Updated PIT Law Commentary: Self-Employed Expense Deductions and Loss Carryforwards

The State Tax Inspectorate of Lithuania (VMI) has published an updated official commentary on Articles 18(1), 18(10-1), and 18-1(5) of the Law on Personal Income Tax (PIT Law), approved by letter No. (18.18-31-1 Mr) RTD-126 dated 19 October 2026.

This update directly impacts self-employed individuals operating under a certificate of individual activity and accounting professionals preparing their tax filings. The commentary clarifies the criteria for deductible business expenses under the actual expense method, intangible asset amortization, restrictions on the standard 30% expense deduction, and the rules governing tax loss carryforwards.

Under the updated interpretation of Article 18(1), expenses attributed to deductible allowances must be supported by legally valid accounting documents that contain all mandatory requisites set out in Article 7 of the Law on Financial Accounting. Expenses lacking these required details cannot reduce the taxable base.

The commentary clarifies a key limitation on the presumptive 30% expense deduction without supporting documents: this flat-rate deduction cannot be applied to income received from an employer or any entity with which the individual maintains an employment or employment-equivalent relationship. For such specific income streams, the taxable amount must be calculated from the gross income received or by deducting strictly documented, actual expenses.

In the commentary on Article 18(10-1), the tax authority specified the treatment of intangible assets, including software and licenses. Costs related to acquiring or developing intangible assets cannot be written off as an immediate lump-sum expense if the asset's useful life exceeds one year and its value surpasses the statutory capitalization threshold. Such assets must be amortized over the prescribed statutory periods.

Regarding Article 18-1(5), the commentary clarifies that self-employment tax losses carried forward to subsequent tax years can offset only the taxable income generated from the same individual activity. Furthermore, the loss amount carried forward cannot exceed the taxable income of that specific tax period.

The updated commentary does not introduce retroactive requirements to amend tax returns for prior periods where taxpayers reported income and deductions according to previously valid official interpretations.