VMI has updated its commentary on the Law on Corporate Income Tax, clarifying the scope of controlled foreign taxable subjects, CFC entities, groups of entities, positive income and target territories.
The Lithuanian State Tax Inspectorate (VMI) updated the commentary to the Law on Corporate Income Tax on 19 August 2026, with changes concerning several definitions under Article 2 of the Lithuanian Corporate Income Tax Law (PMĮ). The guidance provides clarification on the application of control thresholds and the treatment of income from foreign entities.
Controlled foreign taxable subjects
Under Article 2, Paragraph 41 (41¹), a Controlled Foreign Subject includes a controlled foreign taxable entity and certain permanent establishment (PE) arrangements of Lithuanian companies.
For a Controlled Foreign Taxable Entity, Article 2, Paragraph 42 provides for a control threshold of more than 50% of shares (interests), voting rights, rights to distributable profits or exclusive rights to acquire them. The threshold is assessed on the final day of the foreign entity’s tax period.
The control can be held directly or indirectly and can be assessed together with related parties. Consequently, a Lithuanian company may qualify as a controlling entity even if its individual holding is below 50%, where its combined control with related parties exceeds the threshold. Related parties are defined under Article 2(33) of the PMĮ.
Permanent establishment (PE)
A permanent establishment (PE) of a Lithuanian company falls within the Controlled Foreign Subject definition where its income is not included in the Lithuanian company’s tax base under Article 4(1) of the PMĮ.
Where the PE is registered in a target territory, however, it is not treated as a Controlled Foreign Subject for positive income purposes. Its income is instead included directly in the Lithuanian company’s tax base and taxed under the general Lithuanian corporate tax rules.
Group of entities
Under Article 2, Paragraph 7, a Group of Entities (Vienetų grupė) consists of a parent entity and subsidiaries where the parent directly or indirectly controls more than 25% of the relevant shares, voting rights, rights to distributable profits or exclusive rights to acquire them.
The commentary confirms that exactly 25% does not satisfy the test. It also explains the calculation of indirect control. For example, where Parent A owns 100% of B and B owns 60% of C, A’s indirect control of C is 60%. Where B owns 85% of D, A’s indirect control in D through B and C is 51%.
Positive income
Article 2, Paragraph 29 defines Positive Income as income, or part of income, of a Controlled Foreign Subject included in the income of a Lithuanian entity under Article 39 of the PMĮ.
The amount is attributed on the last day of the foreign subject’s tax period and is proportionate to the Lithuanian entity’s shares, voting rights, rights to distributable profits or exclusive rights to acquire them. Article 39 contains the relevant calculation, inclusion and exemption rules.
Target territories
A Target Territory under Article 2, Paragraph 38 is a foreign country or zone included in the official Target Territories List approved by the Lithuanian Minister of Finance.
The list was restated under Order No. 1K-389 on 30 November 2023. The VMI commentary confirms that inclusion on the official list is sufficient evidence of target-territory status, without requiring Lithuanian companies to independently establish whether a jurisdiction meets the statutory criteria.
Transactions with entities registered in target territories are subject to restrictions on tax incentives, deductions and other tax base-protection measures.
Other legal definitions
The commentary further states that concepts not defined in the PMĮ may be interpreted by reference to other Lithuanian legislation where there is no conflict with corporate tax rules. These include the Law on Tax Administration, Civil Code, Criminal Code (BK), Law on Financial Institutions, Law on Insurance and Law on Cinema.
