LIETUVOS RESPUBLIKOS

In short

This Law establishes the procedure for imposing corporate income tax on profits and income earned by entities in the Republic of Lithuania, ensuring compliance with EU legal acts.

What it regulates

The procedure for taxing corporate income.
The application of corporate income tax within the territory of the Republic of Lithuania.
Definitions of various entities and income types for taxation purposes.
Compliance with specific EU legal acts.

Who it concerns

Lithuanian taxable entities (legal persons registered in Lithuania).
Foreign taxable entities (foreign legal entities or organizations operating in Lithuania).

Key points

A "Lithuanian taxable entity" is a legal person registered in accordance with the legal acts of the Republic of Lithuania.
A "Foreign taxable entity" is any foreign legal entity or organization established or organized under the legal acts of a foreign state.
A "Controlled taxable entity" is controlled by a controlling person holding directly or indirectly over 50% of shares or rights to profits, or together with related persons, holds over 50% with the controlling person holding at least 10%.
"Income sourced in the Republic of Lithuania" includes interest, royalties, income from property immovable by nature, distributed profits of Lithuanian entities, income from activities in the Republic of Lithuania, income from transportation, and international telecommunications.

Įstatymo tekstas

LIETUVOS RESPUBLIKOS REPUBLIC OF LITHUANIA LAW ON CORPORATE INCOME TAX 20 December 2001 – No IX-675 (As last amended on 9 December 2009 – XI-540) Vilnius CHAPTER I GENERAL PROVISIONS Article 1. Purpos

Article 4

of this Law, and a 20% tax rate shall be imposed on the income specified in subparagraphs 4, 6 and 7 of paragraph 4 of Article 4 of this Law, unless this Law provides otherwise; Version of the subparagraph as of 1 January 2010: 2) a 10% tax rate (without any deductions) shall be imposed on the income of a foreign entity, sourced in the Republic of Lithuania, received otherwise than through its permanent establishments situated in the Republic of Lithuania specified in subparagraphs

Article 4

of this Law, and a 15% tax rate shall be imposed on the income specified in subparagraphs 4, 6 and 7 of paragraph 4 of Article 4 of this Law, unless this Law provides otherwise; The income of foreign entities which are registered or otherwise organised in a state of the European Economic Area or in a state with which a treaty for the avoidance of double taxation has been concluded and brought into effect, sourced in the Republic of Lithuania and received otherwise than through their permanent establishments situated in the Republic of Lithuania specified in subparagraph 1 of paragraph 4 of Article 4 of this Law shall not be subject to taxation. A 10% tax rate (without any deductions) shall be imposed on the income of foreign entities which are not registered or otherwise organised in a state of the European Economic Area or in a state with which a treaty for the avoidance of double taxation has been concluded and brought into effect, sourced in the Republic of Lithuania and received otherwise than through their permanent establishments situated in the Republic of Lithuania specified in subparagraph 1 of paragraph 4 of Article 4 of this Law; Note. The provisions of subparagraph 2 of paragraph 1 shall also apply to entities engaged in agricultural activities. Version of subparagraph 3 before 1 January 2010: 3) a 20% tax rate shall be imposed on income from distributed profits; Version of subparagraph 3 as of 1 January 2010: 3) a 15% tax rate shall be imposed on income from distributed profits; 4) sponsorship received which is used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship, as well as part of the 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 20% (without any deductions). Note. The provisions of subparagraph 4 of paragraph 1 shall apply for the purpose of calculating corporate income tax for the tax period of

