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Doing businessin LithuaniaTax and legal guide 2016

Dear Reader,

Thank you for taking time to get acquainted with this guide containing a comprehensivetax and legal analysis of business environment in Lithuania aimed to help you navigatethrough the landscape of the Lithuanian tax legislation.

or have already encountered in the process of running your business in our country,we realize that it covers only the tip of the iceberg. The business and tax landscapeschange rapidly, and the pace and complexity of change continues to increase. We canhelp you navigate this shifting landscape. Governments are tempering the need forrevenue with increased competition for labour and capital. Tax authorities are adaptingtheir enforcement strategies, focus and policies in response to the changing dynamicsof business. Companies are balancing competing priorities, ensuring they maintaincompliance while adding value. We can assist you with these critical issues in today’stax environment.

In our team we have many seasoned professionals in domestic and international directtaxes, VAT, excise and customs duties, human capital, transfer pricing, transactiontax structuring and tax due diligence, EU tax law and practice, transaction, corporateand employment law, who are equipped with deep institutional knowledge, ability tocoordinate activities cross-border in various market sectors and the best practice toolsto deliver seamless, consistent and high-quality professional services to public andprivate sector clients and NGOs. Our goal is to help our clients and the societies we workin to respond to unprecedented challenges of today’s economic environment.

We hope that this guide will help you better understand the advantages of doingbusiness in Lithuania and the Baltic region! Contact us - your source for global andBaltic tax and business solutions!

Jelena SemionovaBaltic Tax Services Leader

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- 3 - Doing business in Lithuania

ContentsCountry overview...........................................6

Geography

Population and language

Governmental structure

State holidays

Economy

Investment environment...........................10

General principles

Legal regulation of import and export

Types of business entities.........................14

Taxation.........................................................18

International issues

Tax administration

Corporate taxes

Value added tax

Personal income tax

Health insurance contributions

Social insurance

Other taxes

Immigration and permits

Addendum.....................................................38

11.1

1.2

1.3

1.4

1.5

22.1

2.2

3

44.1

4.2

4.2.1

4.2.2

4.2.3

4.2.4

4.2.5

4.2.6

4.3

5

- 4 - - 5 -Doing business in Lithuania Doing business in Lithuania

Countryoverview

1

1.1 Geography

Lithuania is located on the eastern coastof the Baltic Sea with an area of 65,303sq. km and has common borders withLatvia in the north (588 km), Belarus inthe south-east (653 km), Poland in thesouth-west (104 km), and the Kaliningradregion of the Russian Federation,also in the south-west (249 km). Thegeographical centre of Europe is 24km to the north of Vilnius, which is thecapital of Lithuania.

The climate in Lithuania is maritime/ continental. The average annualtemperature is +6.1°C, the averagetemperature in January is –5.0°C, andthe average temperature in July is+23.0°C.

1.2 Population and language

Lithuania’s population is under 3 million.86.7% are Lithuanians, 5.6% are Polish,4.8% are Russians, and 2.9% – other.

1.3. Governmental structure

The legal system of the Republic ofLithuania is based on its Constitutionadopted in 1992 by a referendum.Pursuant to the Constitution, sovereigntyshall be vested in the People and shall beexercised either directly or through theirdemocratically elected representatives.In Lithuania, the powers of the State areexercised by the Seimas (Parliament),the President of the Republic, theGovernment, and the Judiciary.

The supreme legislative power isexercised by the one-chamber Seimas; its141 members are elected for a four-yearterm by universal, equal, direct suffrageand a secret ballot. The current Seimaswas elected in October 2012. The nextelections to the Seimas will take place inOctober 2016.

The President of the Republic ofLithuania is the head of the state. ThePresident represents the Lithuanian stateand performs the functions prescribedto him/her by the Constitution and laws.

The citizens of the Republic of Lithuaniaelect the President of the Republic for

and direct suffrage, by means of asecret ballot. The current President ofthe Republic of Lithuania, H.E. Dalia

In Lithuania, the supreme executivepower is vested in the Government. It

ministers. Upon the approval of theSeimas, the President of the Republicof Lithuania appoints and dismisses

of the Republic of Lithuania appointsand dismisses ministers. The presentGovernment is made up of the coalitionof Social Democrats, Labour party,Order and Justice and is headed by

Since 2004 Lithuania is a member ofthe European Union (EU) and NATO.

86.7%

5.6%

4.8% 2.9%

Lithuanians

Polish

Russians Other


1.5 Economy

Type of economy

Lithuania’s geographical position in theregion enables the country to be activeboth from the north to the south andfrom the west to the east directions, andto use the advantages provided by itsgeographical position to the maximumextent possible. The Baltic region isa very important intersection pointfor both transport and trade roads inthe middle of the European continent.Lithuania’s geographical position isconvenient for transit; two recognisedtransport corridors of continentalimportance cross the country’s territory.

The fact that Lithuania is a sea state

a modern container terminal is alsovery important for the development of

New Year 1 January

Day of Reestablishment of the State of Lithuania 16 February

Day of Restitution of Lithuania’s Independence

International Labour Day

24 June

6 July

Assumption Day 15 August

All Saints’ Day 1 November

Christmas days 24 to 26 December

1.4 State holidays

The Republic of Lithuania has a widenetwork of motorways with a high qualitymaintenance and repair system.

In the Baltic Sea region, Lithuania isestablishing its role as one of the leadersin the region, in particular by facilitatingEU and NATO policy-making in regard toits eastern neighbours, thus enhancingthe security and stability in the entireregion.

Key economic indicators

Some of the key economic indicators arepresented in the Addendum.

Currency

Lithuania is the euro.


Investmentenvironment

2

2.1. General principles

The legal system of the Republic ofLithuania recognises the generallyaccepted principles of the legal regulationof investments. The principle of equaltreatment means that both Lithuanianand foreign investors are subject toequal business conditions pursuantto the Law on Investment as well asother legislation. The principle of equalprotection means that the laws of theRepublic of Lithuania protect rights andlawful interests of both local (Lithuanian)and foreign investors. Attention shouldalso be paid to the fact that the Republicof Lithuania applies the principle of freeaccess to all sectors of economy. Foreigninvestment is permitted in all lawfulcommercial-economic activities, subjectto the restrictions prescribed by the lawsof the Republic of Lithuania, e.g. in thearea of defence.

International treaties

The Republic of Lithuania has concluded50 bilateral international treatiesconcerning promotion and mutualprotection of investments. Usually suchtreaties establish a more favourableinvestment treatment on a mutualbasis. It should be noted that most ofthe treaties on investment promotionand protection do not provide for anobligation of the Republic of Lithuaniato expand treatment, incentives orprivileges in respect of regulatedinvestments provided for in a commonmarket, customs union, economic union,free trade zone or a regional economicdevelopment agreement that the countrybelongs to or may belong to in the future,or to expand the provisions of a current

or future agreement regarding double

the Republic of Lithuania has alsoconcluded around 50 bilateral treaties onavoidance of double taxation of incomeand capital and prevention of tax evasion.These treaties provide for certain tax

Republic of Lithuania.

Investment types

The Law on Investment provides for thefollowing types of foreign investment inthe Republic of Lithuania:

1. Establishment of an undertaking,acquisition of capital or a part thereof ofan undertaking registered in the Republicof Lithuania

2. Acquisition of any type of securities

increase in their value

4. Lending funds or other assets toundertakings where the investor owns apart of the capital entitling it to controlthe undertaking or exert a considerable

5. Conclusion and implementationof concession, leasing contracts andcontracts of partnership between thegovernment and the private sector

Investment protectionand guarantees

The laws of the Republic of Lithuaniaprotect investors’ rights and lawfulinterests. The laws of the Republic ofLithuania provide that an investor has

the right to manage, use and disposeof an object of investment and, uponpayment of the taxes prescribed by thelaws of the Republic of Lithuania, to

foreign currency and transfer it abroadwithout any restrictions. Damages

actions of state or local authorities and

to the procedure established by the lawsof the Republic of Lithuania.

Foreign investment is subject toprotection in case of expropriation, i.e.an object of investment may be seized(expropriated):

• Only according to the procedureprescribed by laws

• Only for public needs

• Only for just compensation

Foreign investors are granted the rightto legal protection in case of violationof their rights and lawful interests.Investment disputes between foreigninvestors and the Republic of Lithuaniaare resolved upon agreement of bothparties, by the courts of the Republicof Lithuania, international arbitrationinstitutions or other institutions. In caseof investment disputes, foreign investorshave the right to directly address theInternational Centre for Settlementof Investment Disputes. The Law onInvestment provides for the types ofinvestment incentives; however, suchinvestment incentives are only applicable

the EU legislation regulating state aid.


