Company formation in Lithuania

Company formation in Lithuania represents an attractive investment environment for foreign companies as the incorporation process takes a very short time, if all the requirements are fulfilled. Aside the easy incorporation process, foreign investors will be glad to know that their companies will benefit from the same rules as the local companies.

Lithuania, officially the Republic of Lithuania (Lithuanian: Lietuvos Respublika), is a country in the Baltic region of northern-eastern Europe. One of the three Baltic states, it is situated along the southeastern shore of the Baltic Sea, to the east of Sweden and Denmark. It is bordered by Latvia to the north, Belarus to the east and south, Poland to the south, and Kaliningrad Oblast (a Russian exclave) to the southwest. Lithuania has an estimated population of 2.8 million people as of 2017, and its capital and largest city is Vilnius. Lithuanians are a Baltic people. The official language, Lithuanian, along with Latvian, is one of only two living languages in the Baltic branch of the Indo-European language family.

Advantages for setting up your company in Georgia

General corporate income tax rate in Lithuania is 15%. However, following the provisions of the Law on Corporate Income Tax, small companies can benefit from 5% corporate income tax. In order to pay a reduced corporate income tax, a company shall comply with certain conditions which are provided in this article.

The most common form of a business presence in Lithuania is a limited liability company (UAB).
There are four main kinds of company registration Lithuania for foreign investors, and they are as follows:

  • public company (AB) is similar to limited liability company (LLC) or joint stock company (JSC)
  • private company (UAB)
  • general partnership (TUB) or limited partnership (KUB)
  • branch or representative Office

Private limited liability company (UAB)

The most common way to invest in the Republic of Lithuania for smaller foreign investors is to establish a private company.
Authorised capital – when establishing a private limited liability company, the minimum registered capital is LTL 10 000 (about EUR 2900). The minimum registered capital must be formed in bank account; at least 25% have to be paid up. The capital is divided into shares, which may not be traded or offered for sale publicly. Founder – one or more persons can be the founder/s (shareholder/s) of a private limited liability company. The founder may be a resident or non-resident of the Republic of Lithuania.
Status – a private limited liability company is considered a legal entity.
Liability – the company and its shareholders have limited liability. The shareholders’ undertaking is limited to the amount of the capital invested only.
Management body – a private limited liability company is determined by the general shareholders meeting, there is no requirement for board or supervisory council. The maximum number of shareholders in a private limited liability company must not exceed 250.
Audit – annual audits are required if turnover exceeds EUR1.4m.

Definition of a small (micro) Company

It shall be noted that a “small company”, or, in other words, “micro company”, does not mean specific form of legal entity. For tax purposes any form of legal entity may be considered as small company (micro company), provided that it complies with all of the requirements indicated below.

Requirements for company

In order to benefit from reduced corporate income tax, a company shall have not more than 10 employees and its turnover shall not exceed 300 000 EUR during a fiscal year. It is important to note that the threshold of 300 000 EUR has been applicable from January 1, 2015, when Lithuania joined the Euro zone

Requirements for shareholders

Additionally, there are requirements for the shareholders or owners of the company set in the Law on Corporate Income Tax. The reduced corporate income tax rate is only applied to the companies where the owners do not manage multiple businesses, for that reason there are restrictions on owning shares of other companies:

  • Shareholder (owner) of a Lithuanian company shall not have than 50% of shares or parts of any other companies in EU (including Lithuania) and EEA;
  • Shareholder (owner) of a Lithuanian company shall not own any individual (personal) companies in EU (including Lithuania) and EEA;
  • Family members of the shareholder (owner) of a Lithuanian company shall not have than 50% of shares or parts of any other companies in EU (including Lithuania) and EEA;
  • Family members of the shareholder (owner) of a Lithuanian company shall not own any individual (personal) companies in EU (including Lithuania) and EEA;

It shall be noted that the rules of the above apply to the group of shareholders. For example if each of the shareholders A and B owns 30% of Company X and each of them owns 40% of Company Y, 5% of corporate income tax will not be applied. In this case, shareholders A and B together own 60% of Company X and 80% of Company Y. Even though separately they own less than 50% of Company X and Company Y, together they own more than 50% of shares. For this reason 5% of corporate tax will not be applied.

