Corporate Tax 2010 - BMR Advisors

Juridicon Law Firm
Lithuania
4.2 When is that tax generally payable
The taxation period is usually the calendar year or another twelvemonth
period requested by the entity. If the income during the
previous year exceeds LTL 1,000,000.00, the tax on corporate profit
for the next year must be payable in advance in quarterly
instalments, the first three of which must be paid before the end of
the current quarter, and the fourth instalment before the 25th day of
the last month of the quarter.
The newly-incorporated entities are released from the obligation to
pay tax on corporate profit in advance for the first year after
incorporation.
The annual declaration must be submitted and the tax must
completely be paid (if it does not need to be paid in quarterly
advance payments) before the first day of the tenth month of the
next tax year.
4.3 What is the tax base for that tax (profits pursuant to
commercial accounts subject to adjustments; other tax
base)
The tax base of a Lithuanian entity is all income earned in Lithuania
and foreign countries, and, according to the provisions of the Law
on Corporate Income Tax, the positive income of its controlled
foreign entity or part of such income, as well as the income or a part
of such income of the relevant European Economic Interest
Grouping.
The tax base of a foreign entity covers: (i) income received from
activities carried on through a permanent establishment situated in
Lithuania as well as income earned in foreign countries and
attributed to the said permanent establishment if such income
relates to the activities of a foreign entity in Lithuania; and (ii)
income sourced in Lithuania and received in Lithuania otherwise
than through a permanent establishment here (most kinds of
interest, distributed profits, royalties, payments for use of related
rights, industrial property, know-how, franchise, compensations for
violation of copyright and related rights, income from performer or
sport activities, income from transfer or lease of immovable
property in Lithuania, annual bonuses for the members of
supervisory or management board).
Sponsorship received that was used for purposes other than
specified in the Law of the Republic of Lithuania on Charity and
Sponsorship, as well as sponsorship received in cash from a single
provider during the tax period, exceeding the amount of 250
minimum living standards (currently LTL 32,500.00) will also
constitute the tax base both of national or foreign entities and shall
be taxed at the 20% rate.
When calculating the taxable profits of a Lithuanian entity, nontaxable
income, allowable deductions and deductions of limited
amounts shall be deducted from income. The taxable income of
permanent establishments shall be calculated by deducting from the
income earned the non-taxable income, deductions of limited
amounts and deductions relating to the income earned by a foreign
entity through a permanent establishment. The taxable profits,
earned by a foreign entity otherwise than through a permanent
establishment, shall include all of its income sourced in Lithuania
without any deductions.
Sums for deduction must be supported by legally valid documents
containing all the mandatory requisites of accounting documents or
if executed by the foreign persons - such documents must allow the
identification of the content of the economic operation.
In addition, payments made by a Lithuanian entity or permanent
establishment to foreign entities registered or otherwise organised
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in target (“tax haven”) territories shall be treated as non-allowable
deductions, unless the Lithuanian entity or permanent establishment
supplies evidence to the tax administrator that such payments are
related to the usual activities of both parties, that the receiving
foreign entity controls the assets needed to perform such usual
activities, and that there exists a link between the payments and the
economically grounded operation.
It should also be noted that from 1 January 2009 the taxable profit
of the entity may be reduced by deducting expenses, incurred
during 2009-2013 for acquisition of long-term property, used by the
entity in the investment project. The taxable profit of the entity may
be reduced by 50% at the maximum per one taxation year. The part
of expenses, not deducted during the first year, may be used to
reduce the taxable profit of the entity during four succeeding
taxation years.
Financial accountability of Lithuanian entities must be conducted
following the Business Accounting Standards, approved by the
Institute of Accounting of the Republic of Lithuania, or the
International Accounting Standards as defined in Regulation (EC)
No 1606/2002 of the European Parliament and of the Council of 19
July 2002 on the application of international accounting standards.
The taxable income of the entities must be calculated according to
the Law on Corporate Income Tax. As the provisions of these legal
Acts differ in various aspects (e.g. different principles for the
establishment of property acquisition price, etc.), the profit
calculated for financial accountability purposes may differ from the
one calculated for the corporate income tax purposes.
4.4 If it otherwise differs from the profit shown in commercial
accounts, what are the main other differences
See question 4.3.
4.5 Are there any tax grouping rules Do these allow for relief
in Lithuania for losses of overseas subsidiaries
In general, each Lithuanian entity or permanent establishment of a
foreign entity in Lithuania is treated as a separate taxpayer.
However, income and losses of foreign permanent establishments
of a Lithuanian entity must be included while calculating taxable
corporate income of the Lithuanian entity. Depending on the
treaties on the avoidance of double taxation, the income earned
through the permanent establishments abroad and taxed there may
be either released from the Lithuanian tax on corporate income, or
there may be a possibility to deduct proportionally the tax paid
abroad from the one payable in Lithuania.
Lithuanian tax laws do not allow cross-border use of income or
losses within the group of separate legal entities.
Secondly, as indicated in question 4.3, the positive income of the
controlled foreign entity shall, proportionally to its shares which are
owned by the Lithuanian entity, be included in the taxable profits of
the Lithuanian entity if:
on the last day of the tax period, the Lithuanian entity holds
directly or indirectly over 50% of the shares (interests,
member shares) or other rights/pre-emptive rights to a part of
distributable profits in the controlled entity; or
on the last day of the tax period the controlling person,
together with related persons, holds over 50% of the shares
(interests, member shares) or other rights/pre-emptive rights
to a part of distributable profits in the controlled entity, and
at the same time holds himself at least 10% of the shares
(interests, member shares) or other rights to distributable
profits or pre-emptive rights to the acquisition thereof; and
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