Lithuania Tax Regime

Lithuania combines one of the lower headline corporate tax rates in the European Union with unusually generous investment and R&D reliefs and a light small-business regime. The standard corporate income tax rate is 17% from 1 January 2026 (raised from 16%, and 15% before 2025, as part of defence-funding packages), with a 0%/7% regime for qualifying small companies, an additional 5 percentage points on credit institutions' profits above EUR 2 million, and an element of territoriality: profits of foreign permanent establishments in EEA or treaty countries are exempt if taxed there. Personal income tax moves to a three-bracket progressive schedule from 2026. As an EU and OECD member, Lithuania applies the anti-tax-avoidance directives, OECD transfer pricing standards and — after initially electing the small-member-state deferral — the Pillar Two income inclusion rule for financial years beginning in 2025.

1.1 Sources

Primary legislation includes the Law on Corporate Income Tax, the Law on Personal Income Tax, the Law on VAT, the Law on Tax Administration and the law implementing the EU global minimum taxation directive.

1.2 Recent developments

The standard corporate rate rose from 16% to 17% and the small-company reduced rate from 6% to 7% on 1 January 2026, following the 2025 increase from 15%/5% enacted to finance defence spending; the increased rate on credit institutions (standard rate plus 5 points on taxable profit above EUR 2 million) is now permanent. From 2026 personal income tax applies in three brackets (20%, 25% and 32%) by reference to multiples of the average wage, and the reduced VAT structure was reorganised, with the former 9% rate largely moving to 12%. Lithuania enacted full GloBE rules applying the income inclusion rule from 2025 after initially using the EU directive's deferral option, and the investment project relief allowing up to full offset of taxable profit for qualifying technology investment continues to run through 2028.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Rates and residence

Companies — principally the UAB (private limited company) and AB (public limited company) — are Lithuanian tax residents if incorporated in Lithuania and are taxed on worldwide income, subject to the PE exemption below; non-residents are taxed on income of a Lithuanian permanent establishment and on Lithuanian-source income subject to withholding. The standard rate is 17% from 2026. Small entities with fewer than ten employees and gross annual revenue below EUR 300,000 enjoy 0% for the first two years of operations and 7% thereafter, subject to anti-fragmentation conditions on common ownership. Credit institutions pay an additional 5 points (22% in total from 2026) on taxable profit above EUR 2 million. Income earned through a permanent establishment in an EEA state or a treaty country is exempt if it was subject to tax there, giving the system a territorial flavour; there are no municipal income taxes. Qualifying shipping companies may opt for a fixed tonnage-based charge.

2.2 Dividends and participation exemption

Dividends between Lithuanian companies and dividends received from, or paid to, foreign companies are exempt under the participation exemption where the holder has at least 10% of the voting shares for an uninterrupted period of at least twelve months (including intended holding periods), provided the payer or recipient is not established in a blacklisted territory and, for inbound dividends, the distributing EEA company was subject to corporate tax. Non-exempt dividends are taxed, or withheld upon, at the dividend rate aligned with the headline movement (16% in 2025, 17% from 2026). Capital gains on shares are exempt where the seller held more than 10% of voting shares for at least two years (three years in reorganisation contexts) in a company established in the EEA or a treaty country and subject to corporate tax; losses on such holdings are correspondingly ring-fenced.

2.3 Income determination and deductions

Taxable profit starts from accounting profit under Lithuanian business accounting standards or IFRS and is adjusted for non-taxable income, limited ('partly deductible') and non-deductible expenses. Deductible expenses are the usual costs incurred to earn taxable income; limited categories include depreciation (straight-line over statutory maximum lives — machinery typically five years, buildings fifteen or longer, with accelerated write-off for R&D assets), business trips, advertising and representation (75% deductible within limits), natural losses and provisions of regulated financial institutions. Non-deductible items include fines, late-payment interest to the budget, payments to blacklisted territories that lack substance justification, and expenses unrelated to income generation. Inventory is valued FIFO for tax as a rule, with alternatives on approval.

