This law establishes the procedure for imposing corporate income tax on profits earned and/or income received by entities in the Republic of Lithuania
Apie ką šis teisės aktas?
This law establishes the procedure for imposing corporate income tax on profits earned and/or income received by entities in the Republic of Lithuania. It applies within the territory of the Republic of Lithuania and aligns with specific EU legal acts.
Kam taikoma: Lithuanian taxable entities (legal persons registered in Lithuania); Foreign taxable entities (foreign legal entities or organizations with registered offices abroad, or other entities organized abroad).
Svarbiausia
- Šalis
- Lietuva
- Teisės sritis
- Mokesčių teisė
- Straipsniai
- 63
- Šaltinis
- e-seimas.lrs.lt
- Tekstas gautas
- Paaiškinimas atnaujintas
Ką reguliuoja šis teisės aktas?
- The procedure for taxing corporate income.
- The definitions of various taxable entities, including Lithuanian and foreign entities.
- The definitions of different types of income, such as income from distributed profits and income sourced in or outside Lithuania.
- Specific definitions related to shipping entities, investment projects, and derivative financial instruments.
Kam taikomas šis teisės aktas?
- Lithuanian taxable entities (legal persons registered in Lithuania).
- Foreign taxable entities (foreign legal entities or organizations with registered offices abroad, or other entities organized abroad).
Kokie yra pagrindiniai punktai?
- A "Lithuanian taxable entity" is a legal person registered according to Lithuanian law.
- A "foreign taxable entity" is a foreign legal entity or organization established under the laws of a foreign state.
- A "controlled taxable entity" is one where a controlling person holds 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 from Lithuanian residents/entities, income from distributed profits of Lithuanian entities, income from activities in Lithuania, income from certain transportation, and income from international telecommunications.
Mokesčių teisė
8
Įstatymo tekstas
Įstatymo tekstas
Turinys (63)
- Article 1 Purpose and Scope of the Law
- Article 2 Definitions
- Article 3 Taxpayers
- Article 4 Tax Base
- Article 5 Tax Rates
- Article 6 Tax Period
- Article 7 Recognition of Income and Costs
- Article 8 Recognition of Income and Costs under the Principle of Cash Accounting
- Article 9 Applying the Cash Accounting Principle
- Article 10 Selection and Change of Accounting Principles
- Article 11 Taxable Profits
- Article 12 Non-Taxable Income
- Article 13 Entity’s Assets
- Article 14 Acquisition Price of Assets
- Article 15 Selling Price of Assets
- Article 16 Income from the Increase in the Value of Assets
- Article 17 Procedure for the Recognition of Allowable Deductions
- Article 171 Costs of Scientific Research and Experimental Development
- Article 18 Depreciation or Amortisation Costs of Fixed Assets
- Article 19 Limits on Calculating Depreciation or Amortisation
- Article 20 Costs of Operating, Repairing and Renovating Tangible Fixed Assets (Ow
- Article 21 Costs of Business Trips
- Article 22 Advertising and Promotional Costs
- Article 23 Natural Losses
- Article 24 Taxes
- Article 25 Bad Debts
- Article 26 Contributions and Expenses for the Benefit of Employees
- Article 27 Special Provisions of Credit Institutions and Insurance Undertakings
- Article 28 Sponsorship
- Article 29 Membership Fees, Payments and Contributions
- Article 30 Carrying Forward of Losses for the Tax Period
- Article 31 Non-Allowable Deductions
- Article 32 Dividends and Distributed Profits
- Article 33 Procedure for Taxation of Dividends Paid to Lithuanian Entities
- Article 34 Dividends Paid to Foreign Entities
- Article 35 Dividends of Foreign Entities
- Article 36 Declaration of Dividends
- Article 37 Taxation of Foreign Entities
- Article 38 Taxation Applicable to the Lease of Assets or Sets of Assets
- Article 39 Taxation of Income of Controlled Foreign Entities
- Article 40 Adjustment of Transaction or Economic Operation Value and
- Article 401 Taxation Applicable to Corporate Income Tax on Profits Distributed to
- Article 41 Reorganisations and Transfers
- Article 42 Income from the Increase in the Value of Assets Resulting from Reorgan
- Article 43 Losses Resulting from Reorganisations, Transfers and Transformations
- Article 44 Repealed on 1 January 2006
- Article 45 Income and Losses from the Increase in the Value of Assets Resulting f
- Article 46 Accounting Reports
- Article 461 Reduction of Taxable Profits Due to an Investment Project
- Article 47 Calculation and Advance Payment of Corporate Income Tax
- Article 48 Moment of Calculation of Corporate Income Tax
- Article 49 Entry in the Budget of Corporate Income Tax
- Article 50 Corporate Income Tax Returns and Reports
- Article 51
- Article 52
- Article 53 Payment and Refunding of Corporate Income Tax
- Article 54 Re-Calculation of Corporate Income Tax Calculated and Paid by a Foreig
- Article 55 Deductions of Corporate Income Tax Paid in Foreign States
- Article 56 Liability for Violations of this Law
- Article 57 Requirements for the Keeping of Accounts
- Article 58 Procedure for Abandoning the Calculation and Taxation of
- Article 59 Entry into Force and Application of the Law
- Article 60 Repealed Legal Acts
LIETUVOS RESPUBLIKOS REPUBLIC OF LITHUANIA LAW ON CORPORATE INCOME TAX 20 December 2001 – No IX-675 (As last amended on 22 July 2009 – XI-388) Vilnius
CHAPTER I
GENERAL PROVISIONS
Article 1Purpose and Scope of the Law
1.This Law shall establish the procedure for imposing corporate income tax on earned profits and/or received income.
2.The Law shall apply in the territory of the Republic of Lithuania.
3.The provisions of this Law shall be in compliance with the EU legal acts listed in Appendix 3 to this Law.
Article 2Definitions
1.Taxable entity (hereinafter referred to as the “entity”) shall mean a Lithuanian taxable entity and a foreign taxable entity.
2.Lithuanian taxable entity (hereinafter referred to as the “Lithuanian entity” shall mean a legal person registered in accordance with the procedure prescribed by the legal acts of the Republic of Lithuania.
3.Foreign taxable entity (hereinafter referred to as the “foreign entity”) shall mean any foreign legal entity or organisation having its registered office in a foreign state and established or otherwise organised under the legal acts of that foreign state as well as any other taxable entity established, incorporated or otherwise organised abroad.
4.Controlled taxable entity (hereinafter referred to as the “controlled entity” shall mean any entity deemed to be under the control of another entity or a resident of Lithuania (hereinafter referred to as the “controlling person”), provided that:
1)it is controlled by the controlling person on the last day of the tax period, and
2)the controlling person holds directly or indirectly over 50% of the shares (interests, member shares) in the controlled entity or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof, or
3)the controlling person, together with related persons, holds over 50% of the shares (interests, member shares) in the controlled entity or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof, and the portion controlled by the controlling person accounts for at least 10% of the shares (interests, member shares) or other rights to a portion of distributable profits or pre-emptive rights to the acquisition thereof.
5.Non-profit entity shall mean an entity which is established for other than profit-making purposes and which cannot distribute the profits generated under the legal acts regulating its activities among its founders and/or members.
6.Member of an entity shall mean any person who has title to the assets of an entity or any person who fails to secure title to the assets of an entity, but acquires rights and/or duties arising from obligations related to the entity.
