Lithuania IP Box Regime

Lithuania operates a patent-box style incentive that applies a reduced corporate income tax rate to taxable profits earned from certain intellectual property assets developed through R&D. The regime has been assessed under the OECD modified nexus approach in EU Code of Conduct work on IP regimes.

The incentive works as a reduced headline corporate tax rate on qualifying net profits. PwC describes the mechanism as a reduced 5% rate (increased to 6% from 1 January 2025), while Lithuania's 2026 reforms increased the country's reduced corporate income tax rate to 7% from 1 January 2026. In practice, the reduced rate is intended to apply to the net profit stream attributable to the qualifying IP asset (income less related expenses), rather than to gross royalty receipts.

Qualifying assets are restricted. EU and PwC descriptions focus on inventions protected by patents (including supplementary protection certificates) and copyright-protected computer programs; marketing IP such as trademarks is excluded. Eligibility is also tied to substance: the Lithuanian entity or permanent establishment that created the IP should be the one earning the income and bearing the related costs, and taxpayers need documentary evidence and tracking of income and expenses by IP asset.

Operationally, the regime is best suited to businesses that genuinely perform R&D and commercialise patented technology or qualifying software through a Lithuanian company or permanent establishment. Careful modelling is needed because non-qualifying income remains subject to the standard corporate tax rate, and the preferential rate and qualifying definitions have been subject to recent legislative changes.