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official translation LAW ON TAXES ON PROFITS OF LEGAL PERSONS (As amended by 2 July 1997) 1. Taxable Entities and Taxabl

official translation LAW ON TAXES ON PROFITS OF LEGAL PERSONS (As amended by 2 July 1997) 1. Taxable Entities and Taxable Object Article 1. A profit tax shall be imposed on: (

  1. a)enterprises with rights of legal persons, the activities whereof are regulated by the Republic of Lithuania Law on Enterprises, (
  2. b)legal persons engaged in non-commercial activities who nevertheless received income from commercial-economic activities, with the exception of the Bank of Lithuania and non-budgetary resources of institutions whose expenditures are fully reimbursed from the State Budget.
  3. c)foreign state enterprises the activities whereof are regulated by foreign state laws and the headquarters whereof are located in the foreign state - in the manner laid down by this Law. Article 2. A profit tax shall be imposed on taxable profit computed according to the procedure defined in Chapter 2 of this Law. Taxable object of foreign state enterprises shall be income received from all legal persons of the Republic of Lithuania for services rendered in the spheres of market study, consulting, mediation and for the authorisation to use trade marks. licences and names of firms. Taxable object of foreign enterprises registered in the states or zones which are tax havens (territories, where taxes are lower than in the Republic of Lithuania) shall be the income of said enterprises received from legal persons of the Republic of Lithuania. The list of such states (zones) and the types of taxable income shall be drawn up by the Government of the Republic of Lithuania. 2. Assessment of Taxable Profit . Article 3. The total of sales revenue and non-operating revenues (hereinafter - gross revenue) shall constitute the basis for computing the amount of the taxable profit. Sales revenue shall comprise the products, other material valuables sent from the enterprise, works performed, and services rendered, as well as compensatory allowances. When material fixed assets (construction in progress) are sold below their residual value, the amount of sales revenue shall be not less than the residual value of the assets. Proceeds form the sale of assets of an enterprise declared bankrupt shall not be considered sales revenue. Non-operating revenues shall constitute payments received from economic sanctions and other income not related to the production and sale of goods and services, including income received for leased or invested assets. When computing taxable profit, the following income shall be eliminated from non-operating revenues: 1) dividends and interest income received on bonds; 2) the share of profit received by shareholders from other enterprises; 3) insurance benefits received from insurance companies (insurers); 4) the share of income (profit) received by founders from individual (personal) enterprises or from partnerships; 5) sums received for charity and sponsorship regulated by the Republic of Lithuania Law on Charity and Sponsorship; 6) income of all religious communities and centres (higher governing bodies): donations, income from the sale of property received as charity, provided said income is assigned for building, renovating and reconstructing the house of worship, also for charity, culture and education; 7) received penalties and default interest; 8) the amounts after the long-term fixed assets revaluation in the cases and according to the procedure laid down by the Government of the Republic of Lithuania. Income (funds) earmarked under the Law on Forestry of the Republic of Lithuania for the formation of the Forest Fund shall be excluded from gross revenue. Article 4. Profit shall be computed by deducting from gross revenue the production and distribution costs related to goods and services sold as specified in Article 5. Taxable profit shall be computed by deducting from profit amounts not liable to tax, as set forth in Article 6. If the enterprise shows a loss (negative results), it shall be permitted to carry the losses to the following tax year. The carry-over of the tax year losses shall be permitted for the maximum period of three tax years measured from the year following the formation of losses. No carry-over of losses shall be permitted upon the expiry of the above time period. The tax year shall coincide with the calendar year. The procedure for carrying over tax year losses shall be established by the Minister of Finance. Taxable profit of persons engaged in non-commercial activity shall be computed as difference between the income from paid services and their performance costs. Article 41 . Enterprises which hold cash and cash-and-prize lotteries, except for those whose founder is the National Olympic Committee of Lithuania, the Department of Physical Education and Sports at the Government of the Republic of Lithuania, the Lithuanian Society of the Child, the Lithuanian Society of the Disabled, the Union of People with Disabilities, shall pay into the budget 13 percent of income from the sales at nominal value of lottery tickets (cards). Enterprises, whose founder is the National Olympic Committee of Lithuania, the Department of Physical Education and Sports at the Government of the Republic of Lithuania, the Lithuanian Society of the Child, the Lithuanian Society of the Disabled, the Union of People with Disabilities, shall pay into the budget 5 percent of income from the sales at nominal value of lottery tickets (cards) and shall in a mandatory manner allot to charity and sponsorship 8 percent of income from the sales at nominal value of lottery tickets (cards). The procedure of payment into the budget of the prescribed amount of income and of allotting the required amount to charity and sponsorship, also the lists of sponsors and beneficiaries of sponsorship shall be specified by the Government of the Republic of Lithuania Enterprises which hold cash and cash-and-prize lotteries shall pay the tax on profits of legal persons in the manner prescribed by this Law. Article 5. When computing taxable profit, the following actual production and distribution costs, as well as production sales costs shall be deducted from the gross revenue of the enterprise:

