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% 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% 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 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 EUR 20 million (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. This agreement must be signed by 31 December 2025.
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 FEZs.
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)
Entities that invest in Lithuanian FEZs are entitled to partial or complete CIT relief (depending on the investment amount), relief of tax on real estate, and 50% relief of land lease tax. There are seven FEZs in Lithuania: in Kaunas, Klaipėda, Akmenė, Kėdainiai, Marijampolė, Panevėžys, and Šiauliai.