7.Group of entities shall mean a group consisting of a parent entity and one or more taxable subsidiaries, in each of which the parent entity holds more than 25% of shares (interests, member shares).
8.Associated persons shall mean persons (entities or natural persons) where they meet at least one of the following criteria:
1)they are related persons;
2)they may have an influence over each other resulting in the conditions of their mutual transactions or economic operations other than those where a maximum economic benefit is sought by each of the said persons.
9.Performing activities shall be interpreted as defined in the Law of the Republic of Lithuania on Personal Income Tax.
10.Fixed rate corporate income tax shall mean corporate income tax, which may be paid in the cases specified in Article 38(1) of this Law and the base of which shall be calculated depending on the payload capacity of each sea-going vessel whose payload capacity is at least 100 payload capacity units.
11.Royalties shall mean remuneration for the right to use any work under a copyright licensing agreement, remuneration for the neighbouring rights granted, income received as remuneration for the right to use an object of industrial property or franchise under a license agreement, remuneration for information concerning industrial, commercial or scientific experience (know-how).
12.Deposit shall mean monetary funds kept at a credit institution, where the credit institution undertakes to return such funds and pay interest on them. Monetary funds in respect of which a depositor has claims arising from financial operations with deposits performed by a credit institution or from investment services provided shall not be treated as a deposit.
121.Investment project shall mean the entity’s investment in the fixed assets specified in subparagraph 1 of paragraph 1 of Article 461 of this Law intended for the production of new, additional products or the provision of services or the increase in the production (service provision) capacity or the introduction of a new process of production (provision of services) or a substantial change in the existing process (part thereof) also the introduction of technologies protected by international invention patents. The entity’s investment intended only for the replacement of the held fixed assets with fixed assets of an equivalent class shall not be treated as an investment project (or part thereof).
13.Derivative financial instrument shall mean a financial instrument (a futures contract, forward contract, etc.) the value or price whereof is linked to the value or price of the goods on which the instrument is based as well as a financial instrument (a futures contract, forward contract, etc.) the value or price whereof is linked to the price of securities, exchange rate, interest rate, stock exchange index, determination of creditworthiness or any other variable.
14.Payload capacity of a sea-going vessel (net capacity of a sea-going vessel) (hereinafter referred to as the “PC of a sea-going vessel”) shall mean a payload capacity specified in the international tonnage certificate of a sea-going vessel issued in accordance with the International Convention on Tonnage Measurement of Ships, signed in London in 1969.
15.Shipping entity shall mean a Lithuanian taxable entity or a foreign taxable entity registered or otherwise organised in any state of the European Economic Area that carries out activities in the territory of the Republic of Lithuania through a permanent establishment and is engaged in international carriage by sea-going vessels and activities directly related thereto.
16.Computer (software) programme shall be interpreted as defined in the Law of the Republic of Lithuania on Copyright and Related Rights.
17.Territory of the Republic of Lithuania shall mean the territory of the Republic of Lithuania and the area adjacent to the territorial waters of the Republic of Lithuania within which, under the laws of the Republic of Lithuania and in accordance with international law, the rights of the Republic of Lithuania may be exercised with respect to exploring and exploiting the sea bed and its sub-soil and their natural resources.
18.Scientific research and experimental development shall be interpreted as defined in the Law of the Republic of Lithuania on Science and Studies.
19.Negative goodwill shall mean the amount by which the price paid in cash by the acquiring entity for the purpose of acquiring all or one or more branches of activity of another entity in the form of its rights and obligations which from an organisational point of view constitute an independent economic entity, operating and capable of functioning at its own discretion, or for the purpose of controlling the net assets and activity of another entity through the acquisition of its shares is lower than the value of the acquired share evaluated at actual market price of net assets in another entity. When calculating the net assets, the acquired entity’s assets that were not recognised in its accounting shall not be taken into consideration as these assets did not possess features required for recognition (it was reasonably not expected that the entity will earn economic profit from the assets in the future periods and there was no possibility of reliably determining the acquisition price of the assets) or were received gratuitously from the state, municipality or public legal person, whose founder is a state or municipal institution, but have their actual market price.
20.Property immovable by nature shall mean an object which is immovable by nature, i.e. land or any other object that cannot be transferred from one location to another without changing its nature or substantially reducing its value.
21.Fixed base shall be interpreted as defined in the Law of the Republic of Lithuania on Personal Income Tax.
22.Permanent establishment shall mean manifestation of activities of a foreign entity in the Republic of Lithuania. A foreign entity shall be considered to operate through a permanent establishment in the territory of the Republic of Lithuania where: it permanently carries out its activities in the Republic of Lithuania; or carries out its activities in the Republic of Lithuania through a dependent representative (agent); or uses a building site, a construction, assembly or installation object in the Republic of Lithuania; or makes use of installations or structures in the Republic of Lithuania for prospecting or extracting natural resources, including wells or vessels used for that purpose. The definition of permanency and the criteria for establishing the dependent or independent status of a representative (agent) shall be determined by the Government of the Republic of Lithuania or an institution authorised by it.
23.Permanent resident of Lithuania shall be interpreted as defined in the Law of the Republic of Lithuania on Personal Income Tax.
24.Income shall mean any type of income earned and/or received in cash and/or in kind from a source in or outside Lithuania.
25.Income from distributed profits shall mean the profit received through the distribution of profits among members of an entity, including dividends. After the profit generated by an entity of unlimited civil liability is subject to taxation, the income received by a member of the said entity or the taking of assets that belong to such a member from the entity shall not be treated as the distribution of profits.
26.Income sourced in the territory of the Republic of Lithuania (hereinafter referred to as “income sourced in the Republic of Lithuania”) shall mean:
1)interest received from permanent residents of Lithuania, non-permanent residents of Lithuania through their fixed bases, Lithuanian entities and foreign entities through their permanent establishments, compensations for violation of copyright or related rights, royalties as well as income from the sale, other transfer into ownership or lease of property immovable by nature located in the Republic of Lithuania;
2)income from distributed profits of Lithuanian entities and annual bonuses to members of the Supervisory Board;
3)income from activities in the Republic of Lithuania;
4)income from transportation which begins in the territory of the Republic of Lithuania and ends abroad or begins abroad and ends in the territory of the Republic of Lithuania;
5)income from international telecommunications.
27.Income sourced outside the territory of the Republic of Lithuania (hereinafter referred to as “income sourced outside the Republic of Lithuania”) shall mean all income, except for income sourced in the Republic of Lithuania.
28.Interest shall mean a fee paid for borrowing money.
281.Income from agricultural activity shall be interpreted as defined in the Law of the Republic of Lithuania on Personal Income Tax.
29.Positive income shall mean all income or part thereof, received by a controlled entity, registered or otherwise organised in the states or zones referred to in paragraph 4 of Article 39 of this Law, included in the income of a controlling entity of Lithuania in proportion to the number of the shares (interests, member shares), votes or rights to the profits of the controlled entity held by the Lithuanian entity.
