EY
+370 (5) 274-2200
Aukstaiciu st. 7 Fax: +370 (5) 274-2333 LT-11341 Vilnius Lithuania
Principal Tax Contact
Leonas Lingis +370 (5) 274-2279
Mobile: +370 685-46664 Email: leonas.lingis@lt.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Leonas Lingis +370 (5) 274-2279 Mobile: +370 685-46664 Email: leonas.lingis@lt.ey.com
International Tax and Transaction Services – Transfer Pricing Donatas Kapitanovas +370 (5) 274-2317 Mobile: +370 620-74071 Email: donatas.kapitanovas@lt.ey.com
Business Tax Services
Leonas Lingis +370 (5) 274-2279 Mobile: +370 685-46664 Email: leonas.lingis@lt.ey.com
Tax Policy and Controversy
Irmantas Misiunas
Global Compliance and Reporting
Andrius Jurele
+370 (5) 274-2307 Mobile: +370 685-32006 Email: irmantas.misiunas@lt.ey.com
+370 (5) 274-2207 Mobile: +370 682-36578 Email: andrius.jurele@lt.ey.com
International Tax and Transaction Services – Transaction Tax Advisory Donatas Kapitanovas +370 (5) 274-2317 Mobile: +370 620-74071 Email: donatas.kapitanovas@lt.ey.com
People Advisory Services
Leonas Lingis
Indirect Tax
Irmantas Misiunas
Legal Services
Inga Pakalniskyte
+370 (5) 274-2279 Mobile: +370 685-46664 Email: leonas.lingis@lt.ey.com
+370 (5) 274-2307
Mobile: +370 685-32006 Email: irmantas.misiunas@lt.ey.com
+370 (5) 274-2200 Mobile: +370 687-55577 Email: inga.pakalniskyte@lt.ey.com
A. At a glance
Corporate Profit Tax Rate (%) 15 (a)
Capital Gains Tax Rate (%) 15 (b)
Branch Tax Rate (%) 15 (a)
Withholding Tax (%) (c)
Dividends 0/15 (d)
Interest 0/10 (e)(f)
Royalties and Know-how 0/10 (e)(g)
Sale, Rent or Other Transfer of Real Estate Located in Lithuania 15 (e)
Compensation for Violations of Copyrights or Related Rights 0/10 (e)(g)
Net Operating Losses (Years)
Carryback 0
Carryforward 5/Unlimited (h)
(a) This is the standard rate of profit tax. Reduced rates apply to small or agricul tural companies and to companies registered and operating in free-economic zones that satisfy certain conditions. A 5% additional rate applies to the tax able profit of credit institutions if their taxable profit exceeds EUR2 million.
(b) In general, capital gains are included in taxable profit and are subject to tax at the regular profit tax rate. A capital gain derived from the sale of shares of a company registered in a European Economic Area (EEA) country or in a tax treaty country is exempt from tax if either of the following conditions is satisfied:
• The shares have been held for at least two years and the holding represents more than 10% of shares of the company throughout that period.
• The shares were transferred in a reorganization (as stipulated in the Law on Corporate Income Tax), the shares have been held for at least three years, and the holding represents more than 10% of the shares of the company throughout that period. This rule does not apply if the shares are sold to the issuer of the shares.
(c) The withholding tax rates may be reduced by applicable tax treaties.
(d) The dividend withholding tax is a final tax. Under the participation exemption rule, the rate is 0% if the recipient is a company (not located in a tax haven) that holds at least 10% of the shares of the payer of the dividends for a period of at least 12 months. The participation exemption is denied for entities or a group of entities if the main purpose or one of the main purposes of putting in place the arrangements was to obtain a tax advantage.
(e) These withholding taxes apply to payments to nonresident companies.
(f) Interest paid to an entity registered in an EEA country or in a tax treaty country is exempt from tax. In other cases, a 10% withholding tax is applied.
(g) Royalties, payments for know-how and compensation for violations of copy rights or related rights are subject to a 0% withholding tax if the criteria stipulated in the 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 are met. In other cases, the 10% withholding tax rate applies.
