OFFICIAL TRANSLATION

In short

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.

What it regulates

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

Who it concerns

Lithuanian taxable entities (legal persons registered in Lithuania).
Foreign taxable entities (foreign legal entities or organisations with registered offices abroad, or other taxable entities organised abroad).

Key points

Tax is imposed on earned profits and/or received income.
A "Lithuanian taxable entity" is a legal person registered in Lithuania.
A "foreign taxable entity" is a foreign legal entity or organisation established abroad.
"Controlled taxable entity" means an entity where a controlling person holds directly or indirectly over 50% of shares or rights to distributable profits, or together with related persons holds over 50% with the controlling person holding at least 10%.

Įstatymo tekstas

OFFICIAL TRANSLATION OFFICIAL TRANSLATION REPUBLIC OF LITHUANIA LAW ON CORPORATE INCOME TAX 2001 December 20 No IX-675 (As last amended on 25 October 2007 – X-1304) Vilnius CHAPTER I GENERAL PROVISION

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which are paid by a Lithuanian entity or a permanent establishment situated in a Member State of the European Union of a foreign entity shall be exempt from corporate income tax at source, provided that the recipient (beneficial owner) of the amounts is a foreign entity which is considered to be resident, for tax purposes, only in a Member State of the European Union (hereinafter referred to as the “entity of a Member State”) or a permanent establishment situated in another Member State of the entity of a Member State. 2. The following shall be treated as the beneficial owner of income: 1) any entity of a Member State, which takes on one of the forms of business organisation listed in Annex to Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (hereinafter referred to as “Directive 2003/49/EC”) and which is subject to taxes specified in Article 3(a)(iii) of Directive 2003/49/EC without being exempt from such taxes, provided that it receives income for its own benefit and not as an intermediary, such as an agent, trustee or authorised signatory, for some other person; 2) any permanent establishment situated in another EU member state of an entity of a EU member state, which takes on one of the forms of business organisation listed in Annex to Directive 2003/49/EC and which is subject to taxes specified in Article 3(a)(iii)of Directive 2003/49/EC without being exempt from such taxes, provided that the debt-claim, use or right to use in respect of which the payment of amounts specified in subparagraphs 1, 3, 4,

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of this Law arises is effectively connected with that permanent establishment and provided that the amounts specified in subparagraphs 1, 3, 4,

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

The provisions of this paragraph shall apply where at the time of payment of amounts to the entity of a Member State or its permanent establishment and for an uninterrupted period of at least two years before the payment is made, the entities of Member States meet one of the following criteria: 1) the paying Lithuanian entity or the entity of a Member State, whose permanent establishment situated in the Republic of Lithuania pays out such amounts, controls directly at least 25% percent of the shares (interests, member shares) in the receiving entity of a Member State or in the entity of a Member State whose permanent establishment receives such income; or 2) the receiving entity of a Member State or the entity of a Member State, whose permanent establishment receives such income, controls directly at least 25% percent of the shares (interests, member shares) in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment in the Republic of Lithuania pays such amounts; or 3) any other entity of a Member State controls directly at least 25% percent of the shares (interests, member shares) in the receiving entity of a Member State or the entity of a Member State whose permanent establishment receives such income and also in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment situated in the Republic of Lithuania pays such amounts.
Where a permanent establishment is treated as the payer, or as the beneficial owner, of the amounts specified in subparagraphs 1, 3, 4,

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of this Law, no other part of the foreign entity shall be treated as the payer, or as the beneficial owner, of those amounts. 5. The provisions of this Article shall apply to a permanent establishment which is the payer of the amounts specified in subparagraphs 1, 3, 4,

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of this Law if such amounts may be deducted from the income of the permanent establishment in accordance with the provisions of this Law and other legal acts. 6. A Lithuanian entity or a permanent establishment which is the payer of the amounts specified in subparagraphs 1, 3, 4,

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of this Law must have documents evidencing the fulfilment of the requirements laid down in paragraphs 1-3 of this Article. The requirements for such documents shall be set forth 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. *Note: Member States shall apply the provisions of Council Directive 2003/48/EC from 1 July 2005 (given specific conditions). The Law will be supplemented by this Article after the expiry of four calendar years from the beginning of the application of Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments and it will be valid for two calendar years: Article 37

(2). Special Conditions Governing the Taxation of Income Received by Foreign Entities Otherwise than through Permanent Establishments in the Republic of Lithuania, which is Specified in Subparagraph 1 of Paragraph 4 of Article 4 of this Law

