Mazars in LITHUANIA

Corporate taxes and other direct taxes

The general corporate income tax rate is 15% in Lithuania. An incentive corporate income tax rate of 5% is applied for small companies with an annual turnover up to EUR 300,000 and having not more than 10 employees. Small companies could apply 0% rate of corporate income tax for the first financial year.

In Lithuania, the ordinary losses incurred may be carried forward to the subsequent taxable periods for an unlimited time, as long as the entity continues the activities that generated the losses. The amount of losses carried to the subsequent taxable periods is limited to the 70% of taxable income of the corresponding taxable period. The 70% limit does not apply for small companies. Capital losses incurred associated with the transfer of derivative financial instruments and securities may only be carried forward for 5 years and can only be covered from future capital gains.

Transfer pricing in Lithuania
Arm’s lenght principle since 2004
Documentation liability since 2004
APA since 2012
Country-by-Country liability from FY 2016
Master file-local file (OECD BEPS 13) applicable   since 2019
Penalty
Lack of documentation EUR 1 820 - 5 520 (EUR 3 770 - 6 000 on recurrent basis)
Tax shortage 10% - 50% on tax underpayment + late payment interest; fines could be doubled on recurrent basis
Related parties > 25% direct or indirect control
Safe harbours Low value added services: 5% mark-up

Level of attention paid by Tax Authority:

9/10

Lithuania applies thin capitalization (4:1) and CFC rules. Tax allowances apply for certain new investments and R&D. Furthermore, Lithuania provides a tax exemption on holding structures: capital gains on shares and dividends received under certain conditions are tax-free. Under certain conditions there is no withholding tax on dividends, interest and royalty paid by a Lithuanian company to a foreign company. Lithuania has a wide international treaty network with more than 50 double tax treaties.

Companies are also subject to two types of taxes on capital:

  • Immovable property tax – tax on property, deemed to be immovable by law and located in Lithuania (buildings, constructions, except unfinished constructions). The annual tax rate varies from 0.3% to 3% of the taxable value of immovable property. Tax rates are set by municipalities according to the territory where the immovable property is located. The tax period is a calendar year.
  • Land tax – tax on land owned in Lithuania, to be paid by both resident and non-resident entities and individuals. The tax rate varies from 0.01% to 4% of the taxable value of the land. Tax rates are set by municipalities and depend on the location of the land. The tax period is a calendar year.

VAT and other indirect taxes

The general rate is 21%, the reduced rates are 9% (e.g. books, central heating, public transportation, tourist accommodation (until 31 December 2022) and 5% (e.g. medicine, journals, newspapers, technical support means for disabled). The options/limits based on the EU Directive are presented within the VAT legislation:

VAT Options in Lithuania Applicable / limits
Distance selling EUR 35,000/year
Call-off stock
VAT group registration
Cash accounting No, only optional regime for agricultural producers
Import VAT deferment
Local reverse charge Taking over the property as a transfer of contribution to a legal entity; taking over a material improvement of a building; supply of goods and services from a supplier which is under bankruptcy; supply of certain metal scraps and certain timber materials, supply of construction services
Option for taxation
- letting of real estate
- supply of used real estate
- certain financial services
VAT registration threshold Local taxable person - 45,000 EUR/12 months; Foreing taxable person - No

Other indirect tax types in Lithuania include excise duty, environmental protection charge and data storage device tax.

PERSONAL INCOME TAX / SOCIAL SECURITY SYSTEM

Starting from 2019 employment related income, board member fees, royalties received from employer, income under civil agreement received by a manager of small partnership who is member of such small partnership is taxed at the rate of 20% in case income does not exceed EUR 136,344 per calendar year in 2019. PIT at the rate of 27% is applied for the exceeding amount.

Income from profit distribution is taxable at a flat PIT rate of 15%.

Other income (e.g. interest, royalties, capital gains, rental income) is taxable at a PIT rate of 15% in case such income does not exceed EUR 136,344 per calendar year. PIT at the rate of 20% is applied for the exceeding amount.

Income in general is recognized at the moment of its actual receipt.

The employee’s gross salary is also subject to Social contributions at the rate of 19.5%, and the employer is required to withhold this tax. The employer also has to pay 1,77% Social contributions on top of the employee’s gross salary. An additional 1,8 or 3% contribution may be paid by individuals who have decided to accumulate an additional pension (the employer is required to withhold this tax).

Lithuania is subject to EU regulations laying down social security principles for persons migrating between EU Member States.

The examples below show the cost of the employer and employee in case of minimum wage level and the average wage in the private sector.

Wage- related taxes in Lithuania Minimum wage Average wage in private sector
Total wage cost 565 101,77% 1 227 101,77%
Social contribution tax 10 1,77% 21 1,77%
Gross Salary 555 100,00% 1 206 100,00%
Personal income tax* 51 20,00% 201 20,00%
Employees' social contributions 108 19,50% 235 19,50%
Net Salary 396 71,31% 770 63,86%

* Non taxable allowance of EUR 300 (on minimum wage) and EUR 202.35 (on average wage)

Lithuania
Konstitucijos ave. 26, Vilnius,
Lithuania
Jūratė Zarankienė
Partner