Company in Lithuania

General information

Lithuania is the largest Baltic State and a member of the European Union, and thanks to its strategic location it is a very attractive place for foreign investors. Lithuania has made huge economic progress since independence, is perceived as an economic mine of the region, and a stable economy, low inflation and liberal business environment attracts foreign entrepreneurs.

The Republic of Lithuania has the following legal forms of conducting business activity:

• joint stock companies (lit. akcinė bendrovė – AB, lit. uždaroji akcinė bendrovė – UAB);
• State-owned enterprises (lit. valstybės įmonė);
• Municipal enterprises (lit. savivaldybės įmonė);
• cooperatives (lit. kooperatinė bendrovė – kooperatyvas);
• agricultural companies (lit. žemės ūkio bendrovė);
• general partnerships (lit. tikroji ūkinė bendrija – TŪB);
• limited partnerships (lit. komanditinė ūkio bendrija – KŪB);
• civil partnerships;
• European economic interest groups (lit. Europos ekonominių interesų grupė);
• individual enterprises (lit. individuali įmonė – IĮ).

Limited liability company (UAB)

There are two types of limited liability companies in Lithuania – one is a public company (AB) and the other a private company (UAB). The limited liability company (UAB) is most often chosen for small and medium-sized enterprises, usually by those foreign companies that want to relocate their activities here. The minimum share capital for a private company is 2500. The basic legal acts regulating the activity of UAB type companies are the Civil Code of the Republic of Lithuania (LR CK) and the Law on joint-stock companies of the Republic of Lithuania (LR ABĮ). The partners of the company are not liable with their own assets for the company’s liabilities. This liability is limited to the amount of the contributed capital. In a UAB company, there is no obligation to appoint a management board or a supervisory board. The name of the company should be in accordance with Lithuanian language standards. If there are two founders of the company, a contract is drawn up, if one is a founding treaty. Registration in the Register of Legal Persons is the basis for starting business activity in Lithuania. In order to register, it is necessary to present the following documents: the articles of association or the articles of association when the company is appointed by one person (original or notarized copy), the articles of association, the minutes of the founding meeting (with attachments) or a written decision of the sole founder (original or notarized copy), a statement of one of the Lithuanian banks confirming the payment of the initial capital of the company, the address of the company’s seat in Lithuania, passports (copies) of the shareholders of the company in Lithuania.

Public limited liability company (AB)

AB type company is the second type of limited liability company. It is similar to foreign LLC (Limited Liability Company) or JSC (Joint Stock Company). It is a popular legal form among medium and large enterprises. The minimum share capital of an open-ended company is EUR 40 000. Each shareholder should pay not less than 1/4 of the nominal value of the shares subscribed for and the amount paid in excess of the nominal value of the shares subscribed for. Contributions in the form of contributions in kind, which are intended to cover part of the shares, should be valued by an independent expert on the valuation of assets prior to the signing of the agreement on the establishment of the company. The minimum number of members of the management or supervisory board is three. The liability of the company and its shareholders is limited. If a company is founded by one entity, a deed of incorporation is signed, as in the case of UAB, if more than one entity is required to draw up the articles of association. The founders of a company may submit to the Register of Legal Persons an application (form JAR-5) for the temporary inclusion of the company name in the Register. The articles of association give the right to set up a savings account of the company being established in a bank. The procedure of registration of a company and documents intensified for registration are the same as in the case of registration of a UAB company. The company is considered established at the moment of registration in the Register of Legal Persons.

Limited partnership (KŪB)

KŪB is established on the basis of a contract and is a business entity consisting of one or more general partners and limited partners. The general partners are fully responsible for the company’s obligations, while the limited partners are responsible for them up to the amount of the limited partnership’s declared and contributed to the company. The partner is an active shareholder and has the right to act on behalf of the company, while the limited partner only applies for capital in order to obtain appropriate benefits, such as dividend profit. The minimum capital is not specified, but it must be specified in the articles of association.

Branch of a foreign company

Foreign investors also have the opportunity to start operations in Lithuania through a branch of their company. A branch of a foreign company with its registered office in Lithuania may conduct business activity, conclude contracts and incur liabilities on the basis of powers of attorney granted to it by the parent company. The foreign company is responsible for the liabilities of the branch with all its assets. The branch (subsidiary) has no legal personality. After the registration of a branch, the organization of business activities is the responsibility of the manager, who acquires the right to represent the branch in contacts with third parties. It is important that the powers of attorney granted to the head of a branch of a foreign company may not be contrary to Lithuanian law. The procedure of establishing a branch or a subsidiary of a foreign company in Lithuania is such that at first the relevant body of a legal person, on the basis of its own founding documents, should take a decision on the establishment of a branch (branch), then prepare the statute of this entity and appoint a branch manager. A branch is considered to be established upon registration in the Register of Legal Persons. If the branch intends to carry on activities for which legal regulations require an appropriate licence, a licence issued by the relevant institution should be presented before the registration of the branch. Branches of foreign legal persons are obliged to register as a VAT payer from the beginning of their business activity.