(h) Losses from disposals of securities and derivative financial instruments may be carried forward five years to offset gains derived from disposals of such items. Losses from the disposal of shares of companies registered in an EEA country or in another tax treaty country cannot be carried forward if the shares have been held for at least two years and if the holding represents at least 10% of shares of the company throughout that period. However, these losses can be offset against capital gains derived from disposals of securities and derivative financial instruments in the current year. Losses resulting from the use, sale or any other transfer of an intangible asset for which a 5% tax rate has been applied (see Relief for research and development works in Section C) may be carried forward for an unlimited time, but such losses may cover only the tax able profit from the use, sale or any other transfer of the intangible asset. Other losses may be carried forward for an unlimited period, unless the entity ceases to carry on the activity that resulted in the loss. Also, see Section C.
B. Taxes on corporate income and gains
Profit tax. Under the Law on Corporate Income Tax, Lithuanian companies are subject to profit tax on their worldwide income.
Lithuanian (resident) companies are defined as enterprises with the rights of legal persons registered in Lithuania. For purposes of the profit tax, Lithuanian companies include companies formed in Lithuania and companies incorporated in foreign countries that are registered in Lithuania as branches or permanent establish ments.
Profits of Lithuanian companies earned through permanent estab lishments in the EEA or in tax treaty countries are exempt in Lithuania if the profit from activities carried out through these permanent establishments is subject to corporate income tax or equivalent tax in such countries.
Foreign (nonresident) companies, which are defined as companies not incorporated in Lithuania, are subject to profit tax on their Lithuanian-source income only.
A foreign enterprise is deemed to have a permanent establishment in Lithuania if it satisfies any of the following conditions:
• It permanently carries out activities in Lithuania.
• It carries out its activities in Lithuania through a dependent representative (agent).
• It uses a building site or a construction, assembly or installation object in Lithuania.
• It uses installations or structures in Lithuania for prospecting or extracting natural resources, including wells or vessels used for that purpose.
International telecommunication income and 50% of income derived from transportation that begins in Lithuania and ends in a foreign country or that begins in a foreign country and ends in Lithuania are considered to be income received through a perma nent establishment if such activities relate to the activities of a foreign enterprise through a permanent establishment in Lithuania.
Tax rates. The standard profit tax rate is 15%.
For the first tax year, a 0% rate applies to small entities with annual income not exceeding EUR300,000 and an average num ber of employees that does not exceed 10. For further tax years, if the conditions mentioned in the preceding sentence are met, a 5% rate applies.
For the first tax year, a 0% rate applies to small entities owned by individuals if in the further three tax periods, the small entity does not stop its activity, is not liquidated or reorganized, and its shares are not transferred. A 5% rate applies in subsequent tax years if the conditions mentioned in the preceding sentence are met.
A 5% rate applies to the taxable profit of cooperative companies if more than 50% of the companies’ income is derived from agri cultural activities.
A 5% additional rate applies to the taxable profit of credit institu tions if their taxable profit exceeds EUR2 million. Under the Lithuanian Law on Corporate Income Tax, credit institutions consist of banks operating under the applicable Lithuanian law, including branches of foreign commercial banks, and credit
unions and central credit unions operating under the applicable Lithuanian law.
A 5% rate applies to the taxable profit from the use, sale or other transfer of an intangible asset, if the taxpayer created the intan gible asset while engaged in qualifying research and develop ment (R&D) activities (for further details, see Relief for research and development works in Section C).
Entities registered and operating in a free-economic zone benefit from 100% exemption from profit tax for 10 years and a further 50% reduction in profit tax for an additional 6 years if they sat isfy either of the following conditions:
• They make investments in fixed assets of at least EUR1 mil lion, and at least 75% of their income is derived from various activities, except trading.
• They make investments in fixed assets of at least EUR100,000, their average number of employees is not less than 20, and at least 75% of their income is derived from the provision of services.
The free-economic zone benefits mentioned above apply if such benefits are compatible with Commission Regulation (EU) No. 651/2014 of 17 June 2014, declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty on the Functioning of the European Union 2012/C 326/01.
