• Applicable Legislation
• Regulatory Framework
• Indirect Taxes
• Direct Taxes
• Other Significant Taxes
• Foreign Exchange Controls
• Withholding Tax Rates under Treaties
• Personal Income Tax
• Taxes at a Glance

The Law on Tax Administration and a number of specific laws on particular kinds of taxes govern the tax system of the Republic of Lithuania. At present, the following taxes are administered in accordance with the Law on Tax Administration:

1. value-added tax;
2. excise tax;
3. individual income tax;
4. legal persons' profit tax;
5. real property tax for enterprises and organisations;
6. land tax;
7. State natural resources tax;
8. oil and gas resources tax;
9. pollution tax;
10. consular duty;
11. stamp duty;
12. market place duty;
13. contributions to the Road Supervision and Development Programme;
14. inheritance and donation tax;
15. compulsory health insurance contributions;
16. tax for the lease of State land and water bodies;
17. contributions to the Guarantee Fund;
18. State levies;
19. gaming tax;
20. tax on registration of industrial property.

1. The 5 October 1990 Provisional Law No. I-641 of the Republic of Lithuania "On Income Tax of Natural Persons";
2. The 21 March 1991 Law No. I-1163 of the Republic of Lithuania "On Taxes on State Natural Resources";
3. The 21 May 1991 Law No. I-1336 of the Republic of Lithuania "On State Social Insurance";
4. The 25 June 1992 Law No. I-2675 of the Republic of Lithuania "On Land Tax";
5. The 7 October 1992 Law No. I-2944 of the Republic of Lithuania "On Tax on Oil and Gas Resources";
6. The 23 November 1993 Law No. I-309 of the Republic of Lithuania "On Market Place Duty";
7. The 22 December 1993 Law No. I-345 of the Republic of Lithuania "On Value-Added Tax";
8. The 12 April 1994 Law No. I-429 of the Republic of Lithuania "On Excise Tax";
9. The 23 June 1994 Law No. I-509 of the Republic of Lithuania "On Consular Duty";
10. The 20 July 1994 Law No. I-565 of the Republic of Lithuania "On Real Property Tax of Enterprises and Organisations";
11. The 13 June 1995 Law No. I-935 of the Republic of Lithuania "On Taxation of Property Given as a Inherited or Gift";
12. The 28 June 1995 Law No. I-974 of the Republic of Lithuania "On Tax Administration";
13. The 5 May 1996 Law No. I-1343 "On Health Insurance";
14. The 18 November 1997 Law No. VIII-521 "On Amendment of the Law on Road Fund";
15. The 13 May 1999 Law No. VIII-1183 of the Republic of Lithuania "On Pollution Tax";
16. The 13 June 2000 Law No. I-508 of the Republic of Lithuania "On State Fees";
17. The 20 December 2001 Law No. IX-675 of the Republic of Lithuania "On Profit Tax";
18. The 30 July 1999 Resolution No. 877 of the Government of the Republic of Lithuania "On Approval of Procedure for Establishment of Taxable Profit of Permanent Establishments";
19. The 30 July 1999 Resolution No. 955 of the Government of the Republic of Lithuania "On Approval of the Order for Computation and Accounting of Wear and Tear (Depreciation) of Long-Term Assets and Their Maintenance".

The State Tax Inspectorate administers the tax system of the Republic of Lithuania. The State Tax Inspectorate is a State institution founded by and accountable to the Ministry of Finance and financed from the State budget and other funds. It is composed of the State Tax Inspectorate under the Ministry of Finance and regional State Tax Inspectorates.

The Customs Service of the Republic of Lithuania administers VAT and excise taxes.

The State natural resources tax, oil and gas resources tax and pollution tax are administered by the Ministry of Environment.


Indirect Taxes

Value-Added Tax Standard rate 18% Heating services 9 % Services of route passenger transport 5 % Rate on exports 0%

Object

Under the Law on Value-Added Tax, the taxable object of VAT is the added value created and sold within the course of manufacturing of goods, performance of works, provision of services as well as import of goods.

