Amendments to the tax laws
A new corporate income tax (CIT) relief has been recently introduced in Lithuania, i.e. large projects relief that may come into force from 1 January 2021. However, the relief itself and its requirements are not yet confirmed by the Lithuanian Parliament. The debates and confirmation are scheduled for December 2020.
If the amendments to the Lithuanian Law on CIT related to the introduction of mentioned relief are approved, an entity carrying out a large investment project may be exempt from CIT for a period of 20 years (or until the maximum state aid is reached). The requirements for the application of the relief are the following:
- An entity must create at least 150 new full-time jobs (200 if business is established in Vilnius or its district) and commit to keep them for at least five years.
- Capital investment of the entity should be not less than 20 million euros (EUR) (EUR 30 million if business is established in Vilnius or its district), and an auditor’s confirmation on the amount of capital investment will be necessary.
- At least 75% of the entity’s revenue should consist of revenue from (i) manufacturing, (ii) data processing, or (iii) Internet server services (hosting) and related activities.
- An investment agreement with the government of the Republic of Lithuania would be required.
In order to benefit from large projects relief, all above listed requirements shall be met jointly, and the relief starts to apply from the tax period when the thresholds are reached.
Amendments that are already in force
The following amendments to the Laws on CIT, personal income tax (PIT), social security contributions (SSC), and real estate tax (RET) entered into force as of 1 January 2020.
Corporate income tax (CIT)
- According to the amended Law on CIT, taxable profit of credit institutions exceeding the threshold of EUR 2 million, in the period starting from 1 January 2020 and ending with 2022, is subject to an increased 20% CIT rate. Taxable profit up to the mentioned threshold is subject to a standard CIT rate at 15%. Special rules for calculation of taxable profit apply.
- The amendments implementing the Anti-Tax Avoidance Directive (ATAD II), i.e. hybrid mismatch rules and exit taxation rules, into the Lithuanian legislation were also introduced:
- Hybrid mismatch rules aim to prevent obtaining a double non-taxation benefit by exploiting differences between the tax treatment of entities and instruments across different countries. Lithuanian rules state that when the payment is deductible in both countries, or deductible in one country and non-taxable in another, tax discrepancies are neutralised by treating such payment as non-deductible expense or taxable income in Lithuania.
- The exit tax will be applied on capital gains from the transfer of assets or business from Lithuania to another country for a period not shorter than 12 months. The assets used as an advance payment or pledge are exempt from exit tax. Exit tax may be divided into parts when an asset or business is being transferred to a foreign country that is in the European Economic Area (EEA).
Starting from 1 January 2020, the threshold when the higher PIT rate is applicable decreased for employment related income from EUR 136,344 per calendar year to approximately EUR 104,278. A 32% PIT rate for the income exceeding this threshold is applied instead of the previously applicable 27% rate.
Social security contributions (SSC)
Starting from 1 January 2020, the ceiling for SSC withholding decreased from EUR 136,344 to approximately EUR 104,278 per calendar year.
Real estate tax (RET)
The minimum of the range of the RET rate increased from 0.3% to 0.5%. Previously, the RET ranged from 0.3% to 3%. The specific rate is established by each municipality individually.
Other significant amendments
The European Union (EU) Directive on the mandatory disclosure and exchange of reportable cross-border tax arrangements (referred to as DAC6 or the Directive) has been introduced into Lithuanian law. Under DAC6, taxpayers and intermediaries are required to report cross-border reportable arrangements from 1 January 2021.
Statute of limitations
As of 1 January 2020, the statute of limitations changed in Lithuania. The general period of statute of limitations is the current tax period and three previous tax periods.
The statute of limitations of the current tax period and five previous tax periods will be applied:
- when (re)calculating PIT (with the exception of PIT paid by an individual on income from an individual activity)
- when the tax administrator is (re)calculating taxes of a taxpayer who does not meet the minimum criteria for reliable taxpayer
- when the tax administrator is (re)calculating taxes on the basis of information received from the automatic exchange of information
- when the tax administrator is (re)calculating taxes in accordance with transfer pricing regulations as well as when (re)calculation is related to patent box relief and investment project relief application
- when proving bad debts and efforts to recover these bad debts
- when (re)calculating taxes of the taxpayer who has been announced bankrupt and bankruptcy fraud was recognised by the court, and
- when an entity applies value-added tax (VAT) deduction on fixed assets, other than immovable property.
The limit of ten previous tax periods will be applied when an entity applies VAT deduction on immovable property, when the mutual agreement procedure (MAP) is being carried out, or when damage to the state in a penal case has to be calculated.