Doing business in Lithuania - Tax and legal guide 2019 - EY
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Doing business in Lithuania Tax and legal guide 2019
1 Country overview...........................................4
1.1 Geography
1.2 Population and language
1.3 Governmental structure
1.4 State holidays
1.5 Economy
2 Investment environment.............................8
2.1 General principles
2.2 Legal regulation of import and export
Contents
3 Business entities.........................................12
4 Taxation.........................................................16
4.1 International issues
4.2 Tax administration
4.2.1 Corporate taxes
4.2.2 Value added tax
4.2.3 Personal income tax
4.2.4 Health insurance contributions
4.2.5 Social insurance
4.2.6 Other taxes
4.3 Immigration and permits
5 Business services........................................34
Addendum.....................................................38
EY in the Baltic States..............................40
Doing business in Lithuania
Dear Reader,
Thank you for taking time to get acquainted with this guide containing a comprehensive
tax and legal analysis of business environment in Lithuania aimed to help you navigate
through the landscape of the Lithuanian tax legislation.
Whilst we tried to briefly touch upon all important questions you as an investor may
or have already encountered in the process of running your business in our country,
we realize that it covers only the tip of the iceberg. The business and tax landscapes
change rapidly, and the pace and complexity of change continues to increase. We can
help you navigate this shifting landscape. Governments are tempering the need for
revenue with increased competition for labor and capital. Tax authorities are adapting
their enforcement strategies, focus and policies in response to the changing dynamics
of business. Companies are balancing competing priorities, ensuring they maintain
compliance while adding value. With more than 25 years of experience in the Baltic
States, we can assist you with these critical issues in today’s tax environment.
In our team we have many seasoned professionals in domestic and international direct
taxes, VAT, excise and customs duties, human capital, transfer pricing, transaction
tax structuring and tax due diligence, EU tax law and practice, transaction, corporate
and employment law, who are equipped with deep institutional knowledge, ability
to coordinate activities cross-border in various market sectors and the best practice
tools to deliver seamless, consistent and high-quality professional services to public
and private sector clients and NGOs. As the pan-Baltic leader and one of the global
leaders in professional services (audit, accounting, tax, legal, compliance and reporting,
business and transaction advisory services), we aim to help our clients and the societies
we work in to respond to unprecedented challenges of today’s economic environment.
We hope that this guide will help you better understand the advantages of doing
business in Lithuania and the Baltic region! Contact us — your source for global and
Baltic tax and business solutions!
Leonas Lingis
Baltic Tax & Law Services Leader
Subscribe to EY vedlys — all the most up-to-date tax, accounting and legal news and our
consultations in one place [available in the Lithuanian language only]:
https://vedlys.ey.com
3
overview
Country
Geography
Population and language
Governmental structure
State holidays
Economy
4
Lithuania at a glance
Area 2
65,300 km
GMT
Vilnius
EU Euro OECD
membership currency membership
May January May Leading industries
2004 2015 2018
Services
Manufacturing
Financial services
Tourism
Population 2,790,842 Agriculture
5
Doing business in Lithuania
1.1 Geography 1.3 Governmental and laws. The citizens of the Republic
of Lithuania elect the President of
Lithuania is located on the eastern structure the Republic for a five-year term by
coast of the Baltic Sea with an area of universal, equal and direct suffrage, by
The legal system of the Republic of
65,303 sq. km and has common borders means of a secret ballot. The current
Lithuania is based on its Constitution
with Latvia in the north (588 km), President of the Republic of Lithuania,
adopted in 1992 by a referendum.
Belarus in the south-east (653 km), H.E. Dalia Grybauskaitė, was elected in
Pursuant to the Constitution, sovereignty
Poland in the south-west (104 km), and May 2009 and re-elected in May 2014.
shall be vested in the People and shall be
the Kaliningrad region of the Russian In Lithuania, the supreme executive
exercised either directly or through their
Federation, also in the south-west power is vested in the Government.
democratically elected representatives.
(249 km). The geographical centre of It is comprised of the Prime Minister
In Lithuania, the powers of the State are
Europe is 24 km to the north of Vilnius, and ministers. Upon the approval of the
exercised by the Seimas (Parliament),
which is the capital of Lithuania. Seimas, the President of the Republic
the President of the Republic, the
The climate in Lithuania is maritime Government, and the Judiciary. of Lithuania appoints and dismisses
/ continental. The average annual the Prime Minister. Upon the proposal
The supreme legislative power is
temperature is +6.1°C, the average of the Prime Minister, the President
exercised by the one-chamber Seimas;
temperature in January is –5.0°C, of the Republic of Lithuania appoints
its 141 members are elected for a four-
and the average temperature in July and dismisses ministers. The present
year term by universal, equal, direct
is +23.0°C. Government is made up of the coalition
suffrage and a secret ballot. The current
Seimas was elected in October 2016. of the Lithuanian Farmers and Greens
1.2 Population and The next elections to the Seimas will take Union and the Social Democratic Party,
is headed by the Prime Minister Saulius
language place in October 2020.
Skvernelis.
The President of the Republic of
Lithuania’s population is under 3 million. Lithuania is the head of the state. Lithuania is a member of the European
86.7% are Lithuanians, 5.6% are Polish, The President represents the Lithuanian Union (EU) and NATO.
4.8% are Russians, and 2.9% – other. state and performs the functions
The official language is Lithuanian. prescribed to him/her by the Constitution
Russians 4.8% Other 2.9%
Polish 5.6%
86.7%
Lithuanians
6
Doing business in Lithuania
1.4 State holidays
New Year 1 January
Day of Reestablishment of the State of Lithuania 16 February
Day of Restitution of Lithuania’s Independence 11 March
Easter and Easter Monday 21-22 April
International Labour Day 1 May
Midsummer Day 24 June
Day of the State (Coronation of King Mindaugas) 6 July
Assumption Day 15 August
All Saints’ Day 1 November
Christmas days 24 to 26 December
1.5 Economy
Type of economy
Lithuania’s geographical position in the The Republic of Lithuania has a wide
region enables the country to be active network of motorways with a high quality
both from the north to the south and maintenance and repair system.
from the west to the east directions, and
In the Baltic Sea region, Lithuania is
to use the advantages provided by its
establishing its role as one of the leaders
geographical position to the maximum
in the region, in particular by facilitating
extent possible. The Baltic region is
EU and NATO policy-making in regard to
a very important intersection point
its eastern neighbours, thus enhancing
for both transport and trade roads in
the security and stability in the entire
the middle of the European continent.
region.
