Corporate Taxes In Lithuania: Tax Incentives, Obligations & Filing Returns

Lithuania offers investors a favorable business environment for setting up businesses as it is a member of the European Union and is ranked in the 11th position in the ease of doing business index. Furthermore, the country’s competitive corporate tax structure and a number of tax advantages encourage investors to establish their businesses in Lithuania.

In the modern global economy, taxation plays a crucial role in shaping the corporate atmosphere. Both residents, as well as overseas organizations, must register with the tax authorities in order to pay corporate taxes in Lithuania. Corporate income taxes in Lithuania are imposed on the revenue produced by businesses operating under its jurisdiction. 

This article provides a comprehensive overview of corporate taxes in Lithuania. It uncovers key insights on incentives, tax planning, overcoming obstacles, and navigating double taxation treaties.

Various corporate taxes in Lithuania

Corporate taxes in Lithuania must be paid by residents as well as overseas organizations who are engaged in commercial operations within the nation. The Lithuanian State Tax Inspectorate (STI) oversees the tax structure and helps the government in collecting taxes, making sure that tax regulations are followed.Here are the various types of business income taxes in Lithuania that businesses are liable to pay:

Types of corporate income taxes in Lithuania	Tax Rate
Corporate Income Tax	15% (standard rate)
Dividend Tax	15%
Value-Added Tax (VAT)	21% (standard rate) Lower rates are 9%, 5%, 0%
Land Tax	Varies between 0.01% to 4%
Real Estate Tax (RET)	Varies between 0.5% and 3%

1. Corporate Income Tax in Lithuania

• The structure of corporate income tax in Lithuania is straightforward and open which promotes investment and company expansion throughout the nation.
• The usual rate of corporate taxes in Lithuania is 15%. Resident or overseas firms operating in Lithuania, are subject to this rate on their taxable gains.
• Small businesses and agricultural businesses, nevertheless, may use a lowered rate of corporate taxes in Lithuania at 0% or 5%, if specific criteria are satisfied.
• A lower corporate income tax in Lithuania rate of 0% for the initial year of business and 5% for the succeeding years is available to organizations with lower than ten workers and gross yearly earnings of not more than EUR 300,000.
• In general, CIT is charged to taxable earnings that a tax resident of Lithuania receives from both domestic and international operations.
• Taxable income is determined by deducting deductible expenditures and non-taxable income from general income during a specific taxation period.

A tax resident corporation’s earnings are not subject to tax in Lithuania if it arises from operations conducted through a PE in an overseas nation that is a member of the European Economic Area (EEA) or that has negotiated a double taxation avoidance agreement with Lithuania and if the earnings were taxable there.In addition, if foreign-sourced revenue earned outside of a PE is subject to withholding tax (WHT) in an overseas nation and that jurisdiction has a DTT with Lithuania, the corporate income taxes in Lithuania could be lowered or perhaps not imposed.Corporations that are non-residents are often taxed on revenue with a Lithuanian source that has been collected via a local PE and deducted expenditures, or on revenue that is liable for WHT in Lithuania.

2. Dividend Tax in Lithuania

• If certain requirements are satisfied, dividends earned by enterprises with Lithuanian residents are often free from corporate income tax.
• Dividends collected are taxed at the ordinary business income tax rate of 15% if the requirements for the exclusion are not satisfied.
• In accordance with the tax accord between Lithuania and the beneficiary’s place of residency, non-resident corporations might be liable for withholding tax from dividends paid by Lithuanian businesses.

3. Value-Added Tax (VAT)

A taxable individual conducting commercial operations is required to charge value-added tax in Lithuania on any supplies of products or services made for payment within the country’s borders. The typical rate of value-added tax in Lithuania rate is 21%. On some goods and services, nevertheless, lesser rates of 9%, 5%, and 0% are also applied.The lowered rate of 9% is applicable to:

• Public transportation system
• Fuel wood for domestic energy consumers
• Providing hot water and heating for residential properties, etc.

