New guidance from the State Tax Inspectorate, effective for 2026 tax periods, sets out ownership thresholds, group membership requirements, and deduction limits for intra-group loss transfers under the Corporate Income Tax Law.
Lithuania’s State Tax Inspectorate (VMI) has provided updated guidance for Article 56-1(1) and (9) of the Corporate Income Tax Law, applicable for calculating taxable profit for periods beginning in 2026. These provisions regulate the transfer of tax losses between companies within the same group.
Transfer conditions – Article 56-1(1)
A company may transfer its tax losses for a specific tax period to another group entity, which can then use these losses to reduce its taxable profit for that same period, provided the following conditions are met:
- Ownership requirement: The parent company must directly or indirectly hold at least 2/3 (approximately 66.67%) of the shares, voting rights, or rights to the distributable profit of each participating subsidiary. This threshold must be met on the last day of the tax period for which the losses are being transferred and on the day the transfer occurs.
- Group membership duration: The entities involved must have been members of the group continuously for at least two years preceding the last day of the tax period.
- Exception for new entities: A newly registered entity can participate in the transfer if it has been a group member since its registration and will remain so for at least two years following registration.
- Loss calculation: The transferred losses must be calculated or recalculated according to the provisions of the Corporate Income Tax Law.
- No tax debts: A company that has tax arrears (unpaid taxes) is prohibited from transferring its losses to another entity.
Deduction limits and exceptions – Article 56-1(9)
Article 56-1(9) establishes how much of a company’s profit can be offset by transferred losses in conjunction with other types of loss carry-forwards.
- 70% general cap: In most cases, the total sum of losses deducted—including those transferred from group members (Art. 56-1), own losses carried forward (Art. 30), and losses acquired through reorganisation (Art. 43)—cannot exceed 70% of the taxable profit for that period.
- Incentive for small entities: This 70% restriction does not apply to entities whose taxable profit is taxed at the 7% incentive rate (available to small companies under Article 5(2)). These companies may offset up to 100% of their taxable profit using eligible losses.
- Other exceptions: The 70% cap also does not apply to:
- Losses from the transfer of securities or derivative financial instruments (for non-financial institutions).
- Losses from the use or sale of assets calculated under the specific formula found in Article 5(9).
Procedural requirements
Loss transfers within a corporate group must be documented in writing through contracts or formal transfer acts. Receiving companies must report transferred losses in their annual tax returns, or file amended returns if the transfer occurs after the initial filing due to different tax year-ends. Any compensation paid between group members for loss transfers has no tax implications—it is neither taxable income nor a deductible expense.