Company registration procedure

Registration of the company:

In order to effectively carry out the process of company registration in Lithuania it is necessary:

• Select and reserve the name of the company to the Register of Legal Entities
• Prepare founding documents (articles of association and the company’s statute)
• Deposit capital into a bank account
• Present documents to a notary and obtain an excerpt of the notarial deed
• Submit documents and register the company in the Register of Legal Entities

Shareholders:

The number of shareholders is limited to a maximum of 249, a minimum of one shareholder is required to establish the company. Foreign shareholders are allowed.

Management Board:

The Lithuanian company is managed by the Management Board. Its members may be only natural persons in any number.

Supervision:

It is possible to appoint a supervisory board, but it is not obligatory. The board must have between 3 and 15 members.

Registered office:

The company must have a registration address in Lithuania.

Time to set up a company:

The procedure of company registration takes about 2 weeks.

Capital:

The minimum capital is EUR 2500 and it is fully paid into the account at the moment of registration of the company. If the capital is greater, only a part of it can be paid in (25% if it is not less than 2500 Euro).

Taxes and finances

Tax residence of the company

A company is resident if it is registered in Lithuania. Residents pay tax on income from both domestic and non-national activities (not counting EEA countries or those with whom Lithuania has signed tax agreements). Non-residents pay tax only on income earned in Lithuania. It is levied on the company’s receipts from its activities, passive income and capital gains.

CIT rate

15%; Microenterprises with less than 10 employees and an annual income not exceeding 300,000 Euro may be exempted from paying tax in the first year of operation, and in subsequent years they may be entitled to a reduced rate of 5%. Normal operating expenses may be deducted. Depreciation is either linear or degressive. The law establishes maximum depreciation rates that may not be exceeded. Losses may be carried forward for an indefinite period and may be deducted at any time in the future, provided that the company continues the activity which gave rise to them. However, they may only be deducted from 70% of profits. Losses resulting from the sale of shares can only be deducted for 5 years. Retrospective deduction is not permitted. Capital gains are usually taxed in the same way as income (15% rate).

Double taxation

Lithuania is a party to a number of treaties which provide for exemption from double taxation for entrepreneurs.

Counteracting tax avoidance

The Lithuanian Transfer Pricing Guidelines largely reproduce those issued by the OECD. Companies must have full documentation if their annual turnover exceeds €2,896,200. The thin capitalization rules apply to interest paid to controlling entities (in order to be a minimum of 50% of shares in an interest-paying company). The debt-equity ratio is 4:1. These rules do not apply if the company demonstrates that under the same circumstances it would have disbursed the same loan to an unrelated entity. CFC: A foreign company is controlled by a Lithuanian resident if the resident owns directly or indirectly at least 50% of its shares or other profit-sharing rights.

Accounting

Tax year is a calendar year. A different model of the year may be adopted if the tax authorities give their consent, but it must always be 12 months. Tax returns must be submitted and tax paid by the 15th day of the sixth month after the end of the tax year. If the company’s income in the previous tax year exceeded EUR 300,000, it must also pay tax in advance, by the 15th day of the last month, each quarter. The limitation period is 5 years. In case of suspicion of fraud or tax evasion this period may be extended to 10 years.

Withholding taxes

• Dividends paid out to non-residents are subject to taxation – the rate of 15%, unless tax agreements or EU directives reduce it.
• Interest paid to residents or residents of EEA member states is not subject to taxation. Otherwise, the rate is 10%.
• Royalties paid to non-residents are subject to taxation – the rate of 10%, unless tax agreements or EU directives reduce it.

VAT

The standard rate is 21% (reduced by 9%, 5% and 0% respectively). Registration is compulsory for entrepreneurs with an annual turnover in excess of €45,000 per year. The tax is paid monthly, but in special cases other methods of settlement are allowed. The annual tax return is submitted by October 1st after the tax year.

Other taxes

• Property tax – depending on the administrative district, the rate is 0.3% to 3% of the value of the property.
• Customs duty is levied on products coming from outside the EU. Excise duty is levied on alcohol and alcoholic beverages; tobacco and tobacco products; fuels and oils; electricity.
• The tax is levied on pollution discharged into the environment and on certain products (e.g. batteries).

Other information

Lithuania has recently become a popular destination for investors. What is the reason for its popularity? These are primarily a mild tax system and a low tax rate. Above all, however, our clients open Lithuanian companies in order to start trading between Europe and Russia.