FAQ for Lithuania in English

What type of business (business format) can you set up in this country and what are the differences? 

You can start business by choosing an individual activity or setting up a company – a legal entity.

More information:

Individual activity

The main difference between the ways of conducting individual activity is that the person working under a business licence shall pay a fixed fee in advance and may only engage in strictly defined activities. An individual activity certificate allows engaging in a variety of activities; income tax shall be paid from the actual income.

Start and termination of individual activity is quick and non-expensive: you only have to obtain a business licence or a certificate at STI.

Business by establishing a company

The most common business enterprises:

  • Private limited liability company (UAB);
  • Individual enterprise (IĮ);
  • Small partnership (MB).

Individual activity

The main difference between the ways of conducting individual activity is that the person working under a business licence shall pay a fixed fee in advance and may only engage in strictly defined activities. An individual activity certificate allows engaging in a variety of activities; income tax shall be paid from the actual income.

Start and termination of individual activity is quick and non-expensive: you only have to obtain a business licence or a certificate at STI.

More about Individual activity under an individual activity certificate

  1. Possible activities

All activities are allowed, except for some instances when it is required to establish a legal entity. You can get the code for a suitable activity by calling the Department of Statistics at (+370 5) 236 4716.

  1. Do I have to establish a company?

No

  1. When can I get started?

Activity may be started the same day the application is submitted to the STI. Activity period is unlimited.

  1. Activity period

Unlimited

  1. Termination of activity

You need to inform the STI 5 days in advance.

  1. Recruitment of other individuals

Allows hiring employees.

  1. Personal income tax (GPM)

Depends on the actual income. There are no income taxes, if activity fails and no income is earned. Rate — from 5% to 15%

A 5% rate applies if income does not exceed EUR 20,000 per calendar year. As the annual income exceeds EUR 20,000, the applicable tax rate increases depending on the amount until it reaches a fixed rate of 15% (as the annual income reaches EUR 35,000). Profit from individual activity — the income reduced by the expenses incurred or by deducting 30% from all the revenues gained. Find more information about the income tax on the STI website.

  1. State Social Insurance (VSD)

Rate — 12.52% (additional 1.8 or 3.0% contributions are made if a person is involved in pension accumulation)

Paid from 90% of taxable income gained from individual activity.

  1. Compulsory health insurance (PSD)

Rate — 6.98%

Paid from 90% of taxable income gained from individual activity.

IMPORTANT. If this activity is the main income and the resident is not elsewhere covered with social and compulsory health insurance:

VSD and PSD contributions are calculated from the taxable income but not less than from a minimum monthly salary (MMA) which now is equal to EUR 555. I.e. EUR 38.74.

PSD of EUR 38.74 must be also paid on months when no income is received. There is no need to make state social insurance contributions for such months.

  1. Value Added Tax (PVM)

Registering as VAT payer is not required, if the total amount for economic activity performed in the territory of Lithuania does not exceed EUR 45,000 during the last 12 months.

However, if the amount of all the intra-Community acquisitions of goods by a person during the preceding year was in excess of EUR 14,000 or it is estimated to exceed the threshold during the current year, such person must  file an application to be identified as VAT payer, even if the annual income of EUR 45,000 is not exceeded.

  1. Corporate income tax

Not applicable

  1. Accounting

Income-expense journal and cash register must be kept.

One of the following accounting documents must be issued for buyers of goods or services: invoice, VAT invoice or cash register receipt.

Detailed information is specified in the Rules of Accounting of Residents’ Individual Activities (except for residents holding business certificates).

  1. Legislation and other references

For more information, please visit the STI website (http://www.vmi.lt/index.jsp?lang=en)or call 1882.

