Lithuania

Corporate - Income determination

Last reviewed - 04 February 2020

Inventory valuation

Under domestic accounting legislation, stock used in the production and included in the cost of produced goods is valued in the financial statements by the first in first out (FIFO) method. The last in first out (LIFO), weighted-average, progressive-average, actual-price, or another method that corresponds to the stocks’ movement can also be used. However, the method used must be disclosed in the notes to the annual accounts, and, among other things, the note must report the profit that would have been calculated if the FIFO method of valuation had been used. For CIT purposes, usage of another method than FIFO should be approved by the tax authorities.

Capital gains

Capital gains are taxed as part of the corporate profit of the enterprise.

Capital gains are treated as non-taxable income when they are derived from the transfer of shares in a company incorporated in the European Economic Area or in a country with which Lithuania has a valid DTT and that pays CIT or an equivalent tax. This holds true if the Lithuanian holding company holds more than 10% of voting shares for a continuous period of (i) at least two years or (ii) at least three years when the shares were transferred in one of the established forms of reorganisation. Certain restrictions apply.

Capital gains derived from the transfer of shares/units in collective investment undertakings are treated as non-taxable income, provided that those collective investment undertakings are not registered or otherwise organised in blacklisted territories and/or are not residents of such territories.

Dividend income

The receiving company does not include the dividends received from other entities in its taxable income.

Interest income

Interest income is treated as general taxable income and is subject to 15% CIT.

Royalty income

Royalty income is treated as general taxable income and is subject to 15% CIT.

Exemptions from taxable income

The following additional types of income are exempt from CIT:

  • Insurance indemnity not in excess of the value of lost property or other losses or damages, the refunded part of insurance premiums in excess of the premiums deducted from income in accordance with the procedure established, and the part of insurance indemnity in excess of the premiums deducted from income in accordance with the procedure established.
  • Proceeds of a bankrupt company received from sale of its property.
  • The balance of the formation fund of an insurance company as prescribed by the law on insurance.
  • Income of collective investment undertakings and venture capital and private entity funds, except from the income received from the companies registered or otherwise organised in blacklisted territories or residents of such territories.
  • Income derived by health care institutions for their services that are financed from the funds of the Compulsory Health Insurance fund.
  • Income derived from revaluation of fixed assets and liabilities as established by laws and regulations, except for income derived from the revaluation of derivative financial instruments acquired for hedging purposes.
  • Default interest, except for that received from foreign companies registered or otherwise organised in blacklisted territories or residents of such territories (see Blacklisted territories in the Deductions section).
  • All or part of the profit gained from legal entities of unlimited civil liability that are payers of CIT and with income that is subject to CIT under the law or to a similar tax under respective statutes of foreign countries, with certain exceptions.
  • Fees collected by seaports and airports, charges for air traffic navigation services, and funds collected from the lease of seaport-owned land.
  • Results arising from adjustments made for the previous tax periods as prescribed by the law on accounting.
  • Indemnification for damages received by the company, with certain exceptions.
  • Compensation received according to the Lithuanian programmes of the EU financial support relating to taking fishing ships for scrap.
  • Life insurance payments received by insurance companies, provided the term of the life insurance policy is valid for not less than ten years or at the date of the receipt of the insurance benefit the recipient has reached the pension age in accordance with the additional law on pensions. Additionally, life insurance investment income of insurance companies, except for dividends and other distributable profit, is exempt along with investment insurance income of insurance companies received according to the contracts of life insurance occupational pensions concluded in accordance with the law on accumulation of occupational pensions.
  • Direct and other compensational allowances that are received by units performing agricultural activities to maintain their level of income, which meet the requirements established in the laws and other legal acts of Lithuania.

Foreign income

Income is not subject to taxation in Lithuania if it was received from activities through a PE in a foreign country that is in the European Economic Area or that has a DTT with Lithuania and if the income was subject to taxation there. Since such income is not subject to taxation in Lithuania, costs related to the income cannot be deducted from income that is subject to taxation in Lithuania.