Lithuania

Foreign tax credit

A company may reduce tax payable on certain foreign-sourced income in Lithuania by taxes paid on that income in a foreign country if that Lithuanian company has received appropriate notice from that foreign country. The tax credit may not exceed the CIT rate payable in Lithuania.

Investment project incentive

Entities involved in an investment project can reduce their taxable profits by up to 100% of the actually incurred acquisition costs of long-term assets meeting certain requirements. Please note that depreciation (amortisation) expenses of such assets shall be deducted in a common manner.

Taxable profits can be reduced by such costs incurred from 2009 to 2028.

This relief is applied to the following categories of fixed assets:

• Machinery and equipment.
• Computer and communication equipment.
• Software and acquired intellectual property (IP) rights.
• Lorries, trailers, and semi-trailers (relief for these investments is capped at EUR 300,000 per year).

The costs exceeding the above-mentioned 100% limit can be carried forward for four years.

There are certain criteria defining what could be considered an investment project. The project should be precisely described to meet the criteria allowing a company to use the tax relief.

Tax relief for research and development (R&D)

Expenses, except for fixed assets’ depreciation (amortisation) expenses, incurred for R&D purposes can be deducted three times in the tax period when they are incurred, provided that R&D works performed are related to ordinary business activities. The entity also may apply accelerated depreciation rates to fixed assets used in R&D activities.

A company applying tax relief for R&D has to prepare R&D documentation. This documentation has to cover the performed project, substantiate conformity with certain tax requirements, and specify the amount of expenses for R&D activities.

As of 1 January 2018, a new tax incentive for companies investing into R&D was introduced. Such companies have the possibility to not only deduct the expenses incurred for R&D works from the taxable income three times, but they are also entitled to apply the reduced 5% (6% from 1 January 2025) CIT rate on the profit deriving from the commercial exploitation of patented inventions (it is similar to 'patent box' regimes available in other countries).

A company can apply the reduced CIT rate of 5% (6% from 1 January 2025) if:

• the income from the use of the property, sale of it, or other transfer of ownership is obtained only by the Lithuanian unit or PE that created the property and only they incur all expenses due to the income generation, and
• the property is a copyright-protected computer programme or meets a patentability criterion (new, complies to the level of invention, and is industrially applicable) that is protected by patents or supplementary certificates of protection issued by the European Patent Office or in the member state of the EEA or in a country with which a DTT has been concluded.

Funds granted for producing a film or a part of a film

Funds granted for producing a film or a part of a film can be deducted from taxable income and from CIT payable due during the period from 2019 to 2028 if the following conditions are met:

• The film meets the criteria of cultural substance and evaluation of the production.
• Not less than 80% of the film production expenses are incurred in Lithuania, and the amount exceeds EUR 43,000.
• Total amount of funds granted by all companies may not exceed 30% of total expenses of the film production.

Not more than 75% of funds granted free of charge for production of film or of a part thereof in Lithuania can be deducted from taxable income.

Certain restrictions for reduction of taxable income and tax due apply.

Large project relief

Starting from 1 January 2021, 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 relief applies only if at least 75% of the entity’s revenue for the relevant tax period consists of revenue from (i) manufacturing, (ii) data processing, or (iii) internet server services (hosting) and related activities. The requirements for the application of the relief are one of 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), and each created workplace must be maintained for at least five years. Additionally, capital investment of the entity should be not less than EUR 20 million (EUR 30 million if business is established in Vilnius or its district; EUR 100 million after receiving the approval of the European Commission), and an auditor’s confirmation on the actual amount of capital investment is required.
• The average number of employees involved in the implementation of a large project in Lithuania during the tax year should be from 20 to 149 (from 20 to 199 if business is established in Vilnius or its district), and each created workplace must be maintained for at least five years and the average gross salary of 20 employed persons for the relevant tax period would be at least 1.25 of the average monthly gross salary of the municipality in which the investment is made, and the persons employed in the new workplace created above this number would have the average gross salary of the relevant tax period not less than the average monthly gross salary of the municipality in which the investment is made. Additionally, capital investment of the entity should be not less than EUR 20 million (EUR 30 million if business is established in Vilnius or its district; EUR 100 million after receiving the approval of the European Commission). All the criteria specified in this point apply only to manufacturing investment projects.

An investment agreement with the government of the Republic of Lithuania for the application of large project relief is required. This agreement must be signed by 31 December 2025.

The relief starts to apply from the tax period when the above-mentioned 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 and/or amount of salaries 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 an FEZ.

It should be mentioned that if the investment agreement is signed, there are other benefits for the investor (green corridor initiative):

• Governmental project coordinator.
• Rapid construction permits.
• The migration process is easier.
• Administrative decisions are made within three days.
• Accelerated territorial planning.
• Faster infrastructure development.
• Other benefits.

Free economic zones (FEZs)

There are seven FEZs in Lithuania: in Kaunas, Klaipėda, Akmenė, Kėdainiai, Marijampolė, Panevėžys, and Šiauliai.

As of 1 January 2018, entities operating in an FEZ and fulfilling certain requirements are entitled to FEZ relief (i.e. do not pay CIT for the first ten years and apply 50% lower CIT rate for further six years). Also, no real estate tax has to be paid in an FEZ.

FEZ relief is applicable to the entities registered and actually performing its activities in the FEZ, if all of the following requirements are met:

• Capital investment is not less than EUR 1 million or capital investment is not less than EUR 100,000 and the average number of employees in the tax year is at least 20.
• At least 75% of annual income is earned from activities performed in the FEZ.
• Auditor’s written confirmation regarding capital investment is required.
• There are specific limitations following the EU legislation governing the provision of state aid.

All aforementioned requirements shall be met each year. The exemption will not apply to the tax period in which the amount of private capital investment and/or number of employees or annual income from activities in the FEZ fall below the required thresholds. The exemption will be renewed for the tax period when the required thresholds are reached again (the calculation of  ten and six years period is stopped if the capital investment and/or number of employees criterions is not met; however, calculation of ten and six years period is not stopped if 75% income from activities criterion is not met).