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.
Income of a foreign entity 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 profits; 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 sixth 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.
Non profit entity whose income over the taxable period does not exceed the maximum of EUR 300 thousand, the taxable profit, amounting to EUR 7,250 is taxed at a rate of 0 %, and the remaining part of taxable profit is taxed at a rate of 15 %, except for income directly allocated for financing of activities carried out when satisfying public interests.
If more than 50% of entity’s income during the taxable period comes from agricultural activities, including cooperative societies (cooperatives) income from the sale of their members’ agricultural products, taxable profit is taxed at 5% corporate tax rate.
Valuation of assets
- Buildings including renovations (own property) 8 to 20 years
- Plant and machinery 2 to 5 years
- Office equipment 3 to 6 years
- Cars 4 to 10 years
- Trucks and busses 4 years
- Software 2 to 3 years
- Goodwill 15 years
Assets should be depreciated down to a residual value.
Interest (thin capitalisation)
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.
Losses may be carried forward within the group companies under certain conditions: 1) on the day of transfer of the tax losses, the parent entity in the group of entities holds, directly or indirectly, at least 2/3 of shares (interests, member shares) or other rights to distributable profits of each of the subsidiaries taking part in the transfer of the tax losses; and2) tax losses are transferred between the entities within a group of entities which have been part of that group for an uninterrupted period of at least two years calculating until the day of transfer of the tax losses; or 3) tax losses are transferred or taken over by the entity (entities) of the group of entities which have been part of the group since the date of the entity’s (entities’) registration and will be part of the group of entities for an uninterrupted period of at least two years calculating from the date of the entity’s (entities’) registration.
A foreign entity may transfer tax losses (or part thereof) to a Lithuanian entity only where: 1) the foreign entity is a resident in EU Member States for tax purposes, which takes on one of the forms of business organisation listed in Annex to Council Directive 90/434/EEC and which is subject to tax specified in Article 3(c) of Directive 90/434/EC; and 2) tax losses transferred by the foreign entity may not be carried forward to the following fiscal year (or deducted from its income (profit)) under the requirements of legal acts of the EU Member State a resident of which the transferring foreign entity is for tax purposes, and 3) tax losses transferred by the foreign entity have been calculated (recalculated) in accordance with the provisions of local CIT Law.
Tax returns and Reports
- annual corporate profit tax return;
- advance corporate profit tax return;
- tax return on income (amounts) paid to a foreign entity and on corporate profit tax calculated and entered in the budget;
- corporate profit tax return of a foreign entity carrying on its activities in the Republic of Lithuania (permanent establishment);
- tax return on corporate profit tax calculated and paid in respect of the dividends received and paid out;
- annual fixed corporate profit tax return.
Supplements to the annual corporate profit tax return:
- reports on mutual transactions or economic operations between associated entities;
- reports on controlled and controlling entities and individuals.
- report on derivative financial instruments;
- other returns and reports in the form established by the tax authorities.
0% withholding tax is imposed on royalties and compensations for violation of the copyright or neighbouring rights paid to the EU registered company if the paying and receiving companies or the third EU company owning them both are related at least 2 years with holding of at least 25% in the capital.
15% withholding tax is imposed on income of foreign entities received on distributed profits (without any deductions), 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.
The transfer pricing documentation must be prepared for each controlled transaction and must be updated during each tax period.
According to the legislation, 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.
Advance pricing agreements (APA) have entered into force in the Lithuanian legal system since 1 January 2012. APA is an agreement between a taxpayer and tax authority concerning the transfer pricing methodology and will cover not more than 5 years. APA is binding on the tax authorities, but not on the taxpayer. Through the APA, the tax authority accept not to look for a transfer pricing adjustment for enclosed transactions as long as the taxpayer obey to the terms and conditions as agreed by the APA. The tax authority has to make a decision within 60 calendar days (until 1 July 2013 applications will be dealt with within 90 calendar days), in addition to the possibility of extension for a further 60 calendar days.
The tax authorities shall approve or refuse to approve a taxation option provided by the tax payer, however, if the taxation option was not approved, the tax authorities are not required to provide the tax payer with suitable taxation option. It is noteworthy that applications have to be submitted for the prospective transactions only and shall not include considerations on the tax rate.
The tax authorities must follow the approved taxation option for the period set in the decision, however, Binding Ruling shall not have binding effect onto the tax payer. Term of the Binding Ruling cannot not exceed 5 years. The Binding Ruling shall cease to be effective upon amendment of legislation or case law. The tax authorities may not follow the Binding Ruling if factual circumstances of the transaction are different from those provided by the tax payer in the application or tax payer was only seeking for the tax benefits, etc.
Advance Pricing Agreements
The decision of the tax authorities has to be taken within 60 calendar days (save for the applications received before 1 July 2013, for those term is 90 calendar days), but this term may be extended for additional 60 calendar days period.
The tax authorities must follow the Advance Pricing Agreement, however, it shall not have binding effect onto the tax payer. Term of the Advance Pricing Agreements cannot not exceed 5 years. The Advance Pricing Agreement shall cease to be effective upon amendment of legislation or case law. The tax authorities may not follow the Advance Pricing Agreement if factual circumstances of the transaction are different from those provided by the tax payer in the application and similar cases.