4) sponsorship received, which is used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship, as well as part of the 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). Note. The provisions of subparagraph 4 of paragraph 1 shall apply for the purpose of calculating corporate income tax for the tax period of 2010 and subsequent tax periods.
Entities (except for non-profit entities) which meet the criteria set out in this paragraph shall have the right to apply one of the following rules when calculating taxable profits: 1) taxable profits of entities whose average number of employees on the staff list does not exceed 10 and whose income during 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) the part of the taxable profits of entities whose average number of employees on the staff list does not exceed 10 and whose income during the tax period does not exceed LTL 1 million, amounting to LTL 25 000, shall be taxed at a rate of 0% and the remaining part of the taxable profits shall be taxed at a rate of 20%, except for the cases specified in paragraph 3 of this Article. This rule shall apply to individual/personal enterprises, general partnerships and limited partnerships. Note. The provisions of paragraph 2 shall apply for the purpose of calculating corporate income tax for the tax period of
Taxable profits of entities (except for non-profit entities) whose average number of employees on the staff list does not exceed 10 and whose income during the tax period does not exceed LTL 500 000 shall be taxed at a rate of 5%, except for the cases specified in paragraph 3 of this Article. Note. The provisions of paragraph 2 shall apply for the purpose of calculating corporate income tax for 2010 and subsequent tax periods.
The provisions of paragraph 2 of this Article shall not 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 enterprises) whose members and/or family members of such members, on the last day of the tax period, control over 50% of shares (interests, member shares) in other entities, as well as entities in which the members of the entity (individual/personal enterprise) and/or family members of such members, on the last day of the tax period, control over 50% of the shares (interests, member shares); 3) entities in which the same member, on the last day of the tax period, controls over 50% of the shares (interests, member shares); 4) entities in which the same members, on the last day of the tax period, jointly control over 50% of the shares (interests, member shares).
The part of the taxable profits of non-profit entities whose income from economic and commercial activity during the tax period does not exceed LTL 1 million, amounting to LTL 25 000, shall be taxed at a rate of 0% and the remaining part of the taxable profits shall be taxed at a rate of 20%. Income received from the activities carried out to satisfy public interests, intended for funding of such activities, shall not be attributed to the income received from economic and commercial activities of non-profit entities. Note. The provisions of paragraph 4 shall apply for the purpose of calculating corporate income tax for the tax period of
The part of the taxable profits of non-profit entities whose income from economic and commercial activity during the tax period does not exceed LTL 1 million, amounting to LTL 25 000, shall be taxed at a rate of 0% and the remaining part of the taxable profits shall be taxed at a rate of 15%. Income received from the activities carried out to satisfy public interests, intended for funding of such activities, shall not be attributed to the income received from economic and commercial activities of non-profit entities. Note. The provisions of paragraph 4 shall apply for the purpose of calculating corporate income tax for 2010 and subsequent tax periods.
Taxable profits of entities shall be taxed at 0% where: 1) during 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) during the tax period, an entity does not carry out 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 during the tax period accounts for not more than 20% of the total income received by the entity; and 3) on the last day of the tax period, entities have the status of a social enterprise. Note. The provisions of paragraph 5 shall apply for the purpose of calculating taxable profits for the tax period beginning with 2009 and subsequent tax periods.
Taxable profits (or part thereof) of cooperative societies (cooperatives), attributed proportionately to the value of the contributions in member shares of holders of member shares, whose property/farm or holding meets the criteria set out in subparagraph 23 of paragraph 1 of Article 17 of the Law of the Republic of Lithuania on Income Tax of Individuals, on the last day of the tax period, shall be taxed at 0% where: 1) during the tax period, income from agricultural activities accounts for more than 50% of the total amount of income of the cooperative society (cooperative), or 2) during the tax period, income from agricultural activities and/or income from the sold agricultural products produced by and acquired from its own members and/or fuels, fertilisers, seeds, feeding stuffs, pest and weed control products sold to its own members, as well as tangible assets intended solely for the agricultural activities of its members, accounts for more than 85% of the total amount of income of the cooperative society (cooperative). Note. The provisions of paragraph 6 shall apply for the purpose of calculating corporate income tax for 2009 and subsequent tax periods. Article
Tax Period
The tax period shall be a fiscal year. It shall coincide with a calendar year unless this Article provides otherwise.
At the request of the tax payer and taking into account the characteristics of his activity, the local tax administrator may, in accordance with the procedure established by the central tax administrator, set a tax period other than specified in paragraph 1 of this Article, provided that this tax period equals 12 months. Such a tax period may be changed only for objective reasons with the consent of the local tax administrator.
The first tax period shall begin from the registration of a Lithuanian entity in the Republic of Lithuania or, where the Lithuanian entity has not registered in accordance with the procedure prescribed by law, the first tax period shall begin from the start of activities. The last tax period of the Lithuanian entity shall end when the entity ceases to exist.
Where a Lithuanian entity has actually carried out its activities for less than 12 months, the tax period shall be calculated from its registration in the Republic of Lithuania or, where the Lithuanian entity has not registered in accordance with the procedure prescribed by law, from the start of its activities until the Lithuanian entity ceases to exist.
The first and last tax periods of a permanent establishment shall be determined in accordance with the procedure established by the Government of the Republic of Lithuania or an institution authorised by it. CHAPTER II RECOGNITION OF INCOME AND COSTS Article
Recognition of Income and Costs
Income and costs shall be recognised on an accrual basis and in accordance with other accounting principles laid down in the legal acts that regulate accounting, except for the cases where, in accordance with the provisions of this Chapter, income may be recognised in accordance with the principle of cash accounting and in accordance with the provisions of this Article.
Negative goodwill shall be attributed to income at the moment of its acquisition unless this Article provides otherwise.
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 shall be attributed to income at the moment of subsequent reorganisation or transfer (if any) of such entities. Article
Recognition of Income and Costs under the Principle of Cash Accounting
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 of this Law shall be recognised in the same manner.
Where the cash accounting principle is applied, the costs of a Lithuanian entity shall be recognised in accordance with the same procedure as they are recognised on an accrual basis, however, only the costs related to the income actually received during the tax period shall be recognised. Article
Application of the Cash Accounting Principle
The principle of cash accounting may only be applied by those Lithuanian entities which had recognised their income using the cash accounting principle before this Law came into effect and whose income during the last three tax periods did not exceed LTL 100 000 for each single tax period, as well as newly registered Lithuanian entities whose expected income during the first tax period will not exceed LTL 100
Lithuanian entities applying the cash accounting principle must switch to the accrual accounting principle in the tax period following the tax period during which their income exceeded LTL 100
The provisions of this Article shall not apply to Lithuanian entities having (having acquired) the status of an entity in bankruptcy. Article
Selection and Change of Accounting Principles
Even if it meets the criterion set out in paragraph 1 of Article 9, a Lithuanian entity may switch from cash accounting to accrual accounting as of the beginning of any given tax year. The Lithuanian entity shall inform the local tax administrator thereof.
Where a Lithuanian entity switches from cash accounting to accrual accounting, the buyers’ debts carried over to the fiscal year during which the said accounting principle is applied shall be included in the income of the Lithuanian entity after repayment, but not later than within three years from the beginning of the tax period during which the accrual accounting principle was introduced.
The Lithuanian entity which had applied the accrual accounting principle before this Law entered into force and the Lithuanian entity which has an obligation under the provisions of this Law to switch from cash accounting to accrual accounting may not switch from accrual accounting to cash accounting until the Lithuanian entity is either liquidated or ceases to exist. CHAPTER III PROCEDURE FOR CALCULATION OF TAXABLE PROFITS Article
Taxable Profits
Unless this Article provides otherwise, for the purpose of calculating taxable profits of a Lithuanian entity, the following shall be deducted from income: 1) non-taxable income; 2) allowable deductions; 3) limited allowable deductions.
The taxable profits of permanent establishments shall be calculated by deducting from the income earned the non-taxable income, limited allowable deductions and deductions relating to the income earned by a foreign entity through the permanent establishments. The procedure for making deductions relating to the costs incurred for the purpose of earning income through permanent establishments shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
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 set forth in Article 37 of this Law.
Expenses on the basis of which costs are recognised may only be substantiated with legally valid documents which must contain all the mandatory requisites of accounting documents provided for by the legal acts that regulate accounting. In addition to such requisites, the documents substantiating the expenses on the basis of which the costs are recognised must also contain other requisites prescribed by the Government of the Republic of Lithuania or an institution authorised by it.
(Repealed on 30 June 2005)
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 the documents executed by foreign entities or natural persons where such documents allow identification of the content of an economic operation.
The provisions of this Article shall not apply to income of a shipping entity received from international carriage by sea-going vessels and activities directly related thereto if, at the choice of the shipping entity, the income from international carriage by sea-going vessels and activities directly related thereto is subject to fixed rate corporate income tax under the provisions of Article 38

