- Lithuania's parliament enacted instant depreciation as part of the 2026 corporate income tax reform. From 1 January 2026, a UAB can deduct the full cost of qualifying fixed assets in the year the asset is placed into service, instead of spreading the deduction over its standard tax life.
- Qualifying assets include machinery and equipment, computer and communications equipment, software, acquired rights, and trucks, trailers, and semi-trailers. The asset must remain in service for at least three years or the deduction is reversed.
- The rule does not apply to assets on which the investment project relief under Article 46-1 of the Law on CIT is claimed. You cannot stack both incentives on the same asset.
- For a foreign-owned UAB buying EUR 50,000 of qualifying equipment, instant depreciation produces a tax saving of EUR 8,500 in year one at the standard 17% rate, compared to EUR 1,700 per year under the standard five-year schedule.
- The benefit is real but the planning window is short. Asset purchases must be placed into service within the tax year to qualify. Purchases made in December 2026 that are not commissioned until January 2027 do not qualify for 2026.
Most foreign-owned Lithuanian UABs know that the corporate income tax rate went up in 2026. Fewer know that the same reform package introduced something far more valuable for companies investing in their operations: the right to write off qualifying fixed assets in full on day one. This article explains exactly how it works, which assets qualify, where the limits are, and how to use it without falling into the three-year trap.
Lithuania has had accelerated depreciation before. Instant depreciation is different.
Before 2026, Lithuanian companies could use the double-declining-balance method to accelerate depreciation on fixed assets. This doubled the annual deduction rate compared to straight-line but still spread the cost over multiple years. A piece of machinery with a five-year tax life could be depreciated faster, but not in a single year.
The 2026 reform changes this entirely for qualifying assets. Under the new rule, a UAB can deduct the full acquisition cost of a qualifying asset in the tax period in which the asset is first placed into service. There is no residual value. There is no carry-forward of unused depreciation. The entire cost hits the income statement as a deduction in year one.
The rule was approved by the Lithuanian parliament (Seimas) in June 2025 and applies to tax years beginning on or after 1 January 2026. It is not a transitional measure or a stimulus package. It is a permanent feature of the Lithuanian corporate income tax system from this year forward.
The full acquisition cost of a qualifying asset can be deducted in the tax year it is first placed into service. Standard depreciation rules do not apply to it.
Five categories of fixed assets qualify. The list is narrower than most founders assume.
The qualifying asset categories under the enacted reform are specific. Not every capital expenditure qualifies for instant depreciation. The five categories are:
| Asset category | Standard tax life (before instant depreciation) | 2026 treatment |
|---|---|---|
| Machinery and equipment | 5 years | 100% in year of purchase |
| Computer and communications equipment | 3 years | 100% in year of purchase |
| Software | 3 years | 100% in year of purchase |
| Acquired rights | Varies by contract term | 100% in year of purchase |
| Trucks, trailers, and semi-trailers | 4 years (under 5 years old) | 100% in year of purchase |
Assets that do not appear on this list continue under standard Lithuanian depreciation rules. Buildings, vehicles other than trucks and semi-trailers, furniture, and goodwill are not covered. A company refitting an office and buying desks, chairs, and a coffee machine cannot claim instant depreciation on that spend, even if it also buys qualifying computer equipment in the same invoice. The categories must be applied asset by asset.
The deduction is available but comes with three hard conditions. Missing any one of them creates a retroactive liability.
Purchasing an asset and placing it into service are not the same thing. An asset is placed into service when it is ready and available for its intended use in the business. An invoice dated December 2026 for a CNC machine that arrives and is commissioned in January 2027 does not qualify for the 2026 tax year. The deduction follows commissioning, not purchase.
For companies with a December financial year end, this creates an annual planning window. Asset purchases intended to generate a 2026 deduction must be commissioned -- set up, tested, and put to use -- before 31 December 2026. Last-minute December purchases that sit in a warehouse awaiting installation do not qualify.
The practical implication: plan asset purchases in the third quarter, not the fourth. Commissioning takes time.
