The updated VMI commentary clarifies changes to the participation exemption and capital loss rules taking effect from 1 January 2027. The amendments extend the rules to qualifying interests in foreign limited liability entities in the EEA and tax treaty countries, subject to ownership and other conditions.
Lithuania’s State Tax Inspectorate (VMI) has published an updated official commentary clarifying the scope of the country’s participation exemption.
From 1 January 2027, Lithuania’s participation exemption and capital loss deduction rules will also cover shares in qualifying foreign limited liability entities established in the European Economic Area or countries with an applicable double tax treaty. The entities must be subject to corporate income tax or an equivalent tax, and their authorised capital must be divided into shares. The changes apply to the 2027 tax year and subsequent periods.
It’s notable that Law XV-488, which introduced the expanded participation exemption, was adopted in October 2025 but will not take effect until 1 January 2027.
This follows VMI’s publication of a comparative draft document on its draft commentary page, which sets out amendments to Articles 12 and 30 of the Law on Corporate Income Tax (PMĮ) and the official VMI commentary on them.
As previously mentioned, the key measures are:
Article 1. Amendment to Article 12 – Participation exemption
The amendment expands the participation exemption to cover capital gains from transferring qualifying interests in foreign limited liability entities established in the EEA or countries with an applicable double taxation agreement. The entities must be subject to corporate income tax or an equivalent tax. The exemption generally requires continuous ownership of more than 10% of voting rights for at least two years, or three years for certain reorganisations. The definition of shares also includes interests in venture capital and private equity entities.
Article 2. Amendment to Article 30 – Treatment of capital losses
The amendment extends the restrictions on loss deductions to qualifying interests in foreign limited liability entities. Losses from transferring these interests cannot be deducted from taxable income or carried forward. General losses from securities and derivative transfers may still be carried forward and offset against relevant transfer income. Exceptions apply to certain transfers required by law and transfers to the entity that issued the shares.
Effective date
The amendments take effect on 1 January 2027 and apply to the 2027 tax year and subsequent periods.