Legislation:

Law on Tax Administration of the Republic of Lithuania: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.141918?jfwid=p1ug7nle7;

The Resolution No 1059 of the Government of the Republic of Lithuania of 6 September 2000 “Regarding establishment of the Register of taxpayers and approval of the provisions thereof”;

The Order No 373 of the Head of State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 24 December 2002 “Regarding the Rules of issuance of self-employment certificate of the permanent resident of Lithuania and the certificate of registration of a permanent base of non-residents of Lithuania in Lithuania”;

The Order No VA-39 of the Head of State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 13 April 2006 “Regarding the description of the procedure of registration of the residents in the Register of Taxpayers”;

The Order No VA-36 of the Head of State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 25 June 2013 “Regarding approval of the Rules of registration/deregistration of Natural persons in/from the Register of Taxpayers”.

 

More about Individual activity under a business licence

  1. Possible activities

Business licence allows engaging only in a limited set of activities (list of allowed activities here (http://www.vmi.lt/index.jsp?lang=en).

The amount for service rendered by a legal entity in the course of the year shall not exceed EUR 4,500.

VAT payers are not allowed to engage in individual activity under a business licence.

  1. Do I have to establish a company?

No

  1. When can I get started?

Activity may be performed during the business licence validity period. Business licence is issued within 4 business days. Number of different business licences is unlimited.

  1. Activity period

Business licence may be issued for at least one day, but no longer than for a year. It may be extended, if needed.

  1. Termination of activity

No liquidation or notification needed.

  1. Recruitment of other individuals

Only one of the following family members is allowed to participate in activity under a business licence: spouse, father, mother, minor aged 14 years, ward, caregiver.

Person working under a business licence is not allowed to hire people for the activity performed under a business licence, however, person who acquired a business licence may employ natural person for works not related to his activity performed under a business licence.

  1. Personal income tax (GPM)

GPM shall be paid before the day of issue of a business licence.

A municipal income tax shall be paid for a business licence if income does not exceed EUR 45,000 per year.

  1. State Social Insurance (VSD)

State social insurance contribution depends on the business licence duration.

A standard contribution is paid when a business licence is valid for a month (from the first to the last day of the month):

  • EUR 48.40 (8.72% of MMA)
  • EUR 58.39 (10.52% of MMA, if a person is involved in pension accumulation and pays 1.8%)
  • EUR 65.05 (11.72% of MMA, if a person is involved in pension accumulation and pays 3%).

If a business licence is valid for longer or less than a month, state social insurance contributions are calculated in proportion to the business licence duration.

  1. Compulsory health insurance (PSD)

Compulsory health insurance (PSD) — EUR 38.74 (6.98% of minimum monthly salary (MMA) — EUR 555: EUR 555 x 6.98%). Contribution amount stays the same regardless the validity period of a business licence during that month.

IMPORTANT. Foreigners who have temporary residence permits and are engaged in individual activity under a business licence should pay compulsory social insurance contributions in advance (for example, they must pay entries for September until 31 August), as these persons are considered covered by compulsory health insurance only after making contributions for the current month.

  1. Value Added Tax (PVM)

Registering as VAT payer is not required, if the total amount for economic activity performed in the territory of Lithuania does not exceed EUR 45,000 during the last 12 months.

However, if the amount of all the intra-Community acquisitions of goods by a person during the preceding year was in excess of EUR 14,000 or it is estimated to exceed the threshold during the current year, such person must  file an application to be identified as VAT payer, even if the annual income of EUR 45,000 is not exceeded.

  1. Corporate income tax

Not applicable

  1. Accounting

The seller working under a business licence must issue a sale and purchase receipt.

Income-expense journals must be kept.

  1. Legislation and other references

Guide for an individual who obtains a business licence.

For more information, please visit the STI website (http://www.vmi.lt/index.jsp?lang=en) or call 1882.

Legislation:

Law on Personal Income Tax of the Republic of Lithuania: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.319033?jfwid=rivwzvpvg;

Law on State Social Insurance of the Republic of Lithuania: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.371035?jfwid=5sjolge5y;

Law on Health Insurance of the Republic of Lithuania: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/224f56c0507811e485f39f55fd139d01?jfwid=q8i88kxfa;

Resolution No 1797 On the Rules of Issuing Business Certificates to Individuals of 19 November 2002 of the Government of the Republic of Lithuania;

Order of the Minister of Finance of the Republic of Lithuania No. 415 of 24 December 2002 “Concerning approval of the accounting rules for residents who have acquired business licenses”;

Order of the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania No. 333 of 21 November 2002 “Concerning approval of the business licence form and the classifier of registered individual activities that may be pursued by holders of business licenses”.