Principles of customs regulation

Being a member of the EU Lithuaniahas harmonised its customs legislationin accordance with the EU customs law.

of common rules at external borders ofthe union and prohibits applying customsduties or quantitative restrictions on

States. The common rules comprisecommon tariff and all aspects of tradepolicy, such as preferential trade, healthand environmental controls, the common

well as integrated external trade policymeasures.

Lithuania is a member of the WTO.

General rules on import andexport procedures

As a general rule, goods importedinto Lithuania from third countries orexported out of the country should bedeclared by providing customs with theSingle Administrative Document (SAD).Currently, there are no duties on goodsexported from the EU, although they canbe introduced in response to the marketconditions.

Usually, customs duties becomepayable upon import of goods into

the EU, except when goods originatein a preference country or qualify fortemporary suspension of customs duties.Customs duties should not be paid for thegoods, which are under transit or othercustoms procedure and are not releasedfor free circulation. Exemption fromcustoms duties on import is provided tosuch goods as personal belongings ofindividuals who are changing their placeof residence and moving from a thirdcountry to the EU, items imported in thecase of marriage, parcels of a low valuefor non-commercial purposes, equipmentrelated to education, science andculture, goods intended for charity andphilanthropic organisations as well asitems imported for trade promotion, etc.

Import of goods to Lithuania is alsosubject to other taxes, such as 21% ofVAT and excise duties applied to ethylalcohol or alcoholic beverages, processedtobacco, energy products and electricity.

Summarised information on tariff andnon-tariff regulations (e.g., licenses)applied on imports and exports to theEU is provided in the TARIC database,which is accessible on-line. Lithuania hasimplemented a database similar to TARICnamed LITAR, which in addition providesdata on VAT and excise duties to be paidupon the import of goods to Lithuania.

To apply the databases, the code of theCombined Nomenclature of the goodsimported or exported should be entered.

Risk-based customs control

Customs administration exercisesmodern risk analysis methods and auditbased controls to control the cross-

using risk management is to aim Customscontrol activities at risks rather than atrandomly selected goods or declarations.Customs authorities should completethe risks analysis prior to arrival of thegoods and select goods or economicoperators to be checked based uponcommonly agreed standards, risk criteriaor common priority control areas. Themeasures that the economic operatorsthemselves have taken to prevent risks intheir business processes should also betaken into account.

Pre-arrival and pre-departuredeclaration

In order to enable proper risk analysisand appropriate risk-based controls, anobligation for economic operators toprovide pre-arrival and pre-departureinformation to customs authorities forall the goods brought into or out of theterritory of the EU is in force. Pre-arrival

and pre-departure information shouldbe submitted electronically as summaryentry or exit declarations.

Electronic customs

To facilitate import or export proceduresand to reduce compliance costs as wellas the time spent for customs clearance,the European Parliament and theCouncil have introduced a decision on apaperless environment for customs andtrade. Lithuania has already implementedthe New Computerised Transit System,

the 2nd phase of the Import ControlSystem and the 3rd phase of the ExportControl System.

Authorised economic operator(AEO)

States, should grant the status of AEOto any economic operator that meetsthe common criteria relating to the

solvency and compliance records. AEO

customs controls or both. The status

should be recognized by the other

performs its customs activities or a partof them in Lithuania, the application forAEO status can be lodged to the CustomsDepartment of Lithuania from 1 January2008.

2.2. Legal regulation of import and export

Reasons to invest inLithuania

Talent. With our highly-talented self-starters –exceeding expectations isa standard practice.


Types of businessentities

3

Principles

The principle of personal freedomto engage in economic–commercialactivities means that natural personsin Lithuania may engage in economicactivity with or without incorporating acompany. All the legal entities (except forpersonal companies and partnerships)are limited liability legal persons liable fortheir obligations by the assets owned byor trusted to the company, thus ensuringthe principle of separation of the assetsof a legal entity from the assets of itsincorporators and owners. The principlesof freedom of companies to establish

enter into associations are also ensuredin Lithuania.

The following entities with the statusof legal persons may be presentlyestablished in the Republic of Lithuania:

• Public or private limited liabilitycompany

• Individual (personal) enterprise

• Partnership (general or limited)

•

• Professional law partnership

• Agricultural company

• Co-operative company

• European company

• European economic interest grouping

• European co-operative company

• Public legal entities (state enterprise,municipal enterprise, etc.)

Registration of entities

All entities together with all other legal

Register of Legal Persons of the Republicof Lithuania administered by the StateEnterprise Centre of Registers. A legalentity registered with the Register of

legal person of an established form andallocated a legal person’s code.

Public and private limited liabilitycompanies

Public and private limited liabilitycompanies (hereinafter jointly referredto as “company”) are enterprises theauthorised capital of which is dividedinto shares. They are limited liabilityprivate legal persons and their assetsare separated from their shareholders’assets. The company is liable underits obligations only by its own assets.Shareholders are liable under thecompany’s obligations only withinthe amount, which they must pay forshares. The authorised capital of a publiccompany may not be lower than kEUR40. Its shares may be distributed andtraded publicly. The authorised capital ofa private company may not be lower thankEUR 2,5. It shall have less than 250shareholders.

The general meeting of shareholders isthe supreme body in a company; its othermanagement bodies are the supervisorycouncil, the board and the manager. Themandatory bodies of a company are thegeneral meeting of shareholders and themanager.

Personal enterprises

An individual enterprise is owned bya single natural person. The ownerof an individual enterprise may notown another individual enterprise. Anindividual enterprise is a legal personof unlimited liability and its assets arenot separated from its owner’s assets.The owner is liable for the obligations ofthe enterprise with all of his property.The Civil Code, the Law on IndividualEnterprises and other laws, as well as theregulations of the individual companyregulate the establishment, liquidationand activities of individual enterprises.

Partnerships

Partnerships may be general and limited.A general partnership is an enterpriseof unlimited liability established on thebasis of a partnership agreement byjoining the property of several natural orlegal persons into the joint and severalownership in order to engage intoeconomic–commercial activities with the

The limited partnership is also a legalperson of unlimited liability; however, itsassets are not separated only from theproperty of the general members thereof.The general members of the limitedpartnership are jointly and severallyliable with all of their property for theobligations of the limited partnership,also after its liquidation, whereas limitedmembers are liable only for the share oftheir property that is transferred for thejoint activity of the partnership under theagreement.


Micro company

A micro company is a limited liability legalentity that can only be established bynatural persons; the number of founderscan be up to 10 persons. The microcompany is intended to promote smallbusiness; therefore, in order to establisha micro company, there is no statutorycapital requirement, also, contributionsin kind are permitted.

State and municipal enterprises

State or municipal enterprises arelimited liability legal persons the assetswhereof are owned by the Republic ofLithuania or a respective municipality.State and municipal enterprises manage,use and dispose of the enterpriseassets by the right of property trust.The purpose of state and municipalenterprises is provision of publicservices, manufacturing products andother operations in order to meet publicinterests. State and municipal enterprisesare public legal persons.

Cooperative companies

A cooperative company is an enterpriseestablished by natural and/or legalpersons according to the procedureprescribed by laws in order to satisfy

the economic, social and cultural needsof its members. Its members contributefunds to form its capital, share risks and

goods and services of its members withthe cooperative company and they areactively involved in the management ofsuch company.

Agricultural companies

An agricultural company is an enterpriseestablished by natural and legal personsunder an incorporation agreement,where income from agriculturalproduction and services rendered toagriculture constitute over 50% ofthe total income from sales duringthe business year. There are twogroups of persons participating in thecompany’s management: members andstakeholders. An agricultural companymust have at least 2 members. Anagricultural company is a limited liabilitylegal person. It may be founded byLithuanian and foreign natural andlegal persons. An agricultural companymembers’ meeting is the supremebody in the company. An agriculturalcompany’s management bodies are theboard and/or the administration.

