Why entrepreneurs are starting up in Lithuania

Lithuania is fast becoming a country that holds huge benefits for international entrepreneurs with either tech backgrounds or import and export interests. The low tax rates and the ease of doing business in the country, plus the country’s location on the Baltic sea which connects to Scandinavia, are just some of the reasons global business people are choosing Lithuania to start up their European business.

Edgaras Margevičius, the founder and managing partner of the innovative law firm Prevence, together with Gintarė Viduolytė, a commercial law expert, took us through all the advantages and benefits of opening a company in Lithuania, including detailing the company formation process step by step.

What are the advantages and benefits of opening a company in Lithuania?

Lithuania provides an extremely engaging business environment. As a country, Lithuania has reached various global ranks such as: 11th for ease of doing business, 2nd for procedures to start a business and 3rd as lowest profit taxer. Currently, Lithuania is among the fastest growing fintech centres in Europe in terms of the highest number of licences issued and holds 4th place in international fintech rankings.

In 2020, there were 230 FinTech start-ups operating in Lithuania, employing over 4,000 people. According to data published by Invest Lithuania in 2021, Lithuania has the highest number of licensed FinTech companies in the EU. The largest community of this sector is concentrated in Vilnius city, which currently hosts more than 20 business hubs and accelerators.

Our country is also a perfect mix of infrastructure solutions for start-ups, enabling them to develop their growth by profiting from an environment that values science and innovation, while also providing technology parks, business accelerators and incubators, co-working spaces and hubs. Lithuania is known for the fastest WIFI speed in the world and the highest internet bandwidth in the CEE. Our country has constantly developed an ecosystem for start-ups and their participants, therefore offering plenty of opportunities for investments and funds for innovative businesses, a few examples being venture capital funds, accelerators, angel investors support, grant programs and other supporting programs. Lithuania is also known for a highly skilled and multilingual talent pool, a vital asset for any business that aims to succeed in a dynamic environment.

In recent years, Lithuania has set a focus on making the country more attractive for investors. Strong arguments for potential investments lie in the ideal environment for the set-up of service and data centers. Lithuania is also home to start-ups with incredible success stories such as Vinted, Trafi, Tesonet, and Genus AI The business environment in Lithuania is also a great for international careers and successful collaborations with global companies. More than 150 international companies currently operate in Lithuania, including global giants like Google, Uber, Revolut, and Thermo Fisher.

Most of the country’s population is fluent English and/or Russian, making it easy for people from abroad to communicate with locals. The internet in Lithuania is cheap, reliable, fast, and accessible all over the country, and locals are proud of the fact that such a small country manages to be an incredibly efficient provider when it comes to the web. The internet is well developed in all forms of public transport (regional and national), so it is easy to work and travel to other cities in Lithuania.

What is the import and export industry like in Lithuania?

According to the data of the Department of Statistics, Lithuania exported goods worth 31.2 billion euros in 2021 between the months of January to November. During the same period, exports of goods of Lithuanian origin amounted to EUR 19.3 billion euros. Moreover, the export of Lithuanian goods on the whole increased by 25%. The chemical and allied industries constitute the largest export group, followed by miscellaneous manufactured articles, petroleum products, prepared foodstuffs, non-alcoholic and alcoholic products, beverages, tobacco and manufactured tobacco substitutes.

The largest share regarding exported goods of Lithuanian origin went to Germany (10.2%), followed by the United States (9.1%), Poland (7.3%), Latvia (7%) and the Netherlands (6.2%). The strategic goals of Lithuania’s export industry is to increase the export share of goods and services in gross domestic products, including:
● To promote the competitiveness of goods and services of Lithuanian origin in foreign markets.
● Maintain existing trade positions, seek successful entry of Lithuanian companies into new markets, especially in regard to developing countries.
● Encourage the development of exports in the high value-added goods and services sector.
Lithuania’s textile and clothing industry, maintaining its centuries-old traditions, is also actively investing in creating unique brands and contemporary designs. In 2019 the textiles, clothing, and leather industries accounted for about 1.5 % of the GDP. At the beginning of 2021, this industry employed around 24,000 workers, making up 2.5 % of the total employment.

Lithuania also has many companies specialised in electronic manufacturing services (EMS) that produce industrial electronics and telecom equipment. Niches like defence and medical electronics are expanding as well, as are high-end consumer electronics and computing storage. Lithuania provides an EMS hub for European firms through contract manufacturers including Kitron and Jotron (Norway); LittleFuse (US); Carlo Gavazzi (Switzerland) and Selteka (Lithuania).

In terms of imports, most goods were imported last year from Poland (13%), Germany (12.9%), Russia (8.8%), and Latvia (7.8%).

