Corporate profit tax

The Corporate profit tax is levied on:
• Lithuanian entities, i.e. legal persons incorporated in accordance with Lithuanian law;
• foreign entities, i.e. a legal persons or an organisations with their headquarters located in the territory of a foreign state and incorporated or founded in accordance with the laws of the foreign state, as well as any other taxable entity incorporated or founded in a foreign state.

Taxable profit
The taxable income of a Lithuanian entity is income earned in the Republic of Lithuania and abroad.

The taxable income of a foreign entity is income from activities carried on through a permanent establishment situated in the territory of Lithuania as well as income earned in foreign countries and attributed to the said permanent establishment in Lithuania in the event that such income relates to the activities of a foreign entity carried on through a permanent establishment situated in Lithuania.

Income sourced in Lithuania and received otherwise than through a permanent establishment situated in the territory of Lithuania is also subject to Lithuanian corporate profit tax and is as follows: interest income; income from distributed profit; royalties; income from the sale, transfer or rent of immovable property situated in the territory of Lithuania; compensations for the breach of copyright and neighbouring rights; income received from the sport or entertainment activity, annual bonus paid for the activity of members of the Supervisory Council.

The taxable profit of a Lithuanian entity is calculated by deducting the non-taxable income and deductible expenses, including deductible expenses of limited amounts, from the income received over the taxable period. The deductible expenses include all the usual costs that the entity actually incurs for the purpose of earning the income of the entity or receiving the economic benefits of the entity. The annual corporate profit tax return accompanied by financial accounts shall be filed after the end of the taxable period and before the first day of the tenth month of the next tax period.
In principle, the accounting year should coincide with the calendar year for tax purposes. The local tax administrator may, at the request of the taxpayer and having considered the business features of that taxpayer, set another taxable period provided that it is at least twelve months.

Rates
The taxable profit of Lithuanian entities and resident business entities of foreign companies are taxed at a rate of 20%.
The taxable profit of the entities whose average number of employees does not exceed 10 and whose income over the taxable period does not exceed the maximum of LTL 500,000 (EUR 144,810) is taxed at a rate of 13 % except as otherwise provided for in the Law.

The taxable profit of unlimited liability companies (individual (personal) enterprises, general partnerships and limited partnerships) whose average number of employees does not exceed 10 and whose income over the taxable period does not exceed the maximum of LTL 1,000,000 (EUR 289,620), the taxable profit, amounting to LTL 25,000 (EUR 7,240) is taxed at a rate of 0 %, and the remaining part of taxable profit is taxed at a rate of 20 %, except as otherwise provided for in the Law.

The taxable profit of social enterprises (which satisfies the requirements established by the Law of the Social Enterprises of the Republic of Lithuania where the main criteria is the number of the disabled, jobless persons employed) meeting the established requirements is taxed at a 0 % rate.

Valuation of assets
In general, business assets must be valued at cost. But for the purpose of calculating taxable profit the acquisition price of assets shall comprise expenses incurred in the course of acquiring assets, including the commissions and taxes (levies) paid, except for VAT, in connection with the acquisition of such assets.

Depreciation
Depending on the sort of assets, depreciation shall be charged subject to the expenditures and deducted from income over the following periods:

Buildings including renovations (own property) 8 to 20 years
Plant and machinery 5 years
Office equipment 3 to 6 years
Cars 4 to 10 years
Trucks and busses 4 years
Software 3 years
Goodwill 15 years

Assets should be depreciated down to a residual value.

Interest
Interest payable related to external financing which is in accordance with normal market conditions is an allowable deduction for tax purposes. The maximum permissible related-party debt/equity ratio is 4:1 (thin Capitalisation Rule) if interests applicable to loan are not in line of arm length principle.

Losses
If losses are incurred during the taxable period after deducting the non-taxable income and allowed deductions, such losses will be carried forward to the following taxable period (fiscal year) except for the losses that have been incurred as a result of trading in securities and/or derivatives.

Losses incurred as a result of transferring securities and/or derivative financial instruments shall be carried forward to the following taxable period, however, this rule will apply if such losses will cover only the income received from the transfer of securities and/or derivative financial instruments.

Losses of taxable period may be carried forward for unlimited period while losses incurred as a result of trading in securities and/or derivatives may be carried forward no longer than for 5 consecutive taxable periods. Losses may not be carried back.