Currently, seven free-economic zones are located in Akmen ė , Kaunas, K ė dainiai, Klaip ė da, Marijampol ė , Panev ė žys and Šiauliai.
Also, see Relief for large-scale investment projects in Section C. Nonprofit entities can reduce their taxable profit by the funds directly allocated in the current tax period or to be directly allo cated in the two subsequent tax periods for financing activities related to the public interest.
Entities engaged in international transportation by ships or in a directly related activity can elect to be taxed on a special tax base related to the net tonnage of their fleet. The tax on such entities is calculated by applying the 15% corporation tax to the net ton nage instead of the taxable profit of the entities.
Collective investment undertakings. Income, dividends and capi tal gains of collective investment entities and venture and private capital entities are exempt from the tax if the source of income or the final recipient of income is not located in a tax haven.
Capital gains. Capital gains are included in taxable profit and are subject to tax at the regular profit tax rate, except for gains and losses derived from disposals of securities and derivatives. Gains and losses on securities and derivatives are included in a separate tax base that is subject to tax at the regular profit tax rate. A capital gain derived from the sale of shares of a company regis tered in an EEA country or in a tax treaty country is exempt from tax if the shares have been held for an uninterrupted period of at least two years and if the holding represents more than 10% of the shares of the company throughout that period.
The exemption mentioned above does not apply if the shares are transferred to the issuer of the shares.
Capital gains derived from the transfer of shares in a reorganiza tion or from another transfer specified in the law is exempt from tax if the shares have been held for an uninterrupted period of at least three years and if the holding represents more than 10% of the shares of the company throughout that period.
Exit taxation. Starting in 2020, the anti-tax avoidance Council Directive 2016/1164/EU was implemented in Lithuania regard ing exit taxation. In general, a taxpayer is subject to tax at the time of exit of the assets and/or business from Lithuania to another member state or to a third country. A taxpayer is subject to tax on an amount equal to the market value of the transferred assets less their residual tax value.
Administration
Tax year. The tax year is the calendar year. Companies may request permission to use a different 12-month tax year, which must be used continuously.
Profit tax. Companies must file profit tax returns with the tax inspectorate by the 15th day of the 6th month following the end of the tax year.
Companies must make quarterly advance payments of profit tax by the 15th day of the last month of each quarter. The law specifies two methods that companies may choose to calculate their advance profit tax. The chosen method must be applied consis tently throughout the year, but it can be changed once in the tax year. The following are the specified methods:
• The results of prior financial years. The advance payments for the first six months are calculated based on the profit tax for the year before the preceding year. Each of these advance payments equals 25% of the profit tax for such year. For the 7th through 12th months of the tax year, the advance payment equals 25% of the profit tax calculated for the preceding tax year.
• The forecasted profit tax of the current year. Each of the ad vance payments equals 25% of the forecasted profit tax for such year. However, the total of the advance profit tax payments made during the tax year must total at least 80% of annual profit tax.
If companies choose to pay the advance profit tax based on the results of prior financial years, they must file two profit tax ad vance payment returns. The first return covers the first 6 months of the tax year and must be filed by the 15th day of the 3rd month of the tax year. The second return covers the last 6 months of the tax year and must be filed by the 15th day of the 9th month of the tax year.
If the advance profit tax payment is based on the forecasted profit tax of the current year, the profit tax advance payment return must be filed by the 15th day of the 3rd month of the tax year.
Newly registered enterprises in their first tax year and enterprises with taxable profit not exceeding EUR300,000 in the preceding tax year are not required to make advance payments of profit tax.
Any balance of tax due for a tax year must be paid by the 15th day of the 6th month following the tax year. If the total of the advance payments exceeds the tax due for the tax year, a com pany may obtain a refund or apply the excess to future taxes. Taxes must be paid in euros.
Withholding taxes. Withholding taxes together with returns for such taxes must be submitted to the tax inspectorate by the 15th day of the month following the month in which the taxes are withheld.
