Associations representing investors and the business and technology community have addressed the State Tax Inspectorate (STI), requesting clarification of the commentary on the Corporate Income Tax Law regarding the application of the R&D (research and experimental development) tax incentive. According to business representatives, the STI’s new commentary introduces requirements that are practically impossible for technology companies to implement, create additional administrative burden, and effectively prevent companies from using the incentive provided for in the law.

The associations also request that the newly formulated provisions of the commentary be clearly confirmed as not applying to the 2025 tax period. The commentary itself was published only on 26 September 2025, when the tax year was already well underway.

A request to ensure legal stability

The updated commentary stipulates that in cases where assets created through R&D are integrated into another (main) asset, a company must substantiate what specific share of profit was generated precisely by the asset created during R&D activities. According to business representatives, such a requirement is often impossible for technology companies to implement, as the systems they develop software platforms, cloud infrastructures, algorithms, security solutions, or innovative products – function as integrated technological systems with closely interconnected components.

“Requiring companies to artificially separate which specific piece of code or technological solution generated which share of profit does not reflect the logic and reality of technology businesses. In many cases, R&D activities create the foundation for the competitiveness of the entire product rather than a separate isolated component. If a company develops a new electric bicycle with an innovative battery, the STI’s current position is that only the new battery is the result of R&D. But without it the electric bicycle would simply be a bicycle—the entire product becomes a completely new product because of it,” notes Ineta Rizgelė, head of the Lithuanian Business Confederation.

Gintarė Verbickaitė, head of the association Unicorns Lithuania, says that such situations will not be isolated cases, which will further reduce startups’ ability to benefit from the incentive – something that was already difficult even before the updated commentary.

“Startups already face challenges due to the definition of R&D activities itself, because in practice it is often not easy to clearly distinguish routine product development from research and experimental development. The application of the incentive also requires specific expertise and carefully maintained documentation, while young innovation-driven companies often lack sufficient resources for this. The latest changes further narrow the scope of application, increase administrative burden, and complicate the functioning of the instrument in practice,” emphasizes G. Verbickaitė.

Seeking a compromise, business representatives have proposed specific cases where companies could continue, as before, to apply the relevant incentives in full. Detailing these cases would prevent abuse of the incentive while ensuring that bona fide companies retain the ability to apply the incentive provided by law to its full extent, as intended by the legislator.

Business organizations are also puzzled by the STI’s decision to apply its new commentary retroactively. The new STI commentary was adopted in the second half of 2025, yet the new conditions are intended to apply when calculating corporate income tax for the entire 2025 tax year. This means that regulations introduced halfway through the year would be applied to company activities carried out even before the new STI commentary appeared. Companies plan their budgets and investment decisions for the entire tax period in advance. Therefore, changing the commentary during the tax year and applying it to the results of 2025 raises questions regarding legal certainty and legitimate expectations.

Business representatives propose to clearly establish that the new provisions of the commentary would apply when calculating taxable profit starting from the 2026 tax period.