The latest research has shown that Lithuania is a leader among the Baltic States in terms of foreign direct investment. Capital city of Lithuania – Vilnius - has been ranked 4th in Europe as a city for fast-growth businesses.

Lithuania is the geographic center of Europe - it is a lively crossroad between the North, East and West. Lithuania has a convenient proximity to Scandinavia, Western Europe, Russia. The country is the EU's prime transport hub and an interconnection of two major pan-European transport corridors, linking the huge Eastern markets with the rest of Europe via air, sea, rail and highway routes. Lithuania is part of the EU, and Schengen area. http://regionai.stat.gov.lt/start_en.html

ADVANTAGES OF LITHUANIA TAX SYSTEM

  • Low corporate income tax rate – 15 %, for smaller businesses – 5 %;
  • Tax exempt dividends for companies meeting certain criteria;
  • Favourable treatment of investment and research and development costs;
  • Transfer of losses between mother company and daughter company is available from 2010;
  • No vehicle tax;
  • Minimal salary before taxes/ month – 380 EUR.
  • Currently, Lithuania has concluded 51 Treaties on the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and capital in effect;

MAIN TYPES OF LITHUANIAN BUSINESS ENTITIES

Limited Company Read more

The Lithuanian Public Limited Company (AB) The public limited company may be formed by one or more shareholders, and the maximum number of partners is not stipulated by Lithuanian Law. Establishing a public limited company requires a minimum registered capital of 40 000 EUR, which must be formed in a bank account and is divided into shares. The liability of the members is limited to each ones amount of capital invested. The shares of each shareholder may be traded or offered for sale publicly.

The Lithuanian Private Limited Company (UAB). This business entity is the most common company in Lithuania. It can be founded by at least one member, and up to 250 members. Shareholders of a private limited company can be natural persons or legal entities, as well as Lithuanian or foreigners. The liability of each member is limited to the extent of his/her contribution to the company's capital, which must be at least 2500 EUR and is divided into shares. The shares may not be traded or offered for sale.

 

Partnerships Read more

The Lithuanian General Partnership A general partnership in Lithuania is formed by at least two persons who work jointly on the basis of a partnership agreement. All members are general partners and therefore are fully liable to the partnerships obligations but also have an equal right to management and profit. A general partnership does not have to register an initial capital.

 

Limited Liability Partnerships Read more

The Lithuanian Limited Partnership The Limited Partnership in Lithuania functions on the basis of a partnership agreement, as the general partnership. It must be founded by at least two members who work jointly under the same business name. Again, a minimum capital is not required, the difference between the two types of partnerships residing in the liability of the members. In the limited partnership at least one member is the general partner who has full liability to the partnerships obligations, while the liability of the limited partner is limited to the extent of his or her contribution.

 

Sole Traders Read more

The easiest way to start a business in Lithuania is to become a ‘sole trader’. This means that only you own the business and you can work alone or employ other people.

 

AUDIT AND REGULATORY ENVIRONMENT

Companies Audit Read more

On the basis of values of indicators specified in the Law on Financial Statements of Entities of the Republic of Lithuania (“Valstybes žinios” (Official Gazette), 2001, No. 99-3516),entities are required to select the forms of financial statements. Any company which, on the date its balance sheet is due, meets at least 2 of the following criteria, is obliged to provide audit of Its Financial statements:

  • Asset in balance sheet more than EUR 1 800 00
  • Net turnover more than EUR 3 500 000
  • 50 employees (on average) during the financial year

 

Financial Conduct Authority Read more

The Authority of Audit and Accounting (AAA) was established in 2002 as Institute of Accounting responsible for setting the Business Accounting Standards (Lithuanian GAAP). During 2007-2008, following the update in the EU Directive on Statutory Audit, the Lithuanian Parliament decided not to establish a new separate body for public audit oversight, but delegated these functions to AAA in purpose to establish an independent system of regulation for audit profession. As a result of this reform, the responsibilities of the Institute of Accounting were expanded to include the functions of Public Audit Supervision and the name of the Institute was changed accordingly to the AAA.

According to the Government act Nr. 749 of 23-07-2008 the AAA is a public entity, accountable to the Ministry of Finance. It operates according to the Constitution of the Republic of Lithuania, the Civil Code of the Republic of Lithuania, the Law on Public Institution, the Law on Audit, the Accounting Law, the other laws and the AAA Charter, which is approved by the Order of Minister of Finance of 26-08-2008.

 

Money Laundering Regulations Read more

The Money Laundering Regulations came into force in 1997. The regulations apply to a number of different sectors including financial and credit businesses, accountants and estate agents (please refer to http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=479208 for more information)

 

Data Protection Act Read more

The purpose of this Law shall be safeguarding of the inviolability of an individual’s private life in the course of processing personal data. http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=435305

 

Bribery Act Read more

This law establishes the basic principles of prevention of corruption, the goals and objectives in the public service and the private sector, corruption prevention measures and a legal framework for the prevention of corruption ( http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=436086&p_query=ky%F0ininkavimas&p_tr2=2 )

 

INDUSTRY INCENTIVES

Incentives Available

Depending on the size and nature of the business you may qualify for Government Grants and subsidies, also for European Union support.