If an asset is disposed of, sold, donated, written off, or taken permanently out of service within three years of first being placed into service, the instant depreciation claimed on it can be reversed by VMI. The company's taxable income for the year of original deduction is recalculated, and the full amount of the deduction is added back.
This three-year retention requirement applies regardless of the reason for disposal. A machine that breaks down irreparably after two years and is scrapped would still trigger a reversal. A software licence that the company stops using at the end of year two because a better product became available triggers a reversal.
Companies should treat this as a capital commitment, not an accounting option. Do not apply instant depreciation to assets you may need to replace or sell within three years.
Lithuania's Law on CIT Article 46-1 provides a separate relief for large-scale investment projects, including a CIT exemption of up to 20 years for qualifying investments. Instant depreciation and the Article 46-1 investment project relief are mutually exclusive on the same asset. A company cannot claim both.
In practice, Article 46-1 applies to substantial structured investments, typically in manufacturing, logistics, or technology infrastructure. Most small and medium foreign-owned UABs will not be in an Article 46-1 structure. But any company that is, or is considering one, must choose one incentive per asset and not assume both can be stacked.
What instant depreciation actually produces in real numbers for a typical foreign-owned UAB
The value of instant depreciation is not complexity. It is timing. A UAB that buys a qualifying asset receives the full tax benefit in the year of purchase rather than spread over three to five years. The cash flow difference is material.
| Scenario | EUR 50,000 machinery purchase at 17% CIT rate |
|---|---|
| Standard straight-line (5 years) | EUR 1,700 tax saving per year for 5 years = EUR 8,500 total |
| Instant depreciation (2026 onward) | EUR 8,500 tax saving in year of purchase |
| Difference in year one | EUR 6,800 more cash retained in year one |
| Present value advantage (discount rate 5%) | Approximately EUR 1,100 net present value benefit from timing alone |
For a UAB buying EUR 200,000 of qualifying equipment in 2026 -- production machinery, server infrastructure, and a fleet of trucks -- the year-one tax saving at 17% is EUR 34,000. Under the standard five-year schedule, the same total saving would arrive at EUR 6,800 per year. Instant depreciation does not create a larger total deduction. It accelerates the deduction to when the cash is spent, which is when you most need it.
Many foreign-owned UAB founders review their tax position in January, after the financial year has closed. By then, the instant depreciation window for the previous year has passed. The assets that were purchased and commissioned in 2026 either qualify or they do not -- and that was decided in December, not January.
The correct planning sequence is: review planned capital expenditure in Q3 of the tax year, confirm which purchases qualify for instant depreciation, confirm commissioning timelines, and book the deduction in the annual CIT return (PLN204) due by 15 June the following year. A January conversation with your accountant about a December asset purchase is a conversation about last year.
Three situations where instant depreciation requires specific planning rather than automatic application
If the UAB already has no taxable profit in 2026, claiming instant depreciation increases the loss rather than reducing a tax bill. The additional loss can be carried forward indefinitely (the 70% carryforward cap introduced in 2026 applies to losses acquired from group entities, not to the UAB's own losses). The timing benefit is deferred, not lost.
For a company in a startup or growth loss phase, this may still be correct. A larger loss carryforward pool, available indefinitely, is valuable when profitability arrives. But the year-one cash flow benefit does not materialise, which may affect whether instant depreciation is the right choice versus holding the asset cost against a future profitable year.
From 2026, a newly established small UAB with revenue under EUR 300,000 pays 0% CIT in its first two tax periods. The employee headcount limit of 10 has been removed. Claiming instant depreciation during the 0% window generates no tax saving because there is no tax to reduce. The deduction is made against a zero-rate base and is permanently lost.
A startup UAB that is buying qualifying assets in its first or second year should discuss the timing with its accountant before claiming instant depreciation. Depending on when the 0% window ends and when profitability is expected, it may be better to depreciate assets at standard rates during the 0% period and preserve taxable income to benefit from the 0% exemption itself.
The 0% window and instant depreciation can work against each other. They should not be applied simultaneously without modelling the outcome.
