Company Incorporation in Lithuania

Can foreigners incorporate a company in Lithuania?

Yes, foreigners can incorporate a company in Lithuania, and the country actively encourages foreign investments through a supportive legal framework and favorable conditions. Foreign individuals and entities can fully own and control a Lithuanian company, with no restrictions on the percentage of shares they can hold. The most common structure for foreign investors is the Private Limited Liability Company (UAB), which offers limited liability and flexibility. Lithuania has made significant strides in reforming its Foreign Direct Investment (FDI) policies to attract global businesses, including streamlining the company registration process and reducing bureaucratic hurdles. Additionally, there are no requirements for local partners or directors, allowing full foreign ownership and control, which is a key factor for international entrepreneurs considering Lithuania as a base for their operations.

The Lithuanian government has implemented several reforms to enhance the business environment for foreign investors. For instance, the country's FDI policies include incentives such as tax breaks, grants, and funding for innovation-driven projects, particularly in sectors like technology, manufacturing, and renewable energy. Lithuania’s membership in the European Union also provides access to a vast market, making it an attractive location for foreign businesses looking to enter the European market. In 2023, Lithuania ranked high in the World Bank’s Ease of Doing Business index, reflecting its commitment to fostering a welcoming environment for foreign investors.

What is the structure of a company in Lithuania?

Directors

A Private Limited Liability Company (UAB) in Lithuania must have at least one director, who is responsible for managing the company’s daily operations. The director can be of any nationality, and there is no requirement for the director to be a Lithuanian resident, making it flexible for foreign investors. Nominee directors are permitted, allowing companies to appoint someone to act on behalf of the actual owner. However, the appointment of corporate directors is not allowed; the director must be an individual. The director is required to be listed in the company’s records, and their details must be submitted during the incorporation process.

Shareholders

A UAB requires at least one shareholder, and like directors, shareholders can be of any nationality and do not need to reside in Lithuania. This makes the UAB structure highly accessible to foreign investors. Both individual and corporate shareholders are allowed, providing flexibility in how the ownership of the company is structured. Shareholders have limited liability, meaning their financial responsibility is restricted to the amount they have invested in the company. Nominee shareholders are also permitted, which can be useful for those seeking privacy or representation through a third party.

Share Capital

The minimum share capital required to establish a UAB in Lithuania is €2,500. This capital must be fully paid up and deposited into a local bank account before the company can be officially registered. The share capital is divided into shares, and each shareholder’s liability is limited to the amount of capital they have invested. The share capital requirement is relatively low, making it accessible for small and medium-sized enterprises, and it must be reflected in the company’s founding documents and registration with the Business Registration Centre.

Office Space

A UAB in Lithuania must have a registered office address within the country. This office space serves as the official location for company correspondence and must be registered with the authorities. The office does not need to be a physical location where business operations are conducted; it can be a virtual office, especially if the company’s operations are conducted online or remotely. However, the address must be valid and capable of receiving official correspondence, as it will be used by government agencies for official notifications and inspections.

Documents required for a company formation in Lithuania

To incorporate a company in Lithuania, you need to prepare and submit various documents. These documents are essential to comply with Lithuanian regulations and ensure your business operates legally. The documents will be used in KYC due diligence procedures, application preparation, and document submission to the authorities.

Proposed Company Details:

1. Proposed company names.
2. Business Activities: Detailed description of the company’s purposes and objectives.
3. Share Details: Number of shares, share classes (if any), rights attached, and nominal value.
4. Power of Attorney: Signed by each shareholder for submission.
5. Proof of a registered address in Lithuania
6. Minutes of the founding meeting

Personal Documents for Directors, Shareholders, and Promoters:

1. Copy of colored passport with at least 18 months of validity.
2. National identity card
3. Proof of a foreign residential address.
4. Resume and contact information.

Corporate Documents for Corporate Shareholders translated into Lithuanian and notarised:

1. Certificate of Incorporation.
2. Memorandum & Articles of Association/Constitution and Amendments.
3. Certificate of Incumbency.
4. Proof of the registered address.
5. Board of Directors structure and corporate chart.
6. Corporate representative details and board resolution.

Additional Requirements:

1. Written confirmation that directors, shareholders, and other key individuals are not Politically Exposed Persons (PEPs).
2. Principal place of business address.
3. Source and origin of funds used in the business.
4. Expected location of the company’s customers and suppliers.
5. Information on the beneficial owner, if different from the named shareholder.

How do I incorporate a company in Lithuania?

Step 1 – Name Reservation

The first step in incorporating a company in Lithuania involves selecting and reserving a business name. The chosen name must be novel and original, adhering to the norms of the Lithuanian language and not contradicting public order or good morals. It is important that the name does not consist solely of general terms or be identical to existing trademarks. To ensure the name is available, it can be reserved in the Register of Legal Entities for six months by completing the JAR-5 form. This reservation prevents others from registering an identical name during this period, providing you with certainty that your chosen name is protected. For branches of foreign companies, the name may be identical or similar to the parent company’s name.