Withholding taxes. Withholding tax at a rate of 10% is imposed on the following types of payments to nonresident companies:
• Interest
• All types of royalties
• Compensation for violations of copyrights or related rights
Interest paid to an entity registered in an EEA country or in a tax treaty country is exempt from tax.
Royalties, payments for know-how and compensation for viola tions of copyrights or related rights are exempt from withholding tax if the criteria stipulated in the Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated compa nies of different member states are met.
Withholding tax at a rate of 15% is imposed on the following types of payments to nonresident companies:
• Dividends (for further details, see Dividends)
• Payments with respect to the sale, rent or other transfer of immovable property located in Lithuania
• Payments for performance and sport activity in Lithuania
• Directors’ fees to members of the Supervisory Board
Dividends. Dividends received from Lithuanian and foreign com panies are subject to corporate profit tax at a rate of 15%. The 15% tax on dividends paid by Lithuanian companies is withheld at source.
For dividends paid by Lithuanian companies to other Lithuanian companies, profit tax for the preceding tax year is reduced for the company receiving dividends by the withholding tax calculated on the dividends. However, the amount of the reduction may not exceed the amount of profit tax for the preceding tax year. The amount of the withholding tax not used to reduce the preceding year’s tax may be set off against other taxes or refunded by the tax authorities. Payers of dividends must pay the withholding tax on the dividends to the tax authorities by the 15th day of the month following the month of payment of the dividends.
Lithuanian resident companies receiving dividends from foreign companies must pay the tax on the dividends to the tax authori ties by the 15th day of the month following the month of receipt of the dividends.
Under the participation exemption rule, dividends are not subject to profit tax if the recipient is a company (not located in a tax haven) that holds at least 10% of the shares of the payer of the dividends for a period of at least 12 months.
Dividends paid by foreign companies to Lithuanian companies are not subject to tax if the company paying the dividends is registered in an EEA country and if the company’s profits were sub ject to corporate profit tax or an equivalent tax. This exemption and the participation exemption for dividends paid by foreign companies to Lithuanian companies does not apply to dividends that the foreign company deducted in computing its taxable profit.
The participation exemption also applies to the following:
• Dividends that are attributed to the permanent establishment of a foreign company in Lithuania
• Cash payments made to reduce the company’s capital that was formed using the company’s earnings
The above-mentioned participation exemptions for dividends paid by Lithuanian companies to foreign companies and the dividends received by Lithuanian companies from foreign companies may be denied under a general anti-abuse rule, which provides that the participation exemption may be denied for entities or a group of entities if the main purpose or one of the main purposes of the arrangements that were put in place was to obtain a tax advantage.
Foreign tax relief. In general, a foreign tax credit may be claimed in an amount not exceeding the amount of Lithuanian profit tax payable on the foreign income. Special rules apply to particular types of income, unless a double tax treaty provides otherwise.
The exemption method is applied to profit from activities carried out through permanent establishments of Lithuanian entities in EEA countries or in tax treaty countries if profit from activities carried out through these permanent establishments is subject to corporate income tax or equivalent tax in such countries.
C. Determination of taxable income
General. Profit before tax equals gross revenue, minus expenses incurred in earning such revenue.
Taxable profit is calculated by taking the following actions:
• Subtracting non-taxable income (for example, after-tax dividends, revenues from the revaluation of fixed assets under certain circumstances and payments received from insurance companies up to the amount of incurred losses) from the accounting profit
• Taking into account nondeductible expenses and deductible expenses of a limited amount
Deductions are allowed if they are incurred during the usual busi ness activity and are necessary to earn revenues or obtain eco nomic benefits, provided that documentary evidence is presented.
Expenses incurred for the benefit of employees are allowable deductions if the benefit received by employees is subject to per sonal income tax.
Expenses that may be deducted up to certain limits include, among others, the following:
• Depreciation and amortization
• Business trip expenses
• Business entertainment expenses
bad debts
losses
A double deduction is allowed for sponsorship payments (except payments in cash exceeding EUR10,500 (250 times the basic social benefit [EUR42 for 2022], which is an indicator for defin ing and calculating social security benefits and other amounts in accordance with the applicable Lithuanian law; the Lithuanian government sets the amount) to a single sponsorship recipient), up to a maximum deduction equal to 40% of the taxable profit.
