SETTING UP A BUSINESS IN LITHUANIA

The Lithuanian economy is one of the most diversified and developed among the Baltic countries.  In the last ten years  in Lithuania, the largest of the three Baltic countries, a number of companies have started their activities. They specialise in the chemical industry, electronics, tools production, wood processing, manufacture of food products and in light industry, i.e. the production of clothes, fabrics, furniture and household appliances.

The assets of the  Republic of Lithuania which attract investors include in particular: attractive location (where the European Union meet  Eastern market), highly skilled labour, a well-developed transport infrastructure and low tax burden.  All this makes doing business in Lithuania  cost-effective, especially when it involves cooperation with CIS countries.

Mode for setting up a company is determined in the Lithuanian Civil Code and other legislation governing particular types of establishment, whereas registration is regulated by the Act on the register of legal persons.

Economic activity can be taken up under the same conditions and to the same extent as Lithuanian nationals.  Start consists of the registration of new activity or acquisitions of shares in existing companies.  Registration and records are conducted by the state-owned company " Centre of Register".  The number assigned here is at the same time NIP of the company.  The tax identification number of natural persons is their number in the population register (the equivalent of the Polish PESEL). Entrepreneurs are also required to have a business account.

In Lithuania there are companies with the following legal forms:

  • joint-stock  companies,
  • state-owned enterprises,
  • municipal companies,
  • cooperatives,
  • agricultural companies,
  • registered partnerships,
  • limited partnerships,
  • European economic  interest groups,
  • individual enterprise.

The standard rate of tax on operators' profit amount to 15 per cent in Lithuania. However, in respect of small firms there may be applied reduced rate of 5 per cent.

As an entrepreneur from Poland, you can temporarily provide services in Lithuania without having to set up economic activity.  More information on temporary cross-border provision of services in EU countries can be found here.

There are two ways to start a business in Lithuania: to start an individual activity or to register a company.

There are two kinds of individual activities:

  • Business certificate
  • Certificate of self-employment.

The main difference between them:

 

Evaluation criteria Business certificate Certificate of self-employment
Number of participants A person and a person's family members, if they are indicated in the business certificate Sole owner
Restrictions of activities Only the activities specified in the list  of types activity (which require a business certificate) All types of economic commercial activities, except those that can only be undertaken by a legal entity
Minimum capital amount There are no requirements regarding the capital There are no requirements regarding the capital
Duty to register as a VAT payer If the turnover exceeds 45 000 EUR If the turnover exceeds 45 000 EUR

 

Note the key difference:

  • A business certificate – an advance payment of a fixed income tax is required.
  • Self-employment certificate – the income tax is paid upon the end of the tax period (by 1 May).
  • Self-employment - an individual activity which brings income or any other economic benefit to the resident during a continuous period.

For more information, please read this article.

The other way is to register a company. Here are most widespread types of companies in Lithuania:

  • Individual enterprise;
  • Private limited Liability Company;
  • Small partnership.

The main features of and differences between the most popular legal forms of legal entities

 

Assessment criteria

Small partnership (MB)

Private limited liability company (UAB) Individual enterprise (IĮ)
Minimum number of participants 1 (member) 1 (shareholder) 1 (owner)
Maximum number of participants 10 members. Only natural persons 249 (shareholders). Natural persons or legal entities 1 owner. Only a natural person can be the owner
Minimum amount of the capital Not specified Not less than 2500 EUR This requirement is not applicable
Founders (participants) Natural persons Natural and/or legal persons Natural person
Participant's liability for the commitments of the legal entity

A small partnership member has limited civil liability
(a member of a legal entity bears no responsibility for liabilities of a legal entity).

A shareholder has limited civil liability (a member of a legal entity bears no responsibility for liabilities of a legal entity). Owner of an individual enterprise has unlimited civil liability (if the assets of an individual enterprise are not enough to meet all the commitments of the enterprise, the owner of the individual enterprise must cover these liabilities with his own assets).
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 share per 1 vote The decisions are made by the owner of the individual enterprise.
Accounting (legal regulation)

Simplified  accounting procedure
Republic of Lithuania Law on Accounting, Republic of Lithuania Law on Financial Statements of Entities, business accounting standard

Republic of Lithuania Law on Accounting, Republic of Lithuania Law on Financial Statements of Entities, Republic of Lithuania Law on Consolidated Financial Statements of Entities, international accounting standards, business accounting standards.

Simplified accounting procedure, the requirement to produce a set of annual financial statement is not applicable. If the provisions of an individual partnership provide for drafting of financial statements.

Republic of Lithuania Law on Accounting,

Republic of Lithuania Law on Financial Statements of Entities, business accounting standards

Capital and contributions

Contributions by members of small partnerships can be of monetary or non-monetary form. The value of non-monetary contributions is agreed upon by all members of the small partnership.
Works or services cannot be considered as contributions.

Shares are the parts to which the capital is divided. Shares are paid with money and/or a non-monetary contribution owned by a shareholder by the right of ownership, the value of which must be established in line with the procedure specified in legal acts. Contributions are the personal property of the owner of an individual enterprise.
Distribution of profit

Profit is distributed proportionally according to the amount of the contributions made, unless the provisions of the small partnership provide otherwise.
Profit can be distributed in advance. In the event it becomes clear following the end of the financial year that the advanced distribution of profit exceeds the established amount, the surplus has to be recovered.

The amount of dividends paid to shareholders is proportionate to the nominal value of shareholders' shares. Dividends can be paid for a shorter period than the financial year The whole profit goes to the owner of the individual enterprise.
Internal structure

Founders (members) of the small partnership can choose one of the two structures of the small partnership:
- when the small partnership is a meeting of members of the small partnership, which is its management authority.  In this case, the small partnership does not have other bodies, only a representative elected by its members, however, all the operational decisions are made during meetings of members of the small partnership;
- when the small partnership is the meeting of members of a small partnership and the single-person management body, i.e. the head of the small partnership, with whom a civil agreement is concluded.

Private limited liability company must have a general shareholders' meeting and a single-person management body, i.e. the head of the company.
A collegiate supervisory body, i.e. a supervisory council and a collegiate management body, i.e. the board, can be established.
A job agreement is concluded with the head of the company.

Usually, the owner of an individual enterprise is a single-person management body, i.e. the head of the company.
When another person is appointed the head of an individual enterprise, this person acts on behalf of the individual enterprise, and the owner of the individual enterprise acts only within his competence as a meeting of members.

A person acting on behalf of the legal person

Depending on the structure of a small partnership, the following persons may act on its behalf:
the meeting of members of a small partnership, the latter represented by its representative or the head of the small partnership, i.e. the single-person management body.

A private limited liability company is represented by its head when dealing with other persons. When there is no head of an individual enterprise appointed by its owner, the owner acts on behalf of the enterprise. When there is a head of an individual enterprise, he acts on behalf of the enterprise.

 

Detailed information on how to start a business can be found at the following links:

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