Small and medium-sized business development and support is one of the priorities of economy policy ofLithuania. Implementing the Small Business Act forEuropeas well as the principle “Think Small First” the reform of institutions supervising economic activities has been started as from 2009. In 2012, priority is given to implementation of application of business –friendly checklists during inspections, implementation of the two date rule in legislation providing business and tax regulations, undertaking of inspection authorities to consult first year business instead of applying sanctions for failure to observe mandatory regulations. One of the areas to support small and medium sized business is implementation of favourable non discriminatory taxation regulations.
The parliament ofLithuaniahas recently amended the law on corporate income tax providing reduced corporate income tax for larger number of micro enterprises. The regulation starts to be applicable for income of year 2012. Mentioned law provides for standard 15 % tariff of corporate income tax and 5 % reduced tariff on profits of companies meeting the threshold of annual turnover not exceeding 289 620 EUR. Previous annual threshold was doubled from 144 810 EUR to 289 620 EUR. The other criteria number of employees in the company (fewer than 10 employees) was left unchanged.
The law provides for certain cases of linked enterprises when reduced tax tariff is not applied. For example the companies owned by the same person or the companies whereof the same person holds more than 50 % voting rights shall not be eligible for mentioned reduced income tax tariff.
Interesting fact to mention is that reduced corporate income tax of 5% is also applied to profits of companies engaged in agricultural activities gaining more than 50% income from agricultural activities.
The tax base for local companies (registered inLithuania) comprises all income sourced inside and outsideLithuania. Gross revenue (total sales and non operating revenue) is the basis for computing taxable profit. For the purpose of computing the taxable profit the company may deduct expenses related to business activity of the company and earning income. However, the law establishes the list of expenses with limited deduction (f.i. depreciation, amortization of fixed assets, business trip related costs, promotional costs and etc.) as well as nondeductible expenses. Capital gains or losses are included into company taxable income. The corporate income tax is applicable annually.
It is worth mentioning that discussed regulation of reduced corporate income tax tariff is applied to legal entity of any legal form (personal company, private company, cooperative and etc.). The law does not provide for special declaration of status of micro company; in order to apply reduced income tax tariff; it is necessary to meet the criteria of turnover, number of employees and to pass the test of not linked enterprises.
Lina Siksniute -Vaitiekuniene