A triple deduction is allowed for R&D costs if the scientific R&D activities are related to the usual or intended activities of the en tity that generate or will generate income or economic benefits.
Nondeductible amounts include dividends and costs that are incurred outside the usual business operations, that are inappropriately documented or that are related to earning nontaxable income.
Payments to tax havens may be deducted only if the Lithuanian enterprise can prove that certain conditions evidencing the eco nomic basis of the transaction were met.
Other taxes (for example, social insurance contributions and real estate tax) may be deducted from taxable income.
The income and expenses of enterprises must be converted to euros.
Inventories. Inventories must be valued at actual cost, which is calculated using the first-in, first-out (FIFO) method. On approv al of the tax authorities, a taxpayer may apply the average cost or last-in, first-out (LIFO) method.
Tax depreciation. To calculate tax depreciation, companies may select the straight-line method, double-declining value method or production method. The selected depreciation method must be applied for all assets of the same type. To change the depreciation method, companies must obtain the approval of the local tax authorities.
Under the straight-line method, depreciation is claimed each year in equal portions. Under the double-declining value method, the depreciation or amortization coefficient is calculated by multiplying the straight-line rate by two. For the purpose of calculating the amount of depreciation or amortization for the tax period during the first year, the acquisition price of long-term assets is multiplied by the depreciation coefficient. To calculate the depre ciation or amortization of long-term assets during the other years, except for the last year, the residual value of long-term assets at the beginning of the tax year is multiplied by the depreciation coefficient. Under the production method, depreciation is calcu lated based on the number of units produced over the asset’s useful life.
Accelerated depreciation may be claimed for assets used in R&D activities. The law sets the maximum depreciation rates. These rates determine the minimum number of years over which assets may be depreciated. The following are some of the minimum periods.
R&D Other
Minimum period Minimum period for depreciation for depreciation Assets Years Years
Intangible assets 2 to 15 3 to 15 Buildings and premises
Constructed or reconstructed on or after 1 January 2002 8 8
Constructed or reconstructed before 1 January 2002 15 to 20 15 to 20 Plant and machinery 2 to 15 5 to 15
Computers 2 3 Vehicles 4 to 10 4 to 10 Other assets 2 4
Relief for research and development works. In the calculation of profit tax, three times the amount of R&D expenses, except for depreciation or amortization costs of fixed assets, may be de ducted from income in the corresponding tax year. Fixed assets that are used for R&D may be depreciated or amortized applying accelerated depreciation (amortization) rates.
In addition, taxable profit from the use, sale or other transfer of an intangible asset may be taxed at a 5% rate if the following conditions are met:
• The taxpayer created the intangible asset while engaged in qualifying R&D activities.
• Income from the use, sale or other transfer of the intangible asset is received only by the entity that created it, and only that entity incurs all related expenses.
• The intangible asset is protected by copyright or a patent.
Relief for investment projects. The taxable profit of a Lithuanian entity may be reduced by up to 100% by the amount of expenses that are incurred in the acquisition of fixed assets used in an “in vestment project.” For this purpose, an “investment project” is investment in certain categories of fixed assets (machinery, equipment, information technology hardware and software, acquired intellectual property rights and lorries, trailers and semitrailers that are not older than five years), required for the manufacturing or supply of new products (or services), increasing production volume, the implementation of a new process of production (or supply of services), essential changes to an existing process (or part of the process) and the implementation of new technologies that are protected by international patent law. Acquisition costs of lorries, trailers and semitrailers purchased during a tax year may reduce taxable profit only up to EUR300,000. This relief may be applied in the 2009 though 2023 tax years, and the balance of unused relief may be carried forward to the subsequent four years.
Relief for large-scale investment projects. The taxable profit of a Lithuanian or a foreign entity that invests substantial capital in Lithuania may be reduced by up to 100%. Effective from the 2021 tax year, the relief for corporate income tax may be applied for up to 20 years if the following conditions are met:
• The capital invested in a project is at least EUR20 million (EUR 30 million in Vilnius city or district).