A 5% tax rate shall be imposed at source on amounts (without any deductions) specified in subparagraph 1 of paragraph 4 of Article 4 of this Law, which are paid by a Lithuanian entity or a permanent establishment situated in a Member State of a foreign entity, provided that the recipient (beneficial owner) of the amounts is a foreign entity which is considered to be resident, for tax purposes, only in a Member State of the European Union (hereinafter referred to as the “entity of a Member State”) or a permanent establishment situated in another Member State of the entity of a Member State.
The following shall be treated as the beneficial owner of income: 1) any entity of a Member State, which takes on one of the forms of business organisation listed in Annex to Directive 2003/49/EC and which is subject to taxes specified in Article 3(a)(iii) of Directive 2003/49/EC without being exempt from such taxes, provided that it receives income for its own benefit and not as an intermediary, such as an agent, trustee or authorised signatory, for some other person; 2) any permanent establishment situated in another EU member state of an entity of a EU member state, which takes on one of the forms of business organisation listed in Annex to Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (hereinafter referred to as “Directive 2003/49/EC”) and which is subject to taxes specified in Article 3(a)(iii) of Directive 2003/49/EC without being exempt from such taxes, provided that the debt-claim in respect of which the payment of amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law arises is effectively connected with that permanent establishment and provided that the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law are recognised as income in respect of which that permanent establishment is subject to one of the taxes mentioned in Article 3(a)(iii) or in the case of Belgium to the “impôt des non-résidents/belasting der niet-verblijfhouders” or in the case of Spain to the “Impuesto sobre la Renta de no Residentes” or to a tax which is identical and which arises later or in place of those existing taxes.
The provisions of this paragraph shall apply where at the time of payment of amounts to the entity of a Member State or its permanent establishment and for an uninterrupted period of at least two years before the payment is made, the entities of Member States meet one of the following criteria: 1) the paying Lithuanian entity or the entity of a Member State, whose permanent establishment situated in the Republic of Lithuania pays out such amounts, controls directly at least 25% percent of the shares (interests, member shares) in the receiving entity of a Member State or in the entity of a Member State whose permanent establishment receives such income; or 2) the receiving entity of a Member State or the entity of a Member State, whose permanent establishment receives such income, controls directly at least 25% percent of the shares (interests, member shares) in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment in the Republic of Lithuania pays such amounts; or 3) any other entity of a Member State controls directly at least 25% percent of the shares (interests, member shares) in the receiving entity of a Member State or the entity of a Member State whose permanent establishment receives such income and also in the paying Lithuanian entity or in the entity of a Member State whose permanent establishment situated in the Republic of Lithuania pays such amounts.
Where a permanent establishment is treated as the payer, or as the beneficial owner, of the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law, no other part of the foreign entity shall be treated as the payer, or as the beneficial owner, of those amounts.
The provisions of this Article shall apply to a permanent establishment which is the payer of the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law if such amounts may be deducted from the income of the permanent establishment in accordance with the provisions of this Law and other legal acts.
A Lithuanian entity or a permanent establishment which is the payer of the amounts specified in subparagraph 1 of paragraph 4 of Article 4 of this Law must have documents evidencing the fulfilment of the requirements laid down in paragraphs 1-3 of this Article. The requirements for such documents shall be set forth by the central tax administrator.
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. *Note: Member States shall apply the provisions of Council Directive 2003/48/EC from 1 July 2005 (given specific conditions). Article 37

(3). Taxation of Sponsorship Received, which is Used for Purposes other than Specified in the Law of the Republic of Lithuania on Charity and Sponsorship, and of Sponsorship Received In Cash An entity shall calculate and pay to the budget, in accordance with the procedure laid down in the this Law, corporate income tax on sponsorship received which is used for purposes other than specified in the Law of the Republic of Lithuania on Charity and Sponsorship and on that part of sponsorship received in cash from a single provider of sponsorship during the tax period, which exceeds the amount of 250 MLS. Article

