Tax Law in Lithuania

Lithuanian Tax System Overview

Lithuania generally applies a worldwide corporate income taxation system to Lithuanian tax-resident companies, subject to applicable exemptions and double taxation relief. Foreign companies may be subject to Lithuanian Corporate Income Tax on profits attributable to their Lithuanian permanent establishments and on specified categories of Lithuanian-source income. The taxation of foreign-source income and cross-border activities must be assessed under Lithuanian legislation and applicable double taxation treaties. Lithuania’s corporate taxation system should not be described as purely territorial. The tax authority is the State Tax Inspectorate (Valstybinė mokesčių inspekcija — VMI), which is responsible for tax administration, audit, and collection. VMI operates both at the national level (through the Central Office) and at the regional level (through 10 regional offices).

The principal tax statutes

The Lithuanian tax system is governed by a series of specific laws rather than a single consolidated tax code. The most commercially relevant statutes are:

• Law on Corporate Income Tax (Pelno mokesčio įstatymas — PMĮ): the primary statute governing corporate income tax; sets out taxable income, allowable deductions, tax rates, exemptions, anti-avoidance provisions, and advance pricing agreement procedures
• Law on VAT (Pridėtinės vertės mokesčio įstatymas — PVMĮ): the primary VAT statute implementing EU Directive 2006/112/EC (the VAT Directive); sets out taxable persons, taxable transactions, rates, exemptions, and VAT registration obligations
• Law on Personal Income Tax (Gyventojų pajamų mokesčio įstatymas — GPMĮ): governing income tax for individuals; sets out taxable income categories, rates, deductions, and withholding obligations for employers
• Law on Tax Administration (Mokesčių administravimo įstatymas — MAĮ): the procedural framework for all Lithuanian taxes; sets out taxpayer rights, VMI powers, audit procedures, appeal mechanisms, interest and penalties, and the limitation periods for tax assessments
• Law on Real Estate Tax (Nekilnojamojo turto mokesčio įstatymas): annual tax on buildings and structures owned by legal entities; rate set by municipal councils within the statutory range of 0.5–3% of the tax value

VMI — powers and limitations

VMI has broad investigative powers under the Law on Tax Administration — it can inspect premises, request documents and information, interview directors and employees, conduct cross-checks with third parties (banks, counterparties), and issue tax assessments without the taxpayer’s agreement. However, VMI’s powers are subject to the limitation period: VMI cannot assess additional tax for periods more than 5 years before the current calendar year (Article 68 MAĮ), or 10 years in cases of deliberate tax evasion. The taxpayer has the right to appeal VMI decisions — first to the Central VMI Office (administrative appeal), then to the Tax Disputes Commission (Mokestinių ginčų komisija — MGK), and finally to the administrative courts.

Corporate Income Tax (Pelno Mokestis)

Standard rate and reduced rates

From 1 January 2026, Lithuania’s standard Corporate Income Tax rate is 17%. Preferential rates are available under Article 5 of the Lithuanian Law on Corporate Income Tax:

• 7% reduced rate – available to qualifying companies whose annual revenue does not exceed EUR 300,000, subject to statutory conditions and restrictions concerning associated entities. The previous general maximum of 10 employees no longer applies from the 2026 tax period. Dividend distribution is not, by itself, a universal disqualification from the reduced rate.
• 0% rate for eligible newly established companies – available during the first two tax periods, subject to statutory conditions, including the EUR 300,000 revenue threshold, ownership exclusively by natural persons and restrictions on changes in ownership, liquidation, reorganisation and suspension of activities during the prescribed period.
• Shipping activities – qualifying shipping companies may be eligible for a special tonnage-based taxation regime. This regime is calculated under its specific statutory rules and should not be described as a flat 15% tax.