European company

A European company (SE or SocietasEuropaea) is a limited liability legalperson established within the territory ofthe Community as a public limited liabilitycompany. Its purpose is to merge or forma holding of companies governed by the

be subject to the legal regulations of theRepublic of Lithuania mutatis mutandisregulating the activities of public limitedliability companies, unless stipulated

The subscribed capital of an SE maynot be less than kEUR 120. Lithuanianpublic and private limited liabilitycompanies may incorporate an SE.An SE comprises a general meeting ofshareholders, a supervisory council (oranother supervising body), a board anda manager. The obligatory bodies are thegeneral meeting of shareholders and themanager. Employees of an SE are entitledto participate in the management of theSE and in adoption of decisions vital tothe operations of the company.

European economic interestsgrouping (EEIG)

EEIG is an unlimited liability privatelegal person. The purpose of EEIG is tofacilitate or develop economic activitiesof members and to improve or increasethe results of those activities: an EEIGmay not carry out professional activitiesin respect of third persons, hold sharesof any kind in another undertaking,exercise, directly or indirectly, a powerof management or supervision over itsmembers’ activities, and employ morethan 500 persons.

Both private and public legal personsas well as other organisations with the

the Community, and private personsengaged in industrial, commercial,craftsmanship and agricultural activitiesor provision of professional or otherservices in the EU may incorporate anEEIG. At least two promoters operating

establish an EEIG. The bodies of EEIGare the meeting of members and themanager.

European cooperative society(SCE)

A cooperative society may be set upwithin the territory of the EC in the formof a SCE on the conditions and in themanner laid down in the regulationsset forth in the legal acts of EU andLithuania. An SCE has as its principalobject the satisfaction of its members’needs and/or the development oftheir economic and social activities, inparticular through the conclusion ofagreements with them to supply goodsor services or to execute work of the kindthat the SCE carries out.

An SCE may be formed by natural orlegal persons. The subscribed capitalcannot be less than kEUR 30. Thesubscribed capital of an SCE is dividedinto shares. A member of an SCEis liable only for the amount he hassubscribed, unless otherwise providedby the statutes of the SCE when theSCE is formed. The bodies of the SCEare the general meeting of membersand either a supervisory body and amanagement body (two-tier system) oran administrative body (one-tier system)depending on the form adopted in thestatutes.

Branches and representative

In Lithuania, enterprises (includingforeign enterprises) may establish theirbranches for performing some electedor all functions as well as representative

and protect the interests of the legalperson, to conclude agreements andperform other actions on behalf ofthe company that established the

and import operations, but only between

legal persons or other organisationswhich established the representative

organisations related to it. It should benoted that neither the branch nor the

independent legal person. To implementcertain aims, several enterprises mayalso join into associations.


Taxation

4

4.1. International issues

Treaties on avoidance of doubletaxation

Lithuania has concluded 53 applicablebilateral treaties on avoidance of doubletaxation. All the treaties are based on theOECD/UN model agreement:

1 Armenia2 Austria3 Azerbaijan4 Belarus5 Belgium6 Bulgaria7 Canada8 China9 Croatia10 Cyprus11 Czech Republic12 Denmark13 Estonia14 Finland15 France16 Georgia17 Germany18 Greece19 Hungary20 Iceland21 India22 Ireland23 Israel24 Italy25 Kazakhstan26 Kirghizstan27 Korea

28 Latvia29 Luxembourg

34 Netherlands35 Norway36 Poland37 Portugal38 Romania39 Serbia40 RussianFederation41 Singapore42 Slovak Republic43 Slovenia44 Spain45 Sweden46 Switzerland47 Turkey48 Turkmenistan49 Ukraine50 United ArabEmirates51 United Kingdom52 United States53 Uzbekistan

Free economic zones (FEZ)

Lithuanian and foreign enterprisesmay develop their business in FEZ. FEZenterprises may enjoy the followingincentives:

• If capital investments reach the amountof EUR 1 million, and at least 75% ofthe company’s income during the taxperiod that the limit of EUR 1 millionwas reached in consisted of incomefrom manufacturing, processing,warehousing, IT services, aircraftmanufacturing and maintenanceactivities as well as certain otheractivities performed within the zone,from wholesale of goods warehousedwithin the zone or provision of servicesrelated to the activities carried out onthe territory of the zone, the company

in the subsequent 10 tax periods(years) it is subject to a 50% reductionin CIT

• Dividends earned by investors frominvestments into a FEZ are exempted

• Exemption from VAT on goods andservices supplied in a FEZ, andexemption from RET may be applicableirrespective of the amount of theinvestment in a FEZ

Small enterprises

An enterprise with gross income belowkEUR 300 during a tax year and withthe average number of employees notexceeding 10 has the right to apply a 5%CIT (the standard rate is 15%).

business activities not exceeding kEUR300 per tax year has the right to applyzero CIT rate to the amount of kEUR7,2 and a 15% CIT rate to the remaining

Shipping entities

Income received by a shipping entityfrom international carriage by sea-goingvessels and activities directly related

CIT in case it meets the requirements

CIT. After a shipping entity acquires the

CIT, the chosen rate shall be appliedfor a period not shorter than until 31December 2016.

Fixed CIT is calculated with respect to

15% CIT rate to the tax base without anydeductions.

experimental development

research and experimental developmentcosts, except for depreciation or

could be deducted three times fromincome for the tax period during whichthey were incurred, if the performed

development works are related to theusual or intended activities of the entitythat generated or will generate income



Cost competitiveness.From growing productivity

space costs we are highlycost competitive.

Relief from CIT for investments

The provisions of the Law on CIT allow

expenses which were actually incurredin the acquisition of investment assets.If the expenses to acquire investment

the part of expenses exceeding 50%can be carried forward for the nextfour taxable periods. This relief maybe applied to the expenses which wereincurred during the taxable periods of2009-2018.

The investment project meansinvestments into certain categories

for manufacturing or supply of newproducts (services), increasing theproduction volumes, implementationof a new process of production (supplyof services), essential changes of anexisting process (part of the process),implementation of new technologies,which are protected by internationalpatent law. The investments with the

assets with similar ones cannot betreated as an investment project.

The provisions of the Law on CIT allowa Lithuanian entity or a foreign entity’spermanent establishment in Lithuania

allocated to the production of a

can be carried forward for the next twotaxable periods.

Other incentives and reliefs

The majority of municipalities inLithuania offer land tax reliefs and in

businesses for creating new jobs.

The RET in Lithuania varies from 0.3 to

may apply the tax rate within theselimits.

Enterprises with 40% or more employeesbelonging to target groups (disabledpeople, long-time unemployed, etc.) may

incentives.

Entities engaged in agricultural activitiesearning more than 50% of income fromthese activities, are subject to taxation at5% CIT rate.

Accounting and audit

Apart from certain exceptions appliedto small and/or unlimited liabilityenterprises, accounting must be based

on the accrual principle. The Bank ofLithuania requires that banks in Lithuaniashould present accounts according to theIFRS.

Enterprises may choose to presentaccounts according to IFRS or BAS.Enterprises whose securities are tradedin regulated markets shall present

Audit is mandatory for all public andprivate companies meeting two of thethree below listed criteria:

• Revenues from sales exceeded kEUR3,500 over the past accounting year

• Over the accounting year, the averagenumber of employees was at least 50

• Assets on the balance sheet exceededkEUR 1,800

4.2. Tax administration

It is necessary to follow all the applicableLithuanian requirements for accountingand bookkeeping of other enterprisedocuments. Documents must be kept inLithuanian. If necessary, documents maybe kept in two languages. Documentsmust contain certain mandatory data ofthe parties to the transaction. Invoicingprocedures have been harmonised withthe EU directives: electronic invoicesmay be used, the buyer may issueinvoices, and a favourable procedure ofinvoice storage has been introduced.

If mandatory data is missing, suchdocuments are not recognised for taxpurposes.

Tax payers have the right to applyfor a binding ruling or for an advancepricing agreement (APA). If thetax administrator, after analysis ofthe application, decides to approvethe proposed application of the taxlegislation provisions to the forthcomingtransaction, then the tax administratorundertakes to adhere to the ruling orAPA, when reviewing whether this taxpayer correctly charges, reports and pays

ruling or the APA shall be applicable for aperiod not longer than 5 years.

Fines currently applicable in case ofviolations are 10–50% of the amount oftax underpayment. It is notable that atax dispute may be a long and expensiveprocess, as it usually requires judicialproceedings.