(1)material costs and other comparable costs, including business trip expenses;
(2)depreciation charges providing for the replacement of long-term assets (tangible and intangible) - in accordance with the procedure established by the Government of the Republic of Lithuania;
(3)labour costs;
(4)social insurance contributions;
(5)compulsory insurance contributions prescribed by the Law on Insurance of the Republic of Lithuania;
(6)taxes, dues and other mandatory payments prescribed by the laws of the Republic of Lithuania and Government Decrees, except for the value-added tax payable into the budget, interest on the State capital used, also amounts paid as penalties, default interest and under other sanctions;
(7)loan interest and payments related to the issuance of loan guarantees;
(8)special reserves for banks' doubtful loans and technical insurance provisions formed by insurance companies (insurers), also the share of insurance contributions to be used for reinsurance, with the exception of the technical provision for refunding insurance contributions;
(9)additional inputs into the Ignalina Nuclear Power Plant prescribed by the decrees of the Government of the Republic of Lithuania, not provided hereunder;
(10)amounts of value added tax paid on the purchase made, also paid amounts of value added on import, not subject to deduction under the provisions of the Law on the Value Added Tax. When computing taxable profit, only actual production and circulation costs confirmed by valid legal documents and the expenses of enterprises specified in paragraph 1 hereof shall be deducted from the gross revenue. The import of material valuables from abroad must be confirmed by customs declarations. Amounts paid directly or through agents to foreign state enterprises shall not be considered enterprise costs if not taxed at source in the manner prescribed under this Law. Article
  1. When computing taxable profit, the entire amount of the actual expenses of those charitable organisations and funds, societies and unions of the disabled, also their enterprises which are specified in the Republic of Lithuania Law on Charity and Sponsorship, provided said expenses are related to charitable and sponsorship affairs, shall be deducted from taxable profit computed in accordance with the procedure set forth in Article 4 of this Law, if said expenses are confirmed by valid documents. When computing the taxable profit of charity donors or sponsors who are not specified in paragraph 1 hereof, the actual expenses related to charitable and sponsorship affairs and confirmed by valid documents shall be twice deducted from the taxable profit computed in the manner established in Article 4 of this Law; the deducted amount, however, must not exceed 40 percent of taxable profit. Sums allocated for charitable and sponsorship affairs which are in excess of 40 percent of taxable profit shall be liable for taxation according the general procedure. The procedure established in this Article shall not apply to charitable or financial support given to foreign legal persons, with the exception of cases when such charity is dispensed or financial support is given through international charity organisations or Lithuanian communities located abroad. The share of profit of free economic zone enterprises and zone management companies used for the acquisition of capital assets, for scientific research and introduction of new technologies as well as for investment in the zone shall not be subject to taxation. The rates of special reserves for banks' doubtful loans shall be determined by the Bank of Lithuania on co-ordination with the Government of the Republic of Lithuania. The method of forming insurance technical provisions and the amounts thereof shall be determined by the State Insurance Supervisory Authority.
  2. Tax Rates Article
  3. Tax rate shall be: 1) 29 percent of taxable profit; 2) taxable profit used for investment shall be taxed at zero (0%) rate; 3) income received by foreign state enterprises (except for the foreign state enterprises specified in subparagraph 4 of this paragraph) from the legal persons of the Republic of Lithuania for the provided marketing, consulting and agency services shall be taxed at source by applying the 15% tax rate, and for granting the right to use trademarks, licences, business names - at the 10% tax rate; 4) income of foreign enterprises registered in the tax haven states or zones which is received from the legal persons of the Republic of Lithuania shall be taxed at source by applying the 29% tax rate. The list of such states (zones) and the types of taxable income shall be drawn up and specified by the Government of the Republic of Lithuania For the purposes of this Law the amount of an investment shall be the difference between the acquisition cost, at the close of the taxation period, of the fixed assets being used (construction in progress) and the acquisition cost of the fixed assets being used (construction in progress) at the beginning of the period, also the loan capital used during the taxation period for the acquisition of the fixed assets and the depreciation charges for the period. Upon sale of such assets, all received sales revenue shall be subject to taxation without deducting the residual value of the assets.