Taxable income — allowable deductions

Lithuanian CIT is levied on taxable profit — the difference between gross income and allowable deductions. The key deduction rules under the PMĮ:

• Business expenses — Article 17 PMĮ: all expenses directly connected to generating income or to the economic activity of the company are deductible; the expense must be supported by proper documentation
• Depreciation — Article 18 PMĮ: tangible assets are depreciated for tax purposes using methods and rates prescribed in Annex 1 of the PMĮ; buildings: 15 years minimum useful life; vehicles: 5 years; machinery: 5–10 years
• R&D expenses — Article 17(1)(1) PMĮ: qualifying research and experimental development costs can be deducted at 300% of actual cost (triple deduction for R&D), making Lithuania particularly attractive for R&D-intensive businesses
• Interest deduction limitation — Article 30(1) PMĮ implements EU ATAD Directive 2016/1164 thin capitalisation rules: net interest costs exceeding 30% of EBITDA (or €3 million, whichever is higher) are non-deductible in the current year (but can be carried forward for 5 years)
• Non-deductible expenses — Article 31 PMĮ: expenses not connected to income generation; entertainment above statutory limits; fines and penalties; loss on disposals to related parties below market value

Tax loss carry-forward

Under Article 30(4) PMĮ, tax losses can be carried forward indefinitely — there is no time limit on using accumulated tax losses. However, the annual utilisation is capped at 70% of the taxable profit of the year in which the loss is being used. The remaining 30% of taxable profit is therefore always subject to CIT even where there are significant accumulated losses. Loss carry-back is not permitted.

Participation exemption — dividend income

Under Article 12(15) PMĮ, dividends received by a Lithuanian company from a subsidiary are exempt from Lithuanian CIT where the Lithuanian company holds at least 10% of the shares of the distributing company for at least 12 months (or acquires 10% with the intention of holding for 12 months). This participation exemption removes the double taxation of corporate profits distributed up the ownership chain within corporate groups. Dividends from companies in EU blacklisted jurisdictions are excluded from the participation exemption.

Value Added Tax (Pridėtinės Vertės Mokestis — PVM)

Registration thresholds and obligation

Since 1 May 2025, the Lithuanian domestic VAT registration threshold of EUR 45,000 is assessed using qualifying turnover in the current or preceding calendar year, rather than a rolling 12-month period. VAT registration or other VAT reporting obligations may also arise below this threshold in connection with certain cross-border services, intra-Community acquisitions and other transactions. Eligible businesses may benefit from the Lithuanian small business VAT scheme, subject to the relevant conditions. Voluntary registration under the ordinary VAT regime may be commercially beneficial where input VAT deduction rights are available. Foreign companies without a fixed establishment in Lithuania must register for VAT if they supply goods or services with the place of supply in Lithuania (with no threshold — the first such supply triggers registration).

Standard and reduced rates

Lithuania’s standard VAT rate is 21%. From 1 January 2026, the principal reduced rates are:

• 12% reduced rate – qualifying accommodation services, scheduled passenger transport and admission to certain cultural and artistic events.
• 5% reduced rate – qualifying books, newspapers and other publications, specified medicines and medical products, and other goods and services expressly covered by the applicable statutory provisions.
• 0% VAT rate – qualifying exports of goods outside the EU, certain intra-Community supplies of goods and other transactions expressly subject to zero-rating under Lithuanian VAT legislation.

Residential heating is generally subject to the standard VAT rate from 2026. The treatment of cross-border passenger transport and other internationally supplied services must be determined under the relevant place-of-supply, exemption and zero-rating provisions.

Reverse charge and import VAT

For B2B services received from abroad, Lithuania applies the reverse charge mechanism — the Lithuanian VAT-registered recipient accounts for VAT on behalf of the foreign supplier. This applies to most cross-border B2B services under the general place of supply rule (Article 13 PVMĮ), including consulting, IT services, financial advisory, and professional services. Import VAT (on goods imported from outside the EU) is accounted for at customs and is recoverable as input VAT by VAT-registered importers.

VAT groups

Lithuania does not operate a general VAT grouping regime under which related companies can elect to be treated as a single VAT taxable person merely because they meet a common ownership threshold. Related Lithuanian companies must generally assess their VAT obligations separately, including VAT registration, invoicing, input VAT deduction and reporting requirements. Intra-group supplies are not automatically disregarded for VAT purposes. Article 71(4) of the Lithuanian Law on VAT should not be presented as establishing a general VAT grouping mechanism. VAT grouping is commercially significant for holding structures and groups with significant intra-group services volumes.