Transactions with associatedpersons and price adjustment

Tax laws are strict about transactionswith associated persons located bothin Lithuania and abroad. Therefore, it

is advisable to maintain arm’s lengthbusiness relations based on marketprices. Lithuanian entities, which (i)

statements and (ii) the sales proceedsof which exceed kEUR 2,896 in the yearprior to the year when the transactionwith associated parties took place, areobliged to keep documentary evidenceof the transaction value. The TaxInspectorate may recalculate the tax base

purposes, if it has grounds to suspectintentional tax evasion. OECD guidelinesfor transfer prices are applied in practice.


4.2.1. Corporate taxes

Residents and registration oftaxpayers

Both Lithuanian and foreign taxableentities registered in Lithuania must

capital gains earned both in Lithuaniaand abroad. Withholding taxes paidabroad and not exceeding the taxpayable in Lithuania on foreign income

may be applied according to applicableinternational treaties.

Enterprises without a residence inLithuania (non-residents) are subjectonly to a few taxes and only in regard tocertain income originating in Lithuania(see chapter Withholding taxes).

An enterprise is considered to bea resident of Lithuania if it wasincorporated and registered inLithuania. An enterprise registeredwith the Register of Legal Persons isautomatically registered as a taxpayer,health insurance and social securitycontributions payer within 2 businessdays. After receiving the announcementfrom the district state tax inspectorate

about the entity’s registration with theRegister of Tax Payers, a special form

district state tax inspectorate regardingadditional information about the entityand its structural subdivisions includingthe information regarding the entity’spermanent establishments abroad(if any). An entity registered with theRegister of Tax Payers is provided with a

Any changes in the data presented uponregistration of the enterprise must bereported within 5 business days.

Permanent establishment

A foreign enterprise is considered to havea permanent establishment in Lithuaniaif:

• It is permanently engaged incommercial activity in Lithuania or

• It is engaged in commercial activitythrough a dependent agent or

• It uses a construction site, building,construction, equipment, etc., or

• It uses equipment or construction,including bores or ships, for explorationand extraction of natural resources

Usually permanent establishments aresubject to the same tax requirements asother enterprises with certain exceptions(deduction of administrative expenses

(permanent establishments).

The exemption method is applied inorder to avoid double taxation of certainincome earned by a Lithuanian entitythrough its permanent establishment, i.e.income from economic activity earnedthrough Lithuanian entity’s permanentestablishment is not attributable to theentity’s tax base if the below criteria aremet:

• The permanent establishment is

EEA or in a country Lithuania hasan applicable treaty on avoidance ofdouble taxation with and

•another similar tax to it in therespective country

Having in mind that this income wouldnot be subject to CIT in Lithuania, aLithuanian entity, while calculating its


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annual payable CIT in Lithuania, will notbe able to deduct the amount of CITpaid by its permanent establishmentin a foreign country. In addition to this,since the CIT payable in a foreign countryby the permanent establishment wouldbe calculated taking into account itsexpenses incurred from the economicactivity, such expenses would be treatedas non-deductible expenses for theLithuanian entity.

Taxation of partnerships andpersonal enterprises

Partnerships and personal enterprisesare considered taxpayers and aretaxed at the same rates as companies.Partnerships are not transparent for taxpurposes.

Financial and tax year

the calendar year. However, a differenttax year may be established takinginto account the peculiarities of thetaxpayer’s activity. A taxpayer, upon theconsent of the Tax Inspectorate, mayhave a different 12-month tax year, if thisis necessary due to the seasonal natureof activity or if the group, to which thetaxpayer belongs, applies a tax yeardifferent from the calendar year.

Tax rate

legal entities is 15%. The available tax

Small enterprises with annual income notexceeding kEUR 300 and the averagenumber of employees not exceeding 10

Calculation of taxable

General principles

Taxable income is calculated bysubtracting non-taxable income (e.g.,received insurance payments, forfeits,etc.), deductible expenses and deductibleexpenses of limited amount from the

Expenses may be deducted if they areincurred in the ordinary business activityand are necessary to earn revenues or

documentary evidence is presented.

Deductible expenses of limited amountare allowed only if they do not exceeda certain limit and consist of thefollowing: depreciation and amortisation,business trips, representation expenses,provisions for bad debts, expenses

or their family members which are notsubject to PIT, and similar. Sponsorship

provided it does not exceed 40% of the

experimental development costs can bededucted three times from income inthe tax period during which they were

or experimental development worksperformed are related to the ordinaryor intended activities of the entity thatgenerate or will generate income or

Non-deductible amounts includedividends, limited deductions in excess,costs incurred outside of the usualbusiness operations or inappropriatelydocumented.


Losses incurred in transactions withrelated persons may not be deductedfrom taxable income if the market pricewas not applied.

Payments to tax havens may be deductedonly in case the Lithuanian enterprisecan prove that certain conditionsevidencing the economic basis of thetransaction were met.

Other taxes (e.g., social insurancecontributions, RET, etc.) are alsodeducted from taxable income.

Thin capitalization

Interest is generally deductible on accrual

business and is at arm’s length. Followingthe Lithuanian thin capitalization rules,interest on shareholder and related partyloans is deductible; however, intereston controlled debt as well as currencyexchange losses on controlled debt arenot deductible. A controlled debt existswhen there is a debt to a controllinglender, and debt to equity ratio exceeds4:1 (only the exceeding part is treated ascontrolled debt). The ratio is computedas of the end of the relevant tax year, butthe equity does not include the resultfor that year. A controlling lender isone that controls, directly or indirectly,either more than 50% of the shares ofthe borrower alone, or more than 10%alone and more than 50% together with

a controlling lender are also controllinglenders. If the borrower can prove thatthe borrowing occurred under arm’slength conditions, thin capitalizationrules will not be applied.

Depreciation and amortisation

The object of depreciation (amortisation)may be a certain unit of assets or a groupof identical units. Three depreciationmethods are applied: straight-line,accelerated and production (the lattertwo are applicable only to certain typesof assets).

The selected depreciation method isapplied to all the assets of the same typeand may be changed only under certaincircumstances. The rates depend onthe useful life of the asset and may notexceed the maximum rates establishedby the laws (minimum rates are notestablished):

Used forordinarybusiness

Used for

research andexperimentaldevelopment

Type of asset Time (year)Intangibleassets

3-15 2-15

New buildingsand premises

8 8

Otherbuildings andpremises

15-20 15-20

Computerequipment

3 2

Vehicles 4-10 4-10

equipment5-15 2-15

Other assets 4-6 2-6

Losses

Losses for the tax period, except for thelosses incurred as a result of disposals

instruments, may be carried forward foran unlimited period of time, but suchcarrying forward shall be terminated ifthe entity ceases its activities that gaverise to the losses except for reasonsbeyond its control. Starting from 2014the amount of loss brought forward shall

the current year. Losses incurred as aresult of disposal of securities and/or

carried forward not longer than for 5consecutive tax periods, starting fromthe tax period following the tax periodduring which the losses were incurred.

institutions. In case of transfer orreorganization of an entity, tax losses,which were incurred by the acquiredentity during the accounting period, canbe carried forward by the acquiring entityif certain criteria are met.

Group loss relief

An entity is entitled to transfer the taxlosses incurred to another Lithuaniangroup entity and reduce the taxable

entity is allowed to transfer its lossesto a Lithuanian entity if the followingconditions are met:

•

State of the EU

•carry forward its losses in accordancewith the legislation in the country ofresidence

•(recalculated) under the provisions ofthe Lithuanian Law on CIT

Capital gains

Capital gains and losses are calculatedby subtracting the acquisition costs andrelated expenses from sales proceeds.Gain (loss) received from other sourcesthan transfer of securities and derivative

according to the respective procedure.Losses from disposals of securities and

be carried forward for 5 years to offsetgains derived from disposals of suchitems. Capital gains on the sale of sharesof the company registered or organizedin another way in an EEA country oranother tax treaty country are exemptfrom tax if the following conditions aremet:

•2 years and more than 25% of thecompany’s shares have been heldthroughout that period or

•the provisions of the law regulatingreorganizations and more than 25%of the shares were held for at least 3years

In case the seller transfers shares to theissuer of those shares, the above taxprivilege cannot be applied.