30.Goodwill shall mean the amount by which the price paid in cash by the acquiring entity for the purpose of acquiring all or one or more branches of activity of another entity in the form of its rights and obligations which from an organisational point of view constitute an independent economic entity, operating and capable of functioning at its own discretion, or for the purpose of controlling the net assets and activity of another entity through the acquisition of its shares exceeds the value of the acquired share evaluated at actual market price of net assets in another entity, from which the acquiring entity expects to derive economic benefit. When calculating the net assets, the acquired entity’s assets that were not recognised in its accounting shall not be taken into consideration as these assets did not possess features required for recognition (it was reasonably not expected that the entity will earn economic profit from the assets in the future periods and there was no possibility of reliably determining the acquisition price of the assets) or were received gratuitously from the state, municipality or public legal person whose founder is a state or municipal institution, but have their actual market price.
31.Costs shall mean all expenses incurred while earning income.
32.Sports activities shall be interpreted as defined in the Law of the Republic of Lithuania on Personal Income Tax.
33.Related persons shall be treated as such if on any day of the current tax period or the tax period preceding the current tax period they meet at least one of the following criteria, i.e. they are:
1)an entity and its members;
2)an entity and members of its management bodies;
3)an entity and the spouses, fiancés and cohabitants of its members or members of its management bodies, other natural persons related to members of the entity or members of its management bodies by consanguinity (in the direct line up to the second degree, in the collateral line up to the fourth degree) or by marriage (a natural person and the relatives of his spouse (in the direct line up to the second degree, in the collateral line up to the second degree), and also the relatives of the cohabitants of members of the entity or members of its management bodies (in the direct line up to the second degree, in the collateral line up to the second degree), the spouses or cohabitants of the relatives of members of the entity or members of its management bodies (in the direct line up to the first degree, in the collateral line up to the second degree) as well as the relatives of the said spouses or cohabitants (in the direct line up to the first degree, in the collateral line up to the second degree);
4)members of a group of entities;
5)an entity and members of another entity where such entities comprise a single group of entities;
6)an entity and members of the management bodies of another entity where such entities comprise a single group of entities;
7)an entity and the spouses, fiancés and cohabitants of members of another entity or members of its management bodies, other natural persons related to members of another entity or members of its management bodies by consanguinity (in the direct line up to the first degree, in the collateral line up to the second degree) or by marriage (a natural person and the relatives of his spouse (in the direct line up to the first degree, in the collateral line up to the second degree), and also the relatives of the cohabitants of members of another entity or members of its management bodies (in the direct line up to the first degree, in the collateral line up to the second degree), the spouses or cohabitants of the relatives of members of another entity or members of its management bodies (in the direct line up to the first degree, in the collateral line up to the second degree) where the said taxable entities comprise a single group of entities;
8)two entities where one of them controls directly or indirectly (through a single or several entities or natural persons) over 25% of the shares (interests, member shares) of the other entity or holds the right to over 25% of the decisive votes of the other entity or has undertaken to coordinate its decisions regarding the activities with the other entity or has undertaken to be liable for the obligations of the other entity in respect of third parties or has undertaken to transfer all or part of its profits to the other entity or has granted the other entity the right to use over 25% of its assets;
9)two entities where their members or the spouses, fiancés and cohabitants of such members, natural persons related by consanguinity (in the direct line up to the second degree, in the collateral line up to the fourth degree) or by marriage (a natural person and the relatives of his spouse (in the direct line up to the second degree, in the collateral line up to the second degree)), and also a natural person and the relatives of his cohabitant (in the direct line up to the second degree, in the collateral line up to the second degree), a natural person and the spouses or cohabitants of his relatives (in the direct line up to the first degree, in the collateral line up to the second degree) as well as the relatives of the said spouses or cohabitants (in the direct line up to the first degree, in the collateral line up to the second degree) control directly or indirectly 25% of the shares (interests, member shares) in each of such entities;
10)an entity and its permanent establishment;
11)two entities, where one of them holds decision-making rights in the other entity.
34.Activity directly related to international carriage by sea-going vessels shall mean services required for international carriage by sea-going vessels and other measures of economic importance:
1)management, administration, operation and maintenance services of a sea-going vessel directly related to international carriage by sea-going vessels (purchase of fuel, hiring of the crew that can be transferred to the third party, reservation of cargo and passengers, repair of a sea-going vessel, its maintenance, ensuring of safety requirements, etc.);
2)insurance services directly related to international carriage by sea-going vessels;
3)services of embarkation and/or disembarkation of passengers into and from sea-going vessels;
4)services of loading and/or unloading of cargo into and from sea-going vessels, including transfer or packing and/or unpacking before loading or immediately after unloading;
5)leasing or any other supply to a client of containers required for transportation of goods by a sea-going vessel;
6)provision of services required and performed on a sea-going vessel and sale of goods required for use or used on the sea-going vessel during international carriage of passengers, except for the provision of luxury services (gambling and table games, excursions for passengers, etc.) and sale of luxury goods (jewellery, souvenirs, etc.);
7)rescue and other assistance at sea services when a sea-going vessel provides these services at sea;
8)lease of a sea-going vessel under a charter-party as stipulated in Article 2 of the Law of the Republic of Lithuania on Merchant Shipping where a shipping entity engaged in international carriage by sea-going vessels and managing the vessel retains control over the operation and the crew of the sea-going vessel;
9)short-term investment from income received during a tax period from international carriage by sea-going vessels and/or types of activities directly related to international carriage by sea-going vessels;
10)advertising and marketing services, where this activity is related to the provision of advertising space on sea-going vessels;
11)agent and broker services provided by shipping entities for their own sea-going vessels;
12)disposal of assets in operation, where these assets, by their nature, are attributed to maritime transport.
35.International carriage by sea-going vessels shall mean the carriage of passengers and/or cargo by a shipping entity using sea-going vessels that belong to that shipping entity by the right of ownership or financial lease contract providing for the transfer of ownership rights or under a purchase and sale or lease contract providing for the transfer of ownership rights to the shipping entity after the total value of the assets has been paid up or under a bareboat charter contract and that are registered in the Lithuanian Maritime Register or in the register of sea-going vessels of any other state of the European Economic Area, except for the cases where sea-going vessels sail only between the ports of the Republic of Lithuania.
36.Income from international telecommunications shall mean income received from telecommunications services (as defined in the Law of the Republic of Lithuania on Electronic Communications), provided that when providing the services signals are conveyed and switched and programmes are emitted from the territory of the Republic of Lithuania abroad or to the territory of the Republic of Lithuania from abroad.
37.Actual market price shall mean the amount for which assets may be exchanged or mutual obligations settled between willing independent buyers or sellers in a direct transaction.
38.Target territory shall mean a foreign state or zone included in the List of Target Territories established by the Minister of Finance, which meets at least two of the criteria set out in this paragraph:
1)the equivalent tax rate in that territory accounts for less than 75% of the rate set out in subparagraph 1 of paragraph 1 of Article 5 of this Law;
2)different rules for equivalent taxation are applied in that territory, depending on the state in which the controlling person is registered or otherwise organised;
3)different rules for equivalent taxation are applied in that territory, depending on the state in which activities are carried out;
4)the controlled taxable entity has concluded an agreement with the tax administrator of that state concerning the tax rate or base;
5)there is no effective exchange of information in that territory;
6)there is no financial and administrative transparency in that territory: the rules for tax administration are not entirely clear and the procedure for the application of these rules is not presented to the tax administrators of other states.
39.Income from transportation shall mean income received from the carriage of goods by rail, road, waterways or air by means of private or rented vehicles, vessels, aircraft, rolling stock, cargo receptacles (containers, tanks, etc.), and also from transportation by pipeline. Income from services directly related to the carriage or transportation of goods shall be also attributed to such income.