What profits do you pay company tax on?

Taxable profits include the money your company or association makes from:

  • Doing business
  • Investments
  • Selling assets for more than they cost (chargeable gains)

If your company is based in Lithuania, it pays company tax on all its profits from Lithuania and abroad.

If your company isn’t based in Lithuania but has an office or branch there, it only pays company tax on its profits from its activities in Lithuania.

The biggest advantages of a Georgian limited company

  • 15% corporate income tax (One of the lowest between OECD members)
  • 100% foreign ownership and directorship allowed
  • No information exchange
  • Highly skilled and cost effective labor force
  • Remote bank account opening possible
  • Low startup and maintenance costs

The biggest mistakes when starting a business abroad

Many agencies and law firms do not advise comprehensively or wrongly. Learn what to look for.

Gravity of the situation

Often, these law firms think foreign companies are half-silk, tax evasion is favored and mailbox companies are the leaders rather than the exception. This is true, however, only in some start-up agencies that do not have the necessary expertise. Self-proclaimed law firms that do not employ tax accountants or lawyers usually set up companies that are unlikely to operate legally. We set up and look after companies that can withstand tax audits and that are legally operated.

Is physical presence required in the country where you wish to set up your company?

You can set up a company worldwide, as long as the respective country allows you as a foreigner to acquire shares in local companies or to act as a managing director. If this is not the case trustees can be used. For example, Cyprus allows every EU citizen to own and run a business. Nevertheless, trustees can be used for the purpose of identity protection. However, it is important that the management takes place locally, in the country in which the company is to be taxable. In addition, a permanent establishment must be set up. Without these, a major tax offices around the world do not recognize the company and in the worst case would require additional payment of corporate and business taxes plus late payment surcharges. We rent you a real office and set up a permanent establishment that meets all requirements beyond doubt.

Problematic Law firms: Privacy is not regarded.

Some law firms bind customers with toggle contracts and exert pressure when the customer wants to close his company. If you are a client of a law firm that has established a legally flawed company, they can be blackmailed. Because in the case of a fiscal problem, law firms without a license are not bound by a duty of secrecy.

Migrating to a different law firm

We receive many inquiries from customers who already own a foreign company and are looking for a new law firm. The process of changing law firm is made often difficult on purpose. Therefore, we have developed a principle of trust. If you are not satisfied with us and want to change, you can do that at any time. The necessary documents (resignation letter), you receive from us standardized after founding. You are therefore protected against unexpected costs and you are free at any time to visit another law firm. So far we have not lost any customer to another law firm.

Privacy / Firm Location

Your accounting documents are kept safe with us. In addition, all electronic data is stored encrypted and accessible only by us, which are bound to a professional secrecy. All accounting records are also stored locally only. Neither authorities nor hackers are able to access this data.

No taxes?

There are quite a few locations in the world that do not charge taxes on companies or individuals, or only estimate a very low flat rate tax. But this can rarely be used without corresponding change of residence. If you are a resident of any major country, the relevant double taxation agreement is decisive. Providers who promise otherwise lead them to tax evasion, which in the case of discovery usually punishes severely. We advise against setting up companies in countries that have already been blacklisted by the OECD. The foundation is usually very cheap, but the tax consequences in your origin country can be devastating. Since the introduction of the automatic exchange of information between almost all major countries, an anonymous private account no longer exists.

We comply with the following code:

  • Legally secure foundations
  • No unexpected(hidden) costs
  • No false promises
  • Finding the right solution by focusing on your requirements

With this strategy, we have been on the market since 2013 and have not disappointed any customer so far. And we prioritize it in keeping that way. We strive to ensure that every client is satisfied and does not take risks with the solutions we provide for them, but only exploits legal opportunities. Starting a company that involves doing real business is more costly than a letterbox company, but it is the only way to save on taxes without risking legal action.

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