VAT is collected from the added value created in the process of production of goods and rendering of services and of the goods imported, with some exceptions (such as medical and dental services, medicines, medical goods and medical equipment; social services rendered by day-care centres and homes for the disabled and the elderly; educational, scientific and cultural services rendered by institutions of education, science and studies as well as non-profit cultural institutions; universal and other postal services (with the exception of transmission of parcels, as well as philately production); insurance and banking services specified by the Government of the Republic of Lithuania; etc.). Purchase and sale of securities is also exempt from VAT. Enterprises operating in free economic zones are exempted from paying VAT.

Payers of VAT

VAT is calculated and paid into the budget by legal persons, enterprises without the rights of a legal person, sub-divisions of foreign entities operating in Lithuania and individuals.

Persons with annual receipts from sale of goods and services (excluding the sale of fixed assets which were used for more than one year), excluding VAT, less than LTL 10,000 need not register as VAT payers, nor calculate or pay VAT into the budget. VAT paid by these persons for the purchase of goods or services is not to be refunded.

Persons whose annual receipts range from LTL 10,000 may, at their own option, register them selves as VAT payers and calculate and pay VAT to the State budget beginning with the next month following the registration. If annual receipts from the sale of goods and services exceed LTL 100,000, such persons are required to register as VAT payers and calculate and pay VAT into the budget according to the general procedure beginning with the month the receipts exceeded the said amount.

Persons who collect and pay VAT must register with the State Tax Inspectorate as VAT payers. Persons who are not VAT payers do not have a right to collect VAT from buyers of goods or services.

Taxable Value

The taxable value of goods and services for the purposes of VAT includes:

1. the production cost of goods and the price of rendering of services;
2. expenses for packaging, transportation, insurance and the like;
3. payments for the installation of equipment;
4. payments for mediation, commission and auction charges;
5. various discounts and additional charges not entered in the invoice;
6. expenses for the purchase or sale of goods on credit;
7. various taxes related to the sale of goods (customs duties, excise duties), excluding VAT; and
8. service expenses or other sums not included in the cost of production of goods or rendering of services that the customer pays to the seller of such goods or services.

Moment of Computing VAT

VAT on goods and services is to be computed:

1. when the seller (supplier) issues an invoice or another document to the customer for the goods sold (services rendered);
2. at the point of sale, when goods or services are paid for in cash and an invoice is not issued; or
3. when products are imported according to the procedures for the computation of customs duties.

The taxable value is subject to a VAT rate of 18%, 9%, 5% or 0%. A "computed VAT amount" is calculated applying these rates. The payer of VAT must pay the "computed VAT amount" minus the "deductible VAT amount". A "deductible VAT amount" is an amount paid for goods or services supplied. Such a deduction is only allowed when the VAT paid for goods or services supplied is specifically stated on the invoice. However, such deductions are not always allowed. For example, if VAT is paid on the supply of goods and services used in the production of goods or services, providing of meals for employees or other activities that are VAT-exempt, deduction is not allowed. If the computed VAT amount is smaller than the deduction, the difference may be refunded in some cases or set off against other tax payments.

The tax period for VAT is a calendar month. The Government of the Republic of Lithuania may establish the period of and procedures for the advance payment of VAT. Upon expiration of the tax period, each taxpayer must, before the 15th day of the next month, file a declaration of the computed and deductible sum of VAT with the local State Tax Inspectorate.

The computed sum of VAT must be paid within 10 days from the date prescribed for filing of the VAT declaration. Unpaid VAT may be recovered for the current year and the last 5 preceding years.

VAT on Imports

The taxable value of goods imported into the Republic of Lithuania is determined in the same manner as the customs duty (customs duty and excise taxes are also included in the taxable value).

VAT is levied on imports at the rate of 18%. VAT on imports is paid under the procedure set by the Customs for the payment of import duties.

A number of goods are exempt from VAT, including:

1. goods imported as support - under the procedure and in cases established by the Government;
2. goods brought in by individuals, unless the amount of goods exceeds limits established by the Government;
3. goods imported by foreign embassies or consulates or international organisations; or
4. other goods prescribed by the laws of the Republic of Lithuania.