The lowered rate of 5% is applicable to:

• Equipment and services for disabled people’s technical assistance
• Monthly publications
• State reimbursement for prescription drugs and medical equipment
• Not reimbursable prescription medications

Products supplied to customers who have been registered as VAT payers in another member nation of the EU or those who are exporting commodities outside the EU are both liable to VAT at a rate of 0%.

4. Land Tax

• Both domestic and international organizations are liable to land tax in Lithuania which is gathered by the municipalities, for the land they possess in the nation. Forestry and roads intended for everyday use are excluded.
• Municipalities have the authority to offer land tax advantages and to regulate the assessment as well as settlement arrangements.
• The yearly land tax rate varies by local government and varies between 0.01% to 4%.

5. Real Estate Tax (RET)

• The RET rate fluctuates between 0.5% and 3%.
• Real estate that is managed by individuals and employed for business purposes, as well as property that is owned by legal organizations, is subject to tax in Lithuania.
• Municipal councils set a particular rate of taxation for property located in their jurisdictions each year.

Tax Incentives for Businesses in Lithuania

To encourage economic growth, draw in investment, and boost certain industries, Lithuania provides a range of tax advantages to firms.The following tax breaks are accessible to firms in Lithuania:

1. Corporate Income Tax (CIT) Incentives

To promote corporate growth and investment, Lithuania has implemented a number of CIT incentives. These consist of:

• Reduced rate of income taxes in Lithuania: In some cases, corporations with not more than ten workers and gross yearly sales of up to EUR 300,000 may qualify for a lower CIT rate of 0% for the initial twelve months and 5% for the succeeding years.
• Tax Holidays: A one-year corporate income tax holiday is being implemented for small businesses and start-ups in order to promote entrepreneurial activity.

2. R&D and Innovation Incentives

Tax incentives are provided by Lithuania to promote innovation and research and development (R&D) operations. These consist of:

• Deduction for R&D Expenses: With the exception of depreciation or amortization expenses for fixed resources, R&D-related costs can be deducted three times from the earnings.
• Tax credit for commercializing R&D: The corporation income tax rate for the commercialization of inventions made during R&D operations has been lowered to 5%.

3. Incentives for Free Economic Zone Corporations

Businesses can take advantage of a variety of tax perks in certain FEZ zones approved by Lithuania.Incentives for corporate income tax for businesses based in free economic zones include:

• CIT Reduction: An organization operating in a free economic zone that made investments in capital totaling a minimum of EUR 1 million throughout the course of 10 taxation intervals, commencing with the period of taxation in which this total was reached, is exempt from paying CIT. However, for the following six taxation periods, the organization is liable to a minimized CIT rate of 50%.
• Decreased Social Security Contributions: Employers who are located in FEZ zones may be entitled to lower employee social security contribution rates.

Corporate Tax Obligations in Lithuania

Corporations are subject to particular corporate tax obligations in Lithuania. Businesses that operate throughout the nation must be aware of these requirements in order to comply with tax laws and prevent penalties.

Tax registration

Organizations in Lithuania are required to register for corporation tax with the State Tax Inspectorate (STI) as soon as they are established. In order to register, you must complete the required paperwork and provide details about the operations, ownership structure, and projected revenue of your business.

Taxable timeframe

The tax year in Lithuania runs from January 1 to December 31. An organization could nevertheless submit an application to use a different reporting year (for example, 1 July to 30 June).

Participating in Tax Audits

The STI may undertake tax audits of entities doing business in Lithuania. The tax authorities examine the business’s financial records, transactions, and compliance with tax laws during a tax audit. Cooperation with the tax authorities is essential, as is providing any needed details and supporting paperwork, as well as promptly addressing any problems or discrepancies that may be found.

Filing annual returns of corporate taxes in Lithuania

In Lithuania, businesses are required to submit annual corporation tax returns detailing their financial results for the tax year.

