Doing Business in Lithuania
How to start business in Lithuania
Lithuania has everything you need to make your investment in Europe (EU/EEA area) go further: dynamic talent pool, competitive, growth-oriented business environment, strong focus on continued innovation, EU-leading infrastructure, innovations and R&D, quality and costs, 6 Free Economic Zones in the economic centres of the country.
Lithuania is a business-friendly country not only for young entrepreneurs and skilled professionals but is also trusted by such high calibre companies. This country, full of young people, ambition, energy, skill, and talent, equipped with Europe’s fastest internet connection and rapidly growing start-up ecosystem.
Lithuania is one of the best jurisdiction for FinTech companies. High rankings recently granted to Lithuania confirm preferable business conditions, good investment possibilities, capacity to create good well-being of the country:
- the 11th position in the World Bank’s Doing Business 2020 report measuring business conditions.
- Vilnius took the 1st place in FDI’s first Tech Start-up FDI Attraction Index. Lithuanian capital received the highest number of greenfield FDI projects per capita from start-ups in the software and IT services sector between 2016 and 2018.
- the 29th position in IMD World Competitiveness Rankings. This ranking shows how countries are able to harness available resources and competencies to increase their well-being.
- the 6th place globally for the best work-life balance (OECD Better Life Index, 2019).
- Top 4 best locations in the world for FinTech, ranked by Findexable Global FinTech Index 2020, covering more than 250 cities in 65 countries.
- the 18th position in Paying Taxes Ranking 2019, ranked by PwC and the World Bank Group.
FinTech company or other financial institution registered and licensed in Lithuania provides a significant competitive advantage and opens EU/EEA financial market at significantly lower incorporation and operational costs. Regulators in other member states are not allowed to make any barrier or set additional requirements. FinTech is a dynamic and rapidly developing sector in Lithuania. Almost two hundred FinTech companies operate in our country. The Bank of Lithuania is constantly receiving applications for electronic money and payment institution, also bank licenses. FinTech companies prefer Lithuania as a European jurisdiction for Payment and Electronic Money Institution licensing for many reasons: fastest pan-European FinTech licensing process, five times lower initial capital requirement for challenger banks, regulatory Sandbox, newcomer program and other progressive regulations.
International Double Taxation
Double taxation is the imposition of taxes on the same taxable income or capital (as agreed and applied in the treaty and convention), which results in either an additional tax or an increase in tax liability, or the elimination or reduction of losses that could be deducted from taxable income.
There is a risk that your income may be taxed twice if two countries have the right to tax your income because, for instance:
- You live in one EU country but work in another (cross-border commuter);
- You are posted abroad for a short assignment;
- You are living and looking for work abroad and have transferred unemployment benefits from your home country;
- You have retired to one country and receive a pension from another.
In these situations, while you will always be subject to the tax rules of your country of residence, you may also have to pay taxes in the other country. Fortunately, however, most countries have double tax agreements.
Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada , China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Greece, Georgia, Germany, Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Kazakhstan, Kyrgyz, Korea, Kuwait, Latvia, Liechtenstein, Luxembourg, Macedonia , Malta, Mexico, Moldova, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Ukraine, United Arab Emirates, United Kingdom of Great Britain and Northern Ireland, USA, Uzbekistan, Turkey, Turkmenistan are the countries which have signed double tax treaties with Lithuania.
All double taxation avoidance agreements currently in force in Lithuania and synthesized texts of the MLI and the Double Taxation Agreements can be found here: https://www.vmi.lt/evmi/en/tarptautines-dvigubo-apmokestinimo-isvengimo-sutartys1
Double taxation convention (DTC)
If a foreign country had the right, under the provisions of DTC, to tax the income that you have received and taxed the income with the income tax, then the same income is not taxed once again in Lithuania (i.e. it is exempt from the income tax).
The exemption applies to dividends, interest and royalties that were received from such countries. Double taxation of income is eliminated for this income as follows: the amount of income tax that was paid in a foreign country with which the DTC applies is deducted from the payable amount of the income tax that was calculated in Lithuania (but not higher than the amount set out in the DTC), and the difference (if any has been calculated) has to be paid in Lithuania.
If your income that you have received in a foreign country was not taxed in that country (or was taxed but not under the provisions of the DTC), you must pay the income tax on such income in Lithuania (except in cases where the income received is classified in Lithuania as non-taxable income).
If the income that you have received in a foreign country was not taxed in that country because of the applied tax-exempt amount of income, in such a case, the income shall be deemed to have been taxed in a foreign country and shall be exempt from the payment of the income tax in Lithuania under the general procedure.
Lithuanian and foreign natural and legal persons who carry out any kind of economic activities in Lithuania, also, undertakings for collective investment that do not have a status of legal person and whose form of activity is an investment fund are taxpayers in Lithuania. In certain cases, even a person who does not carry out economic activity can be treated as a taxpayer.
