Corporate income tax in Lithuania

 

1. General: Treaties

1.1 How many income tax treaties are currently in force in your jurisdiction?

Lithuania currently has forty seven income tax treaties in force. Main countries with which Lithuania has Conventions for avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and capital in effect are – Ireland, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Czech Republic, Denmark, United Kingdom of Great Britain and Northern Ireland, Estonia, Greece, Georgia, Iceland, Spain, Italy, Israel, The United States of America, Canada, Kazakhstan, China, Korea, Croatia, Latvia, Poland, Luxembourg, Macedonia, Malta, Moldova, Norway, the Netherlands, Portugal, France, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, Finland, Sweden, Swiss Confederation, Turkey, Ukraine, Uzbekistan, Hungary, Germany.

Personal and corporate income tax paid in the above-mentioned countries may be credited against individual income tax payable in Lithuania and vice versa, or in the case of Latvia, exemption system is applicable.

1.2 Do they generally follow the OECD or another model?

Lithuanian income tax treaties generally follow the OECD model convention.

1.3 Do treaties have to be incorporated into domestic law before they take effect?

Tax treaties take effect after they are ratified by the Parliament.

1.4 Do they generally incorporate anti-treaty shopping rules (or “limitation of benefits” articles)?

Lithuania, generally, incorporates anti-treaty shopping rules.

1.5 Are treaties overridden by any rules of domestic law (whether existing when the treaty takes effect or introduced subsequently)?

Tax treaties override any rules of domestic law after the treaty takes effect.

 

2. Transaction Taxes in Lithuania

2.1 Are there any documentary taxes in your jurisdiction?

State duties are applied on certain formalities for performance of a legal act by notary. Registration of the transfer of real estate and property ownership in the Real Estate Register is subject to duty of 10 to 8050 LTL, depending on the value of the property.

2.2 Do you have Value Added Tax in Lithuania (or a similar tax)? If so, at what rate or rates?

Yes. Value Added Tax shall be charged on any supply of goods or services, on the import of goods, as well as on self -consumption.

Value Added Tax rates in Lithuania are 21%, 9%, 5% and 0%.

The standard rate of VAT is 21%, applied to any supply of goods or services which are not exempt or subject to 0%, 9% or 5% rate.

The reduced rate of VAT in Lithuania of 9% is applied to heating and hot water supply for inhabitants, books and non-periodic publications.

The reduced VAT rate of 5% is applicable for pharmaceuticals and this rate is valid till 31 Dec 2012.

The 0% rate is mainly applied to exports and certain supplies within EU. The 0% VAT rate for intra-community supplies is applied if the recipient of goods is an EU entity which is registered with its home country's VAT register and transport documents demonstrate that the goods were actually delivered. The 0% rate is also applied to intermediaries who re-sell goods to end consumers within EU countries.

The supply of goods is the transfer of their ownership to another entity so entitling the latter to dispose of the transferred possession.

The first sale after completion of the construction of a building is also considered as the supply of goods.

The supply of services is a transaction based on activities carried out by an entity for a consideration. They include the activities of self-employed individuals, the transfer (sale) of any obligations, rights or intangible assets, obligations to refrain from activities or to accept any activity, as well as the lease of goods. Personal (self)- consumption is the supply of one's own goods and services to an entrepreneur, his family members, employees or other persons free of charge.

 

2.3 Is VAT (or any similar tax) charged on all transactions or are there any relevant exclusions?

A number of goods and services are exempt from VAT, e.g. certain services with an educational value or cultural function, insurance services, the sale of land and lotteries.

2.4 Is it always fully recoverable by all businesses? If not, what are the relevant restrictions?

VAT taxpayers are entitled to deduct the tax paid on their supplies (input VAT) from the tax which they charge their customers (output VAT), if those incoming supplies ensure the entrepreneurial activity of the taxpayer.

If the goods acquired and services received are used for the carrying out of both taxable and non-taxable transactions, and separate accounting for such goods and services has not been ensured, the part of input value added tax to be deducted during the taxation period shall be calculated on the basis of the proportion between taxable and non-taxable transaction.

2.5 Are there any other transaction taxes?

Customs duties are taxed in certain cases of import and export.

2.6 Are there any other indirect taxes of which we should be aware?

Yes. Excise tax is applied to alcohol, tobacco, cars, fuel as well as to products for heating. Natural resources tax is applied to extraction of natural resources, pollution of environment, sale of goods detrimental to environment, sale of tableware and packing.

Gambling and lottery tax is levied on business entities that have obtained gambling licenses. Customs duties are generally payable for goods imported from outside EU.

 

 

3 Cross-border Payments

3.1 Would there be any withholding tax on royalties paid by a local company to a non-resident?

Yes. A withholding tax of 10% is applicable to royalties paid to non-residents.

However, if the tax treaty provides a lower rate than the domestic rate, the tax treaty rate may be applied if before the payment, a residence certificate is obtained and other formalities in relation to decrease of the withholding tax complied are with.

3.2 Would there be any withholding tax on interest paid by a local company to a non-resident?

Withholding tax in amount of 10% shall be calculated on interest paid to related parties - non-residents.

However, if the tax treaty provides a lower rate than the domestic rate, the tax treaty rate may be applied if before the payment residence certificate is obtained and other formalities in relation to a decrease of the withholding tax are complied with.

