Tax Incentives in Lithuania
R&D tax incentive
Lithuania levies flat 15% Corporate Income Tax. Since the 1st of January 2012 small companies employing 10 employees or fewer, with an annual income of 300,000 EUR or less, have been subjected to 5% of Corporate income tax (exceptions apply).
In April 2008 special tax scheme for research and development (R&D) was introduced as Lithuania aims at boosting the high value-added generating industries and encouraging business to invest in the areas concerning innovation and technology. This tax scheme is very generous because expenses incurred by companies while carrying out R&D as well as by acquiring R&D carried out in EEA countries or countries with the Double Taxation Agreements can be deducted from taxable income thrice (300%). However, R&D must be specifically related to the ordinary business activities.
Lithuania also employs super-accelerated depreciation in regards to R&D. This means that acquisition price of fixed assets used in the R&D activities can be written-off within two years. Additionally, all investments into R&D disregarding the type of company or the amount of the investment qualify. Since Lithuanian legislation does not stipulate specific rules for arm’s length payments, general transfer pricing guidelines take place.
Free economic zones (FEZs)
There are 7 Free economic zones located in Lithuania. These specific zones located in the cities of Kaunas, Klaipėda, Šiauliai, Kėdainiai, Panevėžys, Akmenė and Mariampolė enjoy special tax reliefs. Corporate income tax amounts to 0% in the Free economic zones for the first 6 years and 7,5% (instead of usual 15%) for the next 10 years.
This relief applies only when the following conditions are met:
- The moment when capital investments of the company in the Free economic zone amount to 1 million EU;
- 75% of the company’s income is from the manufacturing, processing, refining, storage performance, aircraft and spacecraft and related machinery manufacturing, aerospace repair and maintenance, aircraft maintenance and repair of related activities (electronic and optical equipment repair, technical testing and analysis), computer programming activities , computer consultancy activities, computer management activities, other information technology and computer service activities, data processing, web servers (hosting) and related activities, call center activities.
In addition to this, there is a 0% tax on the real estate (instead of the usual 1%). Most importantly, Dividends are taxed at 0% (instead of the usual 15%).
Film production grants
When Lithuanian legal entity or the permanent establishment of a foreign entity grants funds for producing a film or a part of a film to the Lithuanian film producer (during the period from 2014 to 2018) the entity can make use of the CIT deduction. 75% of the CIT can be deducted by the amount of funds provided to the Lithuanian film producer if the following 3 requirements are met:
- Film corresponds to the cultural content requirements and production criteria imposed by the Government of the Republic of Lithuania
- Not less than 80% of the film production expenses are incurred in Lithuania, and the amount exceeds EUR 43,000.
- Total amount of funds granted by all companies may not exceed 20% of total expenses of the film production.
To find out more about tax incentives in the Baltics (Estonia, Latvia, Lithuania), please contact our solicitors at email@example.com.
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