate income tax calculated in accordance with the procedure laid down in this Law, except from 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 that part of sponsorship received in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 MLS, taking into account the dividends which are not included in the income of the entity, unless this Article provides otherwise.
2. Where the amount of corporate income tax calculated in respect of the income received in a foreign country in accordance with the procedure laid down in this Law is lower than the amount of corporate income tax or equivalent tax paid on that income in the said foreign country, only the amount of corporate income tax calculated in accordance with the procedure laid down in this Law shall be deducted.
3. If a taxpayer receives income in several foreign countries during the fiscal year, the amount of corporate income tax to be deducted shall be calculated separately for every country where the income was received, except for the cases where dividends subject to taxation under this Law are received.
4. In the event that interest subject to taxation under this Law is received in foreign countries, which accounts for not more than 25% of the income of the receiving entity, the deductible amount of corporate income tax shall be deducted from the total amount of corporate income tax as calculated in respect of total income, but not in excess of 1/5 of the total amount of corporate income tax.
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 country have been issued concerning the income received in that country during the relevant fiscal year and the amount of corporate income tax or 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 equivalent tax paid in a foreign country on positive income received by a controlled entity in that country during the relevant fiscal 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 country have been issued concerning the income received in that country during the relevant fiscal year and the amount of corporate income tax or equivalent tax calculated and paid on that income and where the Lithuanian entity supplies the local tax administrator with the following information:
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 paragraph 5 of Article 46, fines shall be imposed and late payment interest charged in accordance with the procedure laid down in the Law on Tax Administration.
Article 57. Requirements for the Keeping of Accounts
1. The taxpayer’s accounts shall be kept in a manner that provides sufficient information for the purpose of calculating corporate income tax.
2. Taxpayers shall keep their accounts and reporting in compliance with the Law on Accounting and other legal acts of the Republic of Lithuania.
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 of measuring inventories, unless this Law provides otherwise.
4. For the purpose of calculating corporate income tax, inventories shall be recorded by using the first-in, first-out (FIFO) method. At the request of the taxpayer and taking into account the characteristics of its activity, the local tax administrator may allow to record the inventories by using the method provided in the legal acts regulating accounting, which is used by the entity when drawing up financial accounts.
Article 58. Procedure for Abandoning the Calculation and Taxation of Entities’ Profits or Income according to 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 software, 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 were applied to taxpayers before the date of entry into force of this Law, shall continue to be applied within the time limits and in accordance with the procedure set out in the said laws until the end of the tax period beginning in 2003.
3. In the event that tangible fixed assets or software 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 of 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 software 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 the owners of partnerships and individual/personal enterprises pay themselves that part of income which was used by partnerships and individual/personal enterprises for such investments, after the date of entry into force of this Law, the income of a partnership and individual/personal enterprise shall be increased by an amount, which is equal to that 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 software subject to the investment incentive specified in subparagraph 2 of paragraph 1 of Article 21 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 portion of tangible fixed assets or software, 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 incentive were applied when the assets were acquired, becomes equal to that portion of the value which was subject to the investment incentive.
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 entities shall be subject to a corporate income tax rate of 29% and shall not be subject to the provisions of paragraph 2 of Article 33 and paragraph 2 of Article 34 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 paragraph 1 of Article 25 of this Law shall be applied to only those 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 deductions of limited amounts of the entity in equal portions over a period of 5 years as of the tax period beginning with 2000.
7. Insurance benefits received from insurance undertakings (insurers) shall not be subject to taxation under contracts concluded before 1 January 2002.
8. Advance corporate income tax for the tax period beginning with 2002, which the taxpayer must pay under a submitted advance corporate income tax return, shall be calculated in accordance with the following procedure:
1) for the first 4 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 5-12 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 month shall 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 lower by at least 25% 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 with a request to reduce the remaining advance corporate income tax or to be exempt from it. The local tax administrator must reduce the amount of advance corporate income tax in respect of such an entity in proportion to the reduced 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 with a request to increase the remaining advance corporate income tax.
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 4 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 5-12 months of the tax period beginning with 2002 shall be filed before the last day of the first month of the tax period. Where an entity has chosen to pay the advance profit 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 before that 15th day of the month following each month of the tax period beginning with 2002. Advance corporate income tax shall be paid within 15 days after the end of each month of the tax period beginning with 2002.
10. A declaration of income or a corporate income tax statement for the tax period beginning with 2001 shall be filed together with the financial accounts prescribed by the Law of the Republic of Lithuania on Accounting after the end of the fiscal year and before 1 May 2002 or before the first day of 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 declaration on income. Where the amount of corporate income tax calculated in the corporate income tax statement or the declaration of income 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 deadline for filing the corporate income tax statement or the declaration of income.