The 2026 reform introduced a 70% cap on losses that can be offset using losses transferred from other group entities. A UAB that generates a large deduction through instant depreciation and then transfers that loss to a profitable group sister company can only offset up to 70% of the sister company's taxable profit in a given year. The remaining transferred loss carries forward under the same 70% constraint in subsequent years.
Group structures should model this constraint before using instant depreciation as a group-level tax planning tool. The benefit is real but partial in a transfer scenario. The cap does not apply to a UAB using its own losses against its own future profits.
In our experience, the most common mistake with accelerated or instant depreciation is treating the deduction as permanent once claimed. Under Lithuanian law, if a UAB sells, scraps, or stops using a qualifying asset within three years of the purchase that generated the instant depreciation claim, VMI can recalculate the original year's taxable income and add back the full deduction. The resulting CIT liability, plus late payment interest, falls due for the original tax year, not the year of disposal. This is not a future risk to monitor casually. It should be tracked in your asset register from the day the deduction is first claimed.
Frequently asked questions
What is instant depreciation in Lithuania and when did it come into effect?
Instant depreciation allows a Lithuanian UAB to deduct the full acquisition cost of qualifying fixed assets in the tax year the asset is first placed into service, instead of spreading the deduction over the asset's standard tax life. The rule was enacted by the Lithuanian parliament (Seimas) in June 2025 and applies to tax years beginning on or after 1 January 2026.
Which assets qualify for instant depreciation?
The qualifying categories are: machinery and equipment, computer and communications equipment, software, acquired rights, and trucks, trailers, and semi-trailers. Buildings, passenger vehicles, furniture, and most intangible assets other than software and acquired rights do not qualify. Assets subject to the Article 46-1 investment project relief also cannot use instant depreciation.
What happens if we sell the asset within three years?
If the asset is disposed of or taken out of service within three years of first being placed into service, VMI can reverse the instant depreciation deduction. The company's taxable income for the original year of deduction is recalculated, and the full deduction is added back. Late payment interest applies from the original tax year. The three-year requirement is a hard compliance condition.
Is instant depreciation mandatory, or can we choose the standard rates?
It is optional. A UAB can choose to depreciate a qualifying asset at standard rates rather than claiming the full deduction in year one. This is preferable when the company is in a loss position, in its 0% CIT startup window, or expects higher taxable income in future years where the deduction would be more valuable.
Does this affect VAT on the asset purchase?
No. Instant depreciation is a corporate income tax rule and does not affect the VAT treatment of the asset purchase. VAT on a qualifying business asset is recoverable as input tax through the standard VAT return in the normal way, independently of how the asset is depreciated for CIT purposes.
Where is the instant depreciation deduction reported in the CIT return?
The deduction is reported in the annual CIT return (PLN204), filed with VMI by 15 June of the year following the tax year. Assets on which instant depreciation is claimed should be separately identified in the company's asset register, with their purchase date, commissioning date, and the planned retention period noted. VMI may request this documentation during a routine review.
About this article
Written and reviewed by the 1Office Lithuania advisory and accounting team. All corporate income tax rules, depreciation categories, and loss carryforward provisions reflect the Lithuanian Law on Corporate Income Tax as amended by the Seimas in June 2025 and in effect from 1 January 2026. Figures and asset categories sourced from KPMG Lithuania TaxNewsFlash (October 2025), Grant Thornton Lithuania 2026 Tax Reform overview, and PwC Lithuania Tax Summaries.
Published November 2026 · 1Office Lithuania · Gedimino pr. 20, Vilnius · [email protected]
Sources: KPMG, Lithuania: Amendments to Corporate Income Taxation Effective January 1 2026 (TaxNewsFlash, October 2025); Grant Thornton Lithuania, 2026 Tax Reform: Overview of Accepted Drafts (June 2025); PwC Tax Summaries, Lithuania Corporate Deductions; Lithuanian Law on Corporate Income Tax, Article 46-1 (investment project relief); VMI (Valstybine mokesciu inspekcija) official guidance.
Buying equipment or software in Lithuania in 2026?
1Office Lithuania reviews your planned capital expenditure, confirms which assets qualify for instant depreciation, and files your CIT return correctly. Before you buy, not after.