In accordance with Article 25 of the Law on Value-Added Tax, 0% VAT rate is applicable to the following:

1. exported goods, including goods that have been temporarily imported for processing or compensatory products made from them which have been returned abroad;
2. international carriage of passengers and/or cargoes (including additional services of carriage (loading, unloading, handling of cargoes and other services) related to international carriage of cargoes) as well as mediation services when mediation is performed in rendering the above services.;
3. certain services rendered by tourism and travel agencies;
4. provision, completion (including booking), repair, exploitation and rent of aircraft and ships which carry goods and passengers by international routes;
5. goods brought into customs warehouses, duty-free shops, free economic zones and free warehouses;
6. goods and services directly paid for by foreign residents and related with the production of goods meant for export and re-export.

1. services related to real property that is or will be constructed outside Lithuania, services of agents and appraisers, contractors, designers, architects of real property, construction technical supervision and other services related to such real property;
2. services of art, culture, sport, science, training, education and entertainment, appraisal of movable property, service of movable property when these services are physically rendered outside Lithuania;
3. assignment of author's rights, as well as neighbouring rights, rights to use an invention patent, industrial design, topography of semiconductor products, trade-mark or service mark, firm name, secret formula or method, franchise or granting of the right to use them, as well as consultation, legal, audit, accounting, advertising, market research and public polling services, telecommunications services, creation of software, data processing, information transfer and transfer of sportsmen, as well as mediation services when mediation is performed in rendering services specified in this item - when the recipient of these services is a foreign legal person (as defined by law);
4. lease of movable property, leasing (financial leasing) of movable property when the recipient of a service is a foreign legal person, and the lessor presents documents evidencing that the property will be used outside Lithuania.

Excise Tax

Tax Payers
Excise taxes are paid by legal and natural persons that are manufacturers and/or importers of goods subject to the excise tax, except the excise tax on liquid gas for motor vehicles to be paid by sellers of liquid gas. Enterprises operating in free economic zones are exempt from paying the excise tax.

Items Subject to Excise Tax
The following goods are subject to the excise tax at the following rates:

1. ethyl alcohol, except for mead brandies - LTL 3,200/hl of pure ethyl alcohol;
2. wine of fresh grapes - LTL 150/hl;
3. beverages having an actual alcoholic strength by volume of 8.5% or less - LTL 40/hl;
4. other beverages - LTL 130-250/hl;
5. beer (1hl of product) - LTL 7/1%/vol/l (for 1% of actual alcoholic strength by volume);
6. tobacco - 50%, cigarettes - LTL 32/1,000 items;
7. coffee - 10%, chocolate - 10%;
8. sugar- LTL 1/kg;
9. jewellery/precious stones - 10%;
10. luxury cars - 15% of price exceeding 600,000 Litas;
11. electricity - 1%;
12. publications of erotic and/or violent nature - 75%;
13. lubricants - LTL 240/t;
14. engine fuel - LTL 1210/t;
15. jet fuel - LTL 560/t;
16. black oil - LTL 20/t;
17. liquid gas for motor vehicle - LTL 170/1,000 l.

Taxable value for the purpose of the excise tax is determined as follows:

1. for goods manufactured in Lithuania - their sales price exclusive of VAT;
2. for imported goods - their customs value including customs duty.

At a Glance

Corporate Income Tax Corporate Income Tax Rate 15% Capital Gains Tax Rate 15% Branch Tax Rate 15%

Withholding Tax Rates Dividends 15% Interest 10%* Royalties 10%* Payments for leased and sold immovable property 10%*

Shifting of Net Operating Losses Carryback not allowed Carryforward up to 5 years

* Applicable only to payments made to non-resident enterprises

Taxes on Corporate Income and Gains

Under the Law on Profit Tax, profit and/or income of a Lithuanian taxable entity (a legal person that is registered under the procedure established by the legal acts of Lithuania) and a foreign taxable entity (a foreign legal entity or organisation which is established in a foreign state, or is incorporated or organised in any other way according to the legal acts of a foreign state) is subject to the profit tax. Lithuanian taxable entities are subject to profit tax on their world-wide income. Foreign (non-resident) taxable entities are subject to profit tax, where applicable, only on their Lithuanian income. Income received by permanent establishments prescribed by law are also subject to profit tax.