What is the corporate tax system like in Lithuania?

The basic rate of corporate tax in Lithuania is 15%. It applies to types of income such as commercial activities, capital gains, investment income and other active or passive types of income. A reduced rate of 5% applies to small companies with a turnover of less than 290,000 euros per year, which have no more than 10 employees. The tax is applied to the amount of income from which all expenses and non-taxable income are deducted.

The main VAT rate in Lithuania lies at 21%. The company must be registered for VAT if:
i) the remuneration of a company from the supply of goods or services subject to VAT that are pursued in Lithuania exceeds EUR 45,000 during the last 12 months;
ii) a company purchases goods in Lithuania from other European Union member states for an amount of more than 14,000 euros per calendar year;
iii) a company is controlled by a person that controls several legal entities and whose total amount of income from the supply of goods or services in Lithuania during the last 12 months exceeds 45,000 euros, or purchases goods in Lithuania from other European Union member states for an amount of more than 14,000 euros per calendar year.

Why entrepreneurs are starting up in Lithuania 2Dividends are taxed at a 15% income tax rate. However, the legislation provides for benefits in that regard. While paying dividends, Lithuanian companies must calculate on and withhold from the amount paid and pay income tax at a rate of 15%. If dividends are paid to residents of foreign countries with which Lithuania has a double taxation treaty (TADT), then a lower income tax rate may apply.

Dividends paid to a company holding not less than 10% of the shares, granting the same percentage of votes for at least 12 months, are tax exempt, except for dividends paid to countries known as “tax havens”. The exemption may not apply where the main purpose of an arrangement is obtaining a tax advantage.

After registering a company to Lithuania’s Register of Legal Entities, a company is automatically registered to the Taxpayer Register on the next working day. VAT payer registration is voluntary, unless the annual income for the goods sold or services provided exceeds 45,000 EUR. If during the last calendar year the Lithuanian taxpayer has acquired goods from other EU member states and the taxable amount of those goods has exceeded 14,000 EUR or it is foreseen that it will exceed this threshold during current year, then such taxable person is obliged to register as a VAT payer even in cases where the annual turnover threshold (45,000 EUR) is not exceeded.

What is the company formation process in Lithuania?

The first necessary step is choosing the form of the company you want to create. The most common form of business is a limited liability company called “Uždaroji akcinė bendrovė” (UAB) in Lithuania. The UAB is the organization form where the owners cannot be held liable for the company’s obligations with their personal assets. The authorised minimum capital of a UAB in Lithuania is 2,500 euros.

Other popular business types are “Akcinė bendrovė” (AB) and “Mažoji bendrija” (MB). An АВ is a joint-stock company, the shares of which may be openly distributed. The authorised capital of such a company must cover at least 25,000 euros. An MB, on the other hand, is a small company whose members are limited to 10 and have limited liability for the company's obligations. The authorised capital of the MB is limited to contributions of members, which starts at 1 euro.

Here is the step-by-step formation process of a UAB – the most common company form in Lithuania:
● Preparation of the articles of association, along with the founding act/founding agreement.
● Reservation of a temporary company name (optional).
● Signing the agreement of the registered address.
● Opening an accumulative bank account.
● Transferring share capital to that accumulative account.
● Notarizing the founding documents at a registered notary’s office.
● Registering the company in the Register of Legal Entities.
● Converting the accumulative bank account into a settlement account.
● Registering as an electronic resident (optional).
● Appointing the accountancy service provider.

What are the best business banks in Lithuania and is it easy to open a business bank account for foreign entrepreneurs?

Investors and foreigners who need to open a bank account in Lithuania should know that the banking sector in this country is mainly dominated by subsidiaries of Scandinavian banks. The industry is also well represented by Lithuanian banks. It is also important to know that the Lithuanian banking system has a high efficiency rate, one of the highest at the level of the European Union.

There is a possibility to open company’s bank account in regular banks like CITADELE, Šiaulių bank, Medicinos bank. As of 2020 it is possible to open bank accounts remotely in electronic money institutions like Paysera. The opening of a traditional bank account alone can cost 200 EUR, the process may take a few days to a few weeks. However, in EMI’s like Paysera, foreigners may open a Paysera account completely free of charge, do it fully online, and all within one business day. Another more traditional approach is to open a bank account at a regular bank in person or through an authorised representative by visiting a branch of the chosen bank.

What are the best cities in Lithuania for business?