Lithuania’s geographical position is
convenient for transit; two recognised
transport corridors of continental
importance cross the country’s territory.
The fact that Lithuania is a sea state
with an ice-free Klaipėda port that has
a modern container terminal is also
very important for the development of
transit. Moreover, at the end of 2014
a liquefied natural gas terminal started
operating in the port of Klaipėda.
7
environment
Investment
General principles
Legal regulation of import and export
8
Doing business in Lithuania
2.1. General principles the Republic of Lithuania has also their officials are compensated according
concluded around more than 50 bilateral to the procedure established by the laws
The legal system of the Republic of treaties on avoidance of double taxation of the Republic of Lithuania.
Lithuania recognises the generally of income and capital and prevention
accepted principles of the legal regulation of tax evasion. These treaties provide Foreign investment is subject to
of investments. The principle of equal for certain tax benefits for foreign protection in case of expropriation,
treatment means that both Lithuanian investment in the Republic of Lithuania. i.e. an object of investment may be seized
and foreign investors are subject to (expropriated):
equal business conditions pursuant Investment types
• Only according to the procedure
to the Law on Investment as well as The Law on Investment provides for the prescribed by laws
other legislation. The principle of equal following types of foreign investment in
• Only for public needs
protection means that the laws of the the Republic of Lithuania:
Republic of Lithuania protect rights and 1. Establishment of an undertaking, • Only for just compensation
lawful interests of both local (Lithuanian) acquisition of capital or a part thereof of
and foreign investors. Attention should an undertaking registered in the Republic
also be paid to the fact that the Republic Foreign investors are granted the right
of Lithuania
of Lithuania applies the principle of free to legal protection in case of violation
2. Acquisition of any type of securities of their rights and lawful interests.
access to all sectors of economy. Foreign
investment is permitted in all lawful 3. Building, acquisition of fixed assets or Investment disputes between foreign
commercial-economic activities, subject increase in their value investors and the Republic of Lithuania
to the restrictions prescribed by the laws 4. Lending funds or other assets to are resolved upon agreement of both
of the Republic of Lithuania, e.g. in the undertakings where the investor owns parties, by the courts of the Republic
area of defence. a part of the capital entitling it to control of Lithuania, international arbitration
the undertaking or exert a considerable institutions or other institutions. In case
International treaties influence upon it of investment disputes, foreign investors
The Republic of Lithuania has concluded have the right to directly address the
5. Conclusion and implementation
more than 50 bilateral international International Centre for Settlement
of concession, leasing contracts and
treaties concerning promotion and of Investment Disputes. The Law on
contracts of partnership between the
mutual protection of investments. Investment provides for the types of
government and the private sector
Usually such treaties establish a more investment incentives; however, such
favourable investment treatment on Investment protection investment incentives are only applicable
a mutual basis. It should be noted that and guarantees to the extent they are not in conflict with
most of the treaties on investment the EU legislation regulating state aid.
The laws of the Republic of Lithuania
promotion and protection do not provide protect investors’ rights and lawful
for an obligation of the Republic of interests. The laws of the Republic of
Lithuania to expand treatment, incentives Lithuania provide that an investor has
or privileges in respect of regulated the right to manage, use and dispose
investments provided for in a common of an object of investment and, upon
market, customs union, economic union, payment of the taxes prescribed by the
free trade zone or a regional economic laws of the Republic of Lithuania, to
development agreement that the country convert the profit owned by him into
belongs to or may belong to in the future, foreign currency and transfer it abroad
or to expand the provisions of a current without any restrictions. Damages
or future agreement regarding double inflicted upon the investor by unlawful
taxation with a third country. Moreover, actions of state or local authorities and
9
Doing business in Lithuania
2.2. Legal regulation of import and export
Principles of customs regulation temporary suspension of customs duties. Risk-based customs control
Being a member of the EU Lithuania Customs duties should not be paid for the Customs administration exercises
has harmonised its customs legislation goods, which are under transit or other modern risk analysis methods and audit
in accordance with the EU customs law. customs procedure and are not released based controls to control the cross-
Membership in the EU implies application for free circulation. Exemption from border flow of goods. The purpose of
of common rules at external borders of customs duties on import is provided to using risk management is to aim Customs
the union and prohibits applying customs such goods as personal belongings of control activities at risks rather than at
duties or quantitative restrictions on individuals who are changing their place randomly selected goods or declarations.
import and export between Member of residence and moving from a third Customs authorities should complete
States. The common rules comprise country to the EU, items imported in the the risk analysis prior to arrival of the
common tariff and all aspects of trade case of marriage, parcels of a low value goods and select goods or economic
policy, such as preferential trade, health for non-commercial purposes, equipment operators to be checked based upon
and environmental controls, the common related to education, science and commonly agreed standards, risk criteria
agricultural and fisheries policies as culture, goods intended for charity and or common priority control areas. The
well as integrated external trade policy philanthropic organisations as well as measures that the economic operators
measures. items imported for trade promotion, etc. themselves have taken to prevent risks in
Import of goods to Lithuania is also their business processes should also be
Lithuania is a member of the WTO. subject to other taxes, such as 21% of taken into account.
VAT and excise duties applied to ethyl
General rules on import and alcohol or alcoholic beverages, processed Pre-arrival and pre-departure
export procedures declaration
tobacco, energy products and electricity.