Tax Rates

The normal profit tax rate is 15%. 0% rate applies to companies manufacturing agricultural products and specialised enterprises rendering services to agriculture if such enterprises derive more than 50% of their receipts from such activities. Until the end of 2003 taxable period tax incentives for foreign investors (which were eliminated as of 1 April 1997), continue to apply to foreign investments made prior to 1 April 1997. The 13% profit tax rate will be applied to all entities the gross income of which during the taxable period is less than LTL 500,000 (EUR 144,810) and the number of employees does not exceed 10, except for certain cases.

Entities registered and operating in free economic zones benefit from additional incentives (for details please see chapter Foreign Investments).

Capital Gains

Capital gains are included in taxable profit and are subject to tax at the regular profit tax rate.

Administration

The taxable year for taxable entities is the calendar year, however, a different tax period may be established for tax payers whose activity is seasonal, upon their request, provided that such period is stable (unchangeable) and is equal to 12 months.

Profit tax must be paid in advance, except as provided in the Law on Profit Tax. The actual sum of the profit tax advance payment must be calculated by the taxpayer in the following ways:

1. according to the results of the last year activity: the profit tax advance payment for the first nine months of taxable period is based on the profit tax actually calculated for the tax period preceding the last taxable period. The profit tax advance payment for the tenth to twelfth months of taxable period is based on the profit tax actually calculated for the tax period preceding the last taxable period. The profit tax advance payment of each quarter equals ¼ of profit tax actually calculated for the preceding taxable periods;
2. according to the implicit profit tax for taxable period: the tax payers may choose to pay tax advance payment each quarter - 1/4 implicit profit tax of a taxable period. Profit tax advance payments calculated on the implicit profit tax for taxable period may not be less than 80% of actual annual profit tax. If the calculated profit tax in the tax advance return is less than 80% of profit tax calculated in the annual profit tax return, the default interest will be calculated for the non paid profit tax advance payment of each quarter. The tax payer may specify the profit tax advance payment return, calculating the profit tax advance payment in equal parts from the beginning of a taxable period.

If gross income during the previous taxable year does not exceed LTL 100,000, the company is not required to make profit tax advance payments in the present taxable year.

Tax returns must be filled in the following ways:

1. if a taxpayer chooses to make profit tax advance payments according to the calculated profit tax amount of the last year activity, the profit tax advance payment return for the first nine months of a taxable period must be filled by the last day of the first month of a taxable period. The profit tax advance payment return for the tenth to twelfth months of a taxable period must be filled by the last day of the tenth month of a taxable period;
2. if a taxpayer chooses to make profit tax advance payments according to the implicit profit tax for taxable period, the profit tax advance payment return must be filled by the last day of the first month of a taxable period.

Taxpayers must file profit tax returns for the last calendar year (taxable period) prior to the 1st day of October of the following year (i.e. the 1st day of the tenth month of the next taxable period). If the tax amount calculated in the profit tax return exceeds the amount paid during the taxable period, the taxpayer must, not later than the last day of the term for filing a profit tax return, pay the additional tax amount. If the tax amount calculated in the profit tax return is less than the amount paid during the taxable period tax, the overpayment will be refunded.

When the income of a foreign taxable entity is subject to withholding tax in the manner prescribed by the Law on Profit Tax, the profit tax must be withheld and paid by a Lithuanian taxable entity or permanent establishment of a foreign entity that pays out the income and the profit tax return must be filled not later than within 15 days after the end of the month in which the income was paid.

Withholding Taxes

10% withholding tax is imposed on royalties paid to foreign (non-resident) taxable entities, including fees for the provided neighbouring rights, income received as a fee for the transferred or granted under the licence agreement right to use the object of industrial property, franchise, or a fee for information provided on industrial, commercial or scientific experience (know-how), compensations for violation of the copyright or neighbouring rights.

10% tax rate is imposed on income (without any deductions) of foreign entities received for the sold or otherwise transferred or leased property that is immovable by nature and is located in the territory of Lithuania. A foreign entity, that has received income for the sold or otherwise transferred immovable property by its nature, has the right to apply to the local tax administrator for re-calculation of the profit tax that has already been calculated and paid. In such case profit tax would be calculated from the income received due to the increase of the value of the property.