Losses from disposal of shares ofsubsidiaries registered in an EEA countryor in another tax treaty country, if shareshave been held for at least 2 yearsand the holding represents more than25% of the company throughout thatperiod, cannot be carried forward, butcan be offset against the capital gainsderived from disposals of securities and

Dividends

A 15% tax is applied to dividends receivedboth from Lithuanian and foreignenterprises. Withholding tax deductedand paid by a foreign enterprise fromthe dividends of a Lithuanian companymay be credited against the Lithuanianenterprise’s income tax. Dividendsreceived from Lithuanian and foreignenterprises shall not be taxed if therecipient thereof has owned no less than10% of the shares for at least 12 months(participation exemption rule). Therecipient may consider such dividends asnon-taxable income in Lithuania.

Controlled foreign enterprises

countries or areas where taxes are below75% of the Lithuanian tax rate (which is

controlling Lithuanian enterprise and

company participating in the EEIG.

Return terms and payment

During a calendar year, taxpayers mustpay advance CIT on a quarterly basis: bythe last day of each quarter of the taxperiod. For the last quarter of the taxperiod it must be paid by the 25th dayof the last month of the said quarter.The taxpayers must submit two advanceincome tax returns: by 31 January andby 31 October, while the annual tax

adjusted amount of tax has to be paid by1 June of the following year.


Income tax is paid in advance:

• For a period of nine months based onthe CIT paid for the year before theprevious year

• For a period of three months based onthe CIT paid for the previous year

Newly established enterprises are notrequired to pay advance income tax untilOctober of the following year after theenterprise was established. Advance

of the enterprise does not exceed kEUR300 for the previous year. Advanceincome tax may be computed on thegrounds of forecasted CIT; however, theamount of advance income tax over a taxyear has to be not less than 80% of theannual income tax.

Withholding tax

Apart from dividends (see above),certain other income of non-residentsoriginating in Lithuania is taxed with a15% withholding tax:

•

•into ownership or lease of propertyimmovable by nature located on theterritory of the Republic of Lithuania

•and sports activities in the Republic ofLithuania

•members

Certain income of non-residents sourcedin Lithuania is taxed with a lower 10%withholding tax:

•securities issued by the Government on

accrued and paid on deposits, andinterest on subordinated loans, whichmeet the criteria set down by the Bankof Lithuania

•

•copyrights and ancillary rights

It should be noted that interest income ofthe entities established in an EEA countryor a tax treaty country are exempt fromtaxation.

A foreign enterprise operating in acountry that has a treaty with Lithuaniaon the avoidance of double taxation mayapply for tax relief, provided that it meetsthe following requirements:

• Along with the request to apply reliefsprovided for in the treaty, it presents

endorsed by the foreign tax authority

• The recipient of income is the

• The transaction is carried out at arm’slength

• The income was not received viaits permanent establishment orpermanent base in Lithuania

If the Lithuanian Tax Inspectoraterequests additional information, suchdocuments must be presented.

Tax overpayment may be returned tonon-residents (under a standard requestform).

The Lithuanian enterprise is responsiblefor computation and payment of

Lithuanian enterprise must present tothe territorial tax inspectorate a standardmonthly statement on the amounts paidand the tax deducted until the 15th dayof the following month. Sanctions areapplied if the Lithuanian enterprise failsto compute withholding tax or reducestaxes without a foreign resident’s

4.2.2. Value added tax(VAT)

Registration for residents

Residents (both individuals and legalentities) must register as VAT payers iftheir income from economic activitiesover a period of 12 months exceedskEUR 45. There is no threshold forvoluntary registration.

Farmers subject to a compensatoryVAT rate, taxable persons engagedin activities exempt from VAT (e.g.,insurance companies) or Lithuaniannon-taxable legal persons (e.g., stateinstitutions, public legal persons) mustregister as VAT payers when the value of

States exceeded kEUR 14 during thecalendar year.

The registration for VAT is also applicableto collective investment undertakings,which do not have legal entity status, butact as investment funds (e.g., real estateinvestment fund). The managementcompany managing the investment fund

of VAT obligations.

Registration of foreign entities

Enterprises and natural persons withouta residence in Lithuania must register for

they are going to engage in an activityin Lithuania, which is subject to VAT.

agent is not applicable to taxable persons

who may be directly registered for VAT inLithuania or non EU entities acting via a

EU undertakings engaged in distancemarketing in Lithuania, i.e. bringinggoods into Lithuania from another

private persons, taxable persons engagedin VAT-exempt activities (e.g., insurancecompanies) or legal persons that are nottaxable persons (e.g., state and municipalinstitutions) must register for VAT if theirsales income from distance marketing inLithuania exceeded kEUR 35 during thecurrent calendar year.

Foreign taxable persons are not obligedto register for VAT in Lithuania if they areengaged in supply of goods or provisionof services that are VAT exempt withinthe territory of the country, that arenot subject to VAT or are zero rated.

However, in certain cases even if anundertaking is engaged in zero-ratedactivities on the territory of Lithuania,e.g., in export supplies, in supply ofgoods where goods are supplied fortemporary storage of the customs,brought into a free zone or a freewarehouse, or to a VAT relief warehouse,the foreign undertaking is subject toregistration as a VAT payer. However,in some cases when a foreign taxableperson seeks to recover VAT incurredin Lithuania, VAT registration could becompulsory (if input VAT could not berecovered via a VAT refund procedure).

There is a possibility for persons of thirdcountries engaged in the provision ofservices to non-taxable persons of the EU

register for VAT in Lithuania, except forthe cases when they have already been

State.

Place of supply of services

Generally, the place of supply of servicesto foreign taxable persons is the countrywhere the purchaser is established.


In case of the supply of services

establishment, which is in Lithuania, theplace of supply of services is Lithuania

established.

In case of the supply of services to anon-taxable person, generally, the placeof supply of services is the countrywhere the supplier is established.

establishment supplies services to a non-taxable person, the place of supply is the

is established. Considering the natureof some services, in certain cases the

related to property immovable by itsnature, services relating to cultural,

entertainment or similar activities, short-term car rent, transport and ancillarytransport services, supplied outside theEU, telecommunication, broadcastingand electronic services, etc.). It hasalso been laid down in the law, that areverse charge mechanism should beapplied to certain services supplied toLithuanian taxable persons by foreigntaxable persons that are not establishedin Lithuania.

A non-resident entity is not required toregister for VAT purposes in Lithuaniaif goods are transported or dispatched

Lithuania and delivered to the warehouse

purposes in Lithuania but not suppliedstraight to the Lithuanian taxable

a taxable person of Lithuania shouldovertake title to the goods within 12months after the delivery and goods

should be used only for the economicactivities of this taxable person. Theobligation to charge VAT under a“reverse charge mechanism” falls on aLithuanian customer receiving the goodsupon their delivery to Lithuania.

Tax rates

The standard VAT rate is 21%. Thereduced 5% VAT rate is applied:

•purposes products, subject to full orpartial compensation from the statemedical insurance budget

•technical assistance as well as torepairs of such equipment

Reduced 9% VAT rate is applied:

•to residential premises (until 31December 2016)

•periodical materials, as well as journalsand magazines (except the onescontaining erotic, violent, unethical ormore than 4/5 of advertising material).Reduced 9% VAT cannot be applied topromotional publications

•regular routes listed by the stateinstitutions, including transport ofluggage of the passengers on suchroutes

•according to the legislation regulatingtourism activities

A 0% VAT rate is applicable to goodsexported from the EU as well as transportand other services directly relatedto the export of these goods, goodstransported or dispatched within the EU(assuming a subsequent “reverse charge”

goods imported into the EU and otherservices related to the import of those

directly related to export of goods, goodsplaced under temporary storage, goodssupplied to free economic zones, goodsplaced for temporary import under relieffrom customs duties, processing undercustoms control, etc.

VAT exemptions

VAT exemptions apply to health care,social (e.g., nursing) services renderedby authorised persons, cultural and sport

institutions, education services, postalservices, insurance and reinsuranceservices, except insurance of exported

lotteries, etc.

Special cases for supplies subjectto VAT

Self-production or essential improvementof real estate is treated as subject to VAT.Under certain circumstances, transferof goods free of charge is also subject toVAT.

Sale of real estate older than 24 monthsand rent of real estate is exempt fromVAT, except when the supplier has optedto calculate VAT on the transactionswhen supplying to a VAT registeredtaxable person. Once the option has beenselected, VAT should be charged on allthe respective transactions for at leasttwo years. Analogous rules are applicablewhile selecting VAT taxation on certain

There are special cases when a supply ofgoods or services is taxed under a specialVAT scheme, e.g., services related totourism, second-hand items.