(1)of this Law. Article

Non-Taxable Income The following income earned and/or received by a Lithuanian or foreign entity through permanent establishments shall not be taxed: 1) (Repealed on 1 January 2006); 2) insurance benefits received which are not in excess of the value of the property lost or losses/damage incurred; the part of insurance premiums reimbursed which is in excess of the insurance premiums deducted from the income in accordance with the procedure laid down in Article 26 of this Law, and also the part of insurance benefits which is in excess of the insurance premiums deducted from the income in accordance with the procedure laid down in Article 26 of this Law; Note. The provisions of subparagraph 2 shall apply for the purpose of calculating corporate income tax for the tax period beginning before
2) insurance benefits received which are not in excess of the value of the property lost or losses/damage incurred; the part of insurance premiums paid for the benefit of employees reimbursed which is in excess of the insurance premiums deducted from the income, and also the part of insurance benefits which is in excess of the insurance premiums paid for the benefit of employees deducted from the income; Note. The provisions of subparagraph 2 shall apply for the purpose of calculating corporate income tax for 2010 and subsequent tax periods. 3) income received by a bankrupt entity from the sale of the assets; 4) balance of the organisational fund of an insurance undertaking in accordance with the procedure laid down by the Law of the Republic of Lithuania on Insurance; 5) investment income of variable capital investment companies and closed-end 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; 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, whose income is subject to corporate income tax under this Law or an equivalent tax under the respective legal acts of foreign states, 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 of the Republic of Lithuania on Accounting; 12) compensation for damage received by an entity, except for the cases specified in subparagraph 2 of this Article; 13) (Repealed on 30 June 2005); 14) compensations received under the EU financial support scheme to the Republic of Lithuania for decommissioning of fishing vessels; 15) income from the increase in the value of assets resulting from transfer of shares of an entity, registered or otherwise organised in a state of the European Economic Area or in a state with which a treaty for the avoidance of double taxation has been concluded and brought into effect and which is a payer of corporate income tax or an equivalent tax, to another entity or a natural person where the entity transferring the shares held more than 25% of voting shares in that entity for an uninterrupted period of at least two years. This relief shall not apply if the entity transferring the shares transfers them to the entity that has issued these shares; Note. The provisions of subparagraph 15 shall apply for the purpose of calculating corporate income tax for the tax period beginning before
15) income from the increase in the value of assets resulting from transfer of shares of an entity, registered or otherwise organised in a state of the European Economic Area or in a state with which a treaty for the avoidance of double taxation has been concluded and brought into effect and which is a payer of corporate income tax or an equivalent tax, to another entity or a natural person where the entity transferring the shares held more than 25% of voting shares in that entity for an uninterrupted period of at least two years or, where the shares were transferred in the cases of reorganisation or transfer referred to in paragraph 2 of Article 41 of this Law, held more than 25% of voting shares in that entity for an uninterrupted period of at least three years. This relief shall not apply if the entity transferring the shares transfers them to the entity that has issued these shares; Note. The provisions of subparagraph 15 shall apply for the purpose of calculating corporate income tax for 2009 and subsequent tax periods. 16) life insurance premiums of insurance undertakings, 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, investment income of insurance undertakings, except for dividends and other distributed profits, and investment income of insurance undertakings under life assurance contracts concluded in accordance with the provisions of the Law on the Accumulation of Occupational Pension; 17) direct and other compensatory benefits, to maintain the income level, established by the laws and other legal acts of the Republic of Lithuania, received by entities engaged in agricultural activities. Note. The provisions of subparagraph 17 shall apply for the purpose of calculating corporate income tax for 2009 and subsequent tax periods. CHAPTER IV ASSETS Article
Entity’s Assets
The assets of an entity shall be tangible, intangible and financial valuables acquired by the said entity. They shall belong to the entity by the right of ownership or shall be acquired under a leasing (financial lease) contract providing for the transfer of ownership rights or under a purchase and sale or lease contract providing for the transfer of ownership rights to the entity after the total value of the assets has been paid up or in the manner set out in paragraph 6 of Article 14 of this Law; and, where state and municipal assets have been transferred to the entity by the right of trust, they shall belong to the entity under the right of trust.
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.
Fixed assets shall mean assets used by an entity to earn income (derive 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 spread over the depreciation or amortisation period. The amounts directly paid by the entity to the educational establishments of states of the European Economic Area and foreign states other than states of the European Economic Area, which have concluded a treaty for the avoidance of double taxation with the Republic of Lithuania, for the training of natural persons who are not connected with the entity by employment relations, which results in post secondary or higher education and/or qualification, where such education and/or qualification is required by the entity to earn income, may be attributed to intangible fixed assets after the said natural persons commence their employment at the entity. Note. The provisions of paragraph 3 shall apply for the purpose of calculating corporate income tax for the tax period beginning before
Fixed assets shall mean assets used by an entity to earn income (derive economic benefit) or provide benefit specified in paragraph 2 of Article 26 of this Law for a period exceeding one year and the acquisition price whereof is not less than the price set by the entity according to the class of fixed assets listed in Appendix 1 to this Law. The acquisition price of such assets shall be included in the entity’s costs spread over the depreciation or amortisation period. The amounts directly paid by the entity to the educational establishments of states of the European Economic Area and foreign states other than states of the European Economic Area, which have concluded a treaty for the avoidance of double taxation with the Republic of Lithuania, for the training of natural persons who are not connected with the entity by employment relations, which results in post secondary or higher education and/or qualification, where such education and/or qualification is required by the entity to earn income, may be attributed to intangible fixed assets after the said natural persons commence their employment at the entity. Note. The provisions of paragraph 3 shall apply for the purpose of calculating corporate income tax for 2010 and subsequent tax periods.
Current assets shall mean assets that may be used by an entity to earn income (derive economic benefit) for a period not exceeding one year and the acquisition price whereof is included in the deductible costs of the entity for the tax period in which such assets are put into use. Note. The provisions of paragraph 4 shall apply for the purpose of calculating corporate income tax for the tax period beginning before
Current assets shall mean assets that may be used by an entity to earn income (derive economic benefit) or provide benefit specified in paragraph 2 of Article 26 of this Law for a period not exceeding one year and the acquisition price whereof is included in the deductible costs of the entity for the tax period in which such assets are put into use. Note. The provisions of paragraph 4 shall apply for the purpose of calculating corporate income tax for 2010 and subsequent tax periods. Article
Acquisition Price of Assets
The acquisition price of assets shall comprise expenses incurred in the course of acquiring the assets, including the commissions and taxes (levies) paid, except for VAT, relating to the acquisition of the assets.
The acquisition price of assets acquired for goods and services shall comprise the respective amount included in the income received by an entity for such goods and services as well as expenses incurred in the course of acquiring the assets, including the commissions and taxes (levies) paid, relating to the acquisition of the assets.
Where assets are exchanged for other assets, the acquisition price of the newly acquired assets shall be the acquisition price of the assets exchanged. Where the acquisition price of the assets exchanged cannot be determined, the acquisition price of the newly acquired assets shall be the actual market price of such assets.
Where a member of an entity uses assets to pay for its shares (interests, member shares), the acquisition price of such assets for the entity shall be the same as the acquisition price paid by the member (holder of interests or member shares). The above mentioned acquisition price of assets may be increased by the amount of income resulting from the increase in the value of a shareholder’s (holder’s of interests or member shares) assets, earned from the transfer of such assets and included in the shareholder’s (holder’s of interests or member shares) taxable income.
Where securities are exchanged for other assets, the acquisition price of such assets shall be the actual market price of these securities at the moment of acquisition of the assets.
Where a person terminates individual activities and transfers the unsold goods to a new entity established by him or his spouse, the acquisition price of these goods for the entity shall be the acquisition price specified in the acquisition documents of the goods of the person engaged in individual activities, except for the cases when these assets are used to pay up for this entity’s shares (interests or member shares). Article
Selling Price of Assets
The selling price of assets or the price of other transfer into ownership thereof shall comprise all income earned from the sale or other transfer into ownership of the assets after deducting the taxes (levies) paid, except for VAT, relating to the sale or other transfer into ownership of such assets.
(Repealed on 14 February 2004)
