[ESTABLISHING A BUSINESS ENTITY IN LITHUANIA] 315
excess amount of interest expenses that do not exceed 30% of earnings before interest, tax, depreciation and amortization (EBITDA) or up to EUR 3,000,000. EBITDA and the deductible amount of interest expenses are calculated on a group level. Entities that are members of a consolidated group are allowed to fully deduct interest expenses for financial accounting purposes if they can demonstrate that the ratio of their equity over their total assets is not more than 2% lower than the equivalent ratio of the group and all assets and liabilities are valued using the same method as in the consolidated financial statements. Interest expenses that are non-deductible in a year may be carried forward for an unlimited period of time. 4.1.2. Related-party Transactions Transfer pricing (TP) rules apply to transactions between a Lithuanian resident company and a person associated with the resident company (a controlled transaction). Transfer pricing documentation rules apply to domestic and cross-border transactions with associated enterprises. A master file shall be prepared by the companies that belong to a multinational entity group and whose revenue during the previous tax year exceeded EUR 15,000,000. A local file shall be prepared by the companies whose revenue in the previous tax year exceeded EUR 3,000,000. The preparation of a local file is not required for domestic transactions carried out during the tax year of 2020 and subsequent years. 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 15%. 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;
ILN Corporate Group – Establishing a Business Entity Series
Made with FlippingBook Ebook Creator