VAT deduction

Input (import) VAT is subject to VATdeduction, unless it is related to non-business or VAT exempt suppliesof goods or services. There are afew cases when VAT deduction isprohibited or restricted (e.g., 25% ofinput VAT on entertainment or inputVAT on acquisition and hire of vehiclesdesignated for not more than 8 peopleexcluding the driver, etc.). Input VATrelated to supply of goods or servicesoutside Lithuania may also be deducted,provided that such goods or serviceswould be subject to VAT if they weresupplied in Lithuania.If a taxable person makes both taxableand exempt supplies, input VAT shouldnot be recovered in full. First of all inputVAT has to be attributed to taxable and

non-taxable activities, and only when itis impossible, a pro rata calculation maybe used. Using pro rata, the amount ofinput VAT to recover is calculated basedon the percentage of the actual recoveryamount of the previous year. Input VATmay be fully recovered if the share ofnon-taxable activities does not exceed5%.

Adjustment of input VAT

Input VAT should be adjusted when theassets are no longer used for taxableactivities or the share of non-taxableactivities exceeds 5%. Input VAT relatedto real estate should be adjusted for aperiod of 10 years. Input VAT of othertypes of tangible assets for which therequirement of at least 4 years ofdepreciation has been established for

for a period of 5 years.

VAT returns and payments

VAT must be paid by the 25th day of thefollowing month.

request a different than monthly VATperiod if the group applies such a period.

VAT payers supplying goods or services

place of supply according to the criteriadetermining the place of supply is the

EC Sales List on goods and services on amonthly basis.


Business friendly.With our investor-friendly0-15% tax rates we putbusiness growth in the fastlane.


VAT refund

There are two ways to claim a refundof VAT incurred in the EU. These areknown as the Directive 2008/9/EC and13th Directive claim procedures. Whichprocedure is used, depends on where thebusiness is established. If the business isestablished in the EU, the procedure ofthe Directive 2008/9/EC should be used.If the business is established outside theEU, the procedure of the 13th Directiveshould be used.

Foreign businesses established inthe EU

Taxable persons established in EU

establishment in Lithuania via whichthe economic activity is carried out (incase of a natural person – permanentresidence), may apply for Lithuanian VATrefund through the tax administrators ofthe countries where they are establishedby using the electronic VAT refund

States.

Foreign businesses establishedoutside the EU

VAT on the goods and services acquiredin Lithuania and used for the entity’sbusiness purposes is refundable fortaxable persons that are not establishedin the EU and do not perform any taxabletransactions in Lithuania based on thereciprocity principle (i.e. VAT paid inLithuania is refundable to the personsestablished in the country, which allowsLithuanian taxable persons to apply fora refund of VAT incurred on the territoryof that country). The reciprocity principleis applied with the following countries:Armenia, Iceland, Norway, Canada,Switzerland and Turkey.

4.2.3. Personal incometax (PIT)

Individuals

A natural person is considered to be a taxresident of Lithuania if:

•Lithuania or

• The centre of his/her personal, socialor economic interests is in Lithuania or

•days or longer in Lithuania or

•Lithuania in consecutive years andspends 90 or more days in Lithuaniaduring one of those years or

•mentioned criteria, but he/she is acitizen of Lithuania who receivesremuneration under an employmentagreement or agreement whichin essence corresponds to anemployment agreement or whose costsof living in another country are coveredfrom the state or municipal budget

Income earned by a Lithuanian taxresident in any country is taxed inLithuania. The object of incometax of a tax non-resident is incomeearned through his/her permanentestablishment and other incomeoriginating in Lithuania: interest, income

to supervisory as well as managementboard members, rent of real estatelocated in Lithuania, sale of movableand immovable property locatedin Lithuania subject to mandatoryregistration in Lithuania, employmentincome, income of sportspersonsand performers, royalties, includingcopyright, compensation for violationsof copyrights. Income is recognizedat the moment of its actual receipt,except particular cases when a person isengaged in individual business activity.

Income (except for interest, dividendsand royalties) received by a resident ofLithuania in a foreign country, which is

Lithuania has concluded a treaty forthe avoidance of double taxation andbrought it into effect, shall not be subjectto income tax in Lithuania, providedthat income tax or equivalent tax hasbeen paid on such income in that foreigncountry. Also, a resident of Lithuaniamay deduct the amount of income tax orequivalent tax paid in a foreign countryduring the relevant tax period from theamount of income not mentioned above.

The taxable period coincides with thecalendar year.

Non-taxable income

Income tax is not applied to:

•children (adopted children) and parents(foster parents)

•agreements concluded before 1January 2003 for at least 10 years

•movable property requiring legalregistration or immovable property(only in some cases)

•on PIT

Income of A and B classes

As a rule, income of A class includesincome received from Lithuanianenterprises, foreign enterprises throughtheir permanent establishments andnon-residents of Lithuania through theirpermanent base (except for certain otherexceptions determined by the law), alsosome kind of income received from aLithuanian resident. Tax on such kind ofincome has to be calculated and paid bythe party which makes the payments.Income of B class includes all otherincome not included in A class. The taxis calculated and paid to the budgetby the recipient of such income or therecipient’s authorized person.

Income in kind

Income in kind is recognized based on thefair market value of assets or services

received or used free of charge or ata privileged price, etc., apart from thebelow mentioned cases.

The provisions of the Law on PIT describethe income which should not be treatedas income in kind:

•costs received from the employer if thisis the employer’s obligation accordingto legal acts

•equipment, other items received by theemployee from the employer and usedonly for work functions

•party for the education of an individual

•health insurance payments paidby another person on behalf of anindividual

When an employee receives income notfrom the employer, but from anotherperson related to the employer or whenthe employee’s family member (not theemployee himself) receives income inkind from the employer, such incomeshould also be treated as employmentincome.

Tax rates

PIT rate is 15% for most types of income.However, a 5% rate is applied to theincome received from individual businessactivity (except income from liberalprofessions’ activity and income fromsale of scrap metal).

Income received as salary from aLithuanian source

Natural persons employed in Lithuanian-registered enterprises are subject tothe standard income tax of 15% on theirsalary.

Salary includes all income relatedto labour relations, including fringe

income amount (if such amount isapplicable).


require special care, individuals raising achild or children under the age of 18, etc.

Income received as salary from aforeign source

Natural persons, Lithuanian residents,whose employers are enterprises withouta permanent establishment in Lithuania,must pay income tax on all incomeearned in Lithuania by applying a 15%rate. Any additional payments to theemployee (except for certain non-taxableamounts) are added to his/her taxableincome and taxed respectively.

Expenses deductible frompersonal income

The expenses which could be deductedfrom personal income:

•resident’s own behalf, on behalf of thespouse, minor children

•on own behalf and on behalf of thespouse and minor children

•

university education or professional

The total deducted amount may notexceed 25% of the taxable incomereduced by other available deductions.

Expenses are deducted only from atax resident’s personal income whilecalculating income tax for the tax periodfor the purposes of submitting the annualincome tax return.

Income from disposals of realestate

Upon disposal of real estate which wasnot used in business activities of anindividual, the acquisition price as wellas compulsory taxes related to the saleor other transfer of such real estatedetermined by the Law may be deducted.

Investment income

instruments exceeding EUR 500 andinterest income from bonds and depositsexceeding EUR 500 are taxable at thestandard tax rate of 15%.

Interest income from bonds acquiredbefore 1 January 2014 is not taxable ifthe bonds are redeemed after 366 daysfrom their issue date. However, interest

euro.

Apart from the base salary and bonuses,all kinds of payments are usually subjectto the standard PIT rate of 15%. Certainamounts in certain cases are not taxed,e.g., daily allowances for business tripswithin the set standards. The employermust withhold income tax from theemployee’s salary.

Non-taxable income amount

The maximum monthly non-taxableamount is EUR 200 which could beapplied if employment income does notexceed monthly minimum wage validon 1 January of the current year. As of1 January 2016 the monthly minimum

wage is EUR 350. If monthly employmentincome exceeds the minimum monthlywage, the monthly non-taxable amountshall be calculated according to thefollowing formula:

Wage)

where X is the employee’s monthly grosssalary. When the calculated non-taxableincome amount is negative, it shall beconsidered to be 0.

amounts apply to disabled persons, thosewho have reached retirement age and

Individual business activity

Income from individual business activityis subject to a 5% income tax (except forincome from professional activity whichis subject to a 15% income tax), whichcould be reduced by allowed deductions.A person engaged in individual business

lower than the income tax that would bepayable on 12 minimal monthly salaries.

income tax on income received fromindividual activity.