2.4 Interest limitation

Under the ATAD-based rule, exceeding borrowing costs are deductible only up to 30% of tax EBITDA or a EUR 3 million safe harbour if higher, with group equity-ratio escape and carryforward of denied amounts. The older thin-capitalisation test survives alongside: interest on controlled debt exceeding a 4:1 debt-to-equity ratio owed to controlling lenders is non-deductible unless the borrowing is proven to be at arm's length terms available from unrelated parties. Related-party interest must in any case be priced at arm's length under the transfer pricing rules, and hybrid mismatch rules can deny deductions on cross-border instruments.

2.5 Losses

Operating tax losses carry forward indefinitely, but utilisation is capped at 70% of the taxable profit of the year of offset (the cap does not apply to companies using the small-company rate). Losses from disposals of securities and derivatives are ring-fenced against gains of the same kind and carry forward five years. There is no carryback. Loss carryforwards survive reorganisations within limits, and continuity of the loss-generating activity is required after transfers of business.

2.6 Group taxation

There is no fiscal consolidation, but Lithuania allows intra-group transfer of current-year tax losses: a group company may transfer losses to another group company that can use them against its taxable profit, where the parent holds directly or indirectly at least two thirds of the shares of each and the group relationship has lasted at least two years (or existed since incorporation). Losses of an EU parent or subsidiary that cannot be used in its own state may be taken over under conditions mirroring EU case law. The 70% offset cap applies to transferred losses in the recipient's hands, and loss transfers cannot be made from companies enjoying the 0%/7% or other preferential regimes.

2.7 Controlled foreign companies

Under the ATAD-based CFC regime, a Lithuanian controlling company (more than 50% of shares, votes or profit rights, alone or with associates) must include the positive income of a controlled foreign entity or PE where the foreign entity's actual corporate tax is less than 50% of the tax that would be computed under Lithuanian rules, and passive income (interest, royalties, dividends, financial-lease, insurance and banking income, income from invoicing companies) exceeds one third of total income. Entities in blacklisted territories are targeted regardless; genuine economic activity supported by staff, premises and assets in EEA and treaty states provides an escape. Attributed income is taxed at the standard rate with credit for foreign tax paid.

2.8 Transfer pricing

The arm's-length principle follows the OECD Transfer Pricing Guidelines, with related parties defined at a 25% ownership or control threshold. Transfer pricing documentation (master file and local file) is mandatory for Lithuanian entities and PEs with revenue above EUR 3 million in the prior year (financial institutions and controlled transactions with blacklisted territories are documented regardless), to be prepared by the CIT return deadline and produced within 30 days of request. Country-by-country reporting applies at the EUR 750 million consolidated-revenue threshold. Unilateral and bilateral advance pricing agreements and binding rulings are available from the State Tax Inspectorate, and transfer pricing adjustments trigger secondary consequences as deemed profit distributions in some circumstances.

2.9 Incentives

Lithuania's incentive stack is among the deepest in the region. Qualifying R&D operating costs are deductible three times (a 300% deduction), and R&D assets depreciate over accelerated two-year lives; income from commercialising patented inventions and copyrighted software developed through own R&D is taxed at a reduced patent-box rate of about 5% under the nexus approach (adjusted in step with the 2025–2026 rate changes). The investment project relief lets companies reduce taxable profit — up to 100% — by the acquisition cost of new technological equipment, hardware, software and similar assets through 2028, with unused amounts carried forward four years. Free economic zone companies meeting investment and employment thresholds enjoy a 10-year corporate tax holiday followed by six years at half rate, and a film production incentive allows funding deductions and credits. The small-company 0%/7% regime rounds out the picture.

2.10 Pillar Two

Lithuania transposed the EU minimum taxation directive in two steps: an initial law exercised the deferral available to member states with few in-scope parent entities, limiting obligations to registration and information exchange, and a subsequent law enacted the full GloBE framework, applying the income inclusion rule to in-scope groups (consolidated revenue of at least EUR 750 million in two of the previous four years) for financial years beginning on or after 1 January 2025, with the undertaxed profits rule as backstop. No separate domestic top-up tax has been prioritised, so low-taxed Lithuanian profit — for instance in free economic zones or under heavy incentive usage — is generally collected through the group's IIR jurisdictions. Lithuanian constituent entities face GloBE registration, information-return and notification obligations, and incentive-heavy structures should be modelled against the 15% floor and the substance-based income exclusion.