As a general rule, goods imported In order to enable proper risk analysis
Summarised information on tariff and
into Lithuania from third countries or and appropriate risk-based controls, an
non-tariff regulations (e.g., licenses)
exported out of the country should be obligation for economic operators to
applied to imports and exports to the
declared by providing customs with the provide pre-arrival and pre-departure
EU is provided in the TARIC database,
Single Administrative Document (SAD). information to customs authorities for
which is accessible on-line. Lithuania has
Currently, there are no duties on goods all the goods brought into or out of the
implemented a database similar to TARIC
exported from the EU, although they can territory of the EU is in force. Pre-arrival
named LITAR, which in addition provides
be introduced in response to the market and pre-departure information should
data on VAT and excise duties to be paid
conditions. be submitted electronically as summary
upon the import of goods to Lithuania.
Usually, customs duties become To apply the databases, the code of the entry or exit declarations.
payable upon import of goods into Combined Nomenclature of the goods
the EU, except when goods originate imported or exported should be entered.
in a preference country or qualify for
10Talent
With our highly-talented
self-starters – exceeding
expectations is a standard
practice.
Electronic customs Authorised economic operator should be recognized by the other
To facilitate import or export procedures (AEO) Member States as well as by the USA,
and to reduce compliance costs as well China, Japan, Norway, Switzerland
Lithuania, as well as other Member and Andorra. If the economic operator
as the time spent for customs clearance,
States, grants the status of AEO to performs its customs activities or a part
the European Parliament and the
any economic operator that meets of them in Lithuania, the application for
Council have introduced a decision on
the common criteria relating to the AEO status can be lodged to the Customs
a paperless environment for customs and
operator’s control systems, financial Department of Lithuania. It is important
trade. Lithuania has already implemented
solvency and compliance records. AEO to note that as of 1 May 2019, some of
the New Computerised Transit System,
status confers the right to benefit from the customs simplifications will only be
the 2nd phase of the Import Control
the simplification of customs compliance, granted to the economic operators that
System and the 3rd phase of the Export
customs controls or both. The status have the AEO status.
Control System.
once granted by one Member State,
1112
Business
entitiesDoing business in Lithuania
Principles Registration of entities Personal enterprises
The principle of personal freedom All entities together with all other legal An individual enterprise is owned by
to engage in economic–commercial persons are registered with a unified a single natural person. The owner
activities means that natural persons Register of Legal Persons of the Republic of an individual enterprise may not
in Lithuania may engage in economic of Lithuania administered by the State own another individual enterprise.
activity with or without incorporating Enterprise Centre of Registers. A legal An individual enterprise is a legal person
a company. All the legal entities (except entity registered with the Register of of unlimited liability and its assets are
for personal companies and partnerships) Legal Persons is issued a certificate of not separated from its owner’s assets.
are limited liability legal persons liable for a legal person of an established form and The owner is liable for the obligations of
their obligations by the assets owned by allocated a legal person’s code. the enterprise with all of his property.
or trusted to the company, thus ensuring The Civil Code, the Law on Individual
the principle of separation of the assets Public and private limited liability Enterprises and other laws, as well as the
of a legal entity from the assets of its companies regulations of the individual company
incorporators and owners. The principles Public and private limited liability regulate the establishment, liquidation
of freedom of companies to establish companies (hereinafter jointly referred and activities of individual enterprises.
branches and representative offices and to as “company”) are enterprises the
enter into associations are also ensured authorised capital of which is divided Partnerships
in Lithuania. into shares. They are limited liability Partnerships may be general and limited.
private legal persons and their assets A general partnership is an enterprise
are separated from their shareholders’ of unlimited liability established on the
The following entities with the status
assets. The company is liable under basis of a partnership agreement by
of legal persons may be presently
its obligations only by its own assets. joining the property of several natural or
established in the Republic of Lithuania:
• Public or private limited liability Shareholders are liable under the legal persons into the joint and several
company company’s obligations only within ownership in order to engage into
the amount, which they must pay for economic–commercial activities with the
• Individual (personal) enterprise
shares. The authorised capital of a public common name of the firm.
• Partnership (general or limited) company may not be lower than kEUR The limited partnership is also a legal
• Micro company 25. Its shares may be distributed and person of unlimited liability; however, its
traded publicly. The authorised capital of assets are not separated only from the
• Professional law partnership a private company may not be lower than property of the general members thereof.
• Agricultural company kEUR 2,5. The general members of the limited
• Co-operative company The general meeting of shareholders is partnership are jointly and severally
the supreme body in a company; its other liable with all of their property for the
• European company
management bodies are the supervisory obligations of the limited partnership,
• European economic interest grouping council, the board and the manager. also after its liquidation, whereas limited
• European co-operative company The mandatory bodies of a company are members are liable only for the share of
the general meeting of shareholders and their property that is transferred for the
• Public legal entities (state enterprise,
the manager. joint activity of the partnership under the
municipal enterprise, etc.)
agreement.
13Micro company Agricultural companies The subscribed capital of an SE may not
A micro company is a limited liability legal An agricultural company is an enterprise be less than kEUR 120. Lithuanian public
entity that can only be established by established by natural and legal persons and private limited liability companies
natural persons; the number of founders under an incorporation agreement, may incorporate an SE. An SE comprises
can be up to 10 persons. The micro where income from agricultural a general meeting of shareholders,
company is intended to promote small production and services rendered to a supervisory council (or another
business; therefore, in order to establish agriculture constitute over 50% of supervising body), a board and
a micro company, there is no statutory the total income from sales during a manager. The obligatory bodies are the
capital requirement, also, contributions the business year. There are two general meeting of shareholders and the
in kind are permitted. groups of persons participating in the manager. Employees of an SE are entitled
company’s management: members to participate in the management of the
State and municipal enterprises and stakeholders. An agricultural SE and in adoption of decisions vital to
State or municipal enterprises are company must have at least 2 members. the operations of the company.
limited liability legal persons the assets An agricultural company is a limited
European economic interests
whereof are owned by the Republic of liability legal person. It may be founded
grouping (EEIG)
Lithuania or a respective municipality. by Lithuanian and foreign natural and
EEIG is an unlimited liability private
State and municipal enterprises manage, legal persons. An agricultural company
legal person. The purpose of EEIG is to
use and dispose of the enterprise members’ meeting is the supreme
facilitate or develop economic activities
assets by the right of property trust. body in the company. An agricultural
of members and to improve or increase
The purpose of state and municipal company’s management bodies are the
the results of those activities: an EEIG
enterprises is provision of public board and/or the administration.
may not carry out professional activities
services, manufacturing products and European company
in respect of third persons, hold shares
other operations in order to meet public A European company (SE or Societas of any kind in another undertaking,
interests. State and municipal enterprises Europaea) is a limited liability legal exercise, directly or indirectly, a power
are public legal persons. person established within the territory of of management or supervision over its
the Community as a public limited liability members’ activities, and employ more
Cooperative companies
company. Its purpose is to merge or form than 500 persons.
