Deducting Foreign Corporate Income Tax: VMI Updates Article 55 Commentary

On August 10, 2026, the State Tax Inspectorate (VMI) published an updated commentary on Article 55 of the Law on Corporate Income Tax (PMĮ). Approved by document No. R-2184 on August 7, 2026, this update clarifies the procedure for deducting corporate income tax or an equivalent tax paid in a foreign jurisdiction from the corporate income tax payable in Lithuania.

The revised commentary formally establishes a proportional allocation method, commonly known as the ordinary credit method. This mechanism allows businesses to mathematically determine the share of foreign income within the company's total tax base and calculate the maximum deductible tax amount, or credit limit. A crucial detail for accounting professionals is that when calculating this maximum credit limit using the proportional method, expenses incurred to earn the foreign income are not taken into account. This rule is designed to ensure administrative clarity and calculation consistency.

Lithuanian entities generating income from foreign sources are required to apply this proportional method. The only exception applies to income generated through permanent establishments in the EEA or countries with double taxation treaties, provided such income is fully exempt from taxation in Lithuania. Finance departments must accurately identify foreign income sources and execute these proportion calculations in strict adherence to the updated guidelines.

To successfully claim the deduction, companies must possess documents certified by the foreign tax administrator proving the exact income received and the tax paid abroad. These specific documents must be obtained and submitted to VMI no later than the final deadline for filing the annual corporate income tax return (PLN204).