Tax returns and Reports
Corporate profit tax returns are of the following types:
1) annual corporate profit tax return;
2) advance corporate profit tax return;
3) tax return on income (amounts) paid to a foreign entity and on corporate profit tax calculated and entered in the budget;
4) corporate profit tax return of a foreign entity carrying on its activities in the Republic of Lithuania (permanent establishment);
5) tax return on corporate profit tax calculated and paid in respect of the dividends received and paid out;
6) annual fixed corporate profit tax return.

Supplements to the annual corporate profit tax return:
1) reports on mutual transactions or economic operations between associated entities;
2) reports on controlled and controlling entities and individuals.

Other reports:
1) report on derivative financial instruments;
2) other returns and reports in the form established by the tax authorites.

Withholding taxes
10 % withholding tax is imposed on interest and royalties paid to foreign (non-resident) taxable entities, compensations for violation of the copyright or neighbouring rights.

5% withholding tax is imposed on interest paid to EU entities having 25% of shares of the company paying interests for not less than 2 years.

20 % withholding tax is imposed on income (without any deductions) of foreign entities received on distributed profits, income from the sale, transfer or rent of immovable property situated in the territory of Lithuania; income received from the sport or entertainment activity and annual bonus paid for the activity of members of the Supervisory Council.

10 % withholding tax is imposed on interest for loans. Income received as interest on deposits and subordinated loans that meets the criteria established by the Lithuanian Bank is not subject to taxation. Interest on the Government securities is exempt from taxation as well.

Participation exemption
Following the participation exemption, the corporate profit tax is not imposed on dividends received from an entity in which the entity receiving the dividends has been holding an amount of shares entitling it to more than 10 % of the total amount of votes for at least 12 subsequent months including the moment of dividend distribution. However, this rule is not applicable if the entity paying the dividends benefited from the tax incentives set in the law or taxed the profit with 0% corporate profit tax rate.

Transfer pricing
For the purpose of calculating taxable profit, entities shall accept the amount which is in line with the actual market price of a transaction or economic operation as income from such a transaction or economic operation.

According to the law, the tax administrator has been given the right to adjust the prices fixed in the agreements between associated entities, where those prices are not in line with the actual market price, or/and revalue the income or payments. To find the effective market price the tax administrator may apply transaction value adjustment methods. Such methods and their application are defined by the supporting legislation.

State social insurance contributions and health insurance contributions

State social insurance contributions are payable by:

• all public and private legal entities entitled to calculate, deduct and pay to the budget of the State Social Insurance Fund the state social insurance contributions for the insured persons (e.g. employees, persons receiving authorship fee, sportsmen, etc.);

• individuals who must pay individually state social insurance contributions – sole proprietorships, lawyers, assistant to lawyers, notaries, members of general partnerships, members of limited partnerships, farmers and adult members of their household working in the farm, persons performing individual activity, etc.

Groups of insured with the health insurance:

• Persons insured by the state (retired persons, students, unempoyed persons, etc.);
• Persons who are paying contributions themselves or persons for those are paid by third persons (employment remuneration, authorship fee, individual activity income, etc.).

Payments to the Guarantee Fund
Taxpayers - all businesses, public institutions, banks and credit unions. The rate is 0,1 % of the gross salary payable to employees, used as the basis for the calculation of the State Social Insurance contributions. Payments are payable once a month not later till the 15th day of the following month. Small amounts of payments not exceeding LTL 300 per year may be paid once or twice per year.

Real estate tax
The tax on the real estate (except land), registered in the Lithuania, is payable by Lithuanian and foreign legal entities and natural persons, that own or use this real estate.
The annual tax rate is 0.3 – 1 % of the taxable value of the real estate (the exact rate is set by local municipality councils). The tax is calculated on the basis of the taxable value of immovable property. The annual return should be filed and tax must be paid after the end of calendar year before 1st of February of the following year.

Land Tax
The land tax payers are owners of the private land. The annual tax rate is 1.5 % of the value of the land.

Excise Tax
The Excise Tax is payable by the owners of warehouses of excise goods, registered traders, not registered traders, persons receiving goods from other EU countries for the purpose of business, public legal persons, receiving goods from other EU countries for the purpose of personal usage, taxable persons, situated in the other EU country, fiscal agents, etc.

The Excise Tax is imposed on four classes of goods:

1) Ethyl alcohol and alcoholic beverages;
2) Processed tobacco;
3) Fuel;
4) Electric power.