40.Activity shall mean any type of commercial or production activity which is pursued to derive and/or earn income or any other economic benefit.
41.Other terms in this Law shall be interpreted as defined in the Law of the Republic of Lithuania on Tax Administration (hereinafter referred to as the “Law on Tax Administration”) and the Civil Code of the Republic of Lithuania (hereinafter referred to as the “Civil Code”) to the extent that they do not contravene this Law (except for the cases explicitly stated in the Civil Code).
Article 3Taxpayers
1.Corporate income tax shall be paid by:
1)Lithuanian entities;
2)foreign entities.
2.In accordance with the procedure laid down in this Law, corporate income tax shall not be paid by:
1)budgetary institutions;
2)the Bank of Lithuania;
3)the State and municipalities;
4)state and municipal institutions, agencies, services or organisations;
5)the state company “Deposit and Investment Insurance”;
6)European Economic Interest Groupings.
Article 4Tax Base
1.The tax base of a Lithuanian entity shall be all income earned in the Republic of Lithuania and foreign states, which is sourced inside and outside the Republic of Lithuania.
2.The income of a Lithuanian entity shall also include the positive income of its controlled foreign entity or part of such income in accordance with the procedure laid down in Article 39 of this Law. The income of a Lithuanian entity (member of a European Economic Interest Grouping) shall also include the income of the respective European Economic Interest Grouping in accordance with the procedure laid down in Article 39(1) of this Law.
3.The tax base of a foreign entity shall be:
1)income from activities carried out by a foreign entity through permanent establishments situated in the territory of the Republic of Lithuania, income from international telecommunications earned through permanent establishments in the Republic of Lithuania as well as 50% of income from transportation which begins in the territory of the Republic of Lithuania and ends abroad or begins abroad and ends in the territory of the Republic of Lithuania and income earned in foreign states attributed to the permanent establishments in the Republic of Lithuania in the event that such income is related to the activities of the foreign entity carried out through the permanent establishments situated in the Republic of Lithuania;
2)income sourced in the Republic of Lithuania and received by a foreign entity otherwise than through permanent establishments situated in the territory of the Republic of Lithuania.
4.Income sourced in the Republic of Lithuania and received by a foreign entity otherwise than through permanent establishments situated in the territory of the Republic of Lithuania shall include:
1)interest, except for interest on government securities, interest accrued and paid on deposits and interest on subordinated loans which meet the criteria laid down by the legal acts of the Bank of Lithuania;
2)income from distributed profits;
3)royalties, including the cases specified in paragraph 5 of this Article;
4)income from the sale, other transfer into ownership or lease of property immovable by nature located in the territory of the Republic of Lithuania;
5)compensations for violation of copyright or related rights;
6)income from performing activities and sports activities carried out in the Republic of Lithuania;
7)annual bonuses to members of the Supervisory Board.
5.In the case of transfer of a computer (software) programme, the provisions laid down in subparagraph 4 of paragraph 4 of this Article shall apply where the transfer concerns works not protected by copyright and where the following rights are granted by the computer (software) programme:
1)the right to make copies of the computer (software) programme with the purpose of distributing them to the public or otherwise transferring into ownership, renting or lending, or
2)the right to prepare derivative computer (software) programmes based on the copyrighted software, or
3)the right to publicly display the computer (software) programme.
6.The tax base of an entity shall also be:
1)sponsorship received which is used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship;
2)part of the sponsorship received in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 minimum living standards (hereinafter referred to as the “MLS”).
7.The provisions of this Article shall not apply to income of a shipping entity received from international carriage by sea-going vessels and activities directly related thereto if, at the choice of the shipping entity, income from international carriage by sea-going vessels and activities directly related thereto are subject to a fixed rate corporate income tax under the provisions of Article 38(1) of this Law.
Article 5Tax Rates
1.The following tax rates shall apply:
1)a 15% tax rate shall be imposed on the taxable profits of Lithuanian entities and permanent establishments unless this Law provides otherwise; *Note. The provisions of subparagraph 1 of paragraph 1 shall apply for the purpose of calculating corporate income tax for the tax period beginning before 2009.
1)a 20% tax rate shall be imposed on the taxable profits of Lithuanian entities and permanent establishments unless this Law provides otherwise; *Note. The provisions of subparagraph 1 of paragraph 1 shall apply for the purpose of calculating corporate income tax for the tax period of 2009 and subsequent tax periods. [Version of the subparagraph before 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 listed in subparagraphs 1, 3 and 5 of paragraph 4 of 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 listed in subparagraphs 3 and 5 of paragraph 4 of 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; 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 is applied, sourced in the Republic of Lithuania and received otherwise than through their permanent establishments situated in the Republic of Lithuania listed 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 a foreign entity, which is 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 is applied, sourced in the Republic of Lithuania and received otherwise than through its permanent establishments situated in the Republic of Lithuania listed in subparagraph 1 of paragraph 4 of Article 4 of this Law;
3)a 20% 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 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 beginning before 2009.
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 2009 and subsequent tax periods.
2.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 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 15%, except for the cases specified in paragraph 3 of this Article. This rule shall apply to individual/personal enterprises, general partnerships and limited partnerships. *Note. The provisions of subparagraph 2 of paragraph 2 shall apply for the purpose of calculating corporate income tax for the tax period beginning before 2009.
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 subparagraph 2 of paragraph 2 shall apply for the purpose of calculating corporate income tax for the tax period of 2009 and subsequent tax periods.
3.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 control, on the last day of the tax period, 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 control, on the last day of the tax period, over 50% of the shares (interests, member shares);
3)entities in which the same member controls, on the last day of the tax period, over 50% of the shares (interests, member shares);
4)entities in which the same members jointly control, on the last day of the tax period, over 50% of the shares (interests, member shares).
4.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%. *Note. The provisions of paragraph 4 shall apply for the purpose of calculating corporate income tax for the tax period beginning before 2009.
4.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, which is intended for the 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 2009 and subsequent tax periods.
5.Taxable profits of Lithuanian entities shall be taxed at 0% if:
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 corporate income tax for the tax period beginning before 2009.
5.Taxable profits of Lithuanian entities shall be taxed at 0% if:
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.
6.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 Personal Income Tax, on the last day of the tax period, shall be taxed at 0% if:
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 6Tax Period
1.The tax period shall be a fiscal year. It shall coincide with a calendar year unless this Article provides otherwise.
2.At the request of the tax payer and taking into account the characteristics of 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, on condition that this tax period is 12 months. Such a tax period may be changed only for objective reasons with the consent of the local tax administrator.
3.The first tax period shall begin from the registration of a Lithuanian entity in the Republic of Lithuania or, in the event that the Lithuanian entity has not registered in accordance with the procedure prescribed by 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.
4.Where a Lithuanian entity has actually carried out its activities for less than 12 months, the tax period shall be counted from its registration in the Republic of Lithuania or, in the event that 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.
5.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 7Recognition of Income and Costs
1.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.
2.Negative goodwill shall be attributed to income at the moment of its acquisition unless this Article provides otherwise.
3.Where the shares of another entity are acquired for the purpose of controlling its net assets and activity, the negative goodwill determined at the moment of acquisition shall be attributed to income at the moment of subsequent reorganisation or transfer (if any) of such entities.