10% withholding tax is imposed on interest for loans. Income received as interest on deposits and subordinated loans that meets the criteria established by legal acts of the Lithuanian Bank is not subject to taxation. Interest on the Government securities issued in the international financial markets is exempt from taxation as well. Interest on loans granted to Lithuanian entities by banks of foreign states and international financial institutions included in the list approved by the Minister of Finance, including premiums and bonuses related to those debt undertakings, will be subject to taxation at 10% rate from 1 January 2003.

Dividends

Dividends, received and paid by Lithuanian entities, as well as other income received as a result of profit distribution, are subject to taxation at the 15% rate. Dividends that are to be paid in taxable year 2002 for the previous year are subject to taxation at the 29% rate.

Dividends received by a Lithuanian entity from Lithuanian or foreign entities where the Lithuanian entity that receives dividends continuously (for at least 12 past months, including the moment of distribution of dividends) owns more than 10% of voting shares (interest) is not subject to the profit tax. The said provision is not applicable in case the taxable profit of the Lithuanian entity that pays dividends is not subject to taxation at the 15% or 13% tax rate or dividends are received from the foreign entity that is registered or otherwise organised in purposive territories (tax havens).

Dividends paid by a Lithuanian entity to a foreign entity wherein the foreign entity that receives dividends continuously (for at least 12 past months, including the moment of distribution of dividends) owns more than 10% of voting shares (interest) are not subject to taxation. The said provision is not applicable when the foreign entity that receives dividends is registered or otherwise organised in purposive territories (tax havens). This provision is also not applicable when the taxable profit of the Lithuanian entity that pays dividends is not subject to taxation at the 15% or 13% tax rate.

Profit tax for the taxable period is reduced by the profit tax calculated on dividends paid to the Lithuanian residents or Lithuanian taxable entities in the way prescribed by Lithuanian laws. The amount of profit tax paid on dividends exceeding the calculated profit tax amount of that taxable period may be carried forward up to 5 years.

Foreign Tax Relief

If no relief is available under a respective double taxation treaty, a foreign tax credit is available to Lithuanian companies for foreign taxes paid on income earned abroad. The amount of the credit may not exceed the amount of the profit tax that would have to be paid if the profit earned in the foreign country was taxed under Lithuanian law. Lithuanian companies may claim the foreign tax credit by presenting an official document issued by a foreign tax authority confirming the payment of the foreign tax.

Determination of Taxable Income

General
Taxable profit is equal to gross revenue minus the expenses incurred in earning such revenue. Income of the controlled foreign entities is included into gross revenue as positive income of the Lithuanian entity in compliance with the provisions of the Law on Profit Tax, provided that those controlled entities comply with certain conditions.

When calculating the taxable profit of the Lithuanian entity, the following amounts are deducted from the income: (1) non-taxable income listed in Article 12 of the Law on Profit Tax; (2) allowed deductions of limited amounts listed in Article 17 of the said law; (3) other allowed deductions. Allowed deductions are all costs actually incurred which are usual for the activities of the entity and are necessary for earning the income of such entity or gaining economic benefit, unless the law establishes otherwise.

Taxable profit of a permanent establishment is calculated by deducting non-taxable income, allowed deductions of limited amounts and such other deductions that are related to the earning of income of a foreign entity through its permanent establishment. Income and expenses of a taxable entity realised in a foreign currency must be converted into Litas using the official exchange rate established by the Bank of Lithuania.

Tax Depreciation
Entities may select the depreciation method to be used, including liner and double-decreasing value (double balance) depreciation. An entity may also establish depreciation rates consistent with the maximum norms fixed in the Law on Profit Tax. These norms establish the minimum number of years over which assets may be depreciated. Groups of long-term assets and their depreciation maximal rates (years) are established in Table 1.

