In April 2008, the Parliament passed several tax bills (No. X-1481 of 8 April 2008, No. X-1484 and No. X-1485 of 10 April 2008) amending the Law on Corporate Income Tax No. IX-675 and the Law on Individual Income Tax No. IX-1007. While some of the amendments are of a technical character resolving legal ambiguities, the major amendments extend the existing tax concessions and grant new concessions. The major amendments are summarized below.

Corporate income tax

(a) Taxation of dividends. A 15% withholding tax on dividends between Lithuanian companies shall be credited against the corporate income tax (CIT) liability of the recipient company but not, as is currently the case, against the liability of the distributing company. Any excess credit may be refunded under the normal tax refund procedure (previously, the excess could be carried forward). Also, dividends received by a permanent establishment in respect of shares held in Lithuanian companies which are attributed to Lithuanian PEs shall be taxable in the same manner as such dividends received by Lithuanian companies.

The condition for the participation exemption is amended, so that "not less" than 10% shareholding (currently, "more" than 10%) is needed to qualify for the participation exemption.

The participation exemption shall apply in respect of dividends paid by a Lithuanian company registered in a free economic zone.

Dividends received from EEA-based companies shall be exempt from CIT provided the distributing company is subject to CIT in its country of residence. Dividends are currently exempt if the general conditions for participation exemption are met.

With respect to dividends received from other non-resident companies, the participation exemption shall apply provided:

-		the recipient company or PE has held, continuously for at least 12 months, not less than 10% of the voting shares in the non-resident distributing company;
-		the non-resident distributing company is subject to CIT or to an equivalent tax; and
-		the non-resident distributing company is not registered or otherwise organized in a tax haven. Currently, there is a requirement that the profits of the recipient company or PE should be taxed either at 15% or at 13%.

The amendments will take effect from 1 January 2009.

(b) Foreign tax credit. FTC shall be available for foreign-source dividends. Currently, dividends not covered by the participation exemption could be subject to international double taxation.

Foreign-source interest shall be credited irrespective of the total CIT liability of the recipient company.

The amendments will take effect from 1 January 2009.

(c) Triple deduction of scientific research and experimental development (R&D) costs. A deduction is allowed for three times the amount of the above R&D costs. The deduction is given in the tax period during which the costs are incurred.

Fixed assets used in the R&D activities are depreciated or amortized in shorter periods (up to 2 years).

Where R&D works are acquired from another entity or individual, the triple deduction is allowed only if the acquired R&D works have been carried on in an EEA country, or in a country with which Lithuania has a tax treaty.

The Government will approve detailed rules regarding deductibility of R&D costs.

The above provisions take effect from the beginning of the 2008 tax year

(d) Employee education costs. Fees paid in respect of employees' higher education are deductible for CIT purposes if:

-		they are paid to educational establishments in an EEA country, or in a country having a tax treaty with Lithuania; and
-		the qualification acquired is necessary for the earning of income of the company.

This provision applies for the purposes of calculating taxable profits from the tax period beginning with 2008.

(e) Deductions in respect of charity and sponsorship. In calculating the maximum deductible amount of support granted (which may be up to 40% of net taxable income), no account is taken of losses carried forward from previous years, i.e. such losses do not reduce the net taxable income, and as a consequence, the deductible amount. This provision applies for the purposes of calculating taxable profits from the tax period beginning with 2008.

(f) Depreciation. Companies shall be allowed to set a date from which to calculate depreciation of fixed assets by applying the so-called production method. This provision applies for the purposes of calculating taxable profits from the tax period beginning with 2007.

(g) Loss carry forward. Ordinary losses shall be carried forward indefinitely, for as long as the company performs the activity that generated the loss. An exception applies where the activity has to be stopped for reasons not dependent upon the taxpayer.

Capital losses are carried forward for 5 years. This provision applies for the purposes of calculating taxable profits from the tax period beginning with 2008.

(h) Capital gains tax exemption. The exemption from CGT shall not apply in respect of the transfer of shares to an entity that has issued the shares. This provision applies for the purposes of calculating taxable profits from the tax period beginning with 2008.

(i) Advance tax payments. A taxpayer shall pay advance tax payments only if the taxable income for the preceding tax period exceeds LTL 1 million (previously, LTL 100,000). This amendment will take effect from 1 January 20