1. Would a corporate legal entity in your jurisdiction be entitled to make a corporate income tax deduction in respect of donations made in favour of a public benefit organisation based in the EU outside of your jurisdiction (“EU PBO”)? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?
  2.  Would an individual in your jurisdiction be entitled to make an income tax deduction in respect of donations made in favour of an EU PBO? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?
  3.  Would an EU PBO be entitled to the same treatment as a national non-profit organisation (charity) in your jurisdiction based on the EU law principle of equal treatment of EU entities? Is an EU PBO obliged to pay gift tax in your jurisdiction if it receives a donation from a donor who is resident in that country?
  4.  Would it make sense to channel the donations from your jurisdiction to a third country-based charitable foundation (in e.g. the US or Ukraine) rather than to an EU PBO?

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Lithuania
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According to the Law on Corporate Income Tax (“Law on CIT”), donations made by any legal entities and recognised as donations under the Law on Charity and Support (“Law on CS”) can be deducted twice to reduce the taxable income for corporate income tax (“CIT”). However, the deductible amount (i.e. twice the expenses made as donations) may not exceed 40% of the taxpayer’s income, calculated after the deduction of non-taxable income, allowable deductions and limited allowable deductions, except for made donations and losses from the previous tax periods.

Moreover, it is prohibited to deduct donations that are made to a particular beneficiary in cash and that exceed EUR 12,250 in a tax period. (The amount may be higher in subsequent years, as it relates to the basic social benefit which is approved by the Lithuanian government.) With regards to deductibility of the donations, the following general Law on CIT limitations shall therefore apply:

  • cap of 40% of the donor’s income
  • a donation made in cash cannot exceed EUR 12,250 in 2023.

According to the Law on CS, a donation is generally described as the voluntary and unremunerated provision by donors (except for certain permissible obligations of the recipient) of items of support to beneficiaries for specified purposes and in specified ways, including where items of support are provided anonymously or in any other way in which the specific donor cannot be identified. The Law on CIT also emphasises that donations and related benefits can only be used in cases where the donation is given on a non-remunerated and voluntary basis, i.e. the recipients of the donation do not receive any specific gain.

Also, with regards to the recipients of donations, a donation can be recognised as such when it is provided to legal entities/organisations established in either Lithuania, an EEA state or countries approved by the Lithuanian government. However, such beneficiaries must be non-profit organisations/entities, i.e. it is explicitly provided that the purpose of the beneficiaries must not be profit-seeking, and the profits thereof must not be assigned to participants/members/founders/etc.

In addition, the Law on CS also reads that such donations must be used for public beneficial aims such as: international cooperation, protection of human rights, integration of minorities, promotion of cultural, religious and ethical values, education, scientific and professional development, non-formal and informal civic education, sport, social security and labour, health care, national security and defence, legislation, prevention of crime, an adaptation of the living environment and housing development, protection of copyrights and related rights, protection of the environment, and other areas recognised as socially beneficial and selfless.

It is noteworthy though that in order to recognise a donation for CIT purposes, formal requirements of documenting and reporting the donations should also be met.

With regards to documents to be collected:

  • written agreement formalising the donation, or a notarised donation agreement if the donation exceeds EUR 14,500
  • confirmation from the Contracting State TA that the EU PBO is tax-resident in the Contracting State
  • copy of the EU PBO’s articles of association, by-laws, statute (or extracts from them), or similar documents showing the EU PBO’s activities for public beneficial aims
  • document stating the specific purpose for which the donation will be granted and used, e.g. an official request or a letter for donation. The document must also contain the general information of the EU PBO (full name, identification number (code), address, in which register – foreign company, commercial or other – the organisation is registered, whether it has, and when it has been granted, the status of a charity and/or beneficiary if provided for by the legislation of the foreign state) and be signed by the head of the EU PBO or by an authorised person
  • proof that the purpose of the EU PBO’s activities is not profit-seeking and that any profit made cannot be assigned to its participants/members/founders/etc. This may be the provisions of the legislation governing an EU PBO’s activities or references to official sources of legislation governing the EU PBO’s activities (in English).

