Why start business in Lithuania?

Every year thousands of entrepreneurs are determined to create and develop a business in the European Union and Lithuania, but how to facilitate the process of establishing a company and what are the privileges?

After purchasing a company in Lithuania, you can take advantage of various tax privilege that are applicable to newly established companies.

In the first tax year, companies can apply 0% profit tax rate if the company meets all of the following 5 conditions:

• Annual income does not exceed 300 000 Eur;
• The average number of employees does not exceed 10;
• The controlling shareholder (member)/shareholders (members) together do not control more than 50% of other companies shares (parts) and does not have an individual enterprise;
• Shareholders (members) only natural (physical) persons;
• During 3 successive tax periods, including the first one, the company’s activities are not suspended, the company is not liquidated, reorganized and the company’s shares (parts) are not transferred.

Later, companies can apply 5% profit tax rate if the company meets all of the following 3 conditions:

• Annual income does not exceed 300 000 Eur;
• The average number of employees does not exceed 10;
• The controlling shareholder (member)/shareholders (members) together do not control more than 50% of other companies shares (parts) and does not have an individual enterprise;

If a shareholder (member) owns more than 50% shares of another company, the first two criteria of both companies are summed up and if they do not exceed, a preferential 0% profit tax rate can be applied in both companies (in the first tax year) or 5% profit tax rate.

If companies do not meet these conditions, then the standard 15% profit tax rate is applied. One way to distribute profits is to pay dividends. If dividends are received by natural persons, they are taxed with personal income tax, if legal entities – with profit tax.

Dividends paid by a Lithuanian company to a Lithuanian resident are taxed at an income tax rate of 15%. Dividends paid by a Lithuanian company to a foreigner are taxed in Lithuania at an income tax rate of 15%. If Lithuania has concluded a double taxation avoidance agreement with the state of residence of the foreigner receiving the dividends, then the dividends are taxed in both countries according to the rates provided for in the agreement, which in Lithuania is usually lower than the standard rate.

Dividends paid by a Lithuanian company to another Lithuanian company are not taxable if the company receiving the dividends holds (or intends to hold) at least 10% of the voting shares in the company paying the dividends for 12 months.

Dividends paid by a Lithuanian company to a foreign company are not taxable if the foreign company holds (or intends to hold) at least 10% of the voting shares in the company paying the dividends for 12 months and is not registered in the offshore territories.