Ultimate Guide to Tax in Lithuania

Ultimate Guide to Tax in Lithuania for companies.

This Ultimate Guide to Tax in Lithuania includes general overview of the most important tax rates in Lithuania for businesses to consider.

Estimated reading time: 11 minutes

Country profile:

Lithuania is a member of the European Union since 2004 and since 2015 is a member of Eurozone. Lithuania is a member of Schengen area.

Economy & forms of business:

Located on the coast of the Baltic sea, Lithuania offers variety of opportunities to start or expand business in EU. Over the years, Lithuania has significantly developed from developing economy to positioning itself as a significant global player with high added-value in various fields.

Lithuania is aimed at attracting not only private domestic and international direct investment, but also to promote growth, and increase residents’ well-being. Therefore, by opening or expanding your business to Lithuania, you do not only secure the presence of business on EU market, but as well open the doors to many business possibilities.

In recent years, Lithuania’s advantageous investment and trade prospects have attracted an increasing number of international firms and businessmen, who see Lithuania as a stable country with a straightforward and safe investment policy.

Lithuania developed a system of support for foreign investors who aspire to start and expand their businesses in Lithuania. Lithuania’s business sector has been modernized, and it already complies with all of the European Union’s criteria and standards, making Lithuania appealing to investors due to its safety, transparency, and regulatory compliance in different sectors.

At present there are 7 free economic zones in Lithuania: Akmenė, Kaunas, Kėdainiai, Klaipėda, Marijampolė, Panevėžys and Šiauliai.

Fintech sector in Lithuania:

Over the last years, Lithuania is regarded as one of the most technologically developed country in the world, ranking №1 EU destination for Fintech registration & licencing. As of 2021, Lithuania has over 220 Fintechs registered and licenced in Lithuania operating on a daily basis worldwide, including institutions like: Revolut, TransferGo, DiPocket, Curve Europe and others.

Registration and licensing of a Fintech or other finance institution in Lithuania gives a major competitive advantage and access to EU/EEA financial market with much lower incorporation and operational expenses. For a variety of reasons, financial institutions prefer Lithuania as a European jurisdiction for Payment and Electronic Money Institution licensing: the quickest pan-European Fintech licensing process, one of the lowest initial capital requirements for challenger banks, a regulatory Sandbox and support from the Bank of Lithuania, a newcomer program to adapt to the EU market, and other business-oriented regulations.

Other progressive environment solutions in Lithuania:

Lithuania’s acceleration in e-government solutions has been recognized across the EU. It provides a one-stop-shop for public information and business services, as well as a quick online system for tax registration and payment, allowing taxpayers to complete their tax returns electronically.

In addition to more than Double Tax treaties concluded by Lithuania, an IT-based tax administration system (“i.MAS”) contributes to an effective and contemporary tax administration in Lithuania, ensuring a comfortable and cost-effective business environment.

Most popular company types in Lithuania for business:

  • Private Limited Liability Company in Lithuania (UAB): this type of business is most commonly-used by investors and businesses in Lithuania, due to great opportunities and limited liability. The minimum capital for forming a private limited liability company in Lithuania is EUR 2,500. The capital must be deposited in a bank account, with at least 25% paid up before registration. The capital is divided into shares that cannot be traded or sold to the public (for this purpose Public company shall be established).
  • Public Limited Liability Company in Lithuania (AB): this is the most popular business entity for medium and large businesses in Lithuania. The minimum registered capital for establishing a public limited liability company is EUR 40,000. The minimum registered capital must be deposited in a bank account, with at least 25% paid up. The capital is divided into shares that may be purchased or sold on the open market.
  • Branch or representative office in Lithuania: foreign companies and organizations may establish representative offices and branches in Lithuania. A foreign company or organization that has a representative office or a branch in the Republic of Lithuania is defined as a representative office or a branch. At least one manager must be based in Lithuania. The branch or representative office is a part of a legal entity (foreign firm), but it is not a legal person in its own right. A foreign firm may establish a permanent establishment (PE) in Lithuania for tax reasons. There is no formal auditing obligation for the representative office or branch.

