Dividends paid to a foreign corporate shareholder: withholding tax, the exemption and what to check

When a UAB pays dividends to a foreign corporate shareholder, the UAB itself calculates, withholds and pays the corporate income tax. The current rate is 17 percent, and the tax is paid by the 15th day of the following month. No tax is due if the foreign company holds at least 10 percent of the voting shares for an uninterrupted period of at least 12 months that includes the moment the dividends are distributed. The exemption does not apply if the shareholder is registered or otherwise organised in a target territory, nor to artificial arrangements set up only to obtain a tax advantage. Where the exemption does not fit, check the double tax treaty: its rules prevail over the statute. According to the State Tax Inspectorate (VMI), the 12 months need not have passed at the moment of distribution if the shareholder intends to keep the shares and actually does. Dividends are reported to the tax administrator even when no tax is due.

When a UAB may pay dividends at all, how interim dividends work and how dividends paid to Lithuanian residents and companies are taxed is covered in our article on paying dividends. This article deals with one case only: the shareholder is a foreign company.

What counts as a foreign company and what counts as dividends

Under the Law on Corporate Income Tax, a foreign entity is a legal person or organisation of a foreign state that has its registered office in a foreign state and was set up or organised under foreign law (Article 2(3) of the Law on Corporate Income Tax, PMĮ). This also covers other taxable entities set up abroad, including collective investment undertakings (Article 2(3) PMĮ).

The rules on dividends also apply to other distributed profit, even where it has not been formalised as dividends under the Law on Companies (Article 32(1) PMĮ). Two cases worth knowing:

  • Shares issued from the company’s funds. Where shares are issued to shareholders without payment and in proportion to their holdings from the company’s funds, or the nominal value of shares is increased, this is not treated as dividends (Article 32(2) PMĮ). An increase of capital from profit does not in itself trigger dividend tax.
  • Capital reduction. On a capital reduction, the amounts paid out that relate to the part of the capital not formed from shareholders’ contributions are treated as dividends. That part, formed by increasing capital from the company’s funds, is deemed to be paid out first (Article 32(5) PMĮ). How capital is reduced is covered separately.

The main rule: the UAB withholds 17 percent

Dividends received by foreign entities for shares held in a Lithuanian entity are taxed at a corporate income tax rate of 17 percent. The tax is calculated, withheld and paid to the budget by the Lithuanian entity paying the dividends, no later than the 15th day of the month following the month in which the dividends were paid (Article 34(1) PMĮ). The duty therefore lies with the paying UAB, not with the foreign shareholder.

Older answers and articles may quote a different rate. The rate in this article is taken from the PMĮ version currently in force (Article 34(1) PMĮ). The published version that takes effect on 1 January 2027 does not change what this article says.

A return on the payment of dividends and the calculation of corporate income tax is filed with the local tax administrator by the 15th day of the month following the month of payment (Article 36 PMĮ). The VMI explains that the dividend corporate income tax return FR0640 covers taxable dividends, while non-taxable dividends paid to Lithuanian and foreign entities are reported in annex E of the annual corporate income tax return PLN204 (VMI guidance “Dividend corporate income tax return (FR0640)”, reg. No. KM1376). Where the foreign company operates in Lithuania through a permanent establishment to which the shares are attributed, the dividends received by that establishment are taxed in the same way as for a Lithuanian entity (Article 34(3) PMĮ).

The exemption: 10 percent and 12 months

Dividends paid to a foreign entity are not taxed if it holds at least 10 percent of the voting shares in the Lithuanian entity for an uninterrupted period of at least 12 months that includes the moment the dividends are distributed (Article 34(2) PMĮ). Three details of the wording matter.

Voting shares are counted. The statute refers to voting shares (Article 34(2) PMĮ). If the company has preference shares without voting rights, work out the holding by reference to the voting shares, not the whole capital.