11. The depreciation or amortisation rates set out in Appendix 1 of this Law shall apply to tangible fixed assets, intangible assets and the value of goodwill acquired after the date of entry into force of this Law.
12. Entities which before 1 January 2002 had recognised income at the actual moment of its receipt, but no longer meet under the provisions of this Law the criteria prescribed for the application of the cash accounting principle, shall have the option of moving to accrual accounting 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 the banks of foreign countries and international financial institutions (institutions or organisations all members or founders of which are governments of several countries, and also the 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 be subject to taxation from 1 January 2003 under the provisions of Article 4 of this Law, 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 issued by the banks of foreign countries and international financial institutions (institutions or organisations all members or founders of which are governments of several countries, and also the 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 and also on loans 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 are 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, unless 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 are 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 on 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 are 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 intermediary 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 profit of entities engaged in agricultural activity, cooperative companies (cooperatives) that sell agricultural products produced by and acquired from their members and/or that sell to their own members fuels, fertilisers, seeds, feeding stuffs, pest and weed control measures as well as tangible assets intended solely for the agricultural activities of their members, and also free economic zone enterprises, legal persons (except for those specified in paragraph 5 of Article 5 of this Law) in which persons with limited capacity for work are employed, credit unions and the Central Credit Union shall be subject to taxation as follows:
1) where income from agricultural activities received by entities engaged in agricultural activity accounts for 50% or more of their income, the taxable income of such entities shall be subject to a corporate income tax rate of 0%;
2) a free economic zone enterprise in which capital investments amount to at least EUR 1 million shall not pay corporate income tax for 6 tax periods beginning with the tax period in which such an amount was reached and shall be subject to a 50% reduced corporate income tax rate for the subsequent 10 tax periods. The relief granted under this paragraph may be applied only where not less than 75% of the income of a free economic zone enterprise for the relevant tax period comprises income from the manufacture, treatment, processing and storage of goods, wholesale trade in goods stored within the zone, and/or services provided in the zone and related to the aforementioned activities carried out within the zone (transportation and servicing of the goods manufactured, treated, processed or stored within the zone and of the goods required for manufacturing, treatment or processing within the zone, the territory of the construction zone as well as other services relating to the aforementioned activities). The relief granted under this paragraph may be applied only in the event that the free economic zone enterprise 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 deadline for applying the relief granted under this paragraph, the said relief shall be suspended for the tax period in which the amount of capital investment was so reduced and it may be renewed in the tax period when the capital investment once again amounts to EUR 1 million. The relief granted under this paragraph may not be applied in any circumstances to credit institutions and insurance undertakings;
3) legal persons (except for those specified in paragraph 5 of Article 5 of this Law) 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:
| Proportion of persons with a limited work capacity within the total of persons employed |
Reduction of calculated corporate income tax |
| More than 50% |
100 % |
| 40–50 % |
75 % |
| 30–40 % |
50 % |
| 20–30 % |
25 % |
The categories of persons with limited capacity for work, the method of calculating the proportion of such persons within the total of persons employed and the procedure for applying the said relief shall be established by the Government of the Republic of Lithuania;
5) credit unions and the Central Credit Union shall be exempt from corporate income tax during the first three tax periods beginning with the date of their registration in accordance with the procedure laid down in the laws of the Republic of Lithuania, while the amount of corporate income tax to be paid beginning with the forth tax period shall be reduced by 70%;
6) in the event that cooperative companies (cooperatives) do not meet the criteria set forth in subparagraph 1 of this paragraph, but the portion of their income from the activities specified in subparagraph 1 of this paragraph and/or income from the sale of agricultural products produced by and acquired from their members (entities which may be subject to the provisions of subparagraph 1 of this paragraph or individuals who may be subject to the provisions of subparagraphs 24 and 25 of paragraph 1 of Article 17 of the Law of the Republic of Lithuania on Personal Income Tax concerning income from the sale of agricultural products) and/or from the sale of fuels, fertilisers, seeds, feeding stuffs, pest and weed control measures as well as tangible assets, intended solely for the agricultural activities of their members, to their own members (entities which may be subject to the provisions of subparagraph 1 of this paragraph or individuals who may be subject to the provisions of subparagraphs 24 and 25 of paragraph 1 of Article 17 of the Law of the Republic of Lithuania on Personal Income Tax concerning income from the sale of agricultural products) accounts for 85% or more of their income, the taxable profit of such cooperative companies (cooperatives) shall be subject to a corporate income tax rate of 0%.