Vilnius city

Why entrepreneurs are starting up in Lithuania 3The influential US business publication Inc., rated Vilnius City as ranking 4th in Europe as a city for fast-growth businesses. Vilnius outperformed cities like Stockholm, London, Rome and Oslo thanks to its status as a financial center and its focus on entrepreneurialism. Vilnius is also one of Europe’s youngest capitals – according to Invest Lithuania, more than half of the city’s residents are under 40 years old.

In 2019, The Financial Times’ fDi Intelligence unit ranked Vilnius among the top 30 cities attracting the most foreign investment in tech start-ups between 2016 and 2018, ahead of giant tech hubs like Singapore, Tel Aviv, Berlin and London. In 2019, the Organisation for Economic Co-operation and Development (OECD) ranked Vilnius among the top six cities in terms of work-life balance. This high ranking is due to many factors - commuting in Vilnius takes half an hour on average, and the city has a well-developed infrastructure and service sector. Moreover, some companies operating in the city have successfully experimented with a four-day work week.

Furthermore, the cost of living in the city centre, with it’s UNESCO-listed Old Town is not high. You can rent a one-room apartment for about 500 euros, while lunch can cost as little as seven euros. Health services and entertainment are also very affordable – according to the Mercer Cost of Living Ranking 2020, Vilnius ranks seventh among EU capitals.

Kaunas

The growing industrial centre of Lithuania, is known as a city in easy reach of any other city in Lithuania. Kaunas, with it’s 400,000 inhabitants, has been getting more attention recently due to the fact that it’s the European Capital of Culture 2022. Known for its intact Modernist architecture and being home to BC Žalgiris – a basketball club with a true cult following – Kaunas is also a dynamic business hub, with strong engineering and tech traditions.

The universities very much shape the local culture in Lithuania and Kaunas is no exception here. Home to Kaunas University of Technology — the largest tech and engineering school in the Baltics — Kaunas always has a steady supply of STEM talent. More than half of all the city’s students are in STEM or Life Sciences, and there are about 3,500 IT students in the pipeline at any given time. TeleSoftas and NFQ – two of the country’s largest homegrown Software Development companies – both have their roots and started out at Kaunas Science and Technology Park, the country’s largest innovation community, responsible for incubating more than 400 companies in its lifetime.

The city’s potential has not been left unnoticed by foreign investors, as Kaunas has successfully attracted a number of IT companies. Interestingly enough, a significant number of them come from the US, including Devbridge, Virtustream, Bentley Systems, CUJO AI and Oracle, outsourcing veterans Centric, software developers Hyarchis and Macaw, among others.

Klaipėda

Situated on the Baltic Sea coast and surrounded by gorgeous nature, the Klaipėda region is a gift for nature lovers and sports enthusiasts. You can take in the city’s impressive Eastern Prussian and German architecture or the majestic view of Klaipėda harbour. Apart from that, you can enjoy various seaside leisure time activities, including sailing, kiteboarding, windsurfing, hill walking and fishing.

From a business perspective Klaipeda is known as a port of engineering, metal and plastics. The Klaipėda region is the 3rd largest and one of the fastest growing regions in Lithuania, currently accounting for 12% of the GDP. Klaipėda is home to the Baltic region’s only ice-free port, making it a regional hub for logistics and transportation. It also has the largest shipyard, which offers a full range of services, from conceptual design to turnkey projects. Klaipėda is currently a strong location for testing, component manufacturing and small-scale extraction for the oil & gas industry – making it a natural competence centre for this sector.

Klaipėda is also one of the region’s largest logistics hubs. It boasts a major international port, well-developed road and rail connections. It also has an international airport just 20 minutes away – Palanga International Airport – which offers 10 connections to 8 business hubs across Europe, including London, Oslo and Copenhagen.

Other cities like Šiauliai, Panevėžys, Alytus are also attractive to develop businesses, as they are not far from other big cities like Klaipėda, Kaunas or Vilnius.

Lithuania was the first country in the Soviet Republic to leave the USSR in 1990 and has been re-establishing its reputation ever since. There are many relics of the Soviet period such as bunkers and museums, but you will also find a whole lot more in this country, including beautiful churches, castles, monasteries, and palaces. Lithuania offers a lot of interesting sights, from the capital city of Vilnius to wide open spaces like the National Park and sand dunes at Curonian Spit and a surprising number of quirky and interesting museums. Several spots in the country are UNESCO World Heritage Sites and wherever you choose to go you will find winding cobbled streets, charming local markets, and impressive red brick architecture.

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Whatever city you choose to set up your business, Euro Start has partnered with law firm Prevence, to make opening a company in Lithuania an easy and smooth-running process. To start the ball rolling, feel free to email us through our contact page or call us on 0033 (0)1 53 57 49 10 and we’ll be happy to help.

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