How to benefit from 5% corporate income tax in Lithuania?
General corporate income tax rate in Lithuania is 15%. However, following the provisions of the Law on Corporate Income Tax, small companies can benefit from 5% corporate income tax. In order to pay a reduced corporate income tax, a company shall comply with certain conditions which are provided in this article.
Small company
It shall be noted that a “small company”, or, in other words, “micro company”, does not mean specific form of legal entity. For tax purposes any form of legal entity may be considered as small company (micro company), provided that it complies with all of the requirements indicated below.
Requirements for company
In order to benefit from reduced corporate income tax, a company shall have not more than 10 employees and its turnover shall not exceed 300 000 EUR during a fiscal year. It is important to note that the threshold of 300 000 EUR is applicable from January 1, 2015, when Lithuania joined the Euro zone.
Requirements for shareholders
Additionally, there are requirements for the shareholders or owners of the company set in the Law on Corporate Income Tax. The reduced corporate income tax rate is only applied to the companies where the owners do not manage multiple businesses, for that reason there are restrictions on owning shares of other companies:
- Shareholder (owner) of a Lithuanian company shall not have than 50% of shares or parts of any other companies in EU (including Lithuania) and EEA;
- Shareholder (owner) of a Lithuanian company shall not own any individual (personal) companies in EU (including Lithuania) and EEA;
- Family members of the shareholder (owner) of a Lithuanian company shall not have than 50% of shares or parts of any other companies in EU (including Lithuania) and EEA;
- Family members of the shareholder (owner) of a Lithuanian company shall not own any individual (personal) companies in EU (including Lithuania) and EEA;
It shall be noted that the rules of the above apply to the group of shareholders. For example if each of the shareholders A and B owns 30% of Company X and each of them owns 40% of Company Y, 5% of corporate income tax will not be applied. In this case, shareholders A and B together own 60% of Company X and 80% of Company Y. Even though separately they own less than 50% of Company X and Company Y, together they own more than 50% of shares. For this reason 5% of corporate tax will not be applied.