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 a set of assets was 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 specific provisions for doubtful assets, established between the beginning of the tax period starting with 1997 and the beginning of the tax period starting with 2002, were not included in the taxable profit-reducing costs shall include such amounts (after coordination with the central tax administrator) in equal portions in the deductions of limited amounts during the tax periods starting with 2002, 2003, 2004 and 2005. Where a bank meets its liabilities linked to the repayment of debts, the amount of the debt or a portion thereof, which matches the amount of the specific provision for doubtful assets established in respect of such a debt, shall be recognised as income at the moment the claim is settled.
Article 59. Entry into Force and Application of the Law
Version of paragraphs 1 and 2 before 1 January 2008:
1. The Law shall enter into force as of 1 January 2002, with the exception of subparagraph 5 of paragraph 18 of Article 2, Article 40, subparagraph 3 of paragraph 4 of Article 42, and paragraph 3 of Article 53.
Version of paragraphs 1 and 2 after 1 January 2008:
1. The Law shall enter into force as of 1 January 2002, with the exception of subparagraph 5 of paragraph 18 of Article 2, Article 40, and subparagraph 3 of paragraph 4 of Article 42.
2. Provisions of subparagraph 5 of paragraph 18 of Article 2 shall enter into force on 1 January 2003.
3. Provisions of subparagraph 3 of paragraph 4 of Article 42 shall enter into force on 1 January 2004.
7. The Law of the Republic of Lithuania on Taxes on Profits of Legal Persons shall apply to entities the tax period of which does not coincide with the calendar year until the tax period ending in 2002, except where such entities calculate taxes and pay them to the budget as withholding agents.
8. To propose that the Government of the Republic of Lithuania prepare the legal acts necessary to comply with this Law.
9. Any arrears in payments discharged by or recovered from individual (personal) enterprises and partnerships as of July 1 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 on 1 January 2003:
Republic of Lithuania Law on Taxes on Profits of Legal Persons (Valstybės Žinios (Official Gazette) No 24-601, No 30-715, 1990; No 16-426, No 20-520, 1991; No 6-110, 1992; No 16-404, No 30-682, No 70-1306, 1993; No 15-251, No 55-1052, No 100-1999, 1994; No 34-813, 1995; No 1-3, No 35-862, No 46-1105, No 62-1463, No 66-1577, No 71-1715, No 73-1746, 1996; No 28-661, No 61-1442, No 63-1473, No 69-1745, 1997; No 68-1977, 1998; No 33-948, No 55-1771, No 64-2072, No 98-2812, No 113-3291, 1999; No 36-988, No 45-1291, No 61-1819, No 64-1912, 2000; No 45-1572, No 56-1979, No 62-2235, 2001);
2) Republic of Lithuania Law 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) 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 on Corporate Income Tax
No IX-675 of
20 December 2001
DEPRECIATION OR AMORTISATION RATES (IN YEARS) FOR FIXED ASSETS
| Class of fixed assets |
Method |
Rate (in years) |
| 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 |
| Residential buildings |
linear |
20 |
| Buildings other than listed above |
linear |
15 |
| Plant and machinery |
linear or double declining balance |
5 |
| Installations (structures, wells, etc.) |
linear |
8 |
| Power transmission and communications facilities (except for computer networks) |
linear |
8 |
| Rolling stock (locomotives, rail wagons, rail tankers) |
linear |
8 |
| Pipe installations, aeroplanes, weapons |
linear |
15 |
| Furniture (other than used for hotel business) |
linear |
6 |
| Inventory, furniture used for hotel business |
linear or double declining balance |
6 |
| Computer and communications equipment (computers, computer networks and software) |
linear or double declining balance |
3 |
| 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 |
| 2) other passenger cars, not older than 5 years |
linear |
6 |
| 3) other passenger cars |
linear |
10 |
| Goods vehicles, trailers and semi-trailers, busses, not older than 5 years |
linear or double declining balance |
4 |
| Other goods vehicles, trailers and semi-trailers, busses |
linear |
4 |
| *Tangible assets other than listed above *Note. The provisions shall apply for the purpose of calculating taxable profits for the tax period beginning before 2007. |
linear |
4 |
| *Tangible assets other than listed above *Note. The provisions shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods. |
linear or production |
4 (except when applying the production method) |
| INTANGIBLE ASSETS |
|
|
| Software |
linear or double declining balance |
3 |
| Rights acquired |
linear or double declining balance |
3 |
| Other intangible assets |
linear |
4 |
| VALUE OF GOODWILL |
|
|
| Value of goodwill |
linear |
15 |
Appendix 2 was repealed on 2 September 2004
No IX-2418, 2004-08-23, (Valstybės žinios (Official Gazette), No 134-4836, 2004; (2004-09-02).
APPENDIX 3 to
Republic of Lithuania
Law on Corporate Income Tax
IMPLEMENTED EU LEGAL ACTS
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 UnionAct 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.