A cooperative company is an enterprise a holding of companies governed by the
established by natural and/or legal law of different Member States. SE with Both private and public legal persons
persons according to the procedure the registered office in Lithuania shall as well as other organisations with the
prescribed by laws in order to satisfy be subject to the legal regulations of the registered office within the territory of
the economic, social and cultural needs Republic of Lithuania mutatis mutandis the Community, and private persons
of its members. Its members contribute regulating the activities of public limited engaged in industrial, commercial,
funds to form its capital, share risks and liability companies, unless stipulated craftsmanship and agricultural activities
benefits according to the turnover of the otherwise in specific legislative acts. or provision of professional or other
goods and services of its members with
services in the EU may incorporate an
the cooperative company and they are
EEIG. At least two promoters (legal
actively involved in the management of
such company.
14entities or natural persons) operating Branches and representative they can obtain an operating license
in different EU Member States must offices of enterprises and manage themselves and those
establish an EEIG. The bodies of EEIG In Lithuania, enterprises (including companies are called the investment
are the meeting of members and the foreign enterprises) may establish their company – manager. Though, in order to
manager. branches for performing some elected establish an investment fund, first of all
or all functions as well as representative it is necessary to set up a management
European cooperative society company (i.e. to establish a UAB or an
offices which have the right to represent
(SCE) AB and obtain a management company
and protect the interests of the legal
A cooperative society may be set up person, to conclude agreements and operating license issued by the Bank of
within the territory of the EC in the form perform other actions on behalf of Lithuania). It should be noted that the
of a SCE on the conditions and in the the company that established the minimum amount of authorized capital
manner laid down in the regulations representative office, to execute export for a management company is kEUR
set forth in the legal acts of EU and and import operations, but only between 125. The investment company is subject
Lithuania. An SCE has as its principal the representative office and foreign to high net asset value1 requirements
object the satisfaction of its members’ legal persons or other organisations (it has to reach the kEUR 600 within the
needs and/or the development of which established the representative first 12 months of registration, while the
their economic and social activities, in office or between such representative investment fund must reach kEUR 300 in
particular through the conclusion of office and enterprises, institutions or the first 6 months).
agreements with them to supply goods organisations related to it. It should be
or services or to execute work of the kind Trade unions
noted that neither the branch nor the
that the SCE carries out. representative office has the status of an Trade unions are legal entities where
independent legal person. they are founded on the basis of the Law
An SCE may be formed by natural or on Associations, the Labor Code, the Law
legal persons. The subscribed capital Collective investment on Trade Unions and their own statutes.
cannot be less than kEUR 30. The undertakings The founders of the trade union may be
subscribed capital of an SCE is divided citizens of the Republic of Lithuania and
Collective investment undertakings
into shares. A member of an SCE foreigners with working legal capacity.
are divided into investment funds
is liable only for the amount he has Those entities are materially independent
or investment companies which
subscribed, unless otherwise provided of the employers and seek to represent
are established with the purpose to
by the statutes of the SCE when the and defend the employee’s interests.
accumulate funds by issuing investment
SCE is formed. The bodies of the SCE This is a non-state control to ensure
units or shares. Investment funds might
are the general meeting of members that the employees’ rights enshrined
be open-ended or closed-end types.
and either a supervisory body and in the law are properly secured, and
An investment company, unlike an
a management body (two-tier system) or that imperative prohibitions are not
investment fund, is a limited liability legal
an administrative body (one-tier system) violated. Trade unions are set up on
entity. Moreover, investment companies
depending on the form adopted in the a voluntary basis and operate freely and
do not necessarily have to be managed
statutes. independently.
by the management companies because
1 The unit value of investment fund units is determined by dividing the net asset value by the total number of units of the investment fund in circulation. The Net Asset
Value is the difference between the value of the assets constituting the investment fund and the long-term and short-term financial liabilities of the investment fund.
15Taxation
International issues
Tax administration
Corporate taxes
Value added tax
Personal income tax
Health insurance contributions
Social insurance
Other taxes
Immigration and permits
16Doing business in Lithuania
4.1. International issues Investment and tax benefits used for financing activities related to
public interest which was received from
Free economic zones (FEZ) the state and municipal budgets, state
Treaties on avoidance of double
Lithuanian and foreign enterprises monetary funds, EU and other financial
taxation
may develop their business in FEZ. support schemes.
FEZ enterprises may enjoy the following
Lithuania has concluded 55 applicable incentives: Shipping entities
bilateral treaties on avoidance of double • If capital investments reach the Income received by a shipping entity
taxation. All the treaties are based on the amount of EUR 1 million, and at least from international carriage by sea-going
OECD/UN model agreement: 75% of the company’s income during vessels and activities directly related
the tax period that the limit of EUR thereto may be taxed with a fixed-rate
1 Armenia 29 Kuwait 1 million was reached in consisted of CIT in case it meets the requirements
2 Austria 30 Latvia income from various activities except
defined in the provisions of the Law on
3 Azerbaijan 31 Luxembourg of trading, the company is granted
CIT. After a shipping entity acquires the
4 Belarus 32 Macedonia exemption from profit tax for the first
right and chooses to pay a fixed-rate
5 Belgium 33 Malta 10 tax periods (years), whereas in the
subsequent 6 tax periods (years) it CIT, the chosen rate shall be applied
6 Bulgaria 34 Mexico
is subject to a 50% reduction in CIT. for a period not shorter than until
7 Canada 35 Moldova
Starting with 2017, companies can 31 December 2016.
