Amendments to the tax laws
The following amendments to the laws on corporate income tax (CIT), personal income tax (PIT), and social security contributions (SSC) entered into force as of 1 January 2021.
Corporate income tax (CIT)
A new CIT relief has been recently introduced in Lithuania, i.e. large projects relief that came into force from 1 January 2021.
Based on the provisions of the Lithuanian Law on CIT, revenue an entity earned in the course of 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:
- The average number of employees involved in the implementation of a large project in Lithuania during the tax year should not be less than 150 (200 if business is established in Vilnius or its district).
- 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 actual amount of capital investment is required.
- 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 is 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. The application of the relief is suspended for the tax periods in which the amount of capital investment and/or the average number of employees falls below the required threshold. The exemption will be renewed for the tax period when the required thresholds are reached again. Moreover, the exemption will not be granted to companies established in and benefiting from the preferential taxation in free economic zones (FEZs).
Starting from 1 January 2022, the threshold when the higher PIT rate is applicable increased for employment related income from EUR 81,162 per calendar year to EUR 90,246. A 32% PIT rate for the income exceeding this threshold is applied.
Social security contributions (SSC)
Starting from 1 January 2022, the ceiling for SSC withholding increased from EUR 81,162 to EUR 90,246 per calendar year. The ceilings are not applicable to employer's contributions.
Other significant amendments
Starting from 1 January 2021, the new amendments to the Lithuanian transfer pricing requirements came into force. The most significant amendment legitimizes the possibility of applying a simplified transfer pricing approach for low value-adding intra-group services transactions. Under this simplified approach, a 5% mark-up on costs related to the provision of services which can be defined as low value-adding could be applied without requiring a formal benchmarking study. Domestic legislation regarding low value-adding intra-group services is in line with the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations established by the Organisation for Economic Co-operation and Development (OECD).
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.