Common VAT issues we advise on

• VAT registration — mandatory and voluntary registration; non-EU companies registering for Lithuanian VAT without a fixed establishment
• Input VAT recovery — goods and services used for both taxable and exempt supplies; partial recovery calculations; the pro-rata method
• Intra-Community transactions — OSS (One Stop Shop) for cross-border B2C sales post-2021 EU VAT reform; distance selling rules; triangular transactions
• VAT on real property — the distinction between exempt land and property disposals and taxable new build sales; option to tax
• VAT refund applications — excess input VAT repayment from VMI; standard and accelerated refund procedures
• VAT inspection defence — responding to VMI requests for additional information or documentation during VAT audit

Withholding Tax and Double Taxation Treaties

Lithuania levies withholding tax on certain payments made by Lithuanian companies to non-resident persons — primarily dividends, interest, and royalties. The statutory rates are often significantly reduced or eliminated by Lithuania’s extensive network of double taxation treaties.

Statutory withholding tax rates

Lithuanian withholding tax obligations depend on the type of income, the recipient’s legal status, the source of income and the applicable domestic exemptions or double taxation treaty provisions.

• Dividends – generally 15% for non-resident individuals and 17% for foreign corporate shareholders in 2026, subject to participation exemptions and applicable treaty relief.
• Interest – interest paid to foreign corporate recipients established in the EEA or in jurisdictions with an effective Lithuanian double taxation treaty is generally exempt from Lithuanian withholding tax. Other payments may be subject to 10% withholding, unless an exemption applies.
• Royalties – generally subject to 10% withholding when paid to foreign corporate recipients, unless a domestic exemption or applicable treaty provides relief.
• Services income – payments to non-resident individuals must be assessed according to the classification and source of the income, any applicable exemptions and the relevant Personal Income Tax provisions. A universal 15% rate does not apply to every service performed in Lithuania.
• Capital gains – the Lithuanian tax treatment of real estate disposals and share disposals depends on whether the seller is an individual or legal entity, the nature of the asset and any applicable treaty provisions.

Lithuania’s double taxation treaty network

Lithuania has concluded double taxation treaties (DTTs) with over 55 countries — covering all major trading partners including the US, UK, Germany, France, Netherlands, UAE, Singapore, China, and all EU member states. Lithuanian DTTs generally follow the OECD Model Tax Convention structure. The reduced withholding tax rates under Lithuania’s DTTs are among the most favourable in the EU — many treaties reduce dividend withholding to 5% or 0% for qualifying corporate shareholders, and eliminate withholding on interest and royalties entirely.

Transfer Pricing

Transfer pricing rules govern the pricing of transactions between related parties — companies within the same corporate group. Under the arm’s length principle, transactions between related parties must be priced as if they were concluded between independent parties in comparable circumstances. Lithuania’s transfer pricing framework is set out in Article 40 PMĮ and implemented through the Order of the Minister of Finance No. 1K-123 on the Determination of Transfer Prices.

Who must prepare transfer pricing documentation

Lithuanian transfer pricing documentation requirements are primarily determined by the taxpayer’s revenue, regulatory status and related-party transactions, rather than the general small, medium and large enterprise categories.

• Local File – generally required for Lithuanian companies and permanent establishments whose revenue in the preceding tax period exceeded EUR 3 million. Separate requirements apply to certain banks, credit institutions and insurance companies, irrespective of revenue.
• Transaction threshold – certain related-party transactions below EUR 90,000 per year may qualify for documentation exemptions, subject to statutory conditions and aggregation rules.
• Master File – generally required for qualifying members of multinational enterprise groups where the Lithuanian entity’s preceding-period revenue exceeded EUR 15 million.
• Country-by-Country Reporting – applies to qualifying multinational enterprise groups meeting the relevant EUR 750 million consolidated revenue threshold. Lithuanian entities must determine whether they have a reporting or notification obligation under the applicable rules.