Where insured assets have been lost for any reason, the selling price of such assets shall be the amount set as compensation for the assets lost. Article
Income from the Increase in the Value of Assets
Income from the increase in the value of assets shall be income earned which comprises the difference between the price of the sale or other transfer into ownership of the assets and the acquisition price of such assets. Expenses relating to the acquisition of the assets must be substantiated with documents specified in Article 11 of this Law and/or with valid transactions.
Where an entity’s assets in respect of which depreciation or amortisation was estimated for the purpose of calculating corporate income tax are transferred, in calculating income from the increase in the value of the assets, the acquisition price of such assets shall be reduced by the amount of the depreciation or amortisation included in the limited allowable deductions.
(Repealed on 14 February 2004)
(Repealed on 14 February 2004)
Where an entity transfers a bond, such transfer shall result, with respect to the transferring entity, in the reduction of income from the increase in the value of assets by the amount of discount already included in the income of the transferring entity.
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 laid down in Chapter IX of this Law.
In other cases, the Government of the Republic of Lithuania or an institution authorised by it shall establish the procedure for calculating the acquisition price of assets, the selling price of assets or income from the increase in the value of assets. CHAPTER V ALLOWABLE DEDUCTIONS AND LIMITED ALLOWABLE DEDUCTIONS Article
Procedure for Recognition of Allowable Deductions
Allowable deductions shall include all the usual costs that an entity actually incurs for the purpose of earning income or deriving 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. Note. The provisions of paragraph 1 shall apply for the purpose of calculating corporate income tax for the tax period beginning before
Allowable deductions shall include all the usual costs that an entity actually incurs for the purpose of earning income or deriving economic benefit unless this Law provides otherwise. All expenses for the benefit of employees shall be also attributed to allowable deductions where the benefit received by the employees is the object of income tax of individuals in accordance with the provisions of the Law of the Republic of Lithuania on Income Tax of Individuals. Additional deductions allowed by the Government of the Republic of Lithuania for the Ignalina Nuclear Power Plant shall be attributed to allowable deductions. The amount from which the state social insurance contributions of a member of the entity (owner of an individual enterprise, general partner of a partnership or a limited partnership) are calculated and paid in accordance with the provisions of the Law of the Republic of Lithuania on State Social Insurance shall also be attributed to allowable deductions of the entity (individual enterprise, general partnership or limited partnership). Note. The provisions of paragraph 1 shall apply for the purpose of calculating corporate income tax for 2010 and subsequent tax periods.
Limited allowable deductions shall be: 1) depreciation or amortisation costs of fixed assets; 2) operating, repair and renovation costs of tangible fixed assets; 3) costs of business trips; 4) costs of advertising and promotional activities; 5) natural losses; 6) taxes; 7) bad debts; 8) contributions and expenses for the benefit of employees; Note. The provisions of subparagraph 8 shall apply for the purpose of calculating corporate income tax for the tax period beginning before
8) expenses for the benefit of employees and/or their family members where the benefit is not the object of income tax of individuals; Note. The provisions of subparagraph 8 shall apply for the purpose of calculating corporate income tax for 2010 and subsequent tax periods. 9) special provisions of credit institutions and insurance undertakings; 10) sponsorship; 11) membership fees, payments and contributions; 12) losses for the tax period. Article
Costs of Scientific Research and Experimental Development
In calculating corporate income tax, the costs of scientific research and experimental development, except for depreciation or amortisation costs of fixed assets, shall be deducted three times from income for the tax period during which they are incurred where the scientific research and/or experimental development works carried out are related to the usual or intended activities of the entity which generate or will generate income or economic benefit.
Depreciation or amortisation costs of fixed assets used to carry out scientific research and experimental development shall be deducted from income in accordance with the procedure laid down in Article 18 of this Law.
Where scientific research and experimental development works are acquired from another entity or a natural person, the costs incurred due to such acquisition shall be deducted from income under provisions of paragraph 1 of this Article only if the acquired scientific research and experimental development works have been carried out in a state of the European Economic Area or a state outside the European Economic Area which has concluded and brought into effect a treaty for the avoidance of double taxation with the Republic of Lithuania.
The Government of the Republic of Lithuania shall approve the procedure for attributing costs to the costs of scientific research and experimental development. Article
Depreciation or Amortisation Costs of Fixed Assets
Fixed assets and 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 of such assets established in accordance with paragraph 2 of this Article. In calculating corporate income tax, the costs of scientific research and experimental development shall be deducted from income for the tax period during which they are actually incurred.
Classes of fixed assets and their maximum depreciation or amortisation rates (in years) are set out in Appendix 1 to this Law. Fixed assets which are registered in the respective property register may be attributed to a certain class of fixed assets taking into consideration solely the purpose of use of such assets. The entity itself shall determine (select) the depreciation or amortisation periods for its fixed assets, which may not be less than the depreciation or amortisation rates (in years) for fixed assets set out in Appendix 1 to this Law, and their liquidation value, which may not exceed 10% of the acquisition price. Note. The provisions of paragraph 2 shall apply for the purpose of calculating corporate income tax for 2009 and subsequent tax periods.
Entities whose average number of employees on the staff list does not exceed 10 and whose income during the tax period does not exceed LTL 500 000 and who 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 except for residential houses and other buildings.
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 the production methods pursuant to Appendix 1 to this Law. The method selected must be applied consistently: the same depreciation or amortisation method selected by the entity shall be applied to every class of fixed assets set out in Appendix 1 to this Law and each item of assets within that class over the total depreciation or amortisation period for the fixed assets.
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).
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 by two the ratio between 100% and the depreciation or amortisation period (in years) for fixed assets; 2) when calculating the amount of depreciation or amortisation for the tax period during the first year, the acquisition price of fixed assets shall be multiplied by the depreciation coefficient; 3) as regards the depreciation or amortisation of fixed assets during all 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, determined in accordance with paragraph 2 of this Article, shall be depreciated or amortised.
Where the production method is applied, the annual amount of depreciation shall be calculated by multiplying the difference between the acquisition price of tangible fixed assets and the liquidation value of such assets by the ratio between the amount of the output produced or raw materials processed during the tax period and the maximum amount of output which can be produced or raw material which can be processed using these assets. Irrespective of other provisions of this Article, the entity shall independently set (choose) the date from which the depreciation or amortisation by the production method of the acquired and put into use fixed assets shall start.
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.
Where an entity transfers fixed assets, for consideration or free of charge, before the last day of the sixth month of the tax period, depreciation or amortisation during the said tax period shall not be calculated. Where an entity transfers fixed assets, for consideration or free of charge, after the last day of the sixth month of the tax period, 1/2 of the annual amount of depreciation or amortisation, calculated according to the prescribed rates, shall be charged to the costs of the entity during the said tax period.
Where all or one or more branches of activity of another entity in the form of its rights and obligations which from an organisational point of view constitute an independent economic entity engaged in activities and capable of functioning at its own discretion are acquired, the accumulated goodwill shall be included in the limited allowable deductions similarly as fixed assets in accordance with the procedure laid down in this Article. Where the shares of another entity are acquired for the purpose of controlling its net assets and activity, the accumulated goodwill shall be included in the limited allowable deductions similarly as fixed assets in accordance with the procedure laid down in this Article only after the subsequent merger of these entities or merger by acquisition of one entity by another, if any.
The entity may choose to calculate the depreciation or amortisation of all fixed assets from the first day of the month following the month in which such assets were put into use by applying the linear method according to the rates set out in Appendix 1 to this Law.
Entities that have renovated or repaired fixed assets, which has resulted in a prolonged useful life of such assets or improvement of their useful characteristics, or have changed the purpose of use of fixed assets or have acquired other part thereof may adjust depreciation or amortisation rates; they may also do so for objective reasons with the consent of the local tax administrator. Article
Limits on Calculating Depreciation or Amortisation
The depreciation or amortisation of land acquired under a leasing (financial lease) contract providing for the transfer of ownership rights and under a purchase and sale or lease contract providing for the transfer of ownership rights to the buyer after the total value of the assets has been paid up, as well as the depreciation or amortisation of transferred fixed assets, library 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.