• The developer of a large-scale investment project has conclud ed a contract with the Ministry of the Economy and Innovation of the Republic of Lithuania.
• The average number of jobs created is not less than 150 (200 in Vilnius city or district).
• At least 75% of the income consists of income received from data processing, internet server services (hosting), other related activities or manufacturing.
• The developer of the large-scale investment project is not using other reliefs (that is, relief for companies in free-economic zones).
• The developer of the large-scale investment project has an audi tor’s report confirming the required amount of capital invest ment.
If the above-mentioned conditions are not met during a tax year, the relief is not applied (it can be renewed during a tax year when the project again meets the requirements).
If the capital invested exceeds EUR100 million, the relief can be applied only if approval from the European Commission is ob tained (additional requirements apply).
Relief for film production. A Lithuanian entity or a foreign entity operating through a permanent establishment in Lithuania that makes a contribution to a Lithuanian film producer for the pro duction of a film or parts of a film may deduct 75% of the con tribution from its taxable income and reduce its profit tax payable by the amount of the contribution if certain conditions are met. Profit tax payable for the tax year may be reduced up to 75%, and the balance of unused relief may be carried forward to the subsequent two years. This tax relief may be applied in the 2019 through 2023 calendar years.
Relief for losses. Losses, except losses resulting from disposals of securities and derivative financial instruments, may be carried forward for an unlimited period. Effective from the 2014 tax year, taxpayers except for small entities can cover only up to 70% of their taxable profit with accumulated tax losses. The carryforward of such losses is no longer allowed if the activity that resulted in the loss ceases. Loss resulting from disposals of securities and/or derivative financial instruments may be carried forward for five years. However, such losses may be covered only by future gains from the disposal of securities and/or derivative financial instruments.
Losses resulting from the use, sale or any other transfer of an intangible asset for which a 5% tax rate has been applied (see Relief for research and development works) may be carried for ward for an unlimited time, but such losses may cover only the taxable profit from the use, sale or any other transfer of the intan gible asset.
For a reorganization or transfer, the acquiring entity may carry forward the acquired losses, except for losses of entities (nonfinancial institutions) resulting from the disposal of securities and derivatives, incurred before the completion of the reorganization or transfer if the acquiring entity continues to carry on the activ ity taken over or a part of such activity for a period of at least three
years. Effective from the 2014 tax year, taxpayers except for small entities can cover only up to 70% of their taxable profit with tax losses acquired during a reorganization or transfer.
Starting in 2020, Lithuanian companies may deduct tax losses transferred from their permanent establishments in other EEA countries from their taxable income (additional requirements apply).
Groups of enterprises. Corporations are taxed separately in Lithuania. Consolidated returns are not allowed. The transfer between group entities of tax losses incurred in the 2010 tax year and subsequent tax years is allowed. Certain conditions apply.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate (%)
Value-added tax; intra-EU supplies and exports are zero-rated 0/5/9/21
Real estate tax, on the taxable value of real estate (the value is calculated by real estate registry institutions using methodology established by the government); maximum rate 3
Social security tax; paid by Employer
Fixed-term employment contact 2.49 to 3.75 Regular employment contact 1.77 to 3.03 Employee 12.52 (An employee can write a request to the pension accumulation company that it pay additional contributions from his or her salary to the pension accumulation fund [2.7% or 3% from 1 January 2022]; in such cases, an employer must withhold 15.22% or 15.52% as social security contributions.)
Health insurance contributions; paid by Employer 0 Employee 6.98
Other significant taxes include excise duty, land and land lease tax, tax on the use of Lithuanian natural resources and pollution tax.
E. Miscellaneous matters
Foreign-exchange controls. The Lithuanian currency is the euro (EUR).
