Corporate income tax in Lithuania
The tax base
The tax base of a Lithuanian entity shall be all income earned in the Republic of Lithuania and foreign countries, they also include the positive income of its controlled foreign entity or part of such income.
The tax base for foreign entities (i.e. those registered in foreign countries) comprises income received from activities carried out through permanent establishments in Lithuania and other income sourced in Lithuania, such as: interest, dividends, royalties, proceeds from rent/sale of immovable property, etc.
The taxable profit
The taxable profit is calculated on the income earned less the non–taxable income (the list of non–taxable income is established under the Law), allowable deductions (i.e. related with ordinary activities of the entity) and limited allowable deductions (their list is established under the Law).
Non-taxable income includes insurance payments received (with certain limitations), dividends subject to certain conditions, penalties received as well as certain other income.
Allowable deductions are all expenses actually incurred in the ordinary course of business of the entity and necessary for that entity to earn income or derive economic benefit.
Limited allowable deductions include: depreciation of fixed assets; business travel; representation; natural losses; bad debts; contributions for the benefit of employees, etc. The Law establishes certain limitations for deductibility of limited allowable deductions.
The Law also establishes the list of prohibited deductions. The following expenses are generally treated as tax non-deductible: corporate income tax, fines and penalty interest paid, indemnification for damages inflicted by the entity, dividends or profit distributions, expenses related to non-taxable income, other expenses that are not related to deriving of income and not attributed to operating activities of the entity, etc.
Corporate profit tax rate
Starting from 1 January 2009 profits of Lithuanian companies and permanent establishments is taxed at the rate of 20%.
Investment incentives
Investments into substantial technological improvements will entitle the companies to reduce the taxable profit down to 50%. This incentive will be applicable to the expenses incurred during years from 2009 to 2013.
Dividends
Dividends are also subject to corporate profit tax at the rate of 20%. The Law provides participation exemption – dividends are exempt if a parent company holds at least 10% of shares for at least 12 months (some restrictions are determined in Law).
Dividends received from foreign entity, which is registered in European economic area and which profit is subject to profit tax or any identical or substantially similar tax, are exempted starting from 1 January 2009 (some restrictions are determined in Law).
Advance payments
Entities have an obligation to pay advance corporate profit tax payments during the calendar year. The rate of 20% has to be taken into account while calculating the advance payments for the year 2009. Advance payments are also compulsory to the entities, which previously (before 1 January 2009) enjoyed the incentive (credit unions, agricultural companies, etc.). If the company chooses to calculate advance payments based on the forecast of the coming taxable period, the possible decrease in taxable profit due to investment incentive cannot be taken into the consideration.
Tax returns
The annual profits tax return should be submitted by the first day of the tenth month of the following tax year. The payment of the tax liability should also have been paid by that date. The fiscal year is in principle the same as the calendar year. In some circumstances the fiscal year can be adjusted in consultation with the Lithuanian tax administration.