Subject to tax:
The subject to VAT is the supply of goods and services by a taxable person in the performance of his/its economic activities within the territory of the country that are affected for consideration. In addition, the subject to VAT is acquisition of goods for consideration within the territory of the country from another Member State. Moreover, the subject of import VAT is importation of goods where the goods are treated as imported within the territory of the country.
- Standard VAT rate is 21%.
- Reduced VAT rates are fixed at 9%, 5% and 0%.
More about VAT rates can be found here https://www.vmi.lt/evmi/en/pridetines-vertes-mokestis2
Companies can reclaim the VAT paid in Lithuania. If you have paid VAT in Lithuania, you can see this on the invoice where is indicated PVM (an abbreviation of VAT). The percentages indicated are 21%, 9% or 5%.
Any company registered with the Lithuanian tax authorities as a non-resident VAT trader must report taxable transactions through periodic filings, known as returns.
VAT-registered businesses in an EU member state are eligible to recover VAT on business costs from Lithuania under the EU VAT Refund Directive. VAT-registered businesses outside of the European Union are eligible to recover VAT on business costs from Lithuania under the 13th Directive.
Depending on the complexity of your application and the capacity at the VAT authority, it can take up to 6 months for EU businesses and up to 9 months for non-EU businesses to receive a VAT refund from Lithuania.
Taxation of holding companies in Lithuania
Lithuania does not have a holding regime; however, the tax authorities here provide the following facilities for the shareholders of such entities:
- no capital duties for holding companies buying shares in other companies;
- a participation exemption regime is available in the case of distribution of dividends;
- the transfer of shares is exempt from taxation in the case of holding companies, provided certain requirements are met;
- the holding company will be subject to the corporate income tax which has a rate of 15%.
Report of legal court system
A court system of the Republic of Lithuania is made up of courts of general jurisdiction and courts of special jurisdiction.
A district court is first instance for criminal, civil cases, and cases of administrative offences (assigned to its jurisdiction by law), cases assigned to the jurisdiction of mortgage judges, as well as cases relating to the enforcement of decisions and sentences. Judges of a district court also perform the functions of a pre-trial judge, an enforcement judge, as well as other functions assigned to a district court by law.
A regional court is first instance for criminal and civil cases assigned to its jurisdiction by law, and appeal instance for judgements, decisions, rulings, and orders of district courts. The Chairman of a regional court organises and controls the administrative activities of district courts and their judges within the territory of his activities in accordance with the procedure prescribed by law.
The Court of Appeal is appeal instance for cases heard by regional courts as courts of first instance. It also hears requests for the recognition of decisions of foreign or international courts and foreign or international arbitration awards and their enforcement in the Republic of Lithuania, as well as performs other functions assigned to the jurisdiction of this court by law. The Chairman of the Court of Appeal organises and controls the administrative activities of the regional courts and their judges in accordance with the procedure prescribed by law.
The Supreme Court of Lithuania is the only court of cassation instance for reviewing effective judgements, decisions, rulings, and orders of the courts of general jurisdiction. It develops a uniform court practice in the interpretation and application of laws and other legal acts.
A regional administrative court is the court of special jurisdiction established for hearing complaints (petitions) in respect of administrative acts and acts of commission or omission (failure to perform duties) by entities of public and internal administration. Regional administrative courts hear disputes in the field of public administration, deal with issues relating to the lawfulness of regulatory administrative acts, tax disputes, etc. Before applying to an administrative court, individual legal acts or actions taken by entities of public administration provided by law may be disputed in the pre-trial procedure. In this case disputes are investigated by municipal public administrative dispute commissions, district administrative dispute commissions and the Chief Administrative Dispute Commission.
The Supreme Administrative Court is first and final instance for administrative cases assigned to its jurisdiction by law. It is appeal instance for cases concerning decisions, rulings, and orders of regional administrative courts, as well as for cases involving administrative offences from decisions of district courts. The Supreme Administrative Court is also instance for hearing, in cases specified by law, of petitions on the reopening of completed administrative cases, including cases of administrative offences. The Supreme Administrative Court develops a uniform practice of administrative courts in the interpretation and application of laws and other legal acts.
Constitutional Court of the Republic of Lithuania
The Constitutional Court of the Republic of Lithuania is not a part of the court system, but is a separate independent judicial body with the authority to determine whether the laws and other legal acts adopted by the Seimas are in conformity with the Constitution, and whether the legal acts adopted by the President and the Government conform to the Constitution or laws.
Forms of entrepreneurship
There are the following forms of entrepreneurship in Lithuania:
- Private limited liability company (UAB)
- Separate legal entity (a legal entity with limited liability);
- A shareholder may be held liable for the obligations of a company only in the event of failure to fulfil the obligations due to unfair actions of the shareholder;
- May engage in any legitimate activities;
- May engage in licensed activities upon obtaining the respective license;
- The minimum amount of share capital is EUR 2,500;
- General meeting of shareholders (sole shareholder) and general manager (single-member management body) are mandatory bodies
- Management board (min. 3 members) and (or) supervisory council (3-15 members) are optional bodies;
- No residence requirements to the general manager, other members of other bodies;
- An employment contract must be concluded between the general manager (Personal income tax 20 % plus social security tax: 19,5 % paid by employee 1,47% paid by the employer) and the company.