If agreed to by the parties, foreign currency may be used for bank payments between business entities, and the euro may be used for both bank and cash payments. Commercial operations involving foreign currency, such as purchasing, selling and exchanging, may be performed by the following:
• Credit, payment and electronic money institutions or other pay ment service providers if it is related to provision of payment service
• Financial brokerage companies if it is related to provision of investment service
• Currency exchange operators working under the Law on Currency Exchange Operators
Transfer pricing. Entities operating in Lithuania that had revenues exceeding EUR3 million for the tax year preceding the tax year during which transactions with related parties are undertaken are subject to the Lithuanian transfer-pricing rules. Under these rules, they must maintain supporting documentation establishing that all transactions with associated parties are carried out on an arm’s-length basis. Lithuanian transfer-pricing rules are based on the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
Starting from 1 January 2019, Lithuanian entities and foreign entities that operate in Lithuania through a permanent establish ment must prepare the following:
• A return reporting the transactions entered into with associated parties, together with their profit tax returns, if the total value of the transactions exceeds EUR90,000
• A local file, if the revenues exceed EUR3 million for the tax year preceding the tax year during which transactions with related parties are undertaken
• A master file, if the revenues exceed EUR15 million for the tax year preceding the tax year during which transactions with related parties are undertaken
Starting 2020, there is no obligation to prepare a master and/or local file if the transactions entered into with associated parties are between Lithuanian taxpayers and are related to activities performed in Lithuania. Also, from 2020, a use of simplified approach for taxpayers preparing transfer-pricing documentation for low value-added services transactions is allowed.
Under Lithuanian transfer-pricing rules, data submitted in the documents relating to the controlled transactions must be pre pared and updated each tax period.
The Country-by-Country Reporting (CbCR) requirements were introduced in Lithuania and are effective from 5 June 2017. All Lithuanian tax-resident entities that are part of a multinational enterprise group with annual consolidated group revenue equal to or exceeding EUR750 million must comply with the CbCR requirements for fiscal years beginning on or after 1 January 2016.
Controlled foreign companies. Certain income of controlled enti ties is added to taxable income of Lithuanian entities and taxed at the standard profit tax rate.
An entity is considered a controlled foreign company (CFC) if the controlling person alone or together with related persons, directly or indirectly, holds over 50% of the foreign entity’s shares (interests and member shares). As a rule, a permanent establishment is also considered to be a CFC.
The CFC’s income is taxed in Lithuania if both of the following conditions are satisfied:
• The CFC is registered or organized in a tax haven or the CFC’s passive income (interest, royalties and dividends) exceeds onethird of the total CFC’s income.
• The effective tax liability of the CFC is less than 50% of the tax liability that would have been applicable in accordance with the Lithuanian tax rules.
However, the CFC’s income is not taxed in Lithuania if the CFC has sufficient staff and assets that are required to be engaged in actual economic activity.
Interest deduction limitation rule. The positive difference between an entity’s interest expenses and interest income shall be deduct ible only up to 30% of the entity’s taxable earnings before inter est, taxes, depreciation and amortization (EBITDA).
The following rules also apply:
• The entity is able to deduct exceeding interest expenses up to EUR3 million.
• The entity is able to fully deduct exceeding interest expenses if its financial results are included in the consolidated financial statements of a group, and the equity-to-asset ratio of the entity is not more than two percentage points lower than the equiva lent ratio of the group.
• The amount of undeducted interest expenses may be carried forward for an unlimited period.
• If the entity is a part of a group of entities, the interest deduc tion limitation rules apply to all Lithuanian entities jointly.
Rules for neutralizing hybrid mismatches. A hybrid mismatch is a situation that results in double deduction or deduction without inclusion due to different financial instruments, payments or financial instruments transfer, as well as permanent establish ment or revenues (costs) treatment.
Starting in 2020, complex rules are implemented with respect to hybrid mismatches (following the anti-tax avoidance Council Directive 2016/1164/EU). In general, Lithuania follows the prin ciple that to the extent that a hybrid mismatch results in a double deduction, the deduction is given only in the member state in which such payment has its source and that when a hybrid mis match results in a deduction without inclusion, the member state of the payer denies the deduction of such payment.
F. Treaty withholding tax rates
The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) entered into force in Lithuania on 1 January 2019.
