Everything a company manager needs to know about profit tax

A company is obliged to calculate and pay profit tax when it is successfully operating. Not only the accountant should know about the peculiarities of how it calculate, but also the company manager who responsibly plans the finances of his company. The profit tax is paid for the financial year and is calculated after its end and it must be paid to the government budged by June 15 of the following year. In this article, we will try to present in a structured way all the information a company manager needs to know about the annual corporate tax, and we hope that it will be useful.

Legal entities operating in the Republic of Lithuania are taxed with profit tax: UAB, MB, Individual company, low firms and etc. Corporate tax rates are as low as 3 -15%, 5% and 0%. How do you know at which rate your company's profit tax should be calculated?

If the company has been operating for more than one year and the annual sales revenue exceeds 300,000 euros or the average number of employees exceeds 10, your business will be subject to the standard 15% corporate tax rate. This rate applies to the taxable profit of the Lithuanian entities and permanent establishments, income from distributed profits, sponsorship received and used for purposes other than specified in Law of the Republic of Lithuania on Charity and Sponsorship , fixed corporate income tax base of shipping entities.

A concessional rate of 5% is granted only to companies that meet all the criteria below:

  1. Income during the tax period does not exceed 300000 eur;
  2. Average number of employees does not exceed 10.;

The good news is, that a young, profitable business may not pay profit tax in the first year, provided that all the preferential rate criteria listed above are met, the company owners are natural persons and the company is not expected to be liquidated, suspend activity or sell shares in the next three financial years.

It is important to emphasize that the preferential rates of profit tax, 5% and 0%, are applied only if the total average number of employees of the related units does not exceed 10 people and the total income does not exceed 300,000 euros.

Also, the profit tax can be reduced for several other reasons, of which we would like to single out the most common ones:

  •  By transferring the accumulated loss of the previous financial year to the current financial year;
  •  When carrying out SR&ED (scientific research and experimental Development) activities and using part of the costs of these activities to deduct from income three times;
  • When providing support and deducting support cost twice, provided that the support meets certain criteria:
    1. Support granted to the beneficiary;
    2. There are support documents;
    3. The amount of support does not exceed 40 percent of the taxable profit.

In all these cases, there may also be certain exceptions, which the company manager is informed about by the accountant handling the accounting..

Another important nuance to mention is that all companies whose income in the previous financial year exceeded 300,000 euros must submit an advance profit tax declaration to the VMI and pay the profit tax in advance once a quarter (or rather, not later than the fifteenth day of the last quarter month) to pay the profit tax in advance. This action aims to collect funds to the state budget faster and, at the same time, reduce the risk that companies will face a liquidity problem at the end of the financial year. Companies are allowed to choose the method of calculating advance profit tax - either based on the performance of the previous year or based on the expected amount of profit tax. In any case, at the end of the financial year, the profit tax is adjusted and, if there is a deficiency, it is paid additionally, and in case of an excess, it is used to cover future taxes or returned to the company.

If the calculated tax is not paid on time, a tax arrears will immediately appear, which is collected by the VMI. In addition, VMI acquires the right to collect the taxes and related late payment interest specified in the declaration, if the declarations are submitted late or if they submit a revised tax declaration.

In all cases, a competent accountant will always help the company manager to answer questions related to corporate tax, but at least these essential points are worth knowing in order to better navigate your company's finances.