Group of long-term assets Method Rates Years TANGIBLE ASSETS New buildings used for activity, and reconstruction of buildings included into the Register of Immovable Cultural Values if the buildings are constructed or reconstruction thereof is performed after 1 January 2002 Linear or Double Balance 8 Dwelling houses Linear 20 Other buildings not listed above Linear 15 Machinery and facilities Linear or Double Balance 5 Fixtures (constructions, wells etc.) Linear 8 Electricity and communications devices (excluding computer networks) Linear 8 Rolling-stock (diesel locomotives, carriages, tank-cars), ships Linear 8 Pipelines, aircraft, arms Linear 15 Furniture, excluding those used for hotel activities Linear 6 Inventory, furniture used for hotel activities Linear or Double Balance 6 Computer equipment and means of intercommunications (computers, computer networks and installation) Linear or Double Balance Linear 3 Cars: used for short-term car lease activities, for providing driving lesson services or transport services - not older than 5 years; other cars - not older than 5 year; other cars.   Linear Linear Linear   4 6 10 Trucks having carrying capacities, trailers and half-trailers - not older than 5 years Linear or Double Balance 4 Other trucks having carrying capacities, trailers and half-trailers, buses - not older than 5 years Linear 10 Other tangible assets not listed above Linear 4 INTANGIBLE ASSETS Formation costs (change of capital and formation of an enterprise, issuance of bonds, other formation activities, capitalised interests, reorganisation) Linear 3 Software Linear or Double Balance 3 Acquired rights Linear or Double Balance 3 Other intangible assets Linear 10 GOODWILL Goodwill Linear 15

Entities where the average recorded number of employees does not exceed 10 people and income received during the taxable period does not exceed LTL 500,000 and that do not meet some other criteria established in the Law on Profit Tax may fix maximal depreciation rates without taking into consideration the rates established in Table 1.

Relief for Losses

If losses are incurred during the taxable period after deducting from entities' income the non-taxable income and all allowed deductions, such losses will be carried forward to the following taxable period (fiscal year) except for the losses that have been incurred as a result of trading in securities and/or derivatives.

Losses incurred as a result of trading in securities and/or derivatives will be carried forward to the following taxable period, however, such losses will cover only the income received during the following fiscal year as a result of trading in securities and/or derivatives.

Losses of taxable period may be carried forward no longer than for 5 consecutive taxable periods. Losses incurred as a result of trading in securities and/or derivatives may be carried forward no longer than for 3 consecutive taxable periods. Losses may not be carried back.

Groups of Enterprises

Companies are taxed individually in Lithuania. Consolidated returns are not allowed.


Other Significant Taxes

The following table summarises other significant taxes.

Tax Rate (%) Real estate tax on the taxable value of the real estate (value as calculated by the Real Estate Register under the methodology established by the Government) 1 Social security contributions* payable by: employer 27 employee 3 Health insurance tax paid by employer 3 Payment to the accident fund paid by employer * For details see chapter Social Security 1

Other significant taxes are: stamp duties, tax on use of Lithuanian natural resources, pollution tax, land tax and contributions to the Road Supervision and Development Programme.


Foreign Exchange Controls

The official Lithuanian currency is Litas (LTL).

Foreign currency may be used for payments to foreign legal and natural persons who are not in Lithuania as well as for payments in Lithuanian free economic zones and duty-free shops. Only banks licensed by the Bank of Lithuania may perform foreign currency operations such as purchase, sale or exchange of currency.


Withholding Tax Rates under Treaties The table below lists the maximum withholding rates under Lithuania's tax treaties:

Dividends % Interest % Royalties % Armenia 5/15 (a) 10 10 Belarus 10 10 10 Canada 5/15 (a) 10 10 Croatia 5/15 (d) 10 10 China 5/15 (a) 10 10 Czech Republic 5/15 (a) 10 10 Denmark 5/15 (a) 10 5/10 (b) Estonia 0/15 (c) 0 0 Finland 5/15 (a) 10 5/10 (b) France 5/15 (d) 10 5/10 (b) Germany 5/15 (a) 10 5/10(b) Iceland 5/15 (a) 10 5/10 (b) Ireland 5/15 (a) 10 5/10 (b) Italy 5/15 (d) 10 5/10 (b) Kazakhstan 5/15 (a) 10 10 Latvia 0/15 (c) 0 0 Moldova 10 10 10 Netherlands 5/15 (a) 10 5/10 (b) Norway 5/15 (a) 10 5/10 (b) Poland 5/15 (a) 10 10 Sweden 5/15 (a) 10 5/10 (b) Turkey 10 10 5/10 (b) Ukraine 5/15 (a) 10 10 USA 5/15 (d) 10 5/10 (b) Other countries 15 10 (e) 10

(a) 5% rate applies if the recipient owns more than 25% of the authorised capital of the payer.