2. Would an individual in your jurisdiction be entitled to make an income tax deduction in respect of donations made in favour of an EU PBO? Are there restrictions/conditions for such tax deductibility (e.g. maximum cap per annum for the deductibility of the donations, etc)?

There are no benefits or other provisions foreseen for natural persons (even those engaged in entrepreneurial activities) in Lithuania with regard to donations to non-profit organisations. This applies to all and any non-profits, i.e. whether registered in or outside Lithuania.

3. Would an EU PBO be entitled to the same treatment as a national non-profit organisation (charity) in your jurisdiction based on the EU law principle of equal treatment of EU entities? Is an EU PBO obliged to pay gift tax in your jurisdiction if it receives a donation from a donor who is resident in that country?

Both the Law on CS and the Law on CIT state that they are applicable to Lithuanian-based non-profit organisations or for the local units/divisions of foreign non-profit organisations. In other words, if an EU PBO is not registered in Lithuania and does not have a local unit/division thereof established in Lithuania, none of the rules with regards to reporting, accounting of donations etc. would apply towards an EU PBO. However, given that donation granters must prepare additional documentation to support the legitimacy of the donation, the comment in Q1 would be required to be referred to for an EU PBO as well.

Lastly, there are no Lithuanian provisions foreseeing a gift or a similar tax that a non-profit organisation would be obliged to pay; unless the donations are linked with lotteries.

4. Would it make sense to channel the donations from your jurisdiction to a third country-based charitable foundation (in e.g. the US or Ukraine) rather than to an EU PBO?

According to the Law on CS, a donation as such can be recognised once granted to legal entities/organisations registered in either any EEA state (with additional conditions) or in countries the final list of which is approved by the Lithuanian government. It is noteworthy that there is only one country on the aforementioned list – Ukraine. Therefore, non-profit organisations registered in neither Lithuania, an EEA state nor Ukraine cannot be recognised as recipients of donations, and in the absence of such recognition, legal entities (grantors) cannot use CIT benefit.

Therefore, donations directly to a Ukrainian charitable foundation (“UA PBO”) would generally be available, except for US-based public charities.

In fact, the requirements and formalisation of a donation would be practically the same as for a non-profit organisation registered in an EEA state. But with regards to Ukraine, the grantors should provide less information and documentation with their annual donation report (FR0477):

  • copy of the UA PBO articles of association, by-laws (or extracts from them) or similar documents, showing the UA PBO’s public benefit purpose and that the purpose of the UA PBO is not profit-seeking and that the profits cannot be distributed to its participants
  • document indicating the specific public benefit purpose for which the donation made to the UA PBO will be used and providing general information about the UA PBO. In this case, this may be a link to the source of the publicly-available request for transfer of support to the foreign entity (if the source is in English or Russian), or it may be a copy of the UA PBO request, which indicates the purpose for which the UA PBO is requesting the support and general information about the UA PBO (full name, identification number (code), address, whether and when the entity has been granted charitable and/or beneficiary status if provided for in the foreign legislation) or other similar documents.

To sum up, if donations were made to the UA PBO directly, the grantor should not have to provide the Inspectorate with an extract from the Ukrainian tax authority stating that the UA PBO is tax-resident in Ukraine. Otherwise, the nature of the other information and documents to be collected and provided to the grantor is almost the same. Thus, it follows that it does not make much difference whether the donation is received by the UA PBO or by an EU PBO in order to benefit from CIT relief.

Moreover, please also keep in mind that one of the required documents is a written agreement formalising the donation, or a notarised donation agreement if the donation exceeds EUR 14,500. Regarding the notarised contract, the Inspectorate stressed that a notarised contract is unnecessary only if the donation made to Ukraine is made at a time when a state of emergency has been introduced in Lithuania. Please note that the state of emergency on the Belarus/Russia borders was lifted at the beginning of May 2023 and is no longer in force.