The following table lists the maximum withholding rates under Lithuania’s tax treaties.
Dividends Interest Royalties
Armenia
10
5/10 (b)
10
Dividends Interest Royalties
% % %
Belarus 10 10 10
Belgium 5/15 (a) 10 0
Bulgaria 0/10 (c) 10 10
Canada 5/15 (a) 10 10
China Mainland 5/10 (a) 10 10
Croatia 5/15 (d) 10 10
Cyprus 0/5 (c) 0 5
Czech Republic 5/15 (a) 10 10
Denmark 5/15 (a) 10 0
Estonia 5/15 (e) 10 10
Finland 5/15 (a) 10 0
France 5/15 (d) 0/10 (m) 0
Georgia 5/15 (f) 10 10
Germany 5/15 (a) 10 5/10 (b)
Greece 5/15 (a) 10 5/10 (b)
Hungary 5/15 (a) 10 5/10 (g)
Iceland 5/15 (a) 10 0
India 5/15 (d) 10 10
Ireland 5/15 (a) 10 0
Israel 5/10/15 (d) 10 5/10 (b)
Italy 5/15 (d) 10 0
Japan 0/10 (m) 0/10 (m) 0
Kazakhstan 5/15 (a) 10 10
Korea (South) 5/10 (a) 10 5/10 (b)
Kyrgyzstan 5/10 (e) 10 10
Latvia 0/15 (h) 0 0
Luxembourg 5/15 (a) 10 5/10 (b)
Malta 5/15 (a) 10 10
Mexico 0/15 (k) 10 10
Moldova 10 10 10
Netherlands 5/15 (a) 10 0
North Macedonia 0/10 (k) 10 10
Norway 5/15 (a) 10 0
Poland 5/15 (a) 10 10
Portugal 10 10 10 Romania 10 10 10
Russian Federation 5/10 (i) 10 5/10 (b)
Serbia 5/10 (i) 10 10
Singapore 5/10 (a) 10 7.5
Slovak Republic 10 10 10
Slovenia 5/15 (a) 10 10
Spain 5/15 (a) 0/10 (m) 0
Sweden 5/15 (a) 10 0
Switzerland 5/15 (e) 0/10 (m) 0
Turkey 10 10 5/10 (b)
Turkmenistan 5/10 (a) 10 10
Ukraine 5/15 (a) 10 10
United Arab Emirates 0/5 (c) 0 5
United Kingdom 5/15 (a) 10 0
United States 5/15 (d) 10 5/10 (b)
Uzbekistan 10 10 10
Non-treaty jurisdictions 0/15 (j) 10 10
(a)
The 5% rate applies if the recipient owns more than 25% of the authorized capital of the payer.
(b) The 5% rate applies to royalties paid for the use of industrial, commercial or scientific equipment. The 10% rate applies to other royalties.
(c) The 0% rate applies if the recipient owns more than 10% of the authorized capital of the payer.
(d) The 5% rate applies if the recipient owns at least 10% of the authorized capital of the payer.
(e) The 5% rate applies if the recipient owns at least 20% of the authorized capital of the payer.
(f) The 5% rate applies if the recipient owns more than 25% of the authorized capital of the payer and if the total value of the recipient’s investment is at least USD75,000.
(g) The 5% rate applies to royalties paid for the use of industrial, commercial or scientific equipment or for transmission by satellite, cable, optic fiber or similar technology. The 10% rate applies to other royalties.
(h) The 0% rate applies if the recipient owns more than 25% of the authorized capital of the payer.
(i) The 5% rate applies if the recipient owns more than 25% of the authorized capital of the payer and if the total value of the recipient’s investment is at least USD100,000.
(j) The 0% rate applies if the recipient holds more than 10% of the shares of the payer of the dividends for a period of at least 12 months.
(k) The 0% rate applies if the recipient owns at least 10% of the authorized capital of the payer.
(l) The 5% rate applies if the recipient owns at least 25% of the authorized capital of the payer.
(m) The 0% rate applies if the recipient is not a natural person.