Article 8Recognition of Income and Costs under the Principle of Cash Accounting
1.Where the cash accounting principle is applied, the income of a Lithuanian entity shall be recognised at the actual moment of its receipt. Income specified in Article 37 of this Law shall be recognised in the same manner.
2.Where the cash accounting principle is applied, the costs of a Lithuanian entity shall be recognised in accordance with the same procedure as they are recognised on an accrual basis, however, only the costs related to the income actually received during the tax period shall be recognised.
Article 9Applying the Cash Accounting Principle
1.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 100 000.
2.Lithuanian entities applying the cash accounting principle must switch to the accrual accounting principle in the tax period following the tax period during which their income exceeded LTL 100 000.
3.The provisions of this Article shall not apply to Lithuanian entities in bankruptcy.
Article 10Selection and Change of Accounting Principles
1.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.
2.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.
3.The Lithuanian entity, which had applied the accrual accounting principle before this Law entered into force, and the Lithuanian entity, which has an obligation under the provisions of this Law to switch from cash accounting to accrual accounting, may not switch from accrual accounting to cash accounting until the Lithuanian entity is either liquidated or ceases to exist.
CHAPTER III
PROCEDURE FOR THE CALCULATION OF TAXABLE PROFITS
Article 11Taxable Profits
1.Unless this Article provides otherwise, for the purpose of calculating taxable profits of a Lithuanian entity, the following shall be deducted from income:
1)non-taxable income;
2)allowable deductions;
3)limited allowable deductions.
2.The taxable profits of permanent establishments shall be calculated by deducting from the income earned the non-taxable income, limited allowable deductions and deductions relating to the income earned by a foreign entity through a permanent establishment. The procedure for making deductions relating to the costs incurred for the purpose of earning income through permanent establishments shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
3.The taxable profits earned by a foreign entity otherwise than through a permanent establishment shall include all of its income sourced in the Republic of Lithuania and the obligation to tax it at source (without any deductions) as set forth in Article 37 of this Law.
4.Expenses on the basis of which costs are recognised may only be supported by 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 supporting 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.
5.(Repealed on 30 June 2005) 6. The requirements of paragraph 4 of this Article shall not apply to the documents executed by foreign entities or natural persons. Costs shall be recognised on the basis of the documents executed by foreign entities or natural persons where such documents allow identification of the content of an economic operation.
7.The provisions of this Article shall not apply to income of a shipping entity 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 a fixed rate corporate income tax under the provisions of Article 38(1) of this Law.
Article 12Non-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;
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 in 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 Republic of Lithuania Law 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 damages 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 is applied 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 2009.
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 is applied 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 13Entity’s Assets
1.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; or, 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.
2.The assets of an entity shall be divided into fixed and current assets. The entity’s fixed and current assets shall be tangible and intangible.
3.Fixed assets shall mean assets used by an entity to earn income (derive economic benefit) 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 EEA states and foreign states other than EEA states, 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.
4.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.
Article 14Acquisition Price of Assets
1.The acquisition price of assets shall comprise expenses incurred in the course of acquiring the assets, including the commissions and taxes (levies) paid, except for VAT, in relation with the acquisition of the assets.
2.The acquisition price of assets acquired for goods and services shall comprise the respective amount included in the income received by an entity for such goods and services as well as expenses incurred in the course of acquiring the assets, including the commissions and taxes (levies) paid, in relation with the acquisition of the assets.
3.Where assets are exchanged for other assets, the acquisition price of the newly acquired assets shall be the acquisition price of the assets exchanged. Where the acquisition price of the assets exchanged cannot be determined, the acquisition price of the newly acquired assets shall be the actual market price of such assets.
4.Where a member of an entity uses assets to pay for its shares (interests, member shares), the acquisition price of such assets for the entity shall be the same as the acquisition price paid by the member (holder of interests or member shares). The above mentioned acquisition price of assets may be increased by the amount of income resulting from the increase in the value of a shareholder’s (holder’s of interests or member shares) assets, earned from the transfer of such assets and included in the shareholder’s (holder’s of interests or member shares) taxable income.
5.Where securities are exchanged for other assets, the acquisition price of such assets shall be the actual market price of these securities at the moment of the acquisition of the assets.
6.Where a person terminates individual activities and transfers the unsold goods to a new entity established by him or his spouse, the acquisition price of these goods for the entity shall be the acquisition price specified in the acquisition documents of the goods of the person engaged in individual activities, except for the cases when these assets are used to pay up for this entity’s shares (interests or member shares).
Article 15Selling Price of Assets
1.The selling price of assets or the price of other transfer into ownership thereof shall comprise all income earned from the sale or other transfer into ownership of the assets after deducting the taxes (levies) paid, except for VAT, in relation with the sale or other transfer into ownership of such assets.
2.(Repealed on 14 February 2004) 3. 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 16Income from the Increase in the Value of Assets
1.Income from the increase in the value of assets shall be income earned which comprises the difference between the price of the sale or other transfer into ownership of the assets and the acquisition price of such assets. Expenses relating to the acquisition of the assets must be supported by documents specified in Article 11 of this Law and/or by valid transactions.
2.For the purpose of calculating income from the increase in the value of assets where an entity’s assets, in respect of which depreciation or amortisation was estimated to calculate corporate income tax, are transferred, the acquisition price of such assets shall be reduced by the amount of depreciation or amortisation included in the limited allowable deductions.
3.(Repealed on 14 February 2004) 4. (Repealed on 14 February 2004) 5. Where an entity transfers a bond, such transfer shall result, with respect to the transferring entity, in the reduction of income from the increase in the value of assets by the amount of discount already included in the income of the transferring entity.
6.In certain cases where entities are reorganised, liquidated or 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.
7.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 17Procedure for the Recognition of Allowable Deductions
1.Allowable deductions shall include all the usual costs that an entity actually incurs for the purpose of earning income or 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 2010.
1.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. 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 taxable profits for the tax period beginning with 2010 and subsequent tax periods.
2.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;
9)special provisions of credit institutions and insurance undertakings;
10)sponsorship;
11)membership fees, payments and contributions;
12)losses for the tax period.
Article 171Costs of Scientific Research and Experimental Development
1.When 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, if the scientific research and/or experimental development works carried out are related to the usual or intended activities of the entity that generate or will generate income or economic benefit;
2.Depreciation or amortisation costs of fixed assets used to carry out scientific research and experimental development shall be deducted from income in accordance with the procedure laid down in Article 18 of this Law.
3.Where scientific research and experimental development works are acquired from another entity or a natural person, the costs incurred due to such acquisition shall be deducted from income under provisions of paragraph 1 of this Article only if the acquired scientific research and experimental development works have been carried out in an EEA state or a state outside the EEA, which has concluded a treaty for the avoidance of double taxation with the Republic of Lithuania.
4.The Government of the Republic of Lithuania shall approve the procedure for attributing costs to the costs of scientific research and experimental development.
Article 18Depreciation or Amortisation Costs of Fixed Assets
1.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. When calculating corporate income tax, the costs of scientific research and experimental development shall be deducted from income for the tax period during which they are actually incurred.
2.Classes of fixed assets and their maximum depreciation or amortisation rates (in years) are set out in Appendix 1 to this Law. The entity itself shall determine (select) the depreciation or amortisation periods for its fixed assets, which may not be less than the depreciation or amortisation rates (in years) for fixed assets set out in Appendix 1 to this Law, and their liquidation value, which may not be lower than LTL 1 and which may not exceed 10% of the acquisition price.