The arm’s-length principle applies to related-party transactions even where formal transfer pricing documentation is not mandatory.

Transfer pricing methods

Lithuania follows the OECD Transfer Pricing Guidelines in selecting the most appropriate method for each transaction type. The approved methods are: Comparable Uncontrolled Price (CUP); Cost Plus; Resale Price; Transactional Net Margin Method (TNMM); and Profit Split. The choice of method depends on the nature of the transaction, data availability, and the functional profile of the tested party. For intercompany services, TNMM or Cost Plus is most commonly applied; for intercompany loans, the CUP method using comparable market interest rates is typical.

Transfer pricing documentation — what it must contain

• Entity file (Master File equivalent) — description of the group structure, business model, intercompany transactions, and global transfer pricing policies
• Transaction file (Local File equivalent) — detailed analysis of each related party transaction: transaction description, parties involved, amounts, functions performed, risks assumed, assets used, and benchmarking analysis
• Benchmarking study — comparable uncontrolled transactions from public databases (Amadeus, Bureau van Dijk) demonstrating that the related party pricing is within the arm’s length range
• Intercompany agreements — service agreements, loan agreements, IP licences, and distribution arrangements with related parties must be documented and consistent with the transfer pricing analysis

Transfer pricing risk — VMI focus areas

VMI has significantly increased its transfer pricing audit activity in recent years. The highest-risk areas are: intercompany management fees without clear economic substance; IP royalties to low-tax jurisdictions; intercompany loans at non-arm’s length rates; and recharacterisation of transactions disguised as equity contributions or dividend distributions. A transfer pricing audit can result in income adjustments and additional CIT liability plus interest at 0.03% per day (10.95% per annum), and in cases of deliberate evasion, a 50% penalty surcharge.

Tax Disputes — VMI Audits and Appeals

VMI audit types

VMI conducts three types of audit: desk audits (kamerinis patikrinimas) — reviewing documents submitted by the taxpayer without physically attending the premises; field audits (mokestinis patikrinimas) — inspecting the taxpayer’s premises, books, and records in person; and operational audits (operatyvusis patikrinimas) — a lighter-touch inspection of specific aspects of compliance. The taxpayer has the right to be present during field and operational audits, to access the audit documentation, and to submit additional evidence before the audit is concluded.

The tax dispute process

If VMI issues a tax assessment (mokestinis sprendimas) with which the taxpayer disagrees, the dispute proceeds through three stages:

• Stage 1 — Internal VMI appeal: the taxpayer appeals to the Central VMI Office within 30 days of the assessment. The Central Office must decide within 90 days. Submitting an appeal suspends the obligation to pay the disputed tax during the appeal period.
• Stage 2 — Tax Disputes Commission (Mokestinių ginčų komisija — MGK): if the Central VMI Office upholds the assessment, the taxpayer can appeal to the MGK — an independent body — within 20 days. The MGK must decide within 90 days.
• Stage 3 — Administrative court: if the MGK upholds the assessment, the taxpayer can appeal to the Vilnius Regional Administrative Court within 20 days. Further appeal to the Supreme Administrative Court is available on points of law.

Interest and penalties on unpaid tax

Under the Law on Tax Administration, late payment of tax attracts daily interest at 0.03% per day (equivalent to approximately 10.95% per annum). Where additional tax is assessed as a result of an audit, the interest runs from the original payment deadline, not from the audit date — meaning the interest accumulation on older audit periods can be significant. In addition to interest, VMI can impose a fine of 10–50% of the additional tax assessed: 10% where the understatement was unintentional, 25% where it was intentional but not fraudulent, and 50% where there was deliberate fraud or tax evasion.

Lithuanian Tax Rates at a Glance – 2026

Tax Law Services Pricing

Tax advisory and dispute representation are priced individually based on complexity. The indicative fees below cover defined engagement types; complex tax structuring, multi-jurisdiction planning, and full audit defence are quoted after an initial assessment.

Frequently Asked Questions