Business in Lithuania

COMPANY ESTABLISHMENT

Civil Code of the Republic of Lithuania lays down the legal norms of the foundation, legal status, management bodies and their competence, liquidation and reorganization companies established in Lithuania. The first steps in making business in Lithuania have been made easy! The company can be set electronically. The most popular types of business entities are Private Limited Liability Company (UAB) and Branch.
The establishment process usually takes approximately from two to four weeks.

When registering Private Limited Liability Company in Lithuania you have to reserve the company name in the Register of Legal Entities. In order to register the legal address you need to get a permission of the owner of the premises.

TAXATION

The standard corporate income tax rate is 15%. 0% corporate income tax rate may be applied to newly established entities (from 2018) for the first year of the activity if all the conditions detailed below are met: the average number of employees does not exceed 10; annual income does not exceed EUR 300 000; the shareholders of the entity are natural persons; in the three tax periods (including the first one) the activity of the entity is not stopped, the entity is not liquidated or reorganized and the shares of the entity is not transferred to new shareholders.

The standard VAT rate in Lithuania is 21%. The reduced rate of 9% applies for example to books and non-periodical publications, public transport services performed on regular routes determined by the Ministry of Communications or municipalities,
accommodation services. The reduced rate of 5% applies to technical aid devices and their repair services for the disabled; pharmaceuticals and medical aid devices.

payroll in Lithuania

The regulation of employment in Lithuania is governed by the Labor Code. It regulates the employment relationships connected with the exercise and protection of employment rights and the fulfilment of employment obligations. Lithuanian labor laws apply to foreign nationals and foreign businesses in Lithuania in the same manner as to domestic entities.

Lithuanian Labour Code foresees the opportunity to establish a probation period up to 3 months for the person to be employed. The duration and conditions of the probation period shall be specified in the employment contract. In case of termination of the employment contract the standard notice period is 1 month, however if the duration of the employment is less than 1 year the notice is 2 weeks.

The personal income tax is 20% if the employment income does not exceed 120 average monthly salaries per year (in 2019 the amount equal 136 344 EUR). Above the 120 average monthly salaries the personal income tax rate is 27%. 15% of personal income tax is applied for sick leaves.

Employee also pays social security contribution of 19,50%, additionally if employee chooses to transfer part of salary to pension funds from 1,8% to 3% is deducted from employee’s salary.

Employer’s taxes are 1,45% (2,17% for fixed term contracts) of social security contributions and 0,32% of guarantee fund and long-term unemployment fund.

Read comprehensive guide on Payroll in Lithuania

BEING AN EXPAT

As Lithuania is an EU-member state the moving and employment for EU-citizens is free. However a residence permit is necessary if the foreign national wants to reside in Lithuania for a period of time exceeding 90 days within half a year counting from the first day of entrance.

Most of the foreign workers in Lithuania reside in the capital Vilnius. The living costs in the country are very low when compared to other countries in the EU.

Expats are liable to pay resident taxes in Lithuania only if they stay in the country for at least 183 consecutive days over 12 months period. Residents must pay tax on their worldwide income there. Individuals who contribute to the Lithuanian social security system, depending on their form of activity and the types of contributions paid, are entitled to receive sickness allowances, free healthcare from public healthcare service providers etc.

Accounting in Lithuania

Accounting in Lithuania is regulated according to the following legal acts:

• Accounting Law of the Republic of Lithuania*;
Business Accounting Standards or International Accounting Standards;
Law on Company Financial Statements of the Republic of Lithuania;
• other legislation governing accounting and financial statements.

Both Business Accounting Standards and International Accounting Standards are acceptable for financial reporting. There are certain companies (e.g. insurance, brokerage companies) having obligation to apply International Accounting Standards, other companies may choose which standards to apply for the reporting

Employed accountant, a company or a person providing accounting services is responsible for accuracy of accounting entries.

All accounting records shall be supported by accounting documents (invoices, cheques, accounting statement, expense reports etc.). Requirements of accounting documents are specified in Art. 13 of Accounting Law of the Republic of Lithuania. Accounting documents shall be archived for 10 years, some payroll documentation must be archived for 50 years.

The State Tax Inspectorate is developing a smart tax administration system and taxpayers are obliged to provide to the State Tax Inspectorate with more information on their activity by preparing Standard Accounting Data file (SAF-T).

Read comprehensive guide on Accounting in Lithuania

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