3.Entities whose average number of employees on the staff list does not exceed 10 and whose income during the tax period does not exceed LTL 500 000 and which do not meet the criteria set out in paragraph 3 of Article 5 of this Law may themselves determine the maximum depreciation or amortisation rates for classes of fixed assets, irrespective of the rates set out in Appendix 1 to this Law, except for new buildings used in operations and except for renovations completed in buildings listed in the Register of Immovable Cultural Property of the Republic of Lithuania, where such buildings were constructed or renovated after 1 January 2002, and except for residential houses and other buildings.
4.Depreciation or amortisation of fixed assets shall be calculated according to the directly proportionate (linear) method (hereinafter referred to as the “linear method”), double declining value (double declining balance) method (hereinafter referred to as the “double declining balance method) or production methods pursuant to Appendix 1 to this Law. The method selected 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 fixed assets.
5.Where the linear method is applied, the annual amount of depreciation or amortisation shall be calculated as a ratio of the difference between the acquisition price of fixed assets to the liquidation value of such assets and the depreciation or amortisation period (in years).
6.Where the double declining balance method is applied:
1)the depreciation or amortisation coefficient (hereinafter 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.
7.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 that can be produced or raw material that 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.
8.Where an entity acquires fixed assets and puts them into use before the last day of the sixth month of the tax period, the depreciation or amortisation of such assets shall start in the same tax period. Where an entity acquires fixed assets and puts them into use after the last day of the sixth month of the tax period, the depreciation or amortisation of such assets shall start in the tax period following the tax period during which the assets were acquired and put into use.
9.Where an entity transfers fixed assets, for consideration or free of charge, before the last day of the sixth month of the tax period, depreciation or amortisation during the said tax period shall not be calculated. Where an entity transfers fixed assets, for consideration or free of charge, after the last day of the sixth month of the tax period, 1/2 of the annual amount of depreciation or amortisation, calculated according to the prescribed rates, shall be charged to the costs of the entity during the said tax period.
10.Where all or one or more branches of activity of another entity in the form of its rights and obligations which from an organisational point of view constitute an independent economic entity engaged in activities and capable of functioning at its own discretion are acquired, the accumulated value of goodwill shall be included in the limited allowable deductions in a manner similar to 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 value of goodwill shall be included in the limited allowable deductions in a manner similar to fixed assets in accordance with the procedure laid down in this Article only after the subsequent merger of these entities or merger by acquisition of one entity by another, if any.
11.The entity may choose to calculate the depreciation or amortisation of all the fixed assets from the first day of the following month after such assets were put into use by using the linear method according to the rates set out in Appendix 1 to this Law.
12.Entities that have renovated or repaired fixed assets, which has resulted in a prolonged useful life of such assets or improvement of their useful characteristics, or have changed the purpose of use of 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 19Limits on Calculating Depreciation or Amortisation
1.The depreciation or amortisation of land acquired under a leasing (financial lease) contract, providing for the transfer of ownership rights 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.
2.The amortisation of intangible fixed assets generated by the entity itself and listed in classes of assets specified in Appendix 1 to this Law (acquired rights, other intangible assets and the value of goodwill) unless this Law provides otherwise.
3.The depreciation or amortisation of fixed assets not in use, held in reserve or in conservation as well as the depreciation or amortisation of the revaluation results of fixed assets shall not be calculated.
4.In cases where the owner of fixed assets transfers such assets into the ownership of another person (acquirer), while the acquirer had earlier transferred the said assets into the ownership of the transferring owner, the acquirer of fixed assets shall continue to calculate the depreciation or amortisation of such assets by applying the same method to the acquisition price, not depreciated or amortised, of the said assets before their first transfer, except for cases where the new acquisition price is lower than the acquisition price, not depreciated or amortised according to the provisions of this Law, of the said assets before their first transfer.
Article 20Costs of Operating, Repairing and Renovating Tangible Fixed Assets (Own Assets, Leased Assets or Assets Lent for Use)
1.Where tangible fixed assets used by an entity are renovated or repaired, which results in a prolonged useful life of such assets or improvement of their useful characteristics, the acquisition price of the repaired or renovated tangible fixed assets shall be increased by the value of their repairs or renovation.
2.In all other cases, expenses related to the repairs of tangible fixed assets used by an entity shall be attributed to repair costs and deducted from income for the tax period during which they were actually incurred.
3.The 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 were completed and shall tax them in accordance with the procedure laid down in this Law.
4.The operating and repair costs of tangible fixed assets, which belong by the right of ownership to members of partnerships and owners of individual enterprises as well as to members of their families and which are used in the activities of such entities, shall be deducted from income in accordance with the procedure established by the Minister of Finance.
Article 21Costs of Business Trips
1.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 the 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.
2.The travelling of an employee from the Republic of Lithuania abroad, where he spends more than 183 days in a single place abroad, except for the employees whose job is related to travelling or who hold mobile job positions or perform shift work, shall not be treated as a business trip.
3.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 22Advertising and Promotional Costs
1.The costs incurred by an entity for the purpose of disseminating, in any form and by any means, information related to the activities of the entity and promoting the purchase of goods or services to current or potential buyers, except for controlled entities, controlling persons or members of a group of entities, shall be recognised as advertising costs.
2.Promotional costs shall mean the funds of an entity allocated to establish new business relations or improve the existing relations with other entities or natural persons, except for the employees, shareholders and owners of the entity as well as controlled or controlling entities or controlling permanent residents. Promotional costs are incurred for the benefit of particular persons.
3.An amount not exceeding 75% of promotional costs shall be deducted from income.
4.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.
5.Expenses relating to hunting, fishing, yachting, golf playing, gaming and camping shall not be attributed to promotional expenses.
Article 23Natural Losses
1.Natural losses shall mean a natural decrease in goods (resources, products) due to their storage, transfer, packaging, carriage, loading and sale, including losses resulting from buyers’ neglect.
2.The amount of actual natural losses, except for natural losses of fresh fruit, berries, mushrooms and vegetables, shall be deducted from income, but not in excess of 1% of an 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 24Taxes
1.Taxes prescribed by the Law on Tax Administration and levies and mandatory contributions prescribed by other laws of the Republic of Lithuania or Government resolutions shall be deducted from income unless this Law provides otherwise.
2.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 25Bad Debts
1.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 an entity, where the entity must draw up the balance sheet in accordance with the procedure prescribed by the legal acts, before the tax period. The portion of costs attributed to bad debts incurred during the tax period shall be deducted from income recognised under a cash accounting principle if the appearance of such debts was recorded in the taxpayer’s accounting documents before the tax period. Where the taxpayer recognised income under a 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 an accrual accounting principle if the appearance of such debts was recorded in the taxpayer’s accounting documents before the tax period and the portion of costs attributed to bad debts was not included in the entity’s costs before this Law entered into force. Debts shall be considered as bad debts if the taxpayer cannot recover them after a period of at least one year from including the amount of debt in the taxpayer’s income or recording of the appearance of such debts in the taxpayers’ accounting documents or if the debtor has died or has been pronounced dead or has been liquidated or has gone bankrupt. In all of the above cases, the taxpayer must prove that the debts are bad and that efforts have been made to recover such debts.