8 China 36 Netherlands
37 Norway also enjoy this exemption if capital Fixed CIT is calculated with respect to
9 Croatia
investments reach the amount of net tonnage of the fleet by applying the
10 Cyprus 38 Poland
kEUR 100, the average number of 15% CIT rate to the tax base without any
11 Czech Republic 39 Portugal
employees during a tax year is no deductions.
12 Denmark 40 Romania less than 20 and at least 75% of the
13 Estonia 41 Serbia company’s income is received from the Scientific research and
14 Finland 42 Russian provision of services. experimental development
15 France Federation
• Dividends earned by investors from When calculating CIT, the scientific
16 Georgia 43 Singapore
investments into a FEZ are exempted research and experimental development
17 Germany 44 Slovak Republic
from profit tax. costs, except for depreciation or
18 Greece 45 Slovenia
19 Hungary 46 Spain • Exemption from RET may be applicable amortization costs of fixed assets,
20 Iceland 47 Sweden irrespective of the amount of the could be deducted three times from
investment in a FEZ. income for the tax period during which
21 India 48 Switzerland
22 Ireland 49 Turkey they were incurred, if the performed
Small enterprises scientific research and/or experimental
23 Israel 50 Turkmenistan
An enterprise with gross income below development works are related to the
24 Italy 51 Ukraine
kEUR 300 during a tax year and with usual or intended activities of the entity
25 Japan 52 United Arab
the average number of employees not that generated or will generate income
26 Kazakhstan Emirates
exceeding 10 has the right to apply or economic benefit.
27 Kirghizstan 53 United Kingdom
a 0% tax rate for the first tax year and
28 Korea 54 United States
5% CIT for further periods (the standard Patent box regime
55 Uzbekistan
rate is 15%). The entity may apply 5% rate to the
A 0% rate only applies to small entities taxable profit from the use, sale or other
The treaty on avoidance of double owned by individuals and provided that transfer of an intangible asset, in case
taxation and the prevention of tax in further three tax periods such small the following conditions are met:
evasion was signed between Lithuania entity does not stop its activity, is not • The taxpayer created the intangible
liquidated, reorganized or its shares are asset while engaged in qualifying
and Liechtenstein on 15 February 2019.
not transferred. scientific research and/or experimental
The treaty will enter into force following
development activities
the exchange of ratification instruments. Non-profit entities can reduce its taxable
profit by the funds directly allocated in • Income from the use, sale or other
the current tax period or to be directly transfer of the intangible asset is
received only by the entity that created
allocated in two subsequent tax periods
it and only that entity incurs all related
for financing activities related to public
expenses
interest. The taxable profit shall not be
reduced by the amount of funds directly • The intangible asset is protected by
copyright or a patent
17Doing business in Lithuania
Relief from CIT for investments Accounting and audit Fines currently applicable in case of
violations are 10–50% of the amount of
The provisions of the Law on CIT allow Apart from certain exceptions applied
tax underpayment. It is notable that a tax
reducing the taxable profit (up to 100%) to small and/or unlimited liability
dispute may be a long and expensive
by expenses which were actually incurred enterprises, accounting must be based
process, as it usually requires judicial
in the acquisition of investment assets. on the accrual principle. The Bank of
proceedings.
If the expenses to acquire investment Lithuania requires that banks in Lithuania
assets exceed 50% of the taxable profit, should present accounts according to the Transactions with associated
the part of expenses exceeding the IFRS. persons and price adjustment
taxable profit can be carried forward for Tax laws are strict about transactions
Enterprises may choose to present
the next four taxable periods. This relief with associated persons located both
accounts according to IFRS or BAS.
may be applied to the expenses which in Lithuania and abroad. Therefore, it
Enterprises whose securities are traded
were incurred during the taxable periods is advisable to maintain arm’s length
in regulated markets shall present
of 2009-2023. business relations based on market
financial statements according to IFRS.
The investment project means prices.
Audit is mandatory for all public and
investments into certain categories Starting from 1 January 2019,
private companies meeting two of the
of fixed assets, which are required Lithuanian entities and foreign entities
three below listed criteria:
for manufacturing or supply of new • R
evenues from sales exceeded kEUR that operate in Lithuania through
products (services), increasing the 3,500 over the past accounting year permanent establishment must prepare:
production volumes, implementation • A
return reporting the transactions
of a new process of production (supply • O
ver the accounting year, the average
entered into with associated parties,
number of employees was at least 50
of services), essential changes of an together with their profit tax returns,
existing process (part of the process), • A
ssets on the balance sheet exceeded if the total value of the transactions
implementation of new technologies, kEUR 1,800 exceeds kEUR 90
which are protected by international • L
ocal file, if the revenues exceed
patent law. The investments with the 4.2. Tax administration EUR 3 million for the tax year
intention to replace the existing fixed It is necessary to follow all the applicable preceding the tax year during which
assets with similar ones cannot be transactions with related parties are
Lithuanian requirements for accounting
treated as an investment project. undertaken
and bookkeeping of other enterprise
documents. Documents must be kept in • M
aster file, if the revenues exceed
Relief for financing production of EUR 15 million for the tax year
Lithuanian. If necessary, documents may
a film preceding the tax year during which
be kept in two languages. Documents
The provisions of the Law on CIT transactions with related parties are
must contain certain mandatory data of
allow a Lithuanian entity or a foreign undertaken
the parties to the transaction. Invoicing
entity’s permanent establishment in
procedures have been harmonised with According to Lithuanian transfer pricing
Lithuania to reduce its taxable profit
the EU directives: electronic invoices rules, data submitted in the documents
and profit tax payable by the amount of
may be used, the buyer may issue relating to the controlled transactions
financing allocated to the production of
invoices, and a favourable procedure of shall be prepared and updated each tax
a qualifying film or its part up to 75% of
invoice storage has been introduced. period. Failure to meet the statutory
the payable profit tax. The exceeding
If mandatory data is missing, such requirements related to transfer pricing
part can be carried forward to the two
documents are not recognised for tax documentation may result in a fine of up
subsequent years.