 

Business by establishing a company

The most common business enterprises:

  • Private limited liability company (UAB)
  • Individual enterprise (IĮ).
  • Small partnership (MB).

 

More about Private limited liability company (UAB)

  1. Possible activities

Companies may engage in any activity; some activities are subject to licences (see FAQ question “What are general business taxes to pay?”).

  1. When can I get started?
  • Company must be registered in the Register of Legal Entities (see more in FAQ question “How do you set up or register a business?”).
  • Particular documents must be prepared and obtained (establishment act, statutes, shareholder’s decision, consent of the owner of the premises, etc.); most of them must be notarised. The process of setting up a business can take up to 3 weeks.
  1. Liabilities

UAB is a private legal entity of limited civil liability. This means that responsibility of a member for non-executed obligations is limited only to his contributed assets.

  1. Authorised capital

Must be at least EUR 2 500. Formed of contributions of shareholders. When authorised capital of more than EUR 2,500 is formed, shares can also be paid with non-monetary contributions (such as, vehicles, computers, and other property); non-monetary contributions must be valued by independent property valuers. Such contributions cannot constitute more than 75% of the authorised capital.

UAB can issue new shares and trade in them to attract more funds.

  1. Founders

UAB may be founded by one or more natural or legal persons.

  1. Management

Single-person management body – head of the company or a collegiate management body – the Board.

  1. The principle of voting during the process of decision making

If all the shares of the company granting voting rights are of equal nominal value, 1 share equals to 1 vote during the general meeting of shareholders.

  1. Employees

Two mandatory employees: director and accountant (or an accounting company).

  1. Shareholders
  • May have up to 249 shareholders.
  • The profit earned by UAB may be distributed to the shareholders only through dividends (if UAB is profitable) or salary.
  • UAB shareholders may trade, donate or otherwise transfer their shares to other people. Shareholders may also leave their shares as legacy.
  1. Termination of activity

Regardless the legal form (UAB, IĮ, MB) and type of activity, liquidation and termination of the company is quite similar.

Company is liquidated at its own discretion as participants (shareholders, members, owner) decide to terminate the activity of a legal entity. Decision on liquidation must be adopted by at least 2/3 of the votes of all participants (shareholders, members).

Individual enterprise may be reorganized into a limited liability company, private limited liability company or small partnership.

  1. Personal income tax (GPM)
  • From dividends paid by the company to a resident — 15%;
  • From employee’s salary — 20% or 27%.
  1. State Social Insurance (VSD)

Employee’s taxes:

12.52% (additional 1.8% or 3.0% contributions are made if a person is involved in pension accumulation) from the remuneration for work.

Employer’s taxes: 1.77% to 3.75% from remuneration for work.

  1. Compulsory health insurance (PSD)

Employee’s taxes:

6.98% from the remuneration for work.

  • State social insurance and compulsory health insurance contributions are not deducted from dividends.
  • Company must pay all employee’s taxes from the remuneration for work.
  • More about social insurance contributions.
  1. Value Added Tax (PVM)

Must be registered as a VAT payer.

Rate — 21%,

or a reduced rate — 5% or 9%.

  1. Corporate income tax

Rate — 15% or 5%;

UABs are subject to certain tax benefits. Company can also benefit from a reduced Corporate Income Tax rate of 5% instead of 15 %, if the company has less than 10 employees and its turnover during the financial year does not exceed EUR 300,000.

  1. Real Estate Tax

From 0.3% to 3% if a company has registered assets.

  1. Accounting

Accountant or an accounting company must be hired. Head of the company (director) shall not act as an accountant.

  1. Legislation and other references

Law on Companies of the Republic of Lithuania.