2.The procedure for providing proof that debts are bad and that efforts have been made to recover them as well as the procedure for the calculation of the amounts of such debts shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
3.Where a debtor later repays the bad debts deducted, the total amount of the debts repaid shall be attributed to income.
4.The provisions of this Article shall not apply to credit institutions also in the event that a debtor and a 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 included in allowable deductions in accordance with the procedure laid down in this Article.
Article 26Contributions and Expenses for the Benefit of Employees
1.The amount of contributions paid for the benefit of the employees of a Lithuanian entity during the tax period may be deducted from income provided that:
1)such contributions are made to pension accounts held by pension funds, or
2)such contributions are life insurance premiums where the term of the insurance contract is not less than ten years or where the insurance benefit is paid out to the insured after he has reached retirement age under the provisions of the Law on the Accumulation of Occupational Pensions, or
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 before 2009.
1.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 reached 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 2009 and subsequent tax periods.
2.The provisions of paragraph 1 of this Article shall apply to contracts concluded before 30 April 2004 where the recipient of contributions under such contracts is not a foreign entity registered or otherwise organised in target territories.
3.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 an EEA state.
4.The amounts directly paid by an entity to the educational establishments of EEA states and foreign states other than EEA states, 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.
Article 27Special Provisions of Credit Institutions and Insurance Undertakings
1.Banks, including foreign commercial bank branches, operating under the Law of the Republic of Lithuania on Commercial Banks, credit unions operating under the Law of the Republic of Lithuania on Credit Unions and the Central Credit Union operating under the Law of the Republic of Lithuania on the Central Credit Union, which in accordance with the rules laid down by the Bank of Lithuania establish special provisions for covering doubtful assets of credit institutions, shall be allowed to deduct from income during the tax period the special provisions for doubtful assets set up to cover the losses arising from a particular doubtful asset (group of doubtful assets).
2.Where a credit institution meets its liabilities related 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.
3.It shall be allowed to deduct from income the insurance technical provisions set up as prescribed by the Minister of Finance according to the Methodology for the Calculation of Insurance Technical Provisions approved by the Insurance Supervisory Commission of the Republic of Lithuania.
Article 28Sponsorship
1.The 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.
2.The 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.
3.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 cost price 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.
4.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 29Membership Fees, Payments and Contributions
1.The amount of admission fees and the amount of membership fees, which is not excess of 0.2% of income, as well as the amount of special membership fees, which is not in excess of 0.2% of income, where such fees, payments and special fees are paid to entities whose activities are regulated by special laws and which do not seek profit, while the profit received may not be allocated to their founders and/or stakeholders and/or members, shall be deducted from income.
2.Contributions by members of the Motor Insurers’ Bureau of the Republic of Lithuania from the written premiums of compulsory insurance against civil liability in respect of the use of motor vehicles, which are not in excess of 15% of the total amount of such premiums, shall be deducted from income.
Article 30Carrying Forward of Losses for the Tax Period
1.Where losses for the tax period are calculated by deducting non-taxable income, allowable deductions and limited allowable deductions from income during the fiscal year, the amount of such losses shall be carried forward to the following fiscal year, except for losses incurred from the transfer of securities and/or derivative financial instruments.
2.Losses incurred as a result of transferring securities or derivative financial instruments shall be carried forward to the following fiscal year, however, such losses 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.
3.Where losses taken into account for tax purposes 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. The losses incurred later on shall be carried forward only after the losses for the previous tax periods have been covered.
4.Losses for the tax period, 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.
5.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.
6.Where entities are reorganised, liquidated or transformed 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 31Non-Allowable Deductions
1.The following may not be deducted from income:
1)VAT paid to the budget and corporate income tax determined in 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 violating the legal acts of the Republic of Lithuania;
4)interest or other payments made in respect of defaulting on contractual obligations by related persons;
5)the part of limited deductions which exceeds the amounts determined;
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;
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 the damage caused by an entity;
12)dividends or otherwise distributed profits;
13)other costs unrelated to the earning of income, costs of exceptional nature and costs which are not treated as allowable deductions under this Law;
14)correction of errors and inaccuracies of the previous tax periods in accordance with Article 18 of the Republic of Lithuania Law on Accounting;
15)costs resulting from the revaluation of assets and obligations performed in accordance with the procedure prescribed by legal acts, except for costs resulting from the revaluation of derivative financial instruments acquired to cover the risks; *16) social tax; *Note. The provisions of subparagraph 16 shall apply for the purpose of calculating taxable profits for the tax periods of 2006 and 2007.
17)allowable deductions attributed to non-taxable income and 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 a fixed rate corporate income tax under the provisions of Article 38(1) of this Law.
2.Payments made by a Lithuanian entity or permanent establishment (except for payments made in respect of material valuables where the Lithuanian entity or permanent establishment can provide documents evidencing the entry of such valuables into the 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 exists a link between the payment and the operation which is substantiated in economic terms.
CHAPTER VII
PROCEDURE FOR TAXATION OF DIVIDENDS AND OTHER DISTRIBUTED PROFITS
Article 32Dividends and Distributed Profits
1.This Chapter shall lay down the procedure for taxation of dividends paid by an entity and of other distributed profits. All of the provisions applicable to dividends shall be also applicable to distributed profits, even though distributed profits are not legally documented as dividends received by the entity in accordance with the procedure laid down in the Law of the Republic of Lithuania on Companies, the Law of the Republic of Lithuania on Cooperative Companies (Cooperatives) and the Law of the Republic of Lithuania on Agricultural Companies unless this Law provides otherwise.
2.Shares (interests, member shares) issued free of charge from the funds of an entity or due to an increase in the value of assets to members of the entity in proportion to the number of the shares (interests, member shares) held by them or the amount by which the nominal value of the shares or the value of member shares issued earlier has been increased shall not be treated as dividends or distributed profits.
3.The acquisition price of the assets of a member of an entity, which have been transferred to him as distributed profits, shall be the actual market price of such assets determined on the day of transfer.
4.Where an entity distributes profits in the form of assets (not in cash) and the actual market price of such transferred assets as determined on the day of their transfer to a member of the entity exceeds their acquisition price, the difference shall be treated as income from the increase in the value of assets unless this Law provides otherwise.
5.Where the authorised capital of an entity is reduced, the funds or part of such funds paid out to members of the entity, which are attributed to the reduced portion of the authorised capital formed otherwise than from the contributions made by 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 members of the entity.
Article 33Procedure for Taxation of Dividends Paid to Lithuanian Entities
1.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.
2.Dividends received by a Lithuanian entity from Lithuanian entities, in which the recipient controls for an uninterrupted period of at least 12 months, including the moment of distribution of 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 taxable profits of the Lithuanian entity paying the dividends, which is not an undertaking situated in a free economic zone, are taxed at a rate of 0% or where taxable profits (or part thereof) of the Lithuanian entity are not taxed with regard to reliefs specified in subparagraphs 5, 15, 16 of Article 12 and in Article 461 of this Law, the provision for non-taxation of dividends shall not apply to the dividends paid out, proportionately attributed to the taxable profits (or part thereof) not actually taxed (including the taxable profits taxed at a rate of 0%).