The amortisation of intangible fixed assets generated by the entity itself and listed in classes of assets specified in Appendix 1 to this Law (acquired rights, other intangible assets and goodwill) unless this Law provides otherwise.
The depreciation or amortisation of fixed assets not in use, held in reserve or in conservation, as well as the depreciation or amortisation of the revaluation results of fixed assets shall not be calculated.
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 the cases where the new acquisition price is lower than the acquisition price, not depreciated or amortised according to the provisions of this Law, of the said assets before their first transfer. Article
Costs of Operation, Repair and Renovation of Tangible Fixed Assets (Own Assets, Leased Assets or Assets Lent for Use)
Where tangible fixed assets used by an entity are renovated or repaired, which results in a prolonged useful life of such assets or improvement of their useful characteristics, the acquisition price of the repaired or renovated tangible fixed assets shall be increased by the value of their repairs or renovation.
In all other cases, expenses related to the repairs of tangible fixed assets used by an entity shall be attributed to the costs of repair and deducted from income for the tax period during which they were actually incurred.
The costs of renovation or repair, resulting in a prolonged useful life of the assets or improvement of the useful characteristics, 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 parts from the income of the lessee or the borrower for use over the term of the lease or loan for use beginning with the following month after the end of the renovation or repair works and, in the event of an open end contract, over the period set out in Appendix 1 to this Law for the respective class of assets, which, however, may not be less than three years. Where the lease or loan for use contract is terminated before it expires, the remaining part 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 has resulted in a prolonged useful life of the assets or improvement of their useful characteristics, the lessor or the lender of the loan for use shall increase the acquisition price of fixed tangible assets by the value of the repair or renovation works in the tax period during which the repair or renovation works have been completed and shall tax them in accordance with the procedure laid down in this Law.
The costs of operation and repair of tangible fixed assets, which belong by the right of ownership to members of partnerships and owners of individual enterprises as well as to their family members and which are used in the activities of such entities, shall be deducted from income in accordance with the procedure established by the Minister of Finance. Article
Costs of Business Trips
A business trip shall mean travelling of an employee from his permanent workplace to perform job functions, business orders or improve qualifications, documented by order (decision) of the head of an entity or a person authorised by him, specifying the purpose of the business trip, its location (locations), duration (if several foreign states are visited during a business trip – the duration of the stay in each foreign state) and the types of costs to be covered by the entity. A business trip shall also mean travelling, documented in accordance with the procedure established in this paragraph, 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 or improve qualifications, as well as travelling of members of a special negotiating committee established under the provisions of the Law of the Republic of Lithuania on the Involvement of Employees in the European Companies, the Works Council of a European company and its committee, documented by decision of the special negotiating committee (in case of the first meeting of the special negotiating committee – by decision of a competent body of entities participating in the establishment), the Works Council of a European company or its committee, specifying the location and duration of the meeting, to take part in the meetings of the special negotiating committee, the Works Council of a European company or its committee, and also travelling of members of a special negotiating committee established under the provisions of the Law of the Republic of Lithuania on the Involvement of Employees in the European Cooperative Societies, the Works Council of a European Cooperative Society or its committee, documented by decision of the special negotiating committee (in case of the first meeting of the special negotiating committee – by decision of a competent body of entities participating in the establishment), the Works Council of a European Cooperative Society or its committee, specifying the location and duration of the meeting, to take part in the meetings of the special negotiating committee, the Works Council of a European Cooperative Society or its committee.
The travelling of an employee from the Republic of Lithuania abroad where he spends more than 183 days in a single place abroad, except for the employees whose job is related to travelling or who hold mobile job positions or perform shift work, shall not be treated as a business trip.
The costs of business trips shall be deducted from income in accordance with the procedure established by the Government of the Republic of Lithuania or an institution authorised by it. Article
Advertising and Promotional Costs
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 to current or potential buyers, except for controlled entities, controlling persons or members of a group of entities, shall be recognised as advertising costs.
Promotional costs shall mean the funds of an entity allocated to establish new business relations or improve the existing relations with other entities or natural persons, except for the employees, shareholders and owners of the entity as well as controlled or controlling entities or controlling permanent residents. Promotional costs are incurred for the benefit of particular persons.
An amount not exceeding 75% of promotional costs shall be deducted from income.
Expenses incurred through the entity’s shareholders or holders of member shares, except for the cases where such persons are employees of the entity, shall not be attributed to promotional costs.
Expenses relating to hunting, fishing, yachting, golf playing, gaming and camping shall not be attributed to promotional costs. Article
Natural Losses
Natural losses shall mean a natural decrease in goods (raw materials, products) due to their storage, transfer, packaging, carriage, loading and sale, including losses resulting from buyers’ neglect.
The amount of actual natural losses, except for natural losses of fresh fruit, berries, mushrooms and vegetables, shall be deducted from income, but not in excess of 1% of the entity’s income. The amount of actual natural losses of fresh fruit, berries, mushrooms and vegetables deducted from income may not be in excess of 3% of the entity’s income. Article
Taxes
Taxes prescribed by the Law on Tax Administration and levies and mandatory contributions prescribed by other laws of the Republic of Lithuania or Government resolutions shall be deducted from income unless this Law provides otherwise.
Only the amounts of input VAT and import VAT paid which are not deducted under the provisions of the Law on Value Added Tax shall be deducted from income and only in cases where such amounts are calculated on the allowable deductions specified in this Law. Article
Bad Debts
The amount of bad debts incurred during a 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 the entity before the tax period, where the entity must draw up such balance sheet in accordance with the procedure prescribed by legal acts. The portion of costs attributed to bad debts incurred during the tax period shall be deducted from income recognised under the cash accounting principle where the appearance of such debts was recorded in the taxpayer’s accounting documents before the tax period. Where the taxpayer recognised income under the cash accounting principle at the moment of appearance of bad debts and subsequently 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 the 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 if the taxpayer cannot recover them after a period of at least one year from including the amount of debt in the taxpayer’s income or recording of the appearance of such debts in the taxpayers’ accounting documents or if the debtor has died or has been pronounced dead or has been liquidated or has gone bankrupt. In all of the above cases, the taxpayer must prove that the debts are bad and that efforts have been made to recover such debts.
The procedure for providing proof of bad debts and of efforts made to recover them as well as the procedure for calculation of the amounts of such debts shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
Where a debtor later repays the bad debts deducted, the total amount of the debts repaid shall be attributed to income.
The provisions of this Article shall not apply to credit institutions also where the debtor and the creditor are related persons or have become related over the tax period following the tax period during which the debt was recognised as a bad debt and was included in allowable deductions in accordance with the procedure laid down in this Article. Article
Contributions and Expenses for the Benefit of Employees
The amount of contributions paid for the benefit of employees 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 is not less than ten years or where the insurance benefit is paid out to the insured after he has attained retirement age under the provisions of the Law on the Accumulation of Occupational Pensions, or 3) such contributions are insurance premiums paid in respect of supplementary (voluntary) health insurance where such premiums cover the payment of health care services provided in respect of the insured person, and 4) the amount of such contributions is calculated and does not exceed 25% of the income pertaining to employment relations, calculated during the tax period in respect of every employee of the entity. Note. The provisions of paragraph 1 shall apply for the purpose of calculating taxable profits for the tax period beginning with
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.
The provisions of paragraph 1 of this Article shall apply to contracts concluded from 1 May 2004 onwards where the recipient of the contributions under such contracts is an entity registered or otherwise organised in a state of the European Economic Area.
The amounts directly paid by an entity to the educational establishments in the states of the European Economic Area and foreign states other than states of the European Economic Area, which have concluded a treaty for the avoidance of double taxation with the Republic of Lithuania, for the training of natural persons connected with the said entity by employment relations, which results in higher education and/or qualification, where such education and/or qualification is required by the entity to earn income. Note. The provisions of Article 26 shall apply for the purpose of calculating corporate income tax for the tax period beginning before