- Public liability company (AB)
- Minimum number of stakeholders – 1 shareholder;
- Maximum number of stakeholders – unlimited;
- Minimum amount of capital – EUR 25,000;
- Liability – limited civil liability – shareholders are not held personally liable for AB obligations.
- Small partnership (MB)
- Limited liability of members, in case of business failure, members risk only with their contribution, thus protecting their personal property;
- The minimum authorized capital requirement does not apply;
- Opportunity to voluntarily leave the business – a member of a small partnership may leave the partnership by withdrawing his contribution and may also sell or otherwise transfer the membership rights to other persons;
- The profits of a small partnership may be distributed to its members before the end of the financial year. However, if at the end of the financial year the share of the profits of the member is less than the number of benefits received by him, the member of the small partnership must repay the amount more than his share of the profits of the year.
- A small partnership can also be established by one person. If necessary, more members can be involved in the process.
- Only a natural person may be a founder/member, in total no more than 10.
- Individual enterprise
- Minimum number of stakeholders – 1 owner;
- Maximum number of stakeholders – 1 owner;
- Minimum amount of capital – none;
- Liability – unlimited civil liability – should business debts exceed the assets of the individual enterprise the owner is held personally liable.
- Agricultural Company (ŽŪB)
- Minimum number of stakeholders – 2;
- Maximum number of stakeholders – unlimited;
- Minimum amount of capital – none;
- Liability – limited civil liability – members are not held personally liable for ŽŪB obligations.
- Individual activities
- Independent commercial or production activities of any nature, including business activities under business certificates (manufacture of textiles, repair activities, etc.);
- independent creative work, professional and other similar independent activities, including business activities under business certificates (lawyers, notaries, etc.)
- independent sports activities;
- independent performers’ activities (actors, musicians, etc.).
More about different types of entrepreneurship can be found: https://investlithuania.com/investor-guide/start-your-business/ , https://www.enterpriselithuania.com/en/start/types-of-companies/
Produce on legalization of the court decisions announced in other jurisdictions
The procedure of recognition and (or) permission to enforce foreign court judgments (arbitral awards) is a judicial procedure and the Court of Appeal of Lithuania has the exclusive jurisdiction to deal with these questions. Nevertheless, the court has limited powers when deciding these questions since it has no power to analyse the application of law and facts of the judgment and exercises only limited revision.
An application for recognition (refusal of recognition) and (or) permission to enforce a foreign court (arbitration) decision in the Republic of Lithuania shall be submitted to the Lithuanian Court of Appeal. Application to the court and additional documents shall be written only in Lithuanian.
Service of documents
- If a party residing abroad has not appointed a representative in the case, he or she must appoint an authorized person residing in the Republic of Lithuania to whom procedural documents related to the case would be served. If the party residing abroad does not designate an authorized person, all procedural documents addressed to the party abroad remain in the file and are deemed to have been served. These consequences for the party must be clarified at the time of the first service.
- If the applicant resides outside the Republic of Lithuania and has not appointed a representative or authorized person residing or having a registered office in the Republic of Lithuania to receive procedural documents, then instead of the applicant ‘s address in the Republic of Lithuania, the electronic mail address, fax number, other means of electronic communication for the service of documents to the applicant shall be indicated in the application.
Authentication of documents
Authentic judgments of foreign courts and other official documents of foreign institutions must be authenticated by consular legalization marks, except in cases where recognition is sought of a foreign judgment of the state which is a member of the 1961 Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents. The authenticity of such foreign court decisions and official documents of foreign institutions must be certified by a certificate of legalization and approval of the document (Apostille).
The requirements for the application for recognition (refusal of recognition) and (or) permission to enforce a foreign court may differ pursuant to the international treaties between the Republic of Lithuania and the foreign state(s). These agreements may provide for the abolition of consular legalization, the possibility to submit documents written in a language other than Lithuanian.
Foreign arbitral awards
The Court of Appeal of Lithuania belongs special jurisdiction for recognition of the foreign arbitral awards. The Republic of Lithuania is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Thus, the Court of Appeal of Lithuania applies the 1958 New York Convention in the procedure of recognition of foreign arbitral awards and the Code of Civil Procedure of the Republic of Lithuania.
The Association of Lithuanian Chambers of Commerce, Industry and Crafts (ALCCIC)
Address: Vašingtono sq. 1-63a, LT-01108 Vilnius
Phone: +370 (5) 2612 102
The American Chamber of Commerce in Lithuania (AmCham Lithuania)
Address: Konstitucijos Avenue 26 (Forum Palace), Vilnius, Lithuania
Tel.: +370 5 261 11 81; +12027938688
German-Baltic Chamber of Commerce in Estonia, Latvia, Lithuania
Adress: Vilniaus g. 28-201, 01402 Vilnius, Lithuania
Tel +370 5 213 1122