Taxation Applicable to the Lease of Assets or Sets of Assets
Where the assets or a set of assets of the entity are transferred under a lease transaction, such a transfer of assets or a set of assets may be taxed by the decision of a tax administrator as the sale of assets for the purpose of calculating corporate income tax, provided that the lease transaction meets at least one of the following criteria: 1) the term of lease exceeds 30 years, except for the cases when the land leased in accordance with the procedure laid down in the laws of the Republic of Lithuania or the lessee of assets is specified in paragraph 2 of Article 3 of this Law; 2) the schedule of regular rentals states that the larger portion of the actual market price of fixed assets leased by the entity shall be paid within a shorter period of the lease term; 3) the lease contract restricts the rights of the lessee of fixed assets or a set of assets in respect of taking on loans or/and distributing profits or paying dividends; 4) the provisions relating to the renovation of the assets leased are not linked to the commercial activities of the lessee or the lessor and/or the value of the renovation of assets is not in line with the actual market price of the assets.
Income from the sale of assets specified in paragraph 1 of this Article shall be included in the income for the tax period during which the said assets were transferred to the lessee at their actual market price.
Provisions of subparagraph 2 of paragraph 1 of this Article shall not apply to leasing (financial lease) transactions. Article *38

(1). Taxation of Income Received from International Carriage by Sea-going Vessels and Activities Directly related thereto

Income received by a shipping entity from international carriage by sea-going vessels and activities directly related thereto may be taxed in accordance with the provisions of this Article, if, during the whole tax period of a Lithuanian entity or a tax period of a permanent establishment through which a foreign entity registered or otherwise organised in a member state of the European Economic Area carry on its activities in the Republic of Lithuania: 1) the shipping entity owns sea-going vessels (cargo vessels, container vessels, tankers, ro-ro passenger or cruise vessels) by right of ownership or financial lease contract providing for the transfer of ownership rights or under a purchase and sale or lease contract providing for the transfer of ownership rights to the shipping entity only after the total value of the assets has been paid up or under a bareboat charter contract that are registered at the Lithuanian Maritime Register or in the register of sea-going vessels of any other member state of the European Economic Area and that are used for international carriage or the activities directly related thereto, and 2) the PC of sea-going vessels owned by the shipping entity by right of ownership is not less than 25% of the total PC of sea-going vessels owned by the shipping entity, and 3) the shipping entity provides strategic, commercial or technical management services in Lithuania to sea-going vessels that are used for international carriage by sea-going vessels, and 4) sea-going vessels owned by the shipping entity by right of ownership or financial lease contract providing for the transfer of ownership rights or under a purchase and sale or lease contract providing for the transfer of ownership rights to the shipping entity only after the total value of the assets has been paid up or under a bareboat charter contract that are used for international carriage or the activities directly related thereto comply with safety requirements set in legal acts of the Republic of Lithuania and the European Communities.
After a shipping entity acquires the right and chooses to pay a fixed rate corporate income tax, the fixed rate corporate income tax shall be applied for a period not shorter than until the date specified in paragraph 5 of this Article, except for the cases when the shipping entity no longer meets the criteria set in paragraph 1 of this Article.
Where a shipping entity loses the right to pay a fixed rate corporate income tax (i.e., it no longer meets the criteria set in paragraph 1 of this Article) or waives the right to pay corporate income tax from income received from international carriage by sea-going vessels and the activities directly related thereto during the chosen period of payment of the fixed rate corporate income tax (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax), then, starting from the tax period during which this right was lost (except for cases stipulated in paragraph 4) or during which this right was waived, general provisions of calculation of corporate income tax shall be applied in respect of income of such shipping entity and it shall not be granted the right to choose to pay the fixed rate corporate income tax for the remaining tax periods in the period of 10 forthcoming years (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax).
Where a shipping entity that complies with the criteria set in paragraph 1 of this Article ceases to comply with the criteria set in paragraph 1 of this Article due to force majeure (i.e. due to reasons beyond the control of the shipping entity) during the chosen period of payment of the fixed rate corporate income tax (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax), such shipping entity shall not loose its right to apply the fixed rate corporate income tax, if, until the end of the next tax period following the tax period during which the shipping entity lost the right to pay the fixed rate corporate income tax from income received from international carriage by sea-going vessels and the activities directly related thereto due to force majeure, the shipping entity complies with the criteria set in paragraph 1 of this Article.
The fixed rate corporate income tax shall be applied in respect of a shipping entity that complies with the criteria set in paragraph 1 of this Article until 31 December
The shipping entity that complies with the criteria set in paragraph 1 of this Article and which has chosen to apply the fixed rate corporate income tax shall notify, in accordance with the procedure established by the central tax administrator, the local tax administrator about the decision to apply the fixed rate corporate income tax before the last day of the first quarter of the tax period during which the shipping entity became entitled and chose to pay the fixed rate corporate income tax. *Note. The provisions of Article 38