12 months without interruption, including the moment of distribution. The period must be continuous and must include the moment the dividends are distributed (Article 34(2) PMĮ). The statute does not say expressly whether all 12 months must have passed by the moment of distribution. The VMI explains that they need not: dividends paid to a foreign entity may also be exempt where the 12 months have not yet passed at the moment of distribution, if the shareholder intends to keep the shares for at least 12 months and actually does so (VMI guidance “Taxation of dividends paid to foreign entities (Article 34)”, reg. No. KM1052). If the shareholder sells earlier, the VMI commentary on the Law on Corporate Income Tax states, for the same rule applied to Lithuanian shareholders, that the company that paid the dividends must calculate and pay the tax, together with late-payment interest. We found no court practice on the point, and VMI guidance does not bind the courts. The PMĮ does not define the moment of distribution. Dividends go to those who were shareholders at the end of the day on which the body declaring the dividends adopted its decision (Article 60(7) of the Law on Companies, ABĮ), and declared dividends must be paid within one month of the decision (Article 60(5) ABĮ). So if the shares were acquired recently, before declaring dividends obtain the shareholder’s written confirmation that it will keep the shares, and agree who bears the tax if they are sold earlier.

No exemption for target territories. The exemption does not apply where the foreign entity receiving the dividends is registered or otherwise organised in a target territory (Article 34(2) PMĮ). A target territory is a foreign state or zone included in the List of Target Territories set by the Minister of Finance. A territory is placed on that list if it meets at least two of the criteria listed in the statute, for example where the rate of the equivalent tax is below 75 percent of the main corporate income tax rate set by the PMĮ, or where there is no effective exchange of information (Article 2(38) PMĮ). The list is a separate legal act, so check it on the day the dividends are paid.

For comparison: a Lithuanian corporate shareholder faces the same 10 percent and 12 month condition (Article 33(2) PMĮ). Where it is not met, the tax withheld from a Lithuanian shareholder is credited against its own corporate income tax (Article 33(3) PMĮ). Article 34 PMĮ does not provide such an option for a foreign shareholder.

No exemption for artificial arrangements

The PMĮ has a separate anti-abuse rule. The exemption does not apply to an arrangement or a series of arrangements whose main purpose, or one of whose main purposes, was to obtain a tax advantage that defeats the object or purpose of Council Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, and which are therefore not genuine (Article 32(6) PMĮ). An arrangement is regarded as not genuine to the extent that it was not put in place for valid commercial reasons which reflect economic reality (Article 32(6) PMĮ).

In practice, 10 percent and 12 months are not enough if the foreign shareholder is an intermediate company with no activity, set up only so that dividends are received tax-free. The assessment turns on all the facts, so keep documents on the shareholder’s activity and on the reasons for the acquisition.

The risk lies with the paying UAB. In its ruling of 27 May 2026 in administrative case No. eA-1929-575/2026, the Supreme Administrative Court of Lithuania upheld the refusal of the exemption where the foreign shareholder that received the dividends was not their beneficial owner but acted as an intermediate company and passed the money on the same day or the next day. The court noted that the paying company’s duty to pay the tax remains even where the structure was set up not by the company itself but by the persons who controlled it. The company was left to pay the tax, late-payment interest and a fine.

When the exemption does not fit: the double tax treaty

If international treaties of the Republic of Lithuania set taxation rules different from those in the tax laws, and those treaties are ratified, in force and applied in Lithuania, the treaty rules prevail (Article 5(1) of the Law on Tax Administration, MAĮ). So where the shareholder holds less than 10 percent of the votes or has held the shares for less than 12 months, check the treaty with the state where it is resident.

What rate a particular treaty sets is not covered here: it depends on the state. According to the VMI, the UAB may apply a lower treaty rate only if it holds the shareholder’s request to reduce the tax withheld (form FR0021, DAS-1). If there was no such request and tax was withheld at the statutory rate, the shareholder can reclaim the overpaid part by filing request FR0022 (DAS-2) (VMI guidance, reg. Nos. KM1052 and KM1046). Work it out before the payment, because the paying UAB withholds the tax (Article 34(1) PMĮ).

Four common cases

A parent company in an EU member state has held all the shares for several years. The 10 percent and 12 month conditions are met, so if the state is not on the List of Target Territories and the structure has commercial reasons, the dividends are not taxed (Article 34(2) and Article 32(6) PMĮ). According to the VMI, such dividends are reported in annex E of the annual corporate income tax return PLN204, not in return FR0640 (VMI guidance, reg. No. KM1376).

