Many foreign shareholders are unaware that dividends from Lithuanian companies can be distributed tax-free under specific conditions. This tax advantage makes Lithuania an attractive location for holding and investment structures within the EU.
When Are Dividends Exempt from Tax?
If a foreign company holds at least 10% of the voting shares in a Lithuanian company for a continuous 12-month period, the dividends paid to that company are exempt from Lithuanian corporate income tax.
However, there’s an important exception, the exemption does not apply if the parent company is registered in a targeted (tax haven) jurisdiction.
Substance and Compliance Matter
In practice, the Lithuanian tax authorities closely review whether the foreign shareholder is a real, economically active company, not just a “paper” entity created for tax optimization. Ensuring substance and compliance is crucial to benefit from the exemption safely.
Lithuania Compliance: Substance, Transparency, and Reporting
Corporate compliance in Lithuania is based on transparency, substance, and accurate reporting. Companies must ensure their corporate structure, accounting records, and management decisions reflect genuine business activity. Lithuanian law also requires timely submission of annual financial statements and, when applicable, transfer pricing documentation to prove transactions are conducted at arm’s length.
Maintaining good Lithuanian tax compliance practices helps foreign investors avoid penalties, audits, or the loss of beneficial tax treatment. Establishing a local presence, such as a real office, employees, or management functions in Lithuania, can demonstrate that a company operates with true economic substance, not merely as a shell entity.
How to Ensure Compliance
If you want to make sure your company structure meets the exemption requirements, contact 1Office Lithuania. Our experts help foreign entrepreneurs and international groups navigate Lithuanian tax rules efficiently and in full compliance.