Article
Expenses for the Benefit of Employees and/or their Family Members Where the Benefit Is Not the Object of Income Tax of Individuals
The amounts directly paid by an entity to the educational establishments in the states of the European Economic Area and foreign states other than states of the European Economic Area, which have concluded a treaty for the avoidance of double taxation with the Republic of Lithuania, for the training of natural persons connected with the said entity by employment relations, which results in higher education and/or qualification, where such education and/or qualification is required by the entity to earn income, may be deducted from income during the tax period.
Where in providing benefit for the entity’s employees and/or their family members (spouses, children, (adopted children)), it is impossible to determine the individual benefit received by a specific employee and/or his family members (spouses, children, (adopted children)), the expenses incurred in the course of provision of such benefit, which are not attributed to allowable deductions or limited allowable deductions in accordance with other provisions of this Law, may be deducted from income during the tax period only where the provision of such benefit is provided for in the collective agreement of the entity and all the employees of that entity are entitled to enjoy such benefit without discrimination and restrictions. The amount of expenses deducted from income, as specified in this paragraph, may not be in excess of 5% of the amount of the employees’ salary calculated during the tax period (on which state social insurance contributions are payable). Note. The provisions of paragraph 26 shall apply for the purpose of calculating corporate income tax for 2010 and subsequent tax periods. Article
Special Provisions of Credit Institutions and Insurance Undertakings
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 establish special provisions for covering doubtful assets of credit institutions in accordance with the rules laid down by the Bank of Lithuania, shall be allowed to, during the tax period, deduct from income special provisions for doubtful assets set up to cover the losses arising from a particular doubtful asset (group of doubtful assets).
Where a credit institution meets its liabilities relating to the repayment of debts, the amount of the debt or part thereof, which matches the amount of the special provision set up in respect of such debt, shall be recognised as income at the moment of settlement of the claim.
It shall be allowed to deduct from income insurance technical provisions as prescribed by the Minister of Finance according to the methods of calculation of insurance technical provisions approved by the Insurance Supervisory Commission of the Republic of Lithuania. Article
Sponsorship
Taxpayers who are entitled to provide charity and sponsorship under the Law of the Republic of Lithuania on Charity and Sponsorship shall be allowed to deduct from their income all of the payments made (except for cash payments which exceed the amount of 250 MLS in respect of a single recipient of sponsorship or charity during the tax period), including the assets transferred and services provided, which are intended for charity and sponsorship in accordance with the procedure laid down in the Law of the Republic of Lithuania on Charity and Sponsorship, unless this Article provides otherwise.
Taxpayers who are entitled to provide only sponsorship under the Law of the Republic of Lithuania on Charity and Sponsorship, shall be allowed to deduct from their income two times the payments made (except for cash payments which exceed the amount of 250 MLS in respect of a single recipient of sponsorship during the tax period), including the assets transferred and services provided, which are intended for sponsorship in accordance with the procedure laid down in the Law of the Republic of Lithuania on Charity and Sponsorship, but not in excess of 40% of the taxpayer’s income, calculated by deducting non-taxable income, allowable deductions and limited allowable deductions, except for sponsorship and losses from the previous tax periods.
Where sponsorship is provided in the form of tangible fixed assets, the amount of the provided sponsorship shall be equal to the residual value of such assets. Where sponsorship is provided in the form of other assets, the amount of the provided sponsorship shall be equal to the acquisition price of such assets. Where sponsorship is provided in the form of services, the amount of sponsorship shall be equal to the self-cost of such services. Where sponsorship is provided in the form of tangible fixed assets being lent for use, the amount of sponsorship shall be equal to the calculated amount of depreciation of such assets during the period of use by the recipient of sponsorship.
The provisions of paragraph 2 of this Law shall not apply to taxpayers bound by the Law on Lotteries to allocate funds for charity or sponsorship. Article
Membership Fees, Payments and Contributions
The amount of admission fees and the amount of membership fees, which is not excess of 0.2% of income, as well as the amount of special membership fees, which is not in excess of 0.2% of income, where such fees, payments and special fees are paid to entities whose activities are regulated by special laws and which do not seek profit whereas the profit received may not be allocated to their founders and/or stakeholders and/or members, shall be deducted from income.
Contributions by members of the Motor Insurers’ Bureau of the Republic of Lithuania payable on the written premiums of compulsory insurance against civil liability in respect of the use of motor vehicles, which are not in excess of 15% of the total amount of such premiums, shall be deducted from income. Article
Carrying Forward of Losses for the Tax Period
Where, after deducting non-taxable income, allowable deductions and limited allowable deductions from income during the fiscal year, losses for the tax period are incurred, 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.
Losses incurred as a result of transferring securities or derivative financial instruments shall be carried forward to the following fiscal year, however, such losses shall only be covered from the income received from the transfer of securities and/or derivative financial instruments. Losses incurred as a result of transferring the shares of an entity registered or otherwise organised in a member state of the European Economic Area or in a state with which a treaty for the avoidance of double taxation has been concluded and brought into effect and which is a payer of corporate income tax or an equivalent tax, where the entity that transfers the shares has held more than 25% of voting shares in that entity for an uninterrupted period of at least two years, shall be deducted from income received from the transfer of taxable securities during the tax period, however the amount of losses deducted in this manner may not exceed the amount of income received from the increase in the value of assets of taxable securities during that tax period and the non-deducted amount of such losses shall not be carried forward to the following fiscal year.
Where tax-related losses are incurred by the taxpayer for a period exceeding one fiscal year, the losses incurred during the tax period of the previous year shall be carried forward first. Losses incurred subsequently shall be carried forward only after the losses for the previous tax periods have been covered.
Losses for the tax period, except for the losses incurred as a result of transferring the securities and/or derivative financial instruments (not financial institutions), may be carried forward for an unlimited period of time, however such carry-forward shall be terminated if the entity ceases the activities due to which the losses were incurred, except for the cases where the entity ceases the activities for reasons beyond its control. Losses incurred as a result of transferring the securities and/or derivative financial instruments shall be carried forward for no longer than five consecutive tax periods, starting from the tax period following the tax period during which the losses were incurred.
Losses for the tax period incurred by 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.
Where entities are reorganised, liquidated or restructured, or where a Lithuanian entity (European company or European cooperative society) transfers its registered office to another EU Member State, losses incurred in certain specific cases shall be carried forward as specified in Chapter IX of this Law. CHAPTER VI NON-ALLOWABLE DEDUCTIONS Article
Non-Allowable Deductions
The following may not be deducted from income: 1) VAT paid to the budget and corporate income tax prescribed by this Law; 2) (Repealed on 25 July 2003); 3) default interest, fines and late payment interest paid to the budget and state funds and other sanctions for violations of legal acts of the Republic of Lithuania; 4) interest or other payments made in respect of defaulting on contractual obligations by related persons; 5) the part of limited deductions which exceeds the prescribed amounts; 6) (Repealed on 14 February 2004); 7) (Repealed on 24 April 2008); 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; 9) sponsorship and gifts, except for the cases specified in Article 28 of this Law; Note. The provisions of subparagraph 9 of paragraph 1 shall apply for the purpose of calculating corporate income tax for the tax period beginning before
9) sponsorship, except for the cases specified in Article 28 of this Law, and gifts, except gifts for employees; Note. The provisions of subparagraph 9 of paragraph 1 shall apply for the purpose of calculating corporate income tax for the tax period of 2010 and subsequent tax periods. 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; 11) compensation for damage caused by an entity; 12) dividends or otherwise distributed profits; Note. The provisions of subparagraph 12 of paragraph 1 shall apply for the purpose of calculating corporate income tax for the tax period beginning before
12) dividends or otherwise distributed profits (part of the profits intended for the benefit of the employees or for provision of the benefit specified in paragraph 2 of Article 26 of this Law shall not be treated as distributed profits); Note. The provisions of subparagraph 12 of paragraph 1 shall apply for the purpose of calculating corporate income tax for the tax period of 2010 and subsequent tax periods. 13) other costs unrelated to the earning of income, costs relating to unusual activities 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 of the Republic of Lithuania 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
17) allowable deductions attributed to non-taxable income and limited allowable deductions; 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 fixed rate corporate income tax under the provisions of Article 38