purposes. to EUR 6,000. The Tax Inspectorate may
Other incentives and reliefs Tax payers have the right to apply recalculate the tax base and redefine the
for a binding ruling or for an advance transaction itself for tax purposes, if it
The majority of municipalities in
pricing agreement (APA). If the has grounds to suspect intentional tax
Lithuania offer land tax reliefs and in
tax administrator, after analysis of evasion. OECD guidelines for transfer
some cases provide financial aid to
the application, decides to approve prices are applied in practice.
businesses for creating new jobs.
the proposed application of the tax All Lithuanian tax resident entities that
The RET in Lithuania varies from 0.3 to are part of a multinational enterprise
legislation provisions to the forthcoming
3% of the taxable value. Municipalities group with the annual consolidated
transaction, then the tax administrator
may apply the tax rate within these group revenue equal to or exceeding
undertakes to adhere to the ruling or
limits. EUR 750 million have to comply with
APA, when reviewing whether this tax
Cooperative entities engaged in payer correctly charges, reports and pays the country-by-country reporting (CbCR)
agricultural activities earning more than taxes as defined in the ruling or APA. requirements for fiscal years starting on
50% of income from these activities, are The ruling or the APA shall be applicable or after 1 January 2016.
subject to taxation at 5% CIT rate. for a period not longer than 5 years.
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4.2.1. Corporate taxes An enterprise is considered to be (if any). An entity registered with the
a resident of Lithuania if it was Register of Taxpayers is provided with
Residents and registration incorporated and registered in a tax payer identification number.
of taxpayers
Lithuania. An enterprise registered Any changes in the data presented upon
Both Lithuanian and foreign taxable with the Register of Legal Persons is registration of the enterprise must be
entities registered in Lithuania must automatically registered as a taxpayer, reported within 5 business days.
pay taxes in Lithuania on profits and health insurance and social security
capital gains earned both in Lithuania contributions payer within 2 business Permanent establishment
and abroad. Withholding taxes paid days. After receiving the announcement A foreign enterprise is considered to have
abroad and not exceeding the tax from the district state tax inspectorate a permanent establishment in Lithuania
payable in Lithuania on foreign income about the entity’s registration with the if:
may be credited. Moreover, reliefs Register of Taxpayers, a special form • I t is permanently engaged in
may be applied according to applicable commercial activity in Lithuania or
must be filled in and submitted to the
international treaties.
district state tax inspectorate regarding • I t is engaged in commercial activity
Enterprises without a residence in additional information about the entity through a dependent agent or
Lithuania (non-residents) are subject and its structural subdivisions including
only to a few taxes and only in regard to • I t uses a construction site, building,
the information regarding the entity’s
construction, equipment, etc., or
certain income originating in Lithuania permanent establishments abroad
(see chapter Withholding taxes). • I t uses equipment or construction,
including bores or ships, for exploration
and extraction of natural resources
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Usually permanent establishments are Having in mind that this income would Collective investment
subject to the same tax requirements as not be subject to CIT in Lithuania, undertakings
other enterprises with certain exceptions a Lithuanian entity, while calculating Income, dividends and capital gains of
(deduction of administrative expenses its annual payable CIT in Lithuania, will collective investment entities and venture
of the head office, etc.). No tax is not be able to deduct the amount of CIT and private capital entities is tax exempt,
applied on repatriated profit of branches paid by its permanent establishment as long as the source of income or the
(permanent establishments). in a foreign country. In addition to this, final recipient of income is not located in
since the CIT payable in a foreign country a tax haven.
The exemption method is applied in
by the permanent establishment would
order to avoid double taxation of certain
be calculated taking into account its Financial and tax year
income earned by a Lithuanian entity
expenses incurred from the economic
through its permanent establishment, The financial and tax year coincide with
activity, such expenses would be treated
i.e. income from economic activity the calendar year. However, a different
as non-deductible expenses for the
earned through Lithuanian entity`s tax year may be established taking
Lithuanian entity.
permanent establishment is not into account the peculiarities of the
attributable to the entity`s tax base if the taxpayer’s activity. A taxpayer, upon the
below criteria are met: Taxation of partnerships and consent of the Tax Inspectorate, may
• T he permanent establishment is
personal enterprises have a different 12-month tax year, if this
established in a Member State of Partnerships and personal enterprises is necessary due to the seasonal nature
EEA or in a country Lithuania has are considered taxpayers and are of activity or if the group, to which the
taxed at the same rates as companies. taxpayer belongs, applies a tax year
an applicable treaty on avoidance
Partnerships are not transparent for tax different from the calendar year.
of double taxation with and
purposes.
• T
his income is subject to CIT or another
similar tax to it in the respective
country
20Doing business in Lithuania
Tax rate documented. Losses incurred in The following rules also apply:
transactions with related persons may • The entity is able to deduct exceeding
The standard profit tax rate applied to
not be deducted from taxable income if interest expenses up to EUR 3 million
legal entities is 15%. The available tax
benefits and reliefs are listed above, in the market price was not applied. • The entity is able to fully deduct
the Investment and tax benefits chapter. Payments to tax havens may be deducted exceeding interest expenses if its
only in case the Lithuanian enterprise financial results are included in the
Small enterprises with annual income not
can prove that certain conditions consolidated financial statements
exceeding kEUR 300 and the average
evidencing the economic basis of the of a group, and the equity-to-asset
number of employees not exceeding ratio of the entity is not more than
10 are subject to 0% profit tax rate for transaction were met.
2 percentage points lower than the
the first tax year (certain exceptions Other taxes (e.g., social insurance equivalent ratio of the group
apply) and a 5% profit tax rate for further contributions, RET, etc.) are also
• The amount of undeducted interest
periods. deducted from taxable income.
expenses may be carried forward for
For the purposes of calculating the an unlimited period
Calculation of taxable corporate tax liability, the Tax Authorities
• When the entity is a part of a group of
shall ignore an arrangement or a series
profit of arrangements which, having been
entities, interest deduction limitation
rule apply to all Lithuanian entities
put into place for the main purpose or jointly.