2.11 Branch income and reorganisations

A Lithuanian permanent establishment of a foreign company is taxed at the standard 17% rate on attributable profits, computed with the same deductions as resident companies (head-office allocations are deductible within documented limits); there is no branch profits or remittance tax, so after-tax PE profits move to head office free of Lithuanian withholding. Mergers, divisions, transfers of business and share exchanges among EU companies can be implemented tax-neutrally under Merger-Directive-based rules, with carryover of values and, within limits, of tax losses. Exit taxation at market value applies where assets or residence leave Lithuanian taxing jurisdiction, payable in instalments over five years for EEA transfers.

3.1 Residence and rates

Residents — individuals with a permanent home, centre of vital interests or at least 183 days of presence in a tax year (or 280 days over two successive years) — are taxed on worldwide income; non-residents on Lithuanian-source income. From 2026 employment and most aggregated income is taxed in three brackets tied to the national average wage (AW): 20% up to 36 AW per year, 25% between 36 and 60 AW, and 32% above 60 AW (previously 20%/32% with a single 60 AW threshold). A tax-exempt amount (NPD) applies to lower employment incomes and phases out as income rises. Self-employed individuals are taxed on business income at an effective 5–15% through a credit mechanism, and small-scale activity can be conducted under fixed-fee business certificates.

3.2 Capital income and real estate

Dividends received by resident individuals are taxed separately at a flat 15%. Interest, capital gains and other investment income are taxed at 15%, rising to 20% for the aggregate portion of such income exceeding 120 AW in a year; an annual exemption applies to modest interest (EUR 500) and to gains below EUR 500 from securities disposals. Gains on real estate are exempt where the property was held for ten years or was the registered residence for the requisite period; otherwise the 15%/20% schedule applies to the gain. Rental income is taxed at 15% (with the higher band above the threshold) or under a business certificate for small landlords. Pension-fund (third-pillar) and life-insurance contributions attract reliefs within annual caps.

3.3 Social security and payroll

Social insurance is employee-weighted following the 2019 gross-up reform: employees bear contributions of 19.50% of gross salary (pension 8.72%, health 6.98%, sickness and maternity components the balance), while employers pay approximately 1.77% (unemployment and accident insurance; more for fixed-term contracts). Pension and sickness contributions cease above an annual ceiling of 60 AW, but the 6.98% health contribution is uncapped. Employers withhold income tax and contributions monthly through the combined payroll declarations to the State Tax Inspectorate and Sodra. Participation in second-pillar pension accumulation adds a default 3% employee contribution with state top-ups, from which employees may opt out under the reformed rules.

3.4 Inbound individuals

There is no net wealth tax; inheritance tax applies at 5% (taxable value up to EUR 150,000) and 10% above, with spouses, children, parents and other close relatives exempt, and gifts from close family are exempt from income tax (other gifts are taxable above EUR 2,500 per year). An expatriate-friendly feature is the employment-income relief for foreign specialists in shortage occupations under certain programmes, but Lithuania has no general inbound flat-tax regime; treaty tie-breakers and the 183/280-day tests govern residence. Individuals owning residential real estate above the value threshold pay progressive real estate tax on the excess, and exit from Lithuanian residence does not trigger a general personal exit tax on portfolio holdings.

Dividends paid to non-resident companies bear withholding at the dividend rate (17% from 2026), reduced to 0% under the participation exemption (10% of voting shares held for twelve months, payer conditions met) and by treaty. Interest paid to companies established in the EEA or in treaty countries is exempt from withholding; interest to other non-resident companies bears 10%. Royalties paid to non-resident companies bear 10%, eliminated for 25% EU associates under the Interest-Royalties Directive. Withholding of 15% applies to non-residents' income from the sale or lease of Lithuanian real estate, to annual payments to supervisory board members, and to performers' and sportspersons' income. Lithuania's network of roughly 60 treaties generally caps dividends at 5–15%, interest at 0–10% and royalties at 0–10%; relief at source requires a completed residence-certification form before payment, otherwise refund claims apply.