Filing returns for corporate taxes in Lithuania (CIT)

The deadline for CIT returns is the fifteenth date of the sixth month immediately preceding the tax period (15 June for businesses utilizing the calendar year).According to activity outcomes from the prior year, advance CIT is required and should be computed and reported as follows:

• The outcomes of the taxing period prior to the most recent taxation period must be used to determine the advance CIT owed for the initial six months of the period of taxation.
• The 15th day of the third calendar month of the taxable period, which is typically 15 March, is the deadline for submitting the advance CIT return for the initial six months of the taxable period.
• The advance CIT owed for the next six months of the taxable period must be determined by using the outcomes of the previous taxation time frame.
• By the fifteenth day of the 9th month (often the fifteenth of September) of the taxable time frame, the advance CIT return for the final six months of the period must be filed.

The predicted amount of CIT determined for the present year could be used by the taxpayer to determine whether to submit the advance amount.If the taxpayer had opted to make payment of the advance amount calculated according to the anticipated amount of CIT for the current year, the return needed to be filed on or before the final day of the first calendar month of the taxable duration.

Withholding tax

A tax-withholding organization is required to file to the taxing authorities a particular form of a return detailing the sums of contributions made and taxes withheld throughout the specified period within fifteen days following the completion of the period during which the amounts were paid out.

Paying Corporate Taxes in Lithuania

Corporate income taxes in Lithuania

The last payment date for CIT coincides with the due date for filing the yearly CIT return, which is the 15th day of the sixth month of the subsequent tax year.The advance corporate income taxes in Lithuania has to be submitted by the fifteenth day of the final month of the relevant quarters.

Withholding taxes

A resident organization or a PE of an overseas organization in Lithuania must compute, withhold, and remit WHT on payments given to overseas firms within a period of fifteen days of the completion of the period in which the payment occurred.

Tax Planning Techniques in Lithuania

To minimize their tax costs and guarantee compliance with tax laws, firms must implement efficient tax strategies.Typical tax planning techniques include:

• Utilizing Tax Incentives: Utilising tax incentives entails locating and taking advantage of tax credits and deductions that are appropriate for the business’s operations.
• Profit and Loss Optimisation: Analysing sales and costs to find areas where savings can be made and costs can be reduced.
• International Tax Planning: International tax planning is the strategic management of cross-border transactions to reduce tax liability and to ensure adherence to transfer pricing and international tax laws.

How to Prevent Common Tax Obstacles?

Businesses should be aware of frequent tax mistakes when navigating Lithuania’s corporate tax environment to prevent potential problems.Among the most important factors that you must avoid are:

• Keeping insufficient or inaccurate records: For tax compliance, keeping thorough and accurate financial records is essential. Tax reporting problems and possible fines might result from incomplete or erroneous documents.
• Neglecting to Update: Laws and rules relating to taxes are subject to change. Businesses need to be up to date on any changes so they can modify their tax plans.
• Failure to Meet Reporting Deadlines: Charges and interest fees may apply if tax filing and payment due dates are missed. It is crucial to keep a calendar and make sure that all tax obligations are met on schedule.
• Insufficient Documentation for Deductions and Incentives: Companies must submit enough supporting documents and data to prove that they qualify before seeking deductions or incentives. Lack of documentation may result in incentives or deductions being denied.

Double taxation avoidance agreements in Lithuania

Effective agreements on double taxation (DTAs) give residents the right to be excluded from paying multiple taxes. Lithuania has negotiated a wide range of double taxation agreements with about 57 nations. These agreements attempt to relieve enterprises involved in cross-border activity by preventing the same earnings from being subject to taxation twice.Read More: Cryptocurrency Exchange License In Lithuania

Conclusion

The corporation tax structure in Lithuania provides a supportive environment for companies to prosper. Lithuania strives to draw foreign investment and foster economic growth because of its low tax rates, alluring incentives, and dedication to transparency. Lithuania seeks to significantly improve its corporate tax policy and preserve its standing as a business-friendly nation in the international arena by utilizing its double taxation agreements and enacting reforms.For expert guidance on corporate taxes in Lithuania, consult with our professionals from OnDemand International. Our knowledgeable team is here to address your inquiries, offer assistance with tax payments, help with tax authority registration, and support you in filing income tax returns. Consult with us today.