Read More about the Company Registration in Lithuania, Check Out – COMPANY REGISTRATION LITHUANIA


Lithuania Double Tax treaties:

There are now 56 active Double Tax treaties in place. A full list of DTT’s of Lithuania and its contents can be found here.


Tax Residency in Lithuania

Corporate Residence in Lithuania:

A company would be regarded as tax resident of Lithuania if it has been incorporated in Lithuania. The company is subject to corporate income tax on its worldwide income. Non-resident corporations are solely subject to Lithuanian corporate income tax on revenue earned in Lithuania, including income generated through permanent establishments.

Permanent Establishment in Lithuania:

According to Lithuanian law, a foreign firm is considered to have a permanent establishment (PE) if:

  • It is permanently engaged in business activity in Lithuania, either entirely or partially.
  • Its operations are carried out by a dependent representative (agent).
  • It makes use of a construction site, assembly, equipment objects.
  • It explores or extracts natural resources with technology such as drilling sites and ships.

A PE must register as a taxpayer with the tax authorities in the jurisdiction where it conducts business. CIT is levied at a rate of 15% on the company’s earnings. Different PE recognition rules may be established by DTT’s. If DTT is in place, the provisions of the treaty have precedence over the domestic law.


Key tax rates in Lithuania to consider: CIT and VAT

Corporate Income Tax in Lithuania:

The standard corporate income tax rate in Lithuania is 15%.

  • Companies involved in agricultural operations and small businesses may pay reduced rate of 5%. (companies with fewer than 10 employees and annual income less than EUR 300,000).
  • Income from certain patented innovations (R&D) might be taxed at a lower rate of 5%.
  • If certain requirements are satisfied, new small businesses entering Lithuania may be eligible for a 0% corporate income tax rate for their first year of operation. Subsequently companies will pay the rate of 15% after the first corporate tax-free year.

For the period beginning January 1, 2020, and concluding December 31, 2022, an increased CIT rate of 20% is applied to taxable profits of credit institutions exceeding the EUR 2 million threshold. There are special rules for calculating taxable profit in place.

CIT is generally applied to taxable income derived from local and international activities by a Lithuanian tax resident. Taxable income is computed by subtracting deductible costs and non-taxable income from general income for a certain tax period.

If a tax resident firm receives revenue from operations through a permanent establishment (PE) in a foreign state that is a member of the European Economic Area or has a double tax treaty (DTT) with Lithuania, the income is not subject to tax in Lithuania.

Furthermore, if foreign-sourced income earned outside of a PE is taxed with a withholding tax (further – WHT) in a foreign state that has a DTT with Lithuania, CIT may be lowered or even eliminated.

Non-resident corporations are normally taxed on revenue received from Lithuania throughout a local PE and decreased by deductible costs, or on income subject to WHT in Lithuania.

Value Added Tax in Lithuania:

In Lithuania, VAT applies to the supply of goods and services for consideration within the territory of Lithuania by a taxable person engaged in economic activity.

The standard VAT rate in Lithuania is 21%. The reduced rates of 9% and 5% apply to certain products.

VAT threshold for Lithuanian resident companies: VAT in Lithuania shall be applied when transactions taxable with VAT carried out by the company during the previous twelve months exceeds EUR 55,000 (as of 2021/2022). In Lithuania, a specific system for small businesses has been implemented. This indicates that taxable persons in Lithuania are not required to be registered as VAT payers if their annual turnover does not exceed EUR 55,000 in the preceding 12 months. However, if a Lithuanian taxable person acquired goods from other EU member states during the preceding calendar year and the taxable amount of such goods surpasses EUR 14,000, or it is expected to surpass this threshold during the current year, the taxable person is required to be registered as a VAT payer, even if the annual turnover threshold (EUR 55,000) is not surpassed.