Law on Accounting of the Republic of Lithuania: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/1fd977c249b611e68f45bcf65e0a17ee?jfwid=rivwzvpvg

Law on Value Added Tax of the Republic of Lithuania: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.175434?jfwid=ck9gybq1y

 

More about Individual enterprise (IĮ)

  1. Possible activities

Companies may engage in any activity; some activities are subject to licences (see FAQ question “What are general business taxes to pay?”).

  1. When can I get started?
  • Company must be registered in the Register of Legal Entities (see more in FAQ question “How do you set up or register a business?”).
  • Particular documents must be prepared and obtained (establishment act, statutes, shareholder’s decision, consent of the owner of the premises, etc.); most of them must be notarised. The process of setting up a business can take up to 3 weeks.
  1. Liabilities

The individual enterprise is a private legal entity of unlimited civil liability. This means that the owner of an individual enterprise covers his liabilities with his own assets, i.e. assets of the company are not separated from the assets of the owner of the company.

  1. Authorised capital

Not required.

Contributions are the personal property of the owner of an individual enterprise, property transferred to the IĮ and property acquired on behalf of the company.

  1. Founders

Only 1 person.

The owner of the individual enterprise shall not be the owner of another individual enterprise.

  1. Management

Managed by the owner or a person appointed by the owner.

  1. The principle of voting during the process of decision making

Decisions are made by the owner.

  1. Employees

Owner may as well be the only employee. Family members may help the IĮ owner without any employment contracts.

  1. Shareholders

The whole profit goes to the owner of the individual enterprise. The owner may take money in the cash register of the company as an advance payment, may take assets from the individual enterprise.

  1. Termination of activity

Regardless the legal form (UAB, IĮ, MB) and type of activity, liquidation and termination of the company is quite similar.

Company is liquidated at its own discretion as participants (shareholders, members, owner) decide to terminate the activity of a legal entity. Decision on liquidation must be adopted by at least 2/3 of the votes of all participants (shareholders, members).

Individual enterprise may be reorganized into a limited liability company, private limited liability company or small partnership.

  1. Personal income tax (GPM)
  • From owner’s dividends — 15%;
  • From funds withdrawn by the owner for personal use (as salary) — 15%.
  1. State Social Insurance (VSD)

13.83% (additionally deducting 1.8% or 3%, if a person is involved in pension accumulation) — from 50% of amounts withdrawn by the individual enterprise owner for own use.

  1. Compulsory health insurance (PSD)

6.98% — from 50% of amounts withdrawn by the individual enterprise owner for own use.

  • State social insurance and compulsory health insurance contributions are not deducted from dividends.
  • Company must pay all employee’s taxes from the remuneration for work.
  • More about social insurance contributions.
  1. Value Added Tax (PVM)

IĮ shall register as a VAT payer, if its income exceeded EUR 45,000 over the last 12 months or the amount of all the intra-Community acquisitions of goods by a person during the preceding year was in excess of EUR 14,000.

Rate — 21%,

or a reduced rate — 5% or 9%.

  1. Corporate income tax

Rate — 15% or 5%;

UABs are subject to certain tax benefits. Company can also benefit from a reduced Corporate Income Tax rate of 5% instead of 15 %, if the company has less than 10 employees and its turnover during the financial year does not exceed EUR 300,000.

  1. Real Estate Tax

From 0.3% to 3% if a company has registered assets.

  1. Accounting

Accountant is not required.

  1. Legislation and other references

Law on Individual Companies of the Republic of Lithuania.

Law on Accounting of the Republic of Lithuania: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/1fd977c249b611e68f45bcf65e0a17ee?jfwid=rivwzvpvg

Law on Value Added Tax of the Republic of Lithuania: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.175434?jfwid=ck9gybq1y

 

More about Small partnership (MB)

  1. Possible activities

Companies may engage in any activity; some activities are subject to licences (see FAQ question “What are general business taxes to pay?”).

  1. When can I get started?
  • Company must be registered in the Register of Legal Entities (see more in FAQ question “How do you set up or register a business?”).
  • Particular documents must be prepared and obtained (establishment act, statutes, shareholder’s decision, consent of the owner of the premises, etc.); most of them must be notarised. The process of setting up a business can take up to 3 weeks.
  1. Liabilities

MB is a private legal entity of limited civil liability. This means that a participant shall cover non-executed obligations with the small partnership assets.