  4. Tax Reliefs Article
  5. The rate of profit tax for legal persons producing agricultural products and for specialised enterprises providing services for agriculture shall be 10 percent of the taxable profit. If the portion of income from agricultural products and services provided for agriculture is less than 50 percent of sales revenue, all profit shall be subject to taxation at the rate provided in Article 7 of this Law. The tax rate for creative unions (unions of architects, artists, designers, photographers, composers, film makers, scientists, writers, folk artists, theatre actors and directors, and journalists) as well as their companies and organisations thereof which allocate at least 29 percent of their profit for financing the needs of creative unions, shall be 5 percent of the taxable profit. Free economic zone enterprises shall pay profit tax at an 80 percent lower rate for 5 years from the enterprise registration day, while for the subsequent 5- year period the rate shall amount to 50 percent of the regular profit tax rate. If a foreign investor (investors) acquires at least 30 percent of the zone enterprise's authorised (ownership) capital and invests no less than USD 1 million worth of capital of foreign origin, the enterprise shall be exempt from taxes on profits for a 5-year period from its registration day and for the subsequent 10 years the rate of tax levied on the enterprise's profits shall be reduced by 50 percent. If an enterprise was set up (registered) or foreign capital was invested prior to 31 December 1993, the rate of profit tax applicable to the share of its profit (proportionate to the share of foreign capital in the enterprise's authorised capital) due to the foreign investment and not used for the payment of wages, also not re-invested in the enterprise, shall for a 5-year period be reduced by 70 percent. If an enterprise was set up (registered) or foreign capital was invested in the period from 1 January 1994 to 1 August 1995, the rate of profit tax applicable to the share of profit due to the foreign investment shall for a 6-year period be reduced by 50 percent. An enterprise in which the investor's (investors') foreign capital investment amounts to USD 2 million shall be exempt from profit tax for a 3-year period starting from the beginning of the accounting quarter the enterprise began to receive profit. During the subsequent 3 years the rate of profit tax applicable to the enterprise shall be reduced by 50 percent. Tax reliefs prescribed by this paragraph shall not apply to enterprises engaged in wholesale and retail trade in oil products if their income from trade in these products accounts for over 30 percent of their sales revenue. Profit tax rate reduced by 50 percent shall be applicable to the taxable profit of small businesses the concept whereof is defined in the Law on Small Business of the Republic of Lithuania. When operating income of small businesses accounts for at least 2/3 of the sales revenue, the rate of profit tax for the initial 2 years from the setting up (registration) of the business shall be reduced by 70 percent. Until 31 December 1997 credit unions shall be exempt from profit tax for the period of 2 years counting from the day of registration in the manner specified by this Law. Beginning from 1 January 1998, or if a 2-year period had elapsed by that date from the date of credit union registration, its profit shall be taxed at a 70 percent lower rate. A 5 percent rate shall be applicable to the profit of organisations (enterprises) which, according to the law regulating their setting up and activity or pursuant to the Government decree are non-profit organisations. Article
  6. Enterprises which receive over 50 percent of sales revenue for their own products and which employ handicapped employees shall be entitled to the following deductions in computing taxable profit: Proportion of Handicapped Deduction of Taxable Employees Profit Over 50% 100% 40-50% 75% 30-40% 50% 20-30% 25% The categories of individuals to whom the status of handicapped employees is applicable and the method of computing their proportion to the total number of employees, as well as regulations elaborating on the application of such tax relief shall be established by the Government of the Republic of Lithuania. Article
  7. If a taxpayer under the laws of the Republic of Lithuania is entitled to several tax reliefs, only the biggest tax relief shall be granted. The laws of the Republic of Lithuania may provide for the cases where the taxpayers may be exempted from the unpaid taxes, as well as being released from the payment of penalties and interest due for the unpaid amounts.