(b) 5% rate applies to royalties paid for use of industrial, commercial or scientific equipment; 10% rate applies to other royalties.

(c) 0% rate applies if the recipient owns more than 25% of the authorised capital of the payer.

(d) 5% rate applies if the recipient owns not less than 10% of the authorised capital or voting power of the payer.

(e) 0% rate applies to interest on the Government securities issued in international financial markets.


Personal Income Tax

At Glance - Maximum Rates

Income Tax Rate (%) 35, 33, 20, 13, 10 Withholding tax Interest 20% Dividends 29% Royalties 13% Capital Gains Tax Rate 10%, 0% Net Wealth Tax 0%* Inheritance and Donation Tax Rate 5%, 10%

* Property tax applies to commercial property and land.

Residency

Individuals are considered to be permanent residents if they stay in Lithuania for more than 183 days in any twelve-month period commencing or ending in the tax year concerned, or if their permanent place of residence is within Lithuania.

All permanent residents are subject to different rates of income tax, depending on the type of income earned. Non-residents are subject to tax on income earned in Lithuania.

Income Tax on Employment

All individuals employed by Lithuanian companies are subject to income tax on income earned from employment in Lithuania and abroad. Permanent residents of Lithuania employed by foreign companies as well as non-residents who are employed by foreign companies for work in Lithuania, are subject to income tax.

The taxable income is the total income in cash and in kind i.e. wages and salaries, bonuses and fringe benefits (such as free lodging, use of car and other incentive payments).

Income earned at the principal place of employment in a Lithuanian company is calculated monthly and taxed at a flat rate of 33%, after deducting non-taxable minimum income as established by the Government. Income earned from extra employment in a Lithuanian company is taxed progressively at rates varying from 10% to 35%. Income derived from employment with a foreign company is taxed at the rate of 20%.

As of 1 January 2002, the minimum non-taxable income for both residents and non-residents was LTL 214 per month for income earned at the principal place of employment in a Lithuanian company. Specific groups of taxpayers (i.e. disabled persons, single parents) are granted a higher minimum non-taxable income.

Income Tax on Self-Employed

The income earned by self-employed individuals is subject to profit (income) tax according to the Law on Profit Tax. This includes partnerships and personal enterprises that are engaged in commercial activities.

Miscellaneous Income

Income earned according to a service contract, under a rental agreement, interest received from a non-Lithuanian credit institution and other miscellaneous income is taxed at the rate of 20%.

Directors' Fees

The directors' fees paid to board members of Lithuanian companies are taxed at the rate of 33% as if the directors are employees of the company under the employment contract. Social security payments must be paid on board member's fees. If a person works without an employment contract, the board member's fee is treated as miscellaneous income and is taxed at the rate of 20%.

Investment Income

Dividends received from Lithuanian and foreign entities by natural persons, including foreign nationals and stateless persons, are taxed at the 29% rate of income tax.

Capital Gains and Losses

Residents can sell real estate and other assets free of tax, provided that only one sale within the same group of assets takes place within one year. Gains on additional sales and gains derived by non-residents are taxed as normal income at the 10% rate.

Inheritance and Donation Taxes

Donations from individuals (other than family members) are taxed at the 10% rate. Donations to an employee from an employer in excess of the non-taxable monthly minimum income (as of 1 January 2002 LTL 214) are treated and taxed as employment income. Royalties received by the legal successor of a deceased person are taxable at the 60% rate. Inheritance tax rate is 5% when the taxable value of the property is less than LTL 0.5 million and 10% in all other cases. Inheritance tax is not imposed on property inherited by family members, sisters, brothers, tutors and guardians.

Administration

Employers must withhold and pay taxes and social security contributions (including health insurance contributions) on a monthly basis. Payments must be made on the day the salary is paid or the next day. Lithuanian companies must also withhold taxes on income paid by or through them to all individuals.