  1. Authorised capital

Not established, but members must pay contributions (amount thereof and payment procedure is determined by the meeting of members).

  1. Founders

Only natural persons (1-10 persons).

  1. Management

Two management bodies of the small partnership are possible:

  • Meeting of members. One of the members is appointed as the MB representative who basically is the head of the MB;
  • Meeting of members of a small partnership and the single-person management body – head of the MB (civil agreement is required).
  1. The principle of voting during the process of decision making

Usually it is 1 member per one vote, however, when the small partnership is led by the head, the provisions of the small partnership may specify otherwise.

  1. Employees

Members may work for small partnership, but no employment contracts are concluded. Employment contracts can only be concluded with employees who work for the small partnership, but who are not members of the MB.

  1. Shareholders
  • Profit is distributed proportionally according to the amount of the contributions made, unless the provisions of the small partnership provide otherwise.
  • Small partnership members may voluntarily leave the business by withdrawing their contributions; may as well sell or otherwise transfer their membership rights to other persons.
  1. Termination of activity

Regardless the legal form (UAB, IĮ, MB) and type of activity, liquidation and termination of the company is quite similar.

Company is liquidated at its own discretion as participants (shareholders, members, owner) decide to terminate the activity of a legal entity. Decision on liquidation must be adopted by at least 2/3 of the votes of all participants (shareholders, members).

Individual enterprise may be reorganized into a limited liability company, private limited liability company or small partnership.

  1. Personal income tax (GPM)
  • From dividends of MB members — 15%;
  • From funds withdrawn by MB member for personal use (as salary) — 20%;
  • From income for management services of the head of small partnership, who is a member of the MB, under a civil service contract — 15%;
  • From income for management services of the head of small partnership, who is not a member of the MB, under a civil service contract — 20%.
  1. State Social Insurance (VSD)
  • 83% (additionally deducting 1.8% or 3%, if a person is involved in pension accumulation) — from 50% of amounts withdrawn by the MB member for own use.
  • From income for management services of the head of small partnership, who is a member of the MB, under a civil service contract — state social insurance contributions are not paid.
  • 72% (additionally deducting 1.8% or 3%, if a person is involved in pension accumulation) — from income for management services of the head of small partnership, who is not a member of the MB, under a civil service contract.
  1. Compulsory health insurance (PSD)
  • 98% from 50% of amounts withdrawn by the MB member for own use.
  • From income for management services of the head of small partnership, who is a member of the MB, under a civil service contract — compulsory social insurance contributions are not paid.
  • 72% (additionally deducting 1.8% or 3%, if a person is involved in pension accumulation) — from income for management services of the head of small enterprise, who is not a member of the MB, under a civil service contract.
  • State social insurance and compulsory health insurance contributions are not deducted from dividends.
  • Company must pay all employee’s taxes from the remuneration for work.
  • More about social insurance contributions.
  1. Value Added Tax (PVM)

MB shall register as a VAT payer, if its income exceeded EUR 45,000 over the last 12 months or the amount of all the intra-Community acquisitions of goods by a person during the preceding year was in excess of EUR 14,000.

Rate — 21%,

or a reduced rate — 5% or 9%.

  1. Corporate income tax

Rate — 15% or 5%;

UABs are subject to certain tax benefits. Company can also benefit from a reduced Corporate Income Tax rate of 5% instead of 15 %, if the company has less than 10 employees and its turnover during the financial year does not exceed EUR 300,000.

  1. Real Estate Tax

From 0.3% to 3% if a company has registered assets.

  1. Accounting

Accountant is not required (members of a small partnership can administer the accounting in accordance with Business Accounting Standard No. 38).

  1. Legislation and other references

Law of Small Partnerships of the Republic of Lithuania.

Law on Accounting of the Republic of Lithuania: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/1fd977c249b611e68f45bcf65e0a17ee?jfwid=rivwzvpvg

Law on Value Added Tax of the Republic of Lithuania: https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.175434?jfwid=ck9gybq1y