You can receive millions of euros per year. Tax-free. In Europe... --- New tax relief for companies and researchers: what businesses need to know

 

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“If the measure is implemented transparently and responsibly, it can become one of the most effective instruments for promoting innovation in Lithuania,” says Vykintas Valiulis, tax partner at Grant Thornton Baltic UAB and member of the Lithuanian Tax Consultants Association. Company photo

 

“If the measure is implemented transparently and responsibly, it can become one of the most effective instruments for promoting innovation in Lithuania,” says Vykintas Valiulis, tax partner at Grant Thornton Baltic UAB and member of the Lithuanian Tax Consultants Association. Company photo

 

Lithuania is taking an important step in promoting innovation and the development of high technologies. New amendments to the Law on Corporate Tax (Article 30-3) and the Law on Personal Income Tax (Article 17, paragraph 1, p. 33) provide for tax relief for companies that, from 2026, will pay scholarships to researchers operating under trilateral agreements with universities. What this means in practice for the country and business, is reviewed by Vykintas Valiulis, Tax Partner at Grant Thornton Baltic UAB.

 

V. Valiulis says that starting next year, researchers carrying out research and experimental development (R&D) projects under a trilateral agreement with a company and a university from the European Economic Area or a country that has signed a Double Taxation Agreement will be able to receive scholarships that will not be subject to personal income tax. Deductions will also be allowed when calculating corporate income tax.

 

“The explanatory note to the draft amendment to the laws emphasizes the goal of promoting the development of high technologies in Lithuania,” the interviewee says, citing the reason for the change.

 

Essential conditions

 

He explains that scholarships will have to be paid to researchers, as defined in the Law on Science and Studies of the Republic of Lithuania, who are carrying out a research and experimental development project, when a tripartite agreement has been signed between the entity, the European Economic Area states or foreign states with which Lithuania has concluded and applies double taxation avoidance agreements, the higher education institution or research institute and the researcher.

 

The interviewee explains that the concept of a researcher, as provided in the Law on Science and Studies, is quite broad. It is “a person with a higher education degree who develops knowledge, conceptualizes or creates new products, processes, methods and systems or leads research and experimental development projects”.

 

“As you know, the definition of higher education includes bachelor’s, master’s, and doctoral degrees, so a person who has obtained any bachelor’s degree can be considered a researcher. It is not required that a researcher meet the definition of a “scientist,” for which a doctoral degree is required,” V. Valiulis clarifies.

 

He reviews that scientific research and experimental development, according to the law, are described as “systematic creative activities of learning about nature, humanity, culture, and society and the use of its results.” Therefore, it is not required that only STEM (exact sciences, technology, engineering, or mathematics) activities be carried out, and the exemption may also apply to social sciences.

 

“It is also important to clarify what a Tripartite Agreement between a business entity (company or other), a researcher and a higher education institution is. There are two types of higher education institutions – universities and colleges, and they can be established not only in Lithuania or the European Union, but also in any country with which Lithuania has concluded double taxation avoidance agreements – i.e., a total of about 60 countries, including the USA, Canada, Japan, China, the United Arab Emirates, etc.”, – V. Valiulis calculates.

 

He specifies that it is likely that Taiwan would not formally meet this requirement, so it is appropriate to initiate amendments or for Taiwanese universities to use Lithuanian higher education institutions for such cooperation.

 

According to the interlocutor, it is interesting that there is no limit to such scholarships, neither in monetary terms nor in relation to other income of a resident – ​​theoretically, they can reach hundreds of thousands of euros per person.

 

“Perhaps the initiators of this benefit wanted to attract scientific researchers capable of developing high technologies to Lithuania? In its potential, this benefit is reminiscent of the letter of the founder of the city of Vilnius, the Grand Duke of Lithuania Gediminas, dated January 25, 1323, in which he invited people of “good will” to Vilnius, promising to exempt them from taxes and customs duties,” V. Valiulis draws a historical parallel. “However, the question arises whether researchers of “bad will” or “rhythmologists” will not also be tempted to take advantage of this generous benefit, especially considering that even in the Nordic countries, which traditionally trust business and residents more, such benefits operate within much stricter frameworks.”

 

Nordic practices – much stricter

 

The tax partner of Grant Thornton Baltic UAB says that Lithuania is not the first to come up with such an incentive model, but in the Nordic countries where similar benefits are applied to researchers, clear restrictions often apply: scholarships cannot be related to employment relationships, they cannot be used to compensate for services, and strict financial limits are also applied.

 

“For example, in Finland, tax exemption is possible only in cases where the researcher is completely independent of the scholarship payer. The benefit becomes taxable income if a connection with employment relationships or the provision of services is established. In addition, an annual limit of approximately EUR 27,000 applies,” he compares.

 

In Sweden, it is required that such scholarships are not “compensatory” or “remunerative” in nature and are not related to either previous or subsequent employment relationships. For example, if the scholarship was paid by a former employer, it would become taxable. In Norway, there is no such exemption for business-paid scholarships at all and general taxation rules apply. In Denmark, special tax schemes for scientists' salaries apply, and a tax exemption limit of about 10,000 EUR/month, with a maximum duration of 7 years.

 

"The Danish example is perhaps the most "inspiring" due to the success of Novo Nordisk, when the revenue of this pharmaceutical company in 2024 reached as much as 9.4 percent. of the country's annual gross domestic product, - reminds V. Valiulis".

 

Despite the experience of foreign countries, there are no restrictions in Lithuania yet.

 

"This means that Lithuanian business has an incredible opportunity from 2026 to attract world-class scientists and motivate them with scholarships under tripartite agreements with universities, which could theoretically reach and exceed hundreds of thousands of euros per year per person. However, it is also likely that the State Tax Inspectorate will seek to introduce control mechanisms in the future to prevent possible abuse," - believes V. Valiulis.

 

What he recommends for business

 

V. Valiulis says that after assessing the taxation rules applied by Nordic countries and previous initiatives of the Lithuanian tax administrator to correct real and perceived loopholes through retrospective comments and explanations, companies that are considering providing scholarships to existing or newly recruited researchers should take into account several important aspects.

 

“First of all, a scholarship must be clearly distinguished from a salary or compensation for services. A scholarship should also be considered an additional motivational measure, not a substitute for salary – i.e., a reasonable salary should still be paid,” advises the interviewee.

 

According to him, this would help avoid the risk that later, when applying the principle of “substance over form”, the tax administrator would treat scholarships as artificially hidden wages, which could lead to unwanted tax disputes, fines and late payment interest.

 

V. Valiulis says that practice will show how this tax benefit will work in the market, but in the current context it is an unexpectedly progressive step that encourages business and science cooperation and the development of high technologies in Lithuania.

 

“If the measure is implemented transparently and responsibly, it can become one of the most effective instruments for promoting innovation in Lithuania,” he believes.

 

Why is this important for Lithuania?

 

This new tax relief for researchers could be a breakthrough:

 

For businesses, it is an opportunity to attract world-class scientific talent and create innovative solutions.

 

For students and researchers, it is significant financial support, allowing them to focus on science and research.

 

For the state, it is an investment in the knowledge economy, increasing competitiveness in the international market. It would also potentially contribute to reducing the risk of the “middle income” trap threatening Lithuania.

 

Possible challenges

 

The clear absence of any prior limits in the law may create conditions for abuse.

 

The unclear boundaries between scholarship and salary may also encourage stricter interpretations of the State Tax Inspectorate, applying the principle of “substance over form.”