General principles one of the main purposes of obtaining
Taxable income is calculated by a tax advantage and are not genuine The exemption for the interest limitation
subtracting non-taxable income having regard to all relevant facts and rule applies for loans for long-term
(e.g., received insurance payments, circumstances. infrastructure projects, financial
forfeits, etc.), deductible expenses and institutions and insurance companies,
deductible expenses of limited amount Thin capitalization and entities with no related parties.
from the accounting profit. Interest is generally deductible on accrual
basis, if the borrowing finances the Depreciation and amortisation
Expenses may be deducted if they are
incurred in the ordinary business activity business and is at arm’s length. Following The object of depreciation (amortisation)
and are necessary to earn revenues or the Lithuanian thin capitalization rules, may be a certain unit of assets or a group
receive economic benefit provided that interest on shareholder and related party of identical units. Three depreciation
documentary evidence is presented. loans is deductible; however, interest methods are applied: straight-line,
on controlled debt as well as currency accelerated and production (the latter
Deductible expenses of limited amount
exchange losses on controlled debt are two are applicable only to certain types
are allowed only if they do not exceed
not deductible. A controlled debt exists of assets).
a certain limit and consist of the
when there is a debt to a controlling The selected depreciation method is
following: depreciation and amortisation,
lender, and debt to equity ratio exceeds applied to all the assets of the same type
business trips, representation expenses,
4:1 (only the exceeding part is treated as and may be changed only under certain
provisions for bad debts, expenses
controlled debt). The ratio is computed circumstances. The rates depend on
incurred for the benefit of employees
as of the end of the relevant tax year, but the useful life of the asset and may not
or their family members which are
the equity does not include the result exceed the maximum rates established
not subject to PIT, interest and similar.
for that year. A controlling lender is by the laws (minimum rates are not
Sponsorship generally reduces taxable
one that controls, directly or indirectly, established):
profit twice, provided it does not exceed
either more than 50% of the shares of
40% of the taxable profit. Scientific Used for
the borrower alone, or more than 10% Used for scientific
research and experimental development
alone and more than 50% together with ordinary research and
costs can be deducted three times business experimental
related persons. Members of the group of
from income in the tax period during development
a controlling lender are also controlling
which they were incurred, if the Type of asset Time (year)
lenders. If the borrower can prove that
scientific research and/or experimental Intangible
the borrowing occurred under arm’s 3-15 2-15
development works performed are assets
length conditions, thin capitalization New buildings
related to the ordinary or intended 8 8
rules will not be applied. and premises
activities of the entity that generate
Other
or will generate income or economic Interest limitation rule buildings and 15-20 15-20
benefit. premises
The positive difference between an
Non-deductible amounts include Computer
entity’s interest expenses and interest 3 2
equipment
dividends, limited deductions in excess, income shall be deductible only up to Vehicles 4-10 4-10
costs incurred outside of the usual 30% of the entity’s taxable EBITDA. Machinery and
business operations or inappropriately equipment
5-15 2-15
Other assets 4-6 2-6
21Doing business in Lithuania
Losses Capital gains Controlled foreign enterprises
Losses for the tax period, except for the Capital gains and losses are calculated The entity is considered to be
losses incurred as a result of disposals by subtracting the acquisition costs and a controlled foreign company (CFC)
of securities and/or derivative financial related expenses from sales proceeds. when the controlling person alone or
instruments, may be carried forward for Gain (loss) received from other sources together with related persons, directly
or indirectly, holds over 50% of the
an unlimited period of time, but such than transfer of securities and derivative
Lithuanian entity’s shares (interests,
carrying forward shall be terminated if financial instruments is viewed as
member shares). As a rule, permanent
the entity ceases its activities that gave operating profit or loss and taxed
establishment is also considered as
rise to the losses except for reasons according to the respective procedure. a CFC.
beyond its control. Starting from 2014 Losses from disposals of securities and
The CFC positive income shall be taxed in
the amount of loss brought forward shall derivative financial instruments may
Lithuania if:
not exceed 70% of the taxable profit be carried forward for 5 years to offset • T
he CFC is registered or organized in
for the current year. Losses incurred as gains derived from disposals of such a tax haven; or
a result of disposal of securities and/ items. Capital gains on the sale of shares
• T
he CFC’s passive income (interest,
or derivative financial instruments may of the company registered or organized
royalties, dividends) exceeds 1/3 of
be carried forward not longer than for in another way in an EEA country or
total CFC’s income and
5 consecutive tax periods, starting from another tax treaty country are exempt
the tax period following the tax period from tax if the following conditions are • The effective tax liability of the CFC
during which the losses were incurred. met: is less than 50% of the tax liability
• S hares have been held for at least that would have been applicable in
This limitation does not apply to financial
2 years and more than 10% of the accordance with the Lithuanian tax
institutions. Losses resulting from the
company’s shares have been held rules
use, sale or any other transfer of an
intangible asset where 5% tax rate has throughout that period or However, the CFC’s income shall not be
been applied (see section “Patent box • S
hares are transferred according to taxed in Lithuania if the CFC has enough
regime”) may be carried forward for the provisions of the law regulating staff and assets required to be engaged
an unlimited time, but such losses may reorganizations and more than in actual economic activity.
cover only the taxable profit from the 10% of the shares were held for
use, sale or any other transfer of the at least 3 years Return terms and payment
intangible asset. In case of transfer or During a calendar year, taxpayers must
In case the seller transfers shares to the pay advance CIT on a quarterly basis: by
reorganization of an entity, tax losses,
issuer of those shares, the above tax the 15th day of the last month of each
which were incurred by the acquired
privilege cannot be applied. quarter of the tax period.
entity during the accounting period, can
Losses from disposal of shares of The law specifies two methods that
be carried forward by the acquiring entity
subsidiaries registered in an EEA country companies may choose to calculate their
if certain criteria are met.
