[ESTABLISHING A BUSINESS ENTITY IN LITHUANIA] 319
is not required for domestic transactions carried out during the tax year of 2020 and subsequentyears. However, the taxpayer is expected to be able to justify the transfer pricing of domestic transactions if requested by the tax authorities. Transfer pricing documentation may not be prepared if the value of a transaction or transactions with an associate person per year does not exceed EUR 90,000 (except for transactions with a person, registered or organized in listed tax havens). Lithuanian tax authorities apply the transfer pricing methods which basically follow the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. 4.1.3. Permanent Establishment A permanent establishment of a foreign entity in Lithuania is subject to the CIT rate of 16%. A foreign entity is regarded as operating through its permanent establishment in Lithuania if its activities comply with the following two criteria: • its activities are not temporary; • a commercial cycle of operations has been finished. Activities of a foreign entity are considered temporary in the Republic of Lithuania if they last up to six months. A completed cycle of commercial operations consists of three stages of operations carried by a foreign entity: • stage one covers one or several of the following operations: marketing, including market analysis, distribution, advertising, design, and exploration works and other essentially similar operations;
• stage two covers one or several of the following operations: warehousing, consulting, acceptance of orders, scientific research, experimental, development and technological work, production, provision of services and other essentially similar operations; • stage three covers several of the following operations: selling, supply, delivery, payment (remuneration) and other essentially similar operations. If the activity of a foreign entity is not temporary, the cycle of commercial operations has not been completed but the stage of performed activity is considered as an independent activity of a foreign entity (or its part), the foreign entity may also be deemed having a permanent establishment in Lithuania. The two second conditions, based on which it is established whether or not a foreign entity performs its activities in Lithuania through its permanent establishment, are: • a representative/agent through which the activity is performed, • the use by a foreign entity in Lithuania of a construction site, a construction, assembly or equipment facility, equipment or structures for prospecting or extraction of natural resources in Lithuania. 4.1.4. Withholding Taxes Dividends A 16% withholding tax is applied to dividends paid by a Lithuanian company to a foreign company. Full participation exemption is applicable to dividends if the recipient foreign company has held at least 10% of the voting shares in the distributing Lithuanian company
ILN Corporate Group – Establishing a Business Entity Series
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