The payer withholds and remits by the 15th day of the month following payment, with liability for under-withholding. Anti-abuse screening applies to directive and participation-exemption relief — arrangements lacking valid commercial reasons that defeat the purpose of the Parent-Subsidiary Directive are disregarded — and payments to blacklisted territories are both non-deductible without proof of substance and outside treaty protection. Because branch remittances bear no withholding, PE structures remain a clean repatriation route for inbound investors.

5.1 General anti-abuse and hybrids

The Law on Tax Administration applies a substance-over-form principle allowing the tax authority to reconstruct transactions according to their economic content, reinforced by the ATAD GAAR, which disregards non-genuine arrangements whose main purpose is a tax advantage contrary to the law's object. Hybrid mismatch rules neutralise double deductions and deduction/non-inclusion outcomes involving hybrid entities, instruments, transfers and permanent establishments, including reverse hybrids and imported mismatches, by denying deductions or including income. Participation-exemption and directive benefits carry their own anti-avoidance carve-outs, and dealings with blacklisted territories face deduction denial, CFC inclusion and withholding without treaty relief.

5.2 Exit taxation and disclosure

ATAD exit taxation values assets at market on transfers of assets, business or residence out of Lithuanian jurisdiction, with five-year instalments for EEA moves. DAC6 mandatory disclosure of reportable cross-border arrangements applies with the standard hallmarks and 30-day windows, DAC7 platform reporting and CRS/FATCA exchange are in force, and public country-by-country reporting has been implemented for large multinationals. Lithuania has ratified the multilateral instrument, adding the principal-purpose test to covered treaties. Mutual agreement procedures and the EU tax dispute resolution directive provide double-taxation relief, and GloBE registration and information-return duties apply to in-scope Pillar Two groups from 2025.

6.1 VAT

VAT applies at a standard rate of 21%. Following the 2026 restructuring, the reduced rate is 12% (formerly 9%) for accommodation services, scheduled passenger transport and admission to arts and cultural institutions and events, while heat energy for housing and firewood lost their reduced rate and are now taxed at the standard 21%, while a 5% rate covers pharmaceuticals and reimbursable medicines, technical aids for the disabled, periodicals and — from 2026 — books and non-periodical publications; some formerly reduced-rate items moved to the standard rate. Registration is mandatory when twelve-month domestic turnover exceeds EUR 45,000 (EUR 14,000 for intra-EU acquisitions), with voluntary registration available. Returns are generally monthly, filed and paid by the 25th of the following month, accompanied by the i.SAF invoice-data submissions of the smart tax administration system; recapitulative statements cover intra-EU supplies. Reverse charge applies to construction services, certain electronics and other listed supplies; OSS/IOSS handle e-commerce. Input VAT adjustment periods run ten years for immovable property and five years for other capital goods.

6.2 Transaction, payroll and other taxes

Lithuania levies no real estate transfer tax and no stamp duties of general application — transfers bear only notary and registration fees. Companies pay real estate tax of 0.5% to 3% of the taxable value of commercial property (rates set by municipalities) and land tax of 0.01% to 4% on owned land; individuals pay progressive real estate tax on high-value residential holdings above the exemption threshold. Excise duties apply to alcohol, tobacco, energy products and electricity, rising under defence-funding and green packages; there is a lottery and gaming tax, a pollution tax, and a sugar-sweetened-beverage levy has been legislated. Employers' non-wage labour costs are modest (about 1.77% plus guarantee-fund contributions) because social insurance is predominantly employee-borne, as described in section 3.3. There is no net wealth tax.

7.1 Filing, assessment and audit

The tax period is the calendar year, or a substituted financial year on application. The annual CIT return is filed electronically through the EDS system by the 15th day of the sixth month after year end — 15 June for calendar-year taxpayers — with the balance payable by the same date. Advance CIT is paid quarterly (by the 15th day of the last month of each quarter), computed either from prior-year results or from a forecast, and companies whose prior-year revenue did not exceed EUR 300,000, and first-year companies, are exempt from advances. Payroll withholding returns are monthly, VAT by the 25th, and the i.MAS smart-administration platform (i.SAF invoice registers, i.VAZ transport documents) feeds risk scoring. The tax authority may generally reassess the current and three preceding calendar years, extended to five years in specified cases (and longer for fraud), and audits increasingly begin as data-matching inquiries rather than field inspections.