An investor acquired 30 percent of the shares eight months ago. The holding is large enough, but at the moment of distribution the shares have been held for only 8 months. On the VMI’s reading, the exemption may apply if the investor intends to keep at least 10 percent of the voting shares without a break for at least another 4 months and actually does so (Article 34(2) PMĮ; VMI guidance, reg. No. KM1052). If it sells earlier, in the VMI’s view the UAB will have to pay the tax with late-payment interest, so get that intention in writing. If the exemption does not apply, the UAB withholds 17 percent (Article 34(1) PMĮ), unless the double tax treaty provides otherwise (Article 5(1) MAĮ). If there is no hurry, the safest course is to take the decision once the 12 months have passed: dividends go to those who were shareholders at the end of the day of the decision (Article 60(7) ABĮ).

A foreign fund holds 8 percent. The 10 percent threshold is not reached, so the exemption does not apply however long the shares are held (Article 34(2) PMĮ). The 17 percent rate then applies, or the treaty rules if a treaty with the fund’s state applies (Article 34(1) PMĮ, Article 5(1) MAĮ).

The shareholder is registered in a zone on the List of Target Territories. The exemption does not apply even with 100 percent of the shares held for many years (Article 34(2) PMĮ). So before buying shares or transferring them to an intermediate company, check where that company is registered.

In all four cases, it is the paying UAB that must decide whether tax is due. Where it is, the UAB withholds it and declares it in return FR0640; where it is not, the UAB reports the dividends in annex E of return PLN204 (Article 34(1) and Article 36 PMĮ; VMI guidance, reg. No. KM1376). So its manager must have the data on the shareholder’s holding, the date of acquisition and the state of registration (Article 34(1) and Article 36 PMĮ).

Interim dividends and the foreign shareholder’s side

A dividend may also be declared for a period shorter than the financial year (Article 60(3) ABĮ). Article 34 PMĮ does not single out such dividends, so the same rate, the same exemption and the same withholding deadline apply to them (Article 34(1) and (2) PMĮ). The 12 month condition is assessed for each distribution, so the answer may differ for interim and annual dividends.

In Lithuania, the tax on the foreign shareholder’s dividends is calculated, withheld and paid by the paying UAB (Article 34(1) PMĮ). Whether the dividends are taxed again in the shareholder’s state, and whether the tax paid in Lithuania is credited there, is a matter for that state’s law and the double tax treaty. Discuss this with the shareholder’s tax adviser before the dividend decision.

The company law side in brief

Under company law, dividends may be paid only once they have been lawfully declared. A decision on the distribution of profit is taken by a majority of at least 2/3 of the votes carried by the shares of the shareholders attending the meeting (Article 28(1)(6) ABĮ), unless the articles require more (Article 28(3) ABĮ). A dividend is the share of profit allocated to a shareholder in proportion to the nominal value of their shares (Article 60(1) ABĮ). The company pays dividends in cash (Article 60(6) ABĮ). When dividends may not be declared is covered in our article on paying dividends.

What to check before paying dividends to a foreign company

  • Whether the shareholder is a foreign entity under the PMĮ and whether the shares are not attributed to its permanent establishment in Lithuania (Article 2(3) and Article 34(3) PMĮ).
  • What percentage of the voting shares it holds in its own name (Article 34(2) PMĮ).
  • Since when it has held them without interruption, and whether the 12 months will cover the moment of distribution (Article 34(2) PMĮ).
  • If the shares have been held for less than 12 months: the shareholder’s written confirmation that it will keep them, and an agreement on the tax if they are sold earlier (Article 34(2) PMĮ).
  • Whether its state or zone is not on the List of Target Territories (Article 2(38) PMĮ).
  • Whether the structure has commercial reasons that can be shown with documents (Article 32(6) PMĮ).
  • If the exemption does not fit: what the double tax treaty provides (Article 5(1) MAĮ).
  • The deadline for paying the withheld tax and filing the return: the 15th day of the following month (Article 34(1) and Article 36 PMĮ).
  • If no tax is due: the dividends are reported in annex E of the annual corporate income tax return PLN204 (VMI guidance, reg. No. KM1376).

If the shareholder is an individual living abroad rather than a company, the Law on Personal Income Tax applies. We touch on that case in our article on paying dividends.

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How to start

Send us the list of shareholders with the dates on which they acquired their shares and an extract from the foreign shareholder’s register, and tell us how much you plan to distribute and when. We will tell you whether the exemption applies and prepare the decision on the distribution of profit.

Phone +370 5 212 1506, email info@linden.lt

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