Legal Entity Income Tax in Lithuania
The Legal Entity Income Tax Law in Lithuania came into effect on 1 January 2002. Considering the law, the Lithuanian companies are subjects to the Legal Entity Income Tax with their total income, as well as foreign companies with a part of the income obtained from permanent business activities in Lithuania and income earned from sources obtained in Lithuania. A Lithuanian company with its total world income has a tax liability even earlier than their registration as a company in Lithuania exists. Non-for-profit corporations are not subjects to liability to pay the legal entity income tax.
The General Legal Entity Income Tax rate is 13%. A company with its annual turnover smaller than 5000.000 LTL (144,810 EUR) and on average 50 employees is rated as a small business. Other exceptions are for companies operating in special economic zones.
The Minimum Legal Entity Income Tax is not used in Lithuania; even in case when a profit of a financial year is compensated through loss transfer. The advance payment of the Legal Entity Income Tax is used when an annual turnover exceeds 100.000 LTL (28,962 EUR). A profit of the previous year serves as a base of assess for an advanced payment of the Legal Entity Income Tax.
A duty to pay the Legal Entity Income Tax to its full extend must be done together with a presentation of an annual financial statement. An advanced payment is deducted from the amount due of the Legal Entity Income Tax and a different sum is remitted to the tax bureau. Independently of the presentation of an annual financial statement, a debt of the Legal Entity Income Tax cannot be paid-up after 1 October of the following year.
The tax assessment are a company revenues after deductions of expenses. Speaking of expenses, depreciation period is from 3 to 20 years and there are several special regulations, for example for immaterial investments with a depreciation period of maximum 3-4 years. In the same way, a couple of restrictions of expenses on a loss of a financial year exist, costs of business journeys, marketing and advertising, a real loss, credits, taxes and motivation for employees. Moreover, the external expenses cannot be deduced from the tax assessment.
The Lithuanian tax bureaus accept a loss transfer for 5 years, there might be an abandonment of a loss from transfer of securities with only generic-alike profits and just for 3 years. Some losses in a phase of reorganization (equivalently to the U.S. Law No.11) cannot be transferred. Nowadays, no restrictions to limit a ceiling of loss transfer are valid.
In the area of the transfer of a price fixing, regulations of the OECD on this matter were introduced in the spring of 2004.
Continuous pursuit of a company activities in Lithuania and at the same time the profits made in Lithuania are liable to tax; the 15% tax rate is used for the Legal Entity Income Tax. In Lithuania, a continuous business premises are generally formed as a company when it is owned by a commercial representation through which its activities might be carried on; when a company drives a business in Lithuania by a non-self-governing agent; when a company uses a place of business or a factory or when the equipment or structure for provision, development or mining of mineral resources will be used..
The special clauses for manipulation with Lithuanian companies with foreign subsidiary corporations exist in the Lithuanian Legal Entity Income Tax Law. These special clauses serve as prevention from assigning a profit to the countries with the low taxation, or more precisely to the low taxation areas.
The transfer of a profit and capital for foreign investors after the tax-deduction is freely assignable. All profits are completely repatriated.
Together with the new law of social insurance in Lithuania, there is a temporal limited bonus for a payment of the Legal Entity Income Tax for a year 2006 and 2007. In spite of the fact that it is the social tax, a tax demand note is the same as the Legal Entity Income Tax. In 2006, to a payment of the Legal Entity Income Tax which is 15% from the profit, 4% was an extra pay and in 2007, 3%. Since 2008, the temporal bonus has not longer been valid.
(c) INTERNATIONAL ECONOMICS AUSTRIA (IEA)