Individual taxpayers must file a declaration of their expected annual income by 1 February of the current year. A declaration of income received in the current year must be filed within 5 days after a one-month period since the appearance (receipt) of income. When income is earned in a foreign state, an income declaration must be filed within 5 days after the month in which the taxpayer returned to Lithuania or upon expiration of the source of income in a foreign state. The adjusted declaration reflecting actual total income in the previous year must be filed by 1 February of the next year. Income tax is computed and paid in equal parts every quarter prior to the 15th day of the second month of each quarter. Tax on income first received during the year is paid on normal terms for the remainder of the year. If income is declared after the 15th of November (after all payment terms have passed), tax must be paid within one month from filing of a declaration.

Every taxpayer receives a tax code number from the tax authority.

Non-residents are not provided with any special exemptions from the administrative regulations described above.

Non-Residents

Non-residents are taxed on their Lithuanian-source income in the same manner as residents.


Taxes at Glance

Corporate Income Tax (general) Tax rates 1. Profit tax (gross revenue minus expenses incurred in earning such revenue equals taxable profit) - 15%1; 2. Tax on profit of companies producing agricultural products and specialised companies rendering services to agriculture - 0%. Gross revenue Expenses and sums excluded from gross revenue: 1. Non chargeable revenue; 2. Allowable deductions (e.g. all expenses which are normally incurred upon such activity and necessary to earn revenue or gain economic utility); 3. Limited amount deductions (e.g. expenses for advertising, taxes, hopeless debts, support, loss of taxable period, etc.).

Corporate Income Tax (for Non-Residents) Dividends Interest Royalties Payments for leased and sold immovable property Capital gains from shares of Lithuanian companies 15%* 10%* 10%* 10%* 0%

Tax Incentives in Free Economic Zones (FEZs) Companies registered and operating in free economic zones Companies in which foreign investors own at least 30% of the authorised capital and have invested capital of foreign origin exceeding USD 1 million Reduction in profit tax Period of time Reduction in profit tax Period of time 80% For 5 years, starting on the date of registration 100% For 5 years, starting on the date of registration 50% For additional 5 years 50% For additional 10 years

¹ Profit tax rate applicable to entities, where the average number of employees does not exceed 10 persons and income of taxable period does not exceed LTL 500,000 - 13 %;

* Withholding tax.

Employment Income Tax (General) Tax rates 1. Income tax (taxable income minus the non-taxable minimum minus other non-taxable income) - 33% 2. Income received from supplementary employment - from 10% to 35% (progressive) Sums included in taxable income: 1. Wages, including additional payments and benefits paid from social insurance contributions; 2. Lump-sum bonuses, taxable benefits; 3. Compensation for discharge and severance payments. Sums excluded from taxable income: 1. Social security and social assistance benefits (excluding illness and maternity or paternity allowances); 2. Benefits paid by the employers in the event of death of the employee's spouse, parents, children or in case of natural calamity or fire; 3. Amounts of compensation awarded by the court for material or moral damages; 4. Insurance contributions as prescribed by Article 58 of the Law on Insurance; 5. Business travel expenses in the amount specified by law; 6. Prizes or gifts received for personal celebrations, competitions or on other occasions, provided that the value of these gifts and prizes during the calendar year does not exceed the amount of minimum non-taxable income; 7. Amounts spent on charity and sponsorship according to the procedure established by the Law on Charity and Sponsorship, unless the amount of payment exceeds 15% of annual income related to labour relations; 8. Payments into the personal accounts of participants of pension programmes made according to the Law on Pension Funds, unless the amount of payment exceeds 25% of annual income related to labour relations.

Taxation of Other Income Income derived from foreign companies 20%**

** An individual must declare this income in accordance with the procedure established by the Government of the Republic of Lithuania.

Income Tax of Individuals (Residents) Dividends Interest from loans Capital gains Received from Lithuanian companies Received from foreign companies Received from Lithuanian company Received from foreign company 29%* 29%** 20%*1 20%** 0%

Income Tax of Individuals (Non-Residents) Dividends Interest Royalties Capital gains from shares of Lithuanian companies 29%* 20%*1 13%* 0%

¹ The tax is not imposed on interest on securities of the Government of the Republic of Lithuania and municipalities; the tax is not imposed on interest received on deposits kept in a bank or any other credit institution having a licence issued by the Bank of Lithuania;

* Withholding tax;

** An individual must declare this income in accordance with the procedure established by the Government of the Republic of Lithuania.