7.2 Rulings, appeals and penalties

Binding rulings on future transactions and advance pricing agreements are available from the State Tax Inspectorate free of charge for most rulings, alongside written explanations of general practice. Disputes proceed from objections to the central tax administrator to the Commission on Tax Disputes — a specialised pre-court body whose decisions taxpayers or the authority may appeal — and then to the administrative courts, ending at the Supreme Administrative Court; EU-law questions may be referred to the Court of Justice. Late payment attracts default interest at rates set semi-annually; penalties of 10% to 50% of the underpaid tax scale with culpability and cooperation, and voluntary correction of returns before an audit notice avoids penalties, leaving only interest. Mutual agreement procedures and EU arbitration complete the double-taxation toolkit.

Real estate tax and land tax follow separate municipal schedules with annual declarations for companies, and advance real estate tax instalments apply above thresholds. Where a substituted financial year applies, all corporate deadlines shift with the year end. Dividend withholding and participation-exemption positions should be documented before distribution dates, because relief at source depends on holding-period commitments that may still be running at payment.

9.1 Entity choice

The UAB is the workhorse: minimum share capital of EUR 1,000 (lowered from EUR 2,500 in 2023), one shareholder and one director suffice, and incorporation through the Centre of Registers is quick, with electronic formation available. The AB (minimum capital EUR 40,000) serves listed and regulated businesses. The small partnership (MB) offers a no-minimum-capital, flexible vehicle popular with start-ups and service businesses, taxed as a company with distributions to members taxed as dividends or as personal income depending on form. Individual enterprises and branches of foreign companies complete the menu; branches are taxed at 17% on attributable profits with no remittance tax. The small-company 0%/7% rate makes the UAB attractive from day one for genuinely small ventures, subject to the related-ownership tests.

9.2 Structuring and incentives

Holding structures rely on the 10%/12-month participation exemption for dividends and the 10%/2-year exemption for share gains, with clean withholding-free interest routes to EEA and treaty lenders. Operating groups should sequence the 300% R&D deduction, accelerated R&D depreciation, the patent-box rate on qualifying IP income and the investment project relief — which together can lawfully drive the current effective rate on an innovating manufacturer toward single digits — while watching the 70% loss-offset cap, the 4:1 thin-capitalisation test alongside the 30% EBITDA rule, and, for large groups, the Pillar Two 15% floor that can claw back over-optimised outcomes. Free economic zones (Kaunas, Klaipėda and others) add a decade-long holiday for qualifying investments with real substance requirements.

9.3 Worked effective-rate illustration

A Lithuanian UAB earns EBITDA of EUR 2,000,000, books depreciation of EUR 300,000 and net interest expense of EUR 150,000, all deductible (below the EUR 3 million safe harbour and within the 4:1 ratio). Profit before reliefs is 2,000,000 − 300,000 − 150,000 = EUR 1,550,000. Qualifying R&D operating costs of EUR 200,000 (already expensed once within EBITDA) attract two further deductions of EUR 200,000 each under the triple-deduction rule, i.e. an extra EUR 400,000. New technological equipment of EUR 600,000 qualifies for the investment project relief, reducing taxable profit by a further EUR 600,000. The taxable base is 1,550,000 − 400,000 − 600,000 = EUR 550,000, and CIT at 17% is EUR 93,500 — an effective rate of 93,500 / 1,550,000 = 6.0% on pre-relief profit. If the remaining profit were distributed to a resident individual, the flat 15% dividend tax would apply at shareholder level; ignoring reliefs, the combined statutory burden on distributed profits is 17% + (83% × 15%) = 29.45%.

9.4 Compliance

Expect electronic filing throughout (EDS, i.MAS, Sodra), monthly payroll and VAT cycles with near-real-time invoice reporting via i.SAF, annual financial statements filed with the Centre of Registers, transfer pricing files above the EUR 3 million revenue threshold, DAC6 monitoring, and beneficial-ownership (JANGIS) registrations. Incentive claims — R&D, investment project relief, patent box, free zones — should be supported by contemporaneous project documentation, as they are the most audited positions. In-scope multinationals must add GloBE registration, information returns and IIR computations from financial year 2025 onward.