3.Where an entity distributes profits by paying dividends in cash in accordance with the procedure laid down in the Law of the Republic of Lithuania on Companies, the Law of the Republic of Lithuania on Cooperative Companies (Cooperatives) and the Law of the Republic of Lithuania on Agricultural Companies, the amount of corporate income tax withheld and paid to the budget shall be set off against the amount of corporate income tax to be paid by the entity receiving the dividends for the tax period during which the tax on the dividends paid out to the entity was withheld. This provision shall not apply to the amount of corporate income tax withheld from the dividends with regard to the reservations specified in paragraph 2 of this Article. 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.
4.Where a Lithuanian entity receives dividends in accordance with the procedure laid down in the Law of the Republic of Lithuania on Companies, the Law of the Republic of Lithuania on Cooperative Companies (Cooperatives) 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 34Dividends Paid to Foreign Entities
1.Dividends received by foreign entities for the shares, portion of capital or other rights held in a Lithuanian entity shall be subject to a corporate income tax at a 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.
2.Dividends paid by a Lithuanian entity to a foreign entity, which controls for an uninterrupted period of at least 12 months, including the moment of distribution of dividends, 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. Where taxable profits of the Lithuanian entity paying the dividends, which is not an undertaking situated in a free economic zone, are taxed at a rate of 0% or where taxable profits (or part thereof) of the Lithuanian entity are not taxed with regard to reliefs specified in subparagraphs 5, 15, 16 of Article 12 and in Article 461 of this Law, the provision for non-taxation of dividends shall not apply to the dividends paid out, proportionately attributed to the taxable profits (or part thereof) not actually taxed (including the taxable profits taxed at a rate of 0%).
3.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 35Dividends of Foreign Entities
1.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.
2.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 in foreign entities, which are registered or otherwise organised in EEA state and whose profit is subject to corporate income tax or an equivalent tax, shall not be subject to taxation, except for the exceptions specified in paragraph 2 of Article 34 of this Law, which shall apply, mutatis mutandis, to the dividends received from these foreign entities.
3.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. The dividends received from foreign entities specified in this paragraph shall be, mutatis mutandis, subject to the exceptions specified in paragraph 2 of Article 34 of this Law.
4.A Lithuanian entity shall not include dividends received from a foreign entity in its income.
Article 36Declaration 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 INCOME TAXATION
Article 37Taxation 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, permanent establishment or 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 37Taxation 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, permanent establishment or 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, 3 and 5 of paragraph 4 of Article 4 of this Law which are paid by a Lithuanian entity or a permanent establishment of a foreign entity situated in a Member State of the European Union shall be exempt from corporate income tax at source, provided that the recipient (beneficial owner) of the amounts is a foreign entity which is considered to be resident, for tax purposes, only in a Member State of the European Union (hereinafter referred to as the “entity of a Member State”) or a permanent establishment of the entity of the Member State situated in another 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, 3 and 5 of paragraph 4 of Article 4 of this Law arises is effectively connected with that permanent establishment and provided that the amounts specified in subparagraphs 1, 3 and 5 of paragraph 4 of Article 4 of this Law are recognised as income in respect of which that permanent establishment is subject to taxes specified in Article 3(a)(iii) or in the case of Belgium to the “impôt des non-résidents/belasting der niet-verblijfhouders” or in the case of Spain to the “Impuesto sobre la Renta de no Residentes” or to an identical tax which arises later or in place of the existing taxes.
3.The provisions of this Article shall apply where at the time of payment of amounts to 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% percent 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 a Member State or the entity of a Member State, whose permanent establishment receives such income, controls directly at least 25% percent of the shares (interests, member shares) in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment in the Republic of Lithuania pays such amounts; or
3)any other entity of an EU Member State controls directly at least 25% percent 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 such amounts.
4.Where a permanent establishment is treated as the payer or the beneficial owner of the amounts specified in subparagraphs 1, 3 and 5 of paragraph 4 of Article 4 of this Law, no other part of this 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, 3 and 5 of paragraph 4 of Article 4 of this Law where such amounts may be deducted from the income of the permanent establishment in accordance with the provisions of this Law and other legal acts.
6.A Lithuanian entity or a permanent establishment which is the payer of the amounts specified in subparagraphs 1, 3 and 5 of paragraph 4 of Article 4 of this Law must have documents evidencing the fulfilment of the requirements laid down in paragraphs 1-3 of this Article. The requirements for such documents shall be established by the central tax administrator.
7.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 the EU legal acts. [Version of the Article as of 1 January 2010] *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 3 and 5 of paragraph 4 of Article 4 of this Law which are paid by a Lithuanian entity or a permanent establishment of a foreign entity situated in a Member State of the European Union shall be exempt from corporate income tax at source, provided that the recipient (beneficial owner) of the amounts is a foreign entity which is considered to be resident, for tax purposes, only in a Member State of the European Union (hereinafter 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 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 3 and 5 of paragraph 4 of Article 4 of this Law arises is effectively connected with that permanent establishment and provided that the amounts specified in subparagraphs 3 and 5 of paragraph 4 of Article 4 of this Law are recognised as income in respect of which that permanent establishment is subject to taxes specified in Article 3(a)(iii) or in the case of Belgium to the “impôt des non-résidents/belasting der niet-verblijfhouders” or in the case of Spain to the “Impuesto sobre la Renta de no Residentes” or to an identical tax which arises later or in place of the existing taxes.
3.The provisions of this Article shall apply where at the time of payment of amounts to 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 such amounts; or
3)any other entity of an EU Member State controls directly at least 25% percent 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 such amounts.
4.Where a permanent establishment is treated as the payer or as the beneficial owner of the amounts specified in subparagraphs 3 and 5 of paragraph 4 of Article 4 of this Law, no other part of that foreign entity shall be treated as the payer or as the beneficial owner of those amounts.
5.The provisions of this Article shall apply to a permanent establishment which is the payer of the amounts specified in subparagraphs 3 and 5 of paragraph 4 of Article 4 of this Law, where such amounts may be deducted from the income of the permanent establishment in accordance with the provisions of this Law and other legal acts.
6.A Lithuanian entity or a permanent establishment which is the payer of the amounts specified in subparagraphs 3 and 5 of paragraph 4 of Article 4 of this Law must have documents evidencing the fulfilment of the requirements laid down in paragraphs 1, 2 and 3 of this Article. The requirements for such documents shall be established by the central tax administrator.
7.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.
Article 37(2) shall enter into force after the expiry of four calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments and it shall be valid until 31 December 2009:
Article 37(2). Special Conditions Governing the Taxation of Income Received by Foreign Entities Otherwise Than Through Their Permanent Establishments in the Republic of Lithuania Specified in Subparagraph 1 of Paragraph 4 of Article 4 of this Law 1. A 5% tax rate shall be imposed at source on amounts (without any deductions) specified in subparagraph 1 of paragraph 4 of Article 4 of this Law, which are paid out by a Lithuanian entity or a permanent establishment of a foreign entity situated in an EU Member State, 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 this entity of an 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 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 situated in another EU Member State of the 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 the debt-claim in respect of which the payment of amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law arises is effectively connected with this permanent establishment and provided that the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law are recognised as income in respect of which this permanent establishment is subject to taxes mentioned in Article 3(a)(iii) or in the case of Belgium to the “impôt des non-résidents/belasting der niet-verblijfhouders” or in the case of Spain to the “Impuesto sobre la Renta de no Residentes” or to an identical tax which arises later or in place of the existing taxes.
3.The provisions of this Article shall apply where at the time of payment of amounts to 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: