Tax Benefits in Lithuania
Lithuania pursues a consistent growth-friendly tax policy aimed at promoting productive investments and innovations that support regional development.
Currently available corporate income tax incentives for investments and innovations shall apply for:
- encouraging entrepreneurship — from 1 January 2018, a one-year corporate income tax holiday applies to small business start-ups, which means that the corporate income tax is not payable during the first year of activities;
- promoting innovations — tax incentives targeting companies developing new technologies and afterwards using them in their activities to generate income:
- triple deduction of scientific research and experimental development (hereinafter — R&D) costs — expenses incurred for R&D purposes may be deducted from income three times (usually costs are deducted only once);
- shorter depreciation period for assets used in R&D — the acquisition price of fixed assets used in R&D activities may be written off within two years (usually it is written off within 3 to 8 years);
- tax incentive for R&D commercialization — since 2018, an additional incentive has been introduced for companies investing in R&D — a reduced 5% rate of the corporate income tax is applied to the commercialization of inventions created when carrying out R&D activities (profits received from the use or disposal of assets created when carrying out R&D activities).
Promotion of investments in technological renewal
In order to increase efficiency, competitiveness and energy efficiency of national companies, in end-2008 Lithuania adopted the corporate income tax incentive allowing to reduce taxable profits of companies investing in fundamental technological renewal down to 50%.
Since 2018, the scope of the incentive has been expanded and now companies that invest in technological renewal have the opportunity to reduce their taxable profits by up to 100%.
This incentive may be used by companies investing in fixed assets intended for:
- producing new, additional products or providing services or increasing the potential of these activities;
- implementing a new production or service provision process;
- substantially changing the existing process (part thereof);
- introducing technologies protected by international patents for inventions.
The aforementioned fixed assets shall be:
- attributed to the groups of fixed assets specified in Annex 1 to the Law on Corporate Income Tax: “machines and equipment”, “facilities (constructions, drilling wells, etc.)”, “hardware and communication equipment (computers, their networks and equipment)”, “software”, “acquired rights”, and groups of fixed assets “lorries, semi-trailers and trailers, buses” that are not more than five years old, and assets such as “lorries, semi-trailers and trailers” (in case of acquiring lorries, semi-trailers and trailers, taxable profits from the acquisition of these assets can only be reduced by the amount of expenses, up to EUR 300,000, incurred during the tax period), and
- not used and produced not earlier than 2 years ago (counting from the beginning of the use of fixed assets).
Taxable profits can be reduced by the amount of expenses incurred during the tax years 2009-2023.
Fixed assets, the acquisition of which led to a reduction in taxable profits, shall be used in the company’s activities for at least three years.
Regional promotion — corporate income tax incentives for companies registered in free economic zones:
- a free economic zone company whose capital investments reached at least EUR 1 million during 10 tax periods starting from the tax period in which this amount of investments has been reached shall not be subject to the corporate income tax, while for the remaining 6 tax periods the company shall be subject to the reduced corporate income tax rate of 50%. The incentive may only apply if at least 75% of the company’s income in the zone for the relevant tax period consists of income from production or service activities carried out in the zone and applies to the extent that this is compatible with Commission Regulation (EC) No. 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the common market by applying Articles 107 and 108 of the Treaty;
- a free economic zone company whose average number of staff members during the tax year is at least 20 and whose capital investments reached at least EUR 100 thousand during 10 tax periods starting from the tax period in which this amount of investments has been reached shall not be subject to the corporate income tax, while for the remaining 6 tax periods the company shall be subject to the reduced corporate income tax rate of 50%. The incentive specified in this paragraph may only apply if at least 75% of the company’s income in the zone for the relevant tax period consists of income from production or services activities carried out in the zone and applies to the extent that this is compatible with Commission Regulation (EC) No. 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the common market by applying Articles 107 and 108 of the Treaty.
At present, there are 7 free economic zones in Lithuania: Akmenė, Kaunas, Kėdainiai, Klaipėda, Marijampolė, Panevėžys and Šiauliai.
Free economic zone means a territory intended for business and financial activities and offering special economic and legal conditions for economic entities established by the Law on the Fundamentals of Free Economic Zones of the Republic of Lithuania.
Promotion of alternative financing means establishing a favourable tax regime for alternative financing of businesses when all income received by collective investment undertakings and venture and private equity entities is exempt from the corporate income tax and, at the same time, this exemption is applied to participants of distributable profits, i.e., legal entities.
Company in Lithuania UAB strives to contribute to the development of the Lithuanian economy by providing legal support to legal entities and individuals. We are pleased to offer personalized tax advice to anyone who wants to develop a business or live in Lithuania. We also provide accounting services and offer virtual office solutions for those who want to optimize their business costs.