  8. Computation and Payment of Tax Article
  9. Legal persons of the Republic of Lithuania shall compute the amount of profit tax and pay the amount due into the appropriate budget, as provided by the Law on the Structure of the Budget of the Republic of Lithuania. When income of foreign enterprises is taxed at source in the manner prescribed by this Law, the amount of the profit tax shall be withheld and paid by the legal person of the Republic of Lithuania who pays out their income within 15 days after the close of the month the amount of income was paid out. Legal persons which have dependant structural units in the territories of other municipalities shall distribute the calculated amount of profit tax in proportion to the number of employees in the dependent structural units at the close of the corresponding period. Profit tax distribution and payment procedure shall be established by the Minister of Finance. (Paragraph 2 shall be repealed as of 1 January 1998) Article
  10. Payment for given taxable year shall be made in instalments, in advance, and the amount of a given instalment shall be computed by applying the instalment rate. The instalment rate shall be computed by dividing the total amount of the profit tax paid for the preceding taxable year by the amount of sales revenue received during the preceding taxable year. In the cases established by the Ministry of Finance, the instalment rate may be computed by dividing the total amount of the profit tax computed the preceding quarter by the amount of sales revenue received during the preceding quarter. The instalment rate shall be computed from an estimate submitted by the taxable entity in conjunction with the appropriate State tax inspectorate, in accordance with the procedure established by the Ministry of Finance. The amount of advance payments shall be computed by applying the instalment rate to the actual sales revenue. The taxable entity shall deposit estimated payments 3 times a month into the appropriate budget by the date specified and in the manner established by the Ministry of Finance. For estimating advance payments for the period up to the 10th day of February of the upcoming taxable year or up to the date specified by the State Tax Inspectorate, the instalment rate applied in the preceding taxable year shall be used. Article
  11. Taxable entities that receive a considerable portion of income by means other than through banks shall deposit advance payments in accordance with the procedure co-ordinated with the appropriate State tax inspectorates. Article
  12. Following the close of each calendar quarter and on or before the 15th day of the month of the next calendar quarter, and following the close of the taxable year, that is, on or before the 1st day of February of the following taxable year, taxable entities shall file with the appropriate State tax inspectorates and their departments financial statements established by the Republic of Lithuania Law on the Principles of Accounting and a profit tax return. The form of the return and the information contained thereon shall be established by the Ministry of Finance. If the amount of tax shown on the return exceeds the amount paid during the taxable year, the taxable entity shall, within 10 days from the due date for the filing of the return, deposit the additional estimated sum required into the budget prescribed by the Law on the Structure of the Budget of the Republic of Lithuania.
  13. Responsibility for Correct Computation of the Amount and Payment of Profit Tax Article
  14. The taxable entity shall be held responsible for correct computation of the amount of the profit tax. If the taxable profit and profit tax are understated on the tax return, the amount of tax due for the understated profit, plus a penalty shall be recovered in the manner prescribed by the Law on Tax Administration of the Republic of Lithuania. Article
  15. The taxable entity shall be held responsible for paying the profit tax by the due date. Failure to timely pay the tax shall subject the taxable entity to liability for interest in the manner laid down by the Law on Tax Administration of the Republic of Lithuania. The Government of the Republic of Lithuania, taking into consideration the reasons due to which the taxpayer failed to make the required payments into the budget by the due date, may grant certain taxpayers postponement of payment into the budget of the computed interest. During the period of postponement, interest shall not be counted. In the event that the taxpayer fails to pay the amount of the computed interest by the last day of postponement, interest then shall also be computed and paid into the budget for the entire period of postponement. The period of postponement of payment shall be deemed to commence as from the day of coming into effect of the Government Decree concerning the establishment of the period of postponement of payment of the computed interest. The period of postponement of payment shall apply to the amount of interest computed prior to the day of coming into effect of the Government Decree concerning the establishment of the period of postponement of computed interest payment. Article
  16. Officers of the taxable entity shall be personally responsible for furnishing false information resulting in an erroneous assessment of the tax due, and shall be subject to liability in accordance with the procedure established by law.
  17. Other Provisions Article
  18. If the provisions of a treaty to which the Republic of Lithuania is a party is contrary to the Law on Taxes on Profits of Legal Persons , the treaty provisions shall be applicable while subjecting the profit to taxation. Article
  19. When a legal person of the Republic of Lithuania receives profit that is subjected to taxation abroad, and there is no treaty allowing to avoid double taxation, it is possible to deduct, according to the procedure laid down by the Government or, on its authorisation, by the Ministry of Finance, from the legal person's computed profit tax amount an amount equal to the profit tax paid in the foreign state. The amount subject to deduction may not exceed the share of the tax computed in the Republic of Lithuania that is payable on the income received in the foreign state. Article
  20. Profit tax reliefs established by paragraphs 5, 6 and 7 of Article 8 of this Law shall be applicable in cases where the enterprise was set up (registered) or foreign capital was invested, or foreign capital investment in the enterprise reached USD 2 million prior to 1 April
  21. Vytautas Landsbergis President Supreme Council Republic of Lithuania Vilnius 31 July 1990 No. I-442

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