Income tax exception became applicable for service companies

Lithuania is to attract IT, business process outsourcing, financial and other services enterprises to free economic zones (FEZs). Due to decision of Parliament of the Republic of Lithuania capital investment of service companies will have to exceed EUR 100 000 and employ at least 20 full time employees to receive incentives.

Small service enterprises operating in free economic zones (FEZs) and fitting capital investment and employment requirements will be also allowed not to pay income tax for six years. Before the amendment to the law, companies in order to get FEZ tax incentives, have to invest at least EUR 1 million.

After a due initial incentives period, companies, which qualified for corporate tax exemption, will be able to pay reduced income tax by half for another 10 years.

Starting from 2017, regulatory changes will allow services companies to establish operations and benefit from the tax incentives in FEZs. While FEZs are first and foremost tailored for manufacturing companies, such changes will create more favourable investment environment for small companies in Lithuania as well,

Therefore, Lithuania FEZs will become even more competitive in the Central and Eastern Europe region.

“Investment’s distribution in the country and the whole investors structure in FEZ will change. The service enterprises have more high-value- added workers than manufactaring companies. Accordingly their number in FEZs definitely will grow”, – says Eimantas Kiudulas, Chairman of the Lithuanian Free Economic Zones Association, who is also General Director of the Klaipeda FEZ.

He adds, that FEZs in Lithuania are already prepared to satisfy such investors needs. “The office buildings for rent are currently being constructed, investing a lot into advanced infrastructure with the full range of services that meet the needs of the high-value-added workers.”, ­– says E. Kiudulas.

As all the free economic zones of Lithuania are operating in different regions of the country, its expected that new tax incentives will encourage and attract investments to these regions, not only to the capital city. Furthermore, the good news for investors: less competition for high-value-added specialists exists among the employers in the regions.

“The sector of business services in Lithuania is constantly growing and last year it reached 12 per cent of growth, counting employees in shared service centres. New regulatory changes could be one more turning point in business services sector growth not only in Vilnius and Kaunas, but also in other major cities of Lithuania”, – says Rugile Andziukeviciute-Buze, Regional Development Team Lead at Invest Lithuania.

The newly adopted tax benefits start applying only after company receives auditor’s certification regarding the investment. Also, tax benefits can be applied by companies delivering accounting, administration, human resources, architectural and engineering services and related technical consulting services, but at least 75 per cent of company’s revenue must come from aforementioned activities in a given fiscal year.