IN A NUTSHELL
The Corporate Income Tax (CIT) Law of Lithuania provides for a Research and Development (R&D) tax incentive which allows for a triple deduction (300%) of qualifying R&D costs.
Taking into account the currently applicable standard CIT rate of 15%, this effectively provides businesses with an opportunity to save as much as 30% of all qualifying R&D costs.
Other aspects of R&D tax incentive:
- Minimum R&D expenditure – not applicable (volume-based cost calculation).
- Pre-approval from state competent institutions – not required.
- Industry eligibility restrictions – not applicable.
- Qualifying R&D expense not subject to cap.
- Subcontracted R&D costs not subject to cap.
- Tax loss may be carried forward indefinitely (not in excess of 70% of taxable profit of a particular accounting year; remainder is carried forward).
R&D tax incentive may be applied retroactively, i.e. to projects which were carried out in the past (up to 5 years), thus claiming the CIT which has already been paid.
The incentive is applicable as of 2008.
QUALIFYING R&D COSTS
- Employment and social security costs.
- Business trip costs.
- R&D subcontracting costs.
- Consumables/ current costs (materials, etc.).
- Certain overheads (lease of office space, utilities, etc.).
DEFINITION OF R&D
The concept of R&D for CIT purposes is based on OECD’s Frascati Manual.
A project qualifies as R&D if the outcome – product, process, technology, service, etc. – comprises an appreciable element of novelty which is aimed at by solving a scientific and/ or technological uncertainty.
In addition, supplementary R&D criteria may apply when determining project eligibility (e.g., methods of research applied; qualification of R&D staff; scientific/ technological advance being sought; source of project financing, etc.).