How profits of permanent establishments are calculated and taxed

The taxable profit for the tax period of the foreign unit permanent establishment is calculated as follows:

Income — Tax-exempt amount of income - Allowable deductions – Limited allowable deductions = Taxable profit.

Income earned by foreign units through a permanent establishment is classified as income of the permanent establishment. For information on exemptions from corporate income tax, please see here (in Lithuanian).

Allowable deductions for income earned by foreign units through a permanent establishment:

• ordinary and necessary expenses incurred by the permanent establishment for earning income or economic benefits;  and
• expenses actually incurred by the permanent establishment other than through that permanent establishment, which are directly attributable to its activities through that permanent establishment, or a share of such expenses calculated in proportion to the ratio of the total income of the foreign unit to the income of that permanent establishment.

The following costs are classified as limited allowable deductions: depreciation or amortization of fixed assets; operation of tangible fixed assets; repairs and reconstruction; business trips; advertising and representation; natural losses; taxes; bad debts; expenses for the benefit of employees and their family members; special provisions for credit institutions and insurance undertakings; donations; membership fees, contributions and payments; losses for the tax period; interest. For more detailed information, please see here (only in Lithuanian).

The calculated taxable profits of permanent establishments are taxed at a 15% tax rate.

The taxable profits of permanent establishments are declared by submitting Form PLN204U (Annual Corporate Income Tax Return), available at: https://www.vmi.lt/evmi/formos.  Form PLN204U must be submitted to the tax authorities and corporate income tax paid by the 15^th day of the sixth month of the following tax period.