VMI has published draft amendments to Articles 12 and 30 of the Law on Corporate Income Tax, widening the participation exemption to cover capital parts, quotas and corporate rights in foreign limited liability entities. The changes would take effect on 1 January 2027 and apply to the 2027 tax period and subsequent periods.
Lithuania’s State Tax Inspectorate (VMI) has published a comparative draft document on its draft commentary page. It sets out amendments to Articles 12 and 30 of the Law on Corporate Income Tax (Pelno mokesčio įstatymas – PMĮ) and the official VMI commentary on them.
The changes concern the scope of the participation exemption and take effect on 1 January 2027, applying to the 2027 tax period and subsequent periods. The main change widens the corporate income tax treatment of share transfers to cover capital parts, quotas and corporate rights in foreign limited liability entities.
Capital gains exemption under Article 12(15)
Under Article 12(15), capital gains from transferring shares in entities registered in a European Economic Area (EEA) state or a double tax treaty country are exempt from Lithuanian corporate income tax. The entity must be subject to corporate income tax or an equivalent tax, and the holding conditions must be met.
The draft widens the definition of “share” (akcija) to include ownership parts or quotas (dalys) in foreign limited liability entities whose capital is divided into parts rather than traditional securities.
To qualify:
- The transferring company must continuously hold more than 10% of the voting shares or parts for at least two years.
- The minimum is three years in reorganisation or transfer cases specified under Article 41(2) of the PMĮ.
- The holding period condition does not apply if the shares or parts are transferred because of legal or regulatory mandates.
The exemption does not apply if assets are transferred or if shares or parts are sold back to the issuing entity.
Qualifying entity types
The updated commentary lists examples of foreign legal forms that fall within the definition:
- GmbH in Austria and Germany
- Osaühing in Estonia
- SRL or SL in Spain, Italy and Romania
- SIA in Latvia
- sp. z o.o. in Poland
- spol. s r.o. in Slovakia and the Czech Republic
- Sàrl, GmbH or Sagl in Switzerland
- TOV in Ukraine
- TOO in Kazakhstan
Other entities whose capital consists of non-security parts or corporate rights would also be covered.
Documentation requirements
To claim the exemption under Article 12(15), taxpayers must keep three sets of supporting documents:
- Proof of legal form: an extract from an official business register showing that the foreign entity’s legal form corresponds to a limited liability company with capital formed from parts. This is not required for EU entities listed under EU Directive 2009/101/EC.
- Proof of tax status: an official certificate from the foreign tax authority confirming that the entity pays corporate income tax or an equivalent tax. It must contain the full company name, the company code and confirmation of tax status.
- Proof of ownership and holding period: register extracts, or signed confirmation from the foreign entity or its share manager, showing the exact holding percentage and period.
Loss disallowance under Article 30(2)
The draft also amends Article 30, Part 2. Under existing rules, capital losses on qualifying transfers, where more than 10% of shares were held for at least two or three years, are non-deductible and cannot be carried forward.
From 2027, this disallowance would extend to losses from transferring capital parts or quotas in foreign limited liability entities registered in EEA or double tax treaty states. The rule would not apply if shares or parts are transferred back to the issuing entity. The holding duration requirement would also not apply where the transfer is made because of legal or regulatory mandates.
The draft remains open as a proposal, and the final wording may change before the amendments are adopted.