Grants and subsidies Read more

Potential subsidies, grants, and the EU Structural Funds support to the following areas:

  • investment in production
  • development of export
  • training of company employees
  • research and development laboratories
  • e-business optimization solutions
  • social integration
  • projects for public and state organizations
  • agriculture

 

LoansRead more

Loan granting conditions (with Government guarantee):

Borrowers:

  1. natural persons willing to start business;
  2. registered and operating for no longer than one year: micro, small enterprises and natural persons engaged in the individual activity or activity which requires a business certificate: micro and small enterprises means enterprises defined in the Commission Recommendation 2003/361/EC and the Law of the Republic of Lithuania on Small and Medium-sized Business Development implementing it; - natural persons engaged in the individual activity or activity which requires a business certificate means businessmen as defined in the Law of the Republic of Lithuania on Small and Medium-sized Business Development.
  3. social enterprises developing business:
    social enterprises means social enterprises as defined in the Law of the Republic of Lithuania on Social Enterprises.

Granting of micro-credits to SME under more favorable conditions is de minims aid to SME provided according to the Micro-credits and Small Loans Scheme approved by Order No. 4-138 of 1 April 2009 of the Minister of Economy of the Republic of Lithuania. Loans will be granted to SME at lower interest rates than those applicable in the market.

 

Enterprise Zones Read more

FREE ECONOMICS ZONE. If you start business in Free Economic Zone, you can avail yourself of the following:

For 6 accounting periods noincome tax is imposed on a company investing over EUR 1 million;

Where as over the subsequent 10 accounting periods the tax rate is 50% less.

No property tax

 

PRINCIPAL TAXES

The principles of taxation which were taken into account in the development of the Lithuanian taxation system and which may not be violated by any tax related legal act include: tax payer equality (in the application of tax laws, all taxpayers are equal with respect to provisions of the laws); equity and universal application (taxes must be paid by all taxpayers in accordance with the procedure established in tax laws; establishing tax relief of an individual nature is prohibited; the tax administrator must apply the criterion of fairness in tax administration); and clarity of taxation (the content of a tax liability must be clearly defined in the laws and regulations).

Major Corporate Taxes

Tax

%

Corporate profit tax

15

VAT

21

Dividends (Dividends may be exempt from taxation, if certain conditions are met)

0-15

Personal income tax

15

Employee’s social security tax

9

Social security tax paid by the employer

up to 31.18

Real estate tax

0.3-3

 

Corporate Income Tax
Standard corporate profit tax (CPT) rate is 15 %.

Reduced CPT rate - 0 % and 5 % remains.

Withholding tax tariffs - 10 % and 15 % unless subject to tax incentive.

(if otherwise is not stated in the double tax avoidance treaty)

Read more

10 % withholding tax rate shall apply to the following income of foreign entities:

  • interests (Tax free if established criteria is met);
  • royalties;
  • compensations for breach of authorship or neighboring rights*.

15 % withholding tax rate shall apply to the following income of foreign entities:

  • dividends;
  • income for the sold or leased real estate situated in Lithuania;
  • income for activity of artists and sportsmen performed in Lithuania;
  • annual bonus for the activity of the members of the Supervisory Council.

5 % withholding tax rate forSmaller companies employing not more than 10 employees and having its annual income at not more than EUR 300 000 shall be subject to 5 % of Corporate Income Tax.

Participation exemption rule shall remain (dividends are tax free if not less than 10 % of shares are hold for continuing period of 12 months).

Dividends (or their respective part) are subject to 15 % CPT rate* (excluding personal income tax) if a company paying the dividends:

    • applied 0 % CPT rate on taxable profit;
    • applied tax incentive on investment project;
    • obtained non taxable income from the sale of shares;
    • other.

* Not applicable, if dividends paid by the Free Economic Zone company.

 

Indirect Tax (Value Added Tax)
Standard VAT rate – 21 %. Read more

Preferential VAT rates applied:

    • 5 % - certain drugs and medicine; technical aids for disabled and their repair
    • 9 % books and non- periodical informational publications; to regular passanger transportation and related baggage handling services; to heating energy for residential premises and water heating (until 31 December 2012)
    • 0% rate of VAT - in certain cases (insurance and financial services; universal postal services, certain education services and etc..

Turnover threshold currently 45 000 EURO.

 

Personal Income Tax (PIT)

Rates

All kinds of income (save for dividends) – 15 % -work remuneration, authorship fee, honorariums, artists remuneration, capital gain, income of lease of property, annual bonus, profit of individual activity, income of owner of individual enterprise, etc.

Dividends – 15 % - including income received by the shareholders when distributing profit of the company or decreasing authorized capital or property received.

Fixed PIT - applied to persons performing individual activity under the business license.

Read more

Annual Non Taxable Minimum is recalculated based on annual taxable income.

 

Capital Gains Tax

Enterprises registered in Lithuania must pay taxes in Lithuania on profits and capital gains earned both in Lithuania and abroad.

Read more

Capital gains are not taxable if they are delivered from transfer of shares of an entity that is registered in Lithuania or another EEA country, or in a country with which Lithuania has a double tax treaty and is subject to corporate income tax or equivalent tax (participation requirement: more than 25 % of shares held continuously for at least two years). If the transfer of shares takes place in the course of reorganization, the minimum holding period is three years.

There are no special capital gains taxes in Lithuania; individual capital gains are treated as ordinary taxable income and subject to the income tax rate of 15%. Capital gains from the sale of registered real property, except for property used in individual activities, owned for at least five years are tax exempt.

 

National InsuranceRead more

Social security and mandatory health insurance contributions are payable in respect of gross employment income by the employer and employee. There is no income cap for social security contributions on earnings from an employment relationship. Specific rules are established for persons performing individual activities with cap for contributions applied.

  • Employer`s rate: 31,18 %- 32,80%
  • Employee`s rate: 9 % (3 % social insurance and 6 % health insurance, withheld by employer).

 

Real property taxRead more

For companies: Tax rate varies on municipality form 0,3 % to 3 % of the taxable value;

For individuals (Luxury tax): Tax rate – 1 % for the property if its taxable value is more than 290 000 EUR .