(1)of this Law; 19) allowable deductions and limited allowable deductions attributed to income from activities carried out through permanent establishments of Lithuanian entities in a state of the European Economic Area or states with which the Republic of Lithuania has concluded and brought into effect a treaty for the avoidance of double taxation where income from the activities carried out through these permanent establishments is subject to corporate income tax or equivalent tax in those states in accordance with the prescribed procedure. Note. The provisions of subparagraph 19 of paragraph 1 shall apply for the purpose of calculating corporate income tax for the tax period of 2010 and subsequent tax periods.

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 state) 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 to the local tax administrator, in accordance with the procedure established by the central tax administrator, evidence that: 1) such payments are related to the usual activities of the paying and receiving entity; 2) the receiving foreign entity controls the assets needed to perform such usual activities; 3) there is a link between the payment and the economically feasible operation. CHAPTER VII PROCEDURE FOR TAXATION OF DIVIDENDS AND OTHER DISTRIBUTED PROFITS Article
Dividends and Distributed Profits
This Chapter shall lay down the procedure for taxation of dividends paid by an entity and of other distributed profits. All of the provisions applicable to dividends shall be also applicable to distributed profits, even though distributed profits are not legally documented as dividends received by the entity in accordance with the procedure laid down in the Law of the Republic of Lithuania on Companies, the Law of the Republic of Lithuania on Cooperative Companies (Cooperatives) and the Law of the Republic of Lithuania on Agricultural Companies unless this Law provides otherwise.
Shares (interests, member shares) issued free of charge from the funds of an entity or due to an increase in the value of assets to members of the entity in proportion to the number of shares (interests, member shares) held by them or the amount by which the nominal value of the shares or the value of member shares issued earlier has been increased shall not be treated as dividends or distributed profits.
The acquisition price of the assets of a member of an entity, which have been transferred to him as distributed profits, shall be the actual market price of such assets determined on the day of transfer.
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.
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 the members of the entity, shall be treated as dividends and be subject to taxation in accordance with the procedure laid down in Articles 33 and 34 of this Law. Where the authorised capital of the entity is reduced, it shall be considered that members of the entity are first paid out the part of the authorised capital which was formed by increasing such capital from the entity’s funds – not from contributions made by the members of the entity. Article
Procedure for Taxation of Dividends Paid to Lithuanian Entities Version of paragraph 1 before 1 January 2010:
Dividends received by a Lithuanian entity for the shares, part of the capital or other rights held in Lithuanian entities shall be subject to a corporate income tax rate of 20%. 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. Version of paragraph 1 as of 1 January 2010:
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.
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 the dividends, at least 10% of voting shares (interests, member shares), shall not be subject to corporate income tax and shall not be included in the income of the entity receiving the dividends.
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 receiving the dividends for the tax period during which the tax on the dividends paid out to the entity was withheld. 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 by the Lithuanian entity receiving the dividends exceeds the amount of corporate income tax to be paid by the entity, the difference between the two amounts shall be refunded (credited) in accordance with the procedure for refunding (crediting) of tax overpayment laid down in the Law of the Republic of Lithuania on Tax Administration.
Where a Lithuanian entity receives dividends in accordance with the procedure laid down in the Law of the Republic of Lithuania on Companies, the Law of the Republic of Lithuania on Cooperative Companies (Cooperatives) and the Law of the Republic of Lithuania on Agricultural Companies, the entity shall not include in its income the dividends received from another Lithuanian entity. Article
Dividends Paid to Foreign Entities Version of paragraph 1 before 1 January 2010:
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 20%. 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. Version of paragraph 1 as of 1 January 2010:
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.
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, at least 10% of voting shares (interests, member shares) in the Lithuanian entity, shall not be subject to taxation, except for the cases where the foreign entity receiving the dividends is registered or otherwise organised in target territories.
Dividends received by a permanent establishment for the shares, portion of capital or other rights held in the Lithuanian entities that are attributed to the permanent establishment shall be subject to the procedure of taxation applicable in respect of dividends received by a Lithuanian entity for the shares, portion of capital or other rights held in Lithuanian entities. Article
Dividends of Foreign Entities Version of paragraph 1 before 1 January 2010:
Dividends received by a Lithuanian entity or a 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 at a rate of 20%, except for the cases specified in paragraphs 2 and 3 of this Article. The tax shall be calculated and paid to the budget by the Lithuanian entity or permanent establishment receiving the dividends by the 10th day of the month following the month during which the dividends were received. Version of paragraph 1 as of 1 January 2010:
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% except for the cases specified in paragraphs 2 and 3 of this Article. The tax shall be calculated and paid to the budget by the Lithuanian entity or permanent establishment receiving the dividends by the 10th day of the month following the month during which the dividends were received.
Dividends received by a Lithuanian entity or a permanent establishment for the shares, portion of capital or other rights held in or attributed to the permanent establishment foreign entities which are registered or otherwise organised in a state of the European Economic Area and whose profit is subject to corporate income tax or an equivalent tax shall not be subject to taxation.
Dividends received by a Lithuanian entity or permanent establishment from foreign entities not specified in paragraph 2 of this Article in which the Lithuanian or foreign entity whose permanent establishment (to which the dividend paying shares, portion of the capital or other rights are attributed) receives such dividends controls for an uninterrupted period of at least 12 months, including the moment of distribution of dividends, at least 10% of voting shares (interests, member shares), shall not be subject to taxation, provided that the dividends are received from a foreign entity whose profit is subject to corporate income tax or an equivalent tax and which is not registered or otherwise organised in target territories.
A Lithuanian entity shall not include dividends received from a foreign entity in its income. Article
Declaration of Dividends A declaration concerning the payment of dividends to an entity or the receipt of dividends from an entity as well as a declaration concerning the calculation of corporate income tax shall be submitted to the local tax administrator in the territory whereof the 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. CHAPTER VIII SPECIAL CONDITIONS GOVERNING TAXATION OF INCOME Article
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. a Lithuanian entity, a permanent establishment or a permanent resident of Lithuania. In this case, the income of a foreign entity shall be recognised in accordance with the principle set out in paragraph 1 of Article 8 of this Law. Version of the Article 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
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. a Lithuanian entity, a permanent establishment or a permanent resident of Lithuania. In this case, the income of a foreign entity shall be recognised in accordance with the principle set out in paragraph 1 of Article 8 of this Law. Version of the Article from 1 January 2009 until 31 December 2009: *Article 371. 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,