A person engaged in individual businessactivity may choose to recognize 30%of income received from that activity asallowed deductions. This rule cannot beapplied if a person receives remunerationfrom the employer. If the person whoperforms individual activity decides toapply the aforementioned rule, he/shedoes not have the obligation to keep thedocuments proving allowed deductions.

Tax returns and terms

A tax resident who received income ofeither A or B class during a tax periodmust submit an annual income tax return

A tax resident must pay the differencein income tax between the amount

return and the amount paid (withheld)

of the following year.

The annual income tax return may be

who:

•deduct annual tax exempt amount oradditional tax exempt amount and

•deduct incurred expenses from incomeand

•income of A class that is related toemployment

A person who is engaged in individual

who has registered his individual activityis obliged to submit his annual incometax return even if he/she did not earnany income from the individual businessactivity.

A Lithuanian non-tax resident must paythe tax and submit his/her income taxreturn not later than within 25 days afterthe receipt of income.

Taxation of inherited property

Inheritance tax is applied to bothLithuanian and non-Lithuanian residents(unless international treaties provideotherwise). The tax object of a Lithuanianpermanent resident is inherited property– movable, immovable, securities andcash. The tax object of a non-residentis inherited movable property requiringlegal registration in Lithuania as well asimmovable property located in Lithuania.

The rate of inheritance tax applied toinheritors is 5% when the taxable valueis less than kEUR 150 and 10% whenthe taxable value exceeds kEUR 150.Close relatives, such as children, parents,spouses and certain other persons,may be exempt from this tax. Inheritedproperty valued below kEUR 3 is treatedas non-taxable.


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4.2.4. Health insurancecontributions

The employee’s gross salary is subjectto mandatory health insurancecontributions of 6% and the employerhas to withhold this tax. The employeralso has to pay 3% mandatory healthinsurance contributions on top of theemployee’s gross salary. The sameprinciples are applied to royaltiesand income received from sports orperformance. Annual mandatory healthinsurance contribution of authors,sportsmen and artists on income, whichwas received by a resident who doesnot receive any employment relatedincome, is calculated from 50% ofreceived income amount but shall notexceed the amount of 48 insurableincome values set by the Governmentper year (currently – EUR 21,360).Individuals engaged in individualbusiness activities pay mandatory healthinsurance contributions of 9% based onthe minimum monthly salary. Annualmandatory health insurance contributionon their income is calculated based on

50% of income received but shall notexceed the amount of 48 insurableincome values set by the Governmentper year.

contributions at the rate of 9% of theamount which is taxed with socialinsurance contributions is paid by theindividual enterprise for the owner, bythe micro company for the member andby the partnership for the partner.

Farmers and their partners have topay mandatory health insurancecontributions depending on the area(size) of their farm:

•2 European area units, farmers andtheir partners have to pay mandatoryhealth insurance contributions of 3%based on the minimum monthly salary(EUR 350) per month

•European area units, farmers and theirpartners have to pay mandatory healthinsurance contributions of 9% basedon the minimum monthly salary (EUR350) per month

4.2.5. Social insurance

The employer withholds 3% from theemployee’s gross salary as the socialinsurance contribution paid by theemployee. Social insurance contributionsare not deducted while computing theemployee’s income tax, or his healthinsurance contribution, which are

of the employers must also pay socialinsurance contributions equal to 27.98%of the gross salary, however, dependingon the number of accidents, the socialinsurance contributions might beincreased to 29.6%.

Special rules apply to the followingpersons: sportsmen, artists, individualsworking under authorship agreements,self-employed persons (attorneys atlaw, assistant attorneys at law, notaries,bailiffs and other individuals engagedin individual activities), farmers andtheir partners, owners of individualenterprises, members of microcompanies and partners of partnerships.

The rate of social security contributionsfor self-employed persons (attorneys at

law, assistant attorneys at law, notaries,bailiffs and other individuals engaged inindividual business activities) is 28.5%levied on 50% of the income taxable bypersonal income tax, but not exceedingthe amount of 48 insurable incomevalues set by the Government per yearand 4 insurable income values permonth.

Foreign citizens, who arrive in Lithuaniafor work purposes from non-EUstates or states that are not parties tointernational treaties and are employedby a Lithuanian employer are subject tothe same rules as Lithuanian citizens.Lithuania is subject to EU regulationslaying down social security principles

States. The basic principle is that socialinsurance contributions should bepaid in the state the person works inwith certain exceptions. Furthermore,

application of other exceptions apartfrom the ones established by regulations.The most common case is that socialinsurance contributions are permitted tobe paid in the state the employee comesfrom, provided that he/she shall notbe employed in another state for over

5 years. Afterwards the contributionshave to be paid in the country of theactual employment. Thus, foreignemployers not registered in Lithuaniabut having employees working accordingto employment agreements within theterritory of Lithuania, who are subjectto social insurance in Lithuania, mustregister as insurers in Lithuania and paythe same social insurance contributions

Lithuania has entered into bilateral socialinsurance agreements with the Belarus,

Canada establishing special provisionsregarding social security and welfare.

4.2.6. Other taxes

Payments to the guarantee fund

Enterprises with a residence in Lithuania,including Lithuanian subdivisions ofenterprises established in other EU orEuropean Economic Area countries,must pay contributions to the GuaranteeFund. 0.2% from the employees’ grosssalary is allocated for such contributions(which are the basis for calculating socialinsurance contributions).

Real estate tax (RET)

Real estate used by individuals forbusiness activities with severalexceptions or given for use to legalpersons for a period longer than 1

– 3% RET based on the taxable value ofthe real estate. Real estate owned byindividuals is taxed at the rate of 0.5% onthe value exceeding kEUR 220, exceptthe real estate of commercial purpose,which is taxable on the full taxable

estate owned by several family membersexceeds kEUR 220, it will be taxed aswell, even if individual property values do

The following are considered as familymembers: spouses, single parents withchildren and children under the age of 18residing together.

A concept of the “mass assessment”of real estate is presented in the Law

is a process of assessing similar realestate when the common methodologyand technology of the data analysis andassessment are used.


Upon the completion of a massassessment, only a common assessmentreport is presented. In certain cases atax payer can apply for an individualassessment. If the value of theindividually assessed real asset differs

mass assessment more than 20%, the taxpayer is allowed to use the individuallydetermined value as the RET base.

Legal entities, as opposed to individuals,should pay advance instalments on aquarterly basis. The legal entities shouldprovide an annual RET return to theState Tax Inspectorate not later that by15 February of the following year. Theindividuals should provide an annual RETreturn to the State Tax Inspectorate:

• Not later than by 15 February of thefollowing year for the real estate ofcommercial purpose

• Not later than by 15 December of thecurrent year for the other real estate,if the taxable value of the immovableproperty owned exceeds kEUR 220

Land taxes

Landowners pay land tax. The annualtax rate varies from 0.01% to 4%(depending on the municipality’sdecision) of the taxable value of the landassessed using the latest mass valuationresults. Furthermore, provisions for thetransitional period apply in cases whenin 2013 the taxable value of the landincreased compared to 2012, 80% of thetaxable value increase will be deductedfrom the taxable amount of the land in2013, 60% in 2014, 40% in 2015 and20% in 2016 respectively.

Land rent fee payable by those rentingstate-owned land varies from 0.1% to 4%of its assessed value in accordance with

Excise duty

Excise payers are owners of warehousesof excisable goods, registeredconsignees/consignors of excisablegoods as well as persons who mayhave an obligation to pay excise dutiesin accordance with the Law on ExciseDuties. In case of import of excisablegoods, the excise tax is paid by theimporter. The subject to excise dutyis ethyl alcohol and alcoholic drinks,processed tobacco, energy productsand electricity. The applicable tax baseis the quantity of excise goods (i.e. 1litter, 1 ton etc.) produced or imported inLithuania. Excise duty on cigarettes shallbe levied at the combined rate. It shall

1,000 cigarettes) and the ad valoremcomponent (in percentage from themaximum retail selling price).

Tax on natural resources

The extraction and use of naturalresources such as water, minerals aswell as water resources are taxed inaccordance with the rates established bythe Government.