(1)shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods. Article *38

(2). Calculation of the Fixed Rate Corporate Income Tax 1. If, at the choice of the shipping entity, income from international carriage by sea-going vessels and activities directly related thereto are subject to a fixed corporate income tax rate under the provisions of Article 38

(1)of this Law, then the base of the fixed rate corporate income tax shall be calculated by applying a fixed daily amount for each 100 units of the PC of a sea-going vessel and multiplying the received amount by the number of days of the taxable period of the shipping entity. The fixed amount shall be: 1) for each 100 units of the PC of a sea-going vessel up to 1 000 units of the PC of a sea-going vessel – LTL 3.2 per day; 2) for each 100 units of the PC of a sea-going vessel starting from 1,001 up to 10 000 units of the PC of a sea-going vessel – LTL 2.3 per day; 3) for each 100 units of the PC of a sea-going vessel starting from 10 001 up to 25 000 units of the PC of a sea-going vessel – LTL 1.5 per day; 4) for each 100 units of the PC of a sea-going vessel starting from 25 000 units of the PC of a sea-going vessel – LTL 0.92 per day; 2. The base of the fixed rate corporate income tax without any deductions shall be subject to a tax rate of 15%. 3. Limits on calculating depreciation or amortisation: 1) where, at the choice of the shipping entity, income from international carriage by sea-going vessels and activities directly related thereto was subject to the provisions of calculation of the fixed corporate income tax rate under the provisions of Article 38

(1)of this Law, then, after starting applying general provisions of calculation of such income, depreciation or amortisation of the assets used when carrying out the activities shall not be calculated if, from the beginning of use of these assets till the end of the period of payment of the fixed rate corporate income tax, these assets would have been completely depreciated or amortized pursuant to rates stipulated in Appendix 1 to this Law. 2) where a shipping entity loses the right to pay a fixed rate corporate income tax (i.e., it no longer meets the criteria set in paragraph 1 of Article 38

(1)of this Law) or waives the right to pay corporate income tax during the chosen period of payment of the fixed rate corporate income tax under the provisions of Article 38

(1)of this Law (this period is calculated as of the tax period during which the shipping entity for the first time acquired the right and the fixed rate corporate income tax), then, starting from the tax period during which this right was lost (except for cases stipulated in paragraph 4 of Article 38

(1)of this Law ) or during which this right was waived, then depreciation or amortisation of the assets used for international carriage by sea-going vessels and the activities directly related thereto shall be calculated from the acquisition price of assets reduced by the amount of depreciation or amortisation which would have been calculated, if the shipping entity applied general provisions of calculation of corporate income tax throughout the whole period. In such case, depreciation or amortisation of such assets shall be calculated pursuant to rates that are not smaller than those stipulated in Appendix 1 of this Law, including the tax period(s) during which this asset has already been used in this particular shipping entity. 4. Where, at the choice of a shipping entity income from international carriage by sea-going vessels and activities directly related thereto are subject to the fixed corporate income tax rate under the provisions of this Article, then, the advance fixed rate corporate income tax shall not be paid. *Note. The provisions of Article 38

(2)shall apply for the purpose of calculating taxable profits for the tax period beginning with 2007 and subsequent tax periods. Article

Taxation of Income of Controlled Foreign Entities
The tax period of controlled foreign entities shall be the calendar year, however where the tax period of a controlled foreign entity does not coincide with the calendar year or where the tax period is not established, the tax period of a controlled foreign entity shall coincide with the tax period of the controlling entity.
The procedure for calculating and attributing positive income to the income of the controlling entity as well as the types of income not included in positive income shall be established by the Government of the Republic of Lithuania or an institution authorised by it.
The same income of a controlled foreign entity shall be taxable, in accordance with the procedure laid down in this Article, in the Republic of Lithuania only once.
The income of a controlled foreign entity shall be taxable under the provisions of this Article, provided that: 1) the entity is not registered or otherwise organised in the countries or zones included in the list approved by the Minister of Finance; 2) the entity complies with any of the forms of business organisation of a foreign entity included in the list approved by the Minister of Finance.
The provisions of this Article shall not apply in the following cases: 1) the income of a controlled foreign entity comprises only the payments made by the controlled entity, which are treated as

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