3.3 Is any withholding tax imposed on dividends paid by a locally resident company to a non-resident?

According to the law “On Corporate Income Tax”, withholding tax in amount of 20% is applicable to dividend payments to nonresidents.

The tax treaties may provide different tax rates.

Withholding tax is not applicable on dividend payments to residents of EU member states if the income tax has been paid in such a member state. Currently, withholding tax rate is 20% on dividend distributions unless an applicable tax treaty provides a lower rate.

However, if the tax treaty provides a lower rate than the domestic rate, the tax treaty rate may be applied if before the payment residence certificate is obtained and other formalities in relation to decrease of the withholding tax complied with.

3.4 Does your country have transfer pricing rules?

In determination of taxable income, profit shall be increased by the difference rising from selling fixed assets or goods (products, services) if prices are lower than market prices and if the transaction partner is a related person or company, which is exempt from income taxes.

A related company is a company which is in the same group of companies. A group of companies consists of a principal company and subordinated companies. A principal company is a company which is a resident of Lithuania, a resident of an EU member state, or a resident of a state with which Lithuania has concluded a tax treaty.

 

Transactions with low tax counties are always considered as transactions with related parties and payments to low tax countries are ordinarily subject to 15% withholding tax.

 

 

4 Tax on Business Operations.

4.1 What is the headline rate of tax on corporate profits?

Corporate income tax in Lithuania is 15%. A reduced 5 % rate is applicable to small companies where average number of employees does not exceed 10 and annual income of the company does not exceed 500 000 LTL.

4.2 When is that tax generally payable?

The tax year is generally the calendar year, but on company’s request the Tax Office can stipulate another tax year of 12 months.

The annual income declaration must be filed no later than in five months after the financial year-end.

The tax shall be paid no later than by the first day of the tenth month of the next financial year.

4.3 What is the tax base for that tax (profits pursuant to commercial accounts subject to adjustments; other tax base)?

According to the law “On Corporate Income Tax”, companies registered in Lithuania are subject to tax on their world-wide income.

Non-resident companies without a permanent establishment in Lithuania are subject to tax on their revenue in Lithuania.

Non-resident companies operating through a permanent establishment in Lithuania are subject to tax on revenue gained by that permanent establishment, as well as revenue independently obtained abroad by the permanent establishment.

If a non-resident company engages directly in business activities that are similar to the business activities performed by its permanent establishment in Lithuania, income derived from the non-resident company's activities is included in the taxable income of the permanent establishment.

Resident companies are those that are established or registered, or required to be established or registered, in accordance with the law.

All other companies are considered to be non-resident companies.

Taxable income is the profit or loss reported in a company's profit or loss statement, prepared in accordance with the law “On the Annual Report of Companies” and subject to the adjustments for non-deductible costs and depreciation.

4.4 If it otherwise differs from the profit shown in commercial accounts, what are the main other differences?

Profit shown in commercial accounts is adjusted by several positions. Below are the main differences by which taxable income differs from commercial accounts.

Profit has to be increased by: depreciation of fixed assets and written-off intangible assets shown in the annual report; the total of penalties arising from contracts; payments to non-residents if no withholding tax is paid; reserves for bad debts; expenses related to securities which are in public circulation; interest in excess of admissible amounts (thin capitalisation); differences between transaction values and market values and differences in the value of goods (production, services).

Profit has to be decreased by: total depreciation of fixed assets and intangible investments according to the tax laws; real estate tax; duties and taxes on gambling and lotteries; total of bad debts, if the debtor has been declared bankrupt by the courts; decreases in reserves for bad debts compared to the previous tax year; dividends received; income from securities which are in public circulation and late payment fees for taxes which are subsequently decreased.

4.5 Are there any tax grouping rules? Do these allow for relief in your jurisdiction for losses of overseas subsidiaries?

Since 2010 companies within a corporate income tax group are allowed to transfer loss to profitable group companies in this way leveling the tax burden. To qualify for group relief, the parent company has to own at least 2/3 of subsidiaries and the parent-subsidiary relationship has to exist for the entire financial year. The head company or the sub-company for group purposes may be located in EU countries, if this company is not recognized as a non-EU tax resident based on a double tax treaty.

If companies, whose tax group is located in the EU, have losses (calculated according to the Lithuanian legislation) and it is not possible to carry forward losses it is not permitted to transfer losses to another company located in the home country; however it is possible to reduce taxable income of the Lithuanian company (in the same tax group) by an amount which does not exceed losses of the company from which losses are transferred.

4.6 Is tax imposed at a different rate upon distributed, as opposed to retained, profits?

Tax is not imposed at a different rate upon distributed, as opposed to retained, profits in Lithuania.

4.7 What other national taxes (excluding those dealt with in “Transaction Taxes”, above) are there - e.g. property taxes, etc.?

In addition to the above mentioned taxes, Lithuanian laws determine real estate tax at the rate of 0,3 - 1%, land tax, gambling tax, natural resources tax, excise tax.

4.8 Are there any local taxes not dealt with in answers to other questions?

Inheritance tax is 5% or 10% from the value of the inheritance, depending on inheritance value.

 

Corporate income tax at a glance

 

Corporate income tax rate %	15 or 5[1]
Withholding tax (%)
Dividends	20 or 0 to EU or EEA
Interest to related parties	10 or 0 to EU or EEA
Management (consultancy) fees	0
Royalties	10 or 0 to EU or EEA
Payments to low-tax countries	15
Net operating losses (years)
Carry back	0
Carry forward	indefinite