Hydrocarbons resource tax

Extracted traditional and diffusedhydrocarbons resources are subject tothe basic (up to 15%) and compensatory(up to 9%) rates. The compensatory ratedepends on the part of the Governmentfunds used for detection and explorationof the deposit. The taxable value is thelast quarter’s average sales price oftraditional and diffused hydrocarbons(oil and/or gas) resources per cubicmetre at the extraction site. If the taxauthorities do not establish the fairaverage sales price at the site, the taxmay be calculated based on the lastquarter’s average sales price per cubic

metre at the extraction site published bythe Department of Statistics under theGovernment of Lithuania.

Pollution tax

This tax is applied in regard ofenvironmental pollution. The object ofthe tax is emissions from stationaryand mobile sources, certain goods(e.g., batteries, mercury lamps, etc.)

Law, packaging and waste discarded into

on the level of hazard caused by the

pollution-related facts recorded by stateinstitutions. Automobiles equippedwith an exhaust emission neutralizationsystem are not subject to pollution tax.

4.3. Immigration andpermits

Work permit

Usually, a Lithuanian-registeredenterprise may employ a foreigner ifhe/she has a valid work permit issuedby the Central Labour Exchange ofLithuania, has retained the right toLithuanian citizenship, foreigners ofLithuanian origin and foreigners whomarry in Lithuania. Work permits are notrequired for citizens of the EU as wellas for foreigners holding a permit forpermanent residence.

A company that intends to employ aforeigner must address the local labourexchange for a work permit. A companymust register a free working place 1month before submitting a request fora work permit. When the local labourexchange passes a positive decision, therequired documents are submitted tothe Central Labour Exchange; the latter

permit to the foreigner. The considerationof a request for a work permit maytake up to 2 months. However, if therequest concerns a foreigner with a high

1 month. A foreigner is issued a workpermit valid for up to 2 years. Based onthe work permit, one may be eligible fora temporary residence in Lithuania.

Temporary residence permit

A foreigner who spends fewer than3 months per half-year in Lithuanianenterprises for business purposes doesnot need to have a temporary residencepermit.


Living standards. We makethe good life even betterwith our combination ofnatural beauty and urbansophistication.

Temporary residence permits are issuedto persons who spend more than 3months per half-year in Lithuania,most often for business or educationalpurposes. A foreigner applying for

must address Lithuanian diplomatic orconsular missions abroad. However,

foreigners not subject to visa regimeare not subject to this condition. They

in Lithuania for a temporary residencepermit. A temporary residence permitis issued for a maximum period of 3year (depending on the legal basis for

States may be issued permits for 5

years depending on the purpose of stay.Upon expiry of the permanent residencepermit, the person has to request a newtemporary residence permit.

Citizens of the EU spending under 3months during half a calendar yearin Lithuania are not required to get aresidence permit.


Lithuanian key economic indicators (Public data)

2014 2015 2016 2017 2018

GDP growth, % 3.0 1.6 3.2 3.4 3.5

0.1 -0.6 1.6 2.2 2.1

Unemployment rate, % 10.7 10.1 9.6 8.1 6.8

-0.7 -1.0 -1.1 -1.1 -1.0

Export, EUR billion 24.4 21.2 (Jan-Nov) - - -

Import, EUR billion 25.9 23.4 (Jan-Nov) - - -

Foreign direct investment (at the end of the year), EUR billion 12.1 13.2 (Jan-Nov) - - -

Abbreviations

AEO Authorised economic operator IFRS International Financial Reporting Standards

APA Advance pricing agreement (binding ruling) OECD Organisation for Economic Cooperation and Development

ATA Carnet International customs and export-importdocument

PIT Personal income tax

BAS Business Accounting Standards RET Real estate tax

CIT Corporate income tax SAD Single Administrative Document

EC European Commission SCE European Cooperative Society

EEA European Economic Area SE Societas Europaea (a European company)

EEIG European Economic Interest Grouping TARIC Online customs tariff database

EU European Union VAT Value added tax

FEZ Free economic zones WTO World Trade OrganisationAddendum

5

Batlic taxes at a glanceEstonia Latvia Lithuania

Corporate income tax rate 0 or 20* 15%* 5* or 15%Withholding tax (%)

Dividends - 0% 0 or 15%0 or 10% 0 or 10% -

Interest - 0% 0 or 10%

Royalties 0-10% 0% 0 or 10%Loss carry forward (years) n/a Unlimited / 8 years* Unlimited* / 5 years*Salaries/wages 20% 23%* 15%Social security/solidarity tax employer 33.8% 23.59%* 27.28-29.60%Health insurance contributions employer - - 3%Social security/solidarity tax employee 1.6% (+ 2% or 3%) 10.50%* 3%*

Health insurance contributions employee - - 6%Real estate tax - 0.2-3% 0.3-3%Land/state land lease tax 0.1-2.5% 1.5 or 3% 0.01-4%/0.1-4%VAT rate 0%, 9%, 20% 0%, 12%, 21% 0%, 5%, 9%, 21%

EUR 2,500 (OÜ) orEUR 25,000 (AS)

EUR 2,800 (SIA) orEUR 35,000 (A/S)

EUR 2,500 (UAB) orEUR 40,000 (AB)

*exceptions apply


EY has an experienced multidisciplinary team with global coverageto assist our customers in all the phases of shared service programs.We will help not only with process, technology, change and projectmanagement but also with tax, site selection and internal controlimplications of the shared services strategy. Our global coverageensures that we have people with the right local skills andexperience for multi-country implementations. EY in the Balticshas more than 20-years presence in the market and employsmore than 500 experienced professionals.

EY in the Baltic States

Key facts about EY Baltics:

20+ years presence on the market“Single-point-of-service” and account-centricapproach in any of the Baltic states

Contacts

A member of the EY globalnetwork with cross-serviceand cross-border teams

+500 welleducated experiencedprofessionals in the Baltics

1st overall market position

Deep industry knowledge,expertise and contacts inpublic and private sectors

Specialization by industries:

• Energy

• Governmental

• Banking and Insurance

• Technology

• Telecommunications

•

• Transportation

• Life sciences

Multidisciplinary professional services

• Audit, assurance and fraud risk investigation

• Tax and legal

• Accounting outsourcing

• Compliance and reporting

• Transaction advisory

• Business advisory

Jelena Semionova, PartnerBaltic Tax Services LeaderTel. +370 5 274 [email protected]

, PartnerBusiness Tax Services – CSE LeaderTel. +370 5 274 [email protected]

Leonas Lingis, PartnerBusiness Tax ServicesTel. +370 5 274 [email protected]

, PartnerGlobal Compliance and Reporting Services –CSE LeaderTel. +370 5 274 [email protected]

Julija Lisovskaja, Executive DirectorAdvocate, Legal ServicesTel. +370 5 274 [email protected]

Our tax services

• Domestic and international direct taxes

• VAT, excise and customs duties

• Human capital

• Transfer pricing

• Transaction tax structuring and tax due diligence

• EU tax law and practice

Our legal services

• Incorporation of legal entities, branches and

• HR legal advisory

• Transaction legal support

• Corporate and commercial law matters,corporate governance

• Assistance with regulatory and compliance issues

•

• IP/IT data privacy

Disclaimer

To the best of our knowledge, the information provided in this publication is based on the laws and other legal acts of the Republic of Lithuania in force as at

Thispublication is for information purposes only.

We recommend the readers to seek professional advice from us, whenever decisions on investments or regarding business activities inLithuania are to be taken.

- 40 -Doing business in Lithuania

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisoryservices. The insights and quality services we deliver help build trust and

develop outstanding leaders who team to deliver on our promises to allof our stakeholders. In so doing, we play a critical role in building a betterworking world for our people, for our clients and for our communities.

Global Limited, a UK company limited by guarantee, does not provideservices to clients. For more information about our organization, pleasevisit www.ey.com

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ey.com

Tallinn, EstoniaErnst & Young Baltic ASRavala 410143 TallinnTel.: +372 611 4610Fax: +372 611 [email protected]/ee

Riga, LatviaErnst & Young Baltic SIA

LV-1010 RigaTel.: +371 6704 3801Fax: +371 6704 [email protected]/lv

Vilnius, LithuaniaErnst & Young Baltic UABSubaciaus St. 7LT-01302 VilniusTel.: +370 5 274 2200Fax: +370 5 274 [email protected]/lt

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