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of this Law which are paid by a Lithuanian entity or a permanent establishment of a foreign entity situated in a Member State of the European Union shall be exempt from corporate income tax at source, provided that the recipient (beneficial owner) of the amounts is a foreign entity which is considered to be resident, for tax purposes, only in a Member State of the European Union (hereinafter referred to as the “entity of an EU Member State”) or a permanent establishment of the entity of the EU Member State situated in another EU Member State. 2. The following shall be treated as the beneficial owner of income: 1) any entity of an EU Member State, which takes on one of the forms of business organisation listed in Annex to Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (hereinafter 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, etc.; 2) any permanent establishment of an entity of an EU Member State situated in another EU Member State, which takes on one of the forms of business organisation listed in Annex to Directive 2003/49/EC and which is subject to taxes specified in Article 3(a)(iii)of Directive 2003/49/EC without being exempt from such taxes, provided that the debt-claim, use or right to use in respect of which the payment of amounts specified in subparagraphs 1,

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of this Law arises is effectively connected with that permanent establishment and provided that the amounts specified in subparagraphs 1,

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of this Law are recognised as income in respect of which that permanent establishment is subject to taxes specified in Article 3(a)(iii) or in the case of Belgium to the “impôt des non-résidents/belasting der niet-verblijfhouders” or in the case of Spain to the “Impuesto sobre la Renta de no Residentes” or to an identical tax which arises later or in place of the existing taxes.

The provisions of this Article shall apply where at the time of payment of amounts to the entity of an EU Member State or its permanent establishment and for an uninterrupted period of at least two years before the payment is made the entities of the EU Member States meet one of the following criteria: 1) the paying Lithuanian entity or the entity of an EU Member State whose permanent establishment situated in the Republic of Lithuania pays out such amounts controls directly at least 25% of the shares (interests, member shares) in the receiving entity of an EU Member State or in the entity of an EU Member State whose permanent establishment receives such income; or 2) the receiving entity of an EU Member State or the entity of an EU Member State whose permanent establishment receives such income controls directly at least 25% of the shares (interests, member shares) in the paying Lithuanian entity or in the entity of an EU Member State whose permanent establishment in the Republic of Lithuania pays out such amounts; or 3) any other entity of an EU Member State controls directly at least 25% of the shares (interests, member shares) in the receiving entity of an EU Member State or the entity of an EU Member State whose permanent establishment receives such income and also in the paying Lithuanian entity or in the entity of an EU Member State whose permanent establishment in the Republic of Lithuania pays out such amounts.
Where a permanent establishment is treated as the payer or the beneficial owner of the amounts specified in subparagraphs 1,

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of this Law, no other part of that foreign entity shall be treated as the payer or the beneficial owner of those amounts. 5. The provisions of this Article shall apply to a permanent establishment which is the payer of the amounts specified in subparagraphs 1,

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of this Law where such amounts may be deducted from the income of the permanent establishment in accordance with the provisions of this Law and other legal acts. 6. A Lithuanian entity or a permanent establishment which is the payer of the amounts specified in subparagraphs 1,

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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 established by the central tax administrator.

The provisions of this Article shall also apply to the dependent territories of states and EU Member States if such application is provided for in EU legal acts. Version of the Article as of 1 January 2010: *Article
Criteria and Requirements for Exempting Tax at Source on Income (Amounts) Paid to Foreign Entities or Their Permanent Establishments
The amounts specified in subparagraphs

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of this Law which are paid by a Lithuanian entity or a permanent establishment of a foreign entity situated in a Member State of the European Union shall be exempt from corporate income tax at source, provided that the recipient (beneficial owner) of the amounts is a foreign entity which is considered to be resident, for tax purposes, only in a Member State of the European Union (hereinafter referred to as the “entity of an EU Member State”) or a permanent establishment of the entity of this EU Member State situated in another EU Member State. 2. The following shall be treated as the beneficial owner of income: 1) any entity of an EU Member State, which takes on one of the forms of business organisation listed in Annex to Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (hereinafter 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, etc; 2) any permanent establishment of an entity of an EU Member State situated in another EU Member State, which takes on one of the forms of business organisation listed in Annex to Directive 2003/49/EC and which is subject to taxes specified in Article 3(a)(iii)of Directive 2003/49/EC

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