The supply of products exported outside of the European Union, as well as the supply of goods to VAT payers registered in another EU member state, is VAT-free (exempt with credit). However, in order to claim zero-rated VAT on products exported from Lithuania, VAT payers must be able to show that the commodities were genuinely exported from the European Union or transported from Lithuania to another EU member state.

If you need to appoint a fiscal representative in Lithuania, please contact us directly via email.


Withholding tax in Lithuania, CFC rules.

In general, revenue earned in Lithuania by a foreign entity that is not generated through a PE is considered Lithuanian-source income and is liable to WHT at the following rates.

WHT rates:

Interest on all debt obligations (securities included)10% WHT
The proceeds from the sale, transfer (with title), or lease of immovable property in Lithuania 15% WHT
Income from distributed profits15% WHT
Royalties 10% WHT
Annual remuneration (tantiems) for members of the board or supervisory board 15% WHT
Withholding tax rates in Lithuania: Table 1.

Dividends:

A 15 % CIT is withheld by a distributing company on dividends issued by a resident company to another resident company. If the distributing foreign corporation is incorporated in the European Economic Area and the corresponding earnings is legally taxed in the domiciled nation, dividends issued by a foreign company to a Lithuanian company are free from CIT.

  • WHT is not applied to dividends issued by a resident business if the beneficiary firm owns at least 10% of the voting shares in the distributing company for at least a year*. This relief, however, will not apply if the foreign company is registered or otherwise organized in one of the Lithuania’s Ministry of Finance’s blacklisted territories. If the conditions for participation exemption are not satisfied, the usual WHT rate of 15% should be imposed. However, certain DTTs allow for the use of WHT at a decreased rate of 5% or 10%.
  • Dividends paid to or received from foreign corporations are not exempt from taxation in circumstances where a tax relief is the principal or one of the primary objectives of a certain corporate structure. Dividends from foreign corporations are not free from taxation if they were deducted from taxable earnings at the distributing company level.
  • The amount of CIT withheld from the received dividends may be deducted from the receiving company’s CIT payable for the period in which dividends were received. Any unused credit can be used to other taxes owed.

*Please keep in mind that the 12-month holding period requirement does not have to be met on the day of dividend distribution.


Tax administration & other information

Tax year: The tax year in Lithuania goes from January 1 to December 31. A company, on the other hand, may petition to use a different reporting year, if necessary (for example 1 July to 30 June).

Tax return submission: According to Lithuanian law, all tax returns (excluding yearly PIT returns) must be submitted online. The exception applies where it is impossible to submit tax returns electronically owing to objective reasons or when doing so would impose an undue administrative burden. No later than 15 days following the end of the month in which the sums were paid, a tax-withholding company must submit to the tax authorities a specific form of return detailing the amounts of payments made and taxes withheld during the calendar month.

Payment of tax in Lithuania:

  • The CIT final payment date is the same as the yearly CIT return filing deadline, which is the 15th day of the sixth month of the next tax period.
  • The advance CIT must be paid no later than the 15th day of the corresponding quarter’s final month.
  • WHT: A Lithuanian business or a PE of a foreign company in Lithuania must compute, withhold, and remit WHT on payments to foreign companies within 15 calendar days of the end of the month wherein the payment was made (no later than the return submission deadline).

Tax audits and compliance:

Tax authorities conduct regular compliance activities to ensure that businesses are complying with their tax duties. Compliance and audit operations are often focused on taxpayers with a higher possibility of non-compliance and/or substantial implications of non-compliance. with efforts generally focused on taxpayers with a higher likelihood of non-compliance and/or material consequences of non-compliance. General risk assessments, surveys, examinations of particular concerns, and tax audits are all examples of compliance activities.

As of 1 January 2020, the tax authorities may investigate the current and three previous tax periods. However, in some cases, a longer period may be applied.


Contact our lawyers for tax consulting in Lithuania

E-mail: store@eulawfirm.eu

T. +371 26742086


Want to know about Tax guide in Malta– Check this Ultimate Guide to Tax in Malta

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