or in another tax treaty country, if shares advance income tax. The chosen method
Group loss relief have been held for at least 2 years must be applied consistently throughout
and the holding represents more than the year, but it can be changed once
An entity is entitled to transfer the tax in the tax year. The following are the
10% of the company throughout that
losses incurred to another Lithuanian period, cannot be carried forward, but specified methods:
group entity and reduce the taxable can be offset against the capital gains • T
he results of prior financial years.
profit if certain criteria are met. A foreign derived from disposals of securities and For a period of 1–6 months – based on
entity is allowed to transfer its losses derivative financial instruments. the CIT paid for the year before the
to a Lithuanian entity if the following previous year. For a period of 7–12
conditions are met: Dividends months – based on the CIT paid for the
• T
he foreign entity is treated as A 15% tax is applied to dividends received previous year.
a resident for tax purposes in both from Lithuanian and foreign • T
he forecasted profit tax of the current
a Member State of the EU enterprises. Withholding tax deducted year. The total of the advance profit
• T
he foreign entity is not allowed to and paid by a foreign enterprise from tax payments made during the tax
carry forward its losses in accordance the dividends of a Lithuanian company year must equal at least 80% of annual
with the legislation in the country of may be credited against the Lithuanian profit tax.
residence enterprise’s income tax. Dividends
received from Lithuanian and foreign If companies choose to pay advance
• T
ax losses transferred were calculated enterprises shall not be taxed if the income tax based on the results of
(recalculated) under the provisions of recipient thereof has owned no less than prior financial years, they must file two
the Lithuanian Law on CIT 10% of the shares for at least 12 months advance income tax returns. The first
(participation exemption rule). return covering the first six months
of the tax year must be filed by the
15th day of the third month of the tax
22Doing business in Lithuania
year. The second return covering the
remaining six months of the tax year
It should be noted that interest income of 4.2.2. Value added tax
the entities established in an EEA country
must be filed by the 15th day of the ninth or a tax treaty country are exempt from (VAT)
month of the tax year. taxation.
If the advance income tax payment is
A foreign enterprise operating in Registration for residents
based on the forecasted profit tax of the
a country that has a treaty with Lithuania Residents (both individuals and legal
current year, the advance income tax
on the avoidance of double taxation may entities) must register as VAT payers if
return must be filed by the 15th day of
the third month of the tax year. apply for tax relief, provided that it meets their income from economic activities
the following requirements: over a period of 12 months exceeds
Newly established enterprises are not
• A
long with the request to apply reliefs kEUR 45. There is no threshold for
required to pay advance income tax for
their first tax year after the enterprise provided for in the treaty, it presents voluntary registration.
was established. Advance payments a residence certificate (standard form) Persons (Lithuanian and foreign taxable
are not mandatory if the profit of the endorsed by the foreign tax authority person engaged in economic activity,
enterprise does not exceed kEUR 300 farmers subject to a compensatory
• T
he recipient of income is the
for the previous year. Advance income VAT rate and non-taxable legal entities
beneficial owner of the income
tax may be computed on the grounds of that are not obliged to register for VAT
forecasted CIT; however, the amount of • T
he transaction is carried out at arm’s purposes) must register as VAT payers
advance income tax over a tax year has length when the value of goods purchased
to be not less than 80% of the annual
• T
he income was not received via from other EU Member States exceeded
income tax.
its permanent establishment or kEUR 14 during the calendar year.
Companies must file annual income tax
returns with the Tax Inspectorate and permanent base in Lithuania The registration for VAT is also applicable
pay the tax by the 15th day of the sixth to collective investment undertakings,
If the Lithuanian Tax Inspectorate
month following the end of the tax year. which do not have legal entity status, but
requests additional information, such
Withholding tax act as investment funds (e.g., real estate
documents must be presented.
Apart from dividends (see above), investment fund). The management
Tax overpayment may be returned to company managing the investment fund
certain other income of non-residents
non-residents (under a standard request is solidarily responsible for the fulfilment
originating in Lithuania is taxed with
form). of VAT obligations.
a 15% withholding tax:
• I ncome from distributed profit (certain The Lithuanian enterprise is responsible
exception applies for distributed profit for computation and payment of Registration of foreign entities
of collective investment entities) withholding taxes. Moreover, the Enterprises and natural persons without
Lithuanian enterprise must present to a residence in Lithuania must register for
• I ncome from the sales, other transfer
into ownership or lease of property the territorial tax inspectorate a standard VAT or designate a fiscal agent in case
immovable by nature located on the monthly statement on the amounts paid they are going to engage in an activity
territory of the Republic of Lithuania and the tax deducted until the 15th day in Lithuania, which is subject to VAT.
of the following month. Sanctions are The requirement to designate a fiscal
• I ncome from performers activities
applied if the Lithuanian enterprise fails agent is not applicable to taxable persons
and sports activities in the Republic of
to compute withholding tax or reduces established in other EU Member States
Lithuania
taxes without a foreign resident’s who may be directly registered for VAT
• A
nnual payments to supervisory board certificate. in Lithuania or non EU entities acting via
members a fixed establishment.
The Multilateral Convention to Implement
Certain income of non-residents sourced Tax Treaty Related Measures to Prevent EU undertakings engaged in distance
in Lithuania is taxed with a lower Base Erosion and Profit Shifting (MLI) selling in Lithuania, i.e. bringing goods
10% withholding tax: entered into force in Lithuania on into Lithuania from another Member
• I nterest, except for interest on 1 January 2019. The MLI applies State and supplying them to private
securities issued by the Government on for bilateral tax treaties where both persons, taxable persons engaged in
international financial markets, interest Lithuania and the other party to the VAT-exempt activities (e.g., insurance
accrued and paid on deposits, and treaty have deposited their respective companies) or legal persons that are not
interest on subordinated loans, which ratification instruments. taxable persons (e.g., state and municipal
meet the criteria set down by the Bank
institutions) must register for VAT if their
of Lithuania
sales income from distance selling in
• R
oyalties Lithuania exceeded kEUR 35 during the
• C
ompensations for violations of current calendar year.
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