Step 2 – Preparation of Constituent Documents

Once the business name is reserved, the next step is preparing the constituent documents. If there are multiple founders, a constituent agreement must be concluded; if there is only one founder, a constituent act is required. These documents must include essential information such as the company’s name, location, founders, and the persons authorized to represent the company. Additionally, details about the company’s authorized capital, the nominal value of shares, and the rights granted by those shares must be specified. The agreement also outlines the terms for payment of shares and conditions for convening the Founding Meeting, if necessary. All founders or their authorized representatives must sign the constituent documents, which also serve as an agreement on the issuance of shares.

Step 3 – Deposit of Authorized Capital

With the signed constituent agreement or act, the next step is to open a bank account in the company’s name to deposit the authorized capital. The shares must be fully paid within the period specified in the constituent agreement, which cannot exceed 12 months from the date of certification. The minimum authorized capital required is €1,000, and it must be paid in cash if it is the minimum amount. If the authorized capital exceeds €1,000, part of it can be paid in property, but at least 25% of the capital must still be in cash. This step ensures that the company has the necessary financial foundation to begin operations.

Step 4 – Drafting the Charter

The company’s charter is the primary document that governs its activities and must be prepared and signed by all founders or their authorized representatives. The charter outlines key details such as the company’s name, legal form, purpose, authorized capital, and the number of shares. It also defines the competence of the General Meeting of Shareholders, conditions for announcing company news, and the rules for making decisions on establishing branches or agencies. The charter must be submitted to the Register of Legal Entities within six months from the date of signing. This document serves as the company’s operational blueprint, ensuring that all legal requirements are met.

Step 5 – Founding Meeting

Before registering the company, a Founding Meeting may be required, depending on the specifics of the constituent agreement. If the company’s management bodies have already been selected in the agreement, the Founding Meeting may not be necessary. However, if it is convened, the meeting formalizes the company’s establishment by confirming the appointment of directors and approving the company’s charter. Additional documents, such as the list of shareholders, application forms (e.g., JAR-1), and decisions regarding the company’s registered office and director appointments, must also be prepared. This step ensures that all aspects of the company’s governance are in place before formal registration.

Step 6 – Notary Certification

All prepared documents, including the charter and any other required paperwork, must be submitted to a Notary for certification. The Notary verifies that the documents comply with legal requirements and confirms the charter. Additionally, the Notary must be provided with a certificate from the bank confirming the deposit of the authorized capital and consent from the owner of the building where the company’s office is registered. This step is crucial as it legally validates the company’s incorporation documents, making them ready for submission to the Register of Legal Entities.

Step 7 – Registration with the Register of Legal Entities

After notarization, the company’s documents are submitted to the Register of Legal Entities. The Register reviews the documents and, if everything is in order, registers the business. Upon registration, the company receives a certificate of incorporation and a copy of the confirmed charter. The registration process typically takes no more than three working days from the submission of documents. This final step legally establishes the company in Lithuania, allowing it to commence operations and conduct business activities in accordance with Lithuanian law.

Compliance requirements post-incorporation

Staying Compliant with Tax and Accounting Requirements

After incorporating a UAB in Lithuania, it is essential to adhere to the country's tax and accounting regulations to ensure legal and smooth operations. A UAB must obtain a Value Added Tax (VAT) number from the Ministry of Finance if engaging in taxable activities. The corporate income tax rate in Lithuania is generally set at 15%. Accurate and timely preparation of financial statements is mandatory, and these must be submitted in Lithuanian, requiring translation if records are initially in another language.

Annual Reporting and Auditing Requirements

A UAB in Lithuania is required to prepare and submit annual financial statements to the Register of Legal Entities. These reports must be prepared in accordance with the Lithuanian Accounting Standards (BAS) or International Financial Reporting Standards (IFRS), depending on the size and type of the company. If the UAB meets certain criteria, such as exceeding thresholds for revenue, assets, or number of employees, it may also be required to undergo an audit. The audited financial statements must be submitted along with the annual report. The deadline for submission is typically within six months after the end of the financial year, and failure to comply can result in penalties or fines.

Corporate Governance and General Meetings

UABs in Lithuania must adhere to specific corporate governance requirements, including the need to hold an annual general meeting (AGM) of shareholders. During the AGM, shareholders must review and approve the annual financial statements, decide on profit distribution, and address any other significant matters concerning the company. The AGM must be held within four months after the end of the financial year. Additionally, UABs must maintain an up-to-date register of shareholders, and any changes in the ownership structure must be reported to the Register of Legal Entities.

Employment and Social Security Compliance

If a UAB employs staff, it must comply with Lithuanian labor laws, which include providing fair employment contracts, adhering to minimum wage regulations, and ensuring safe working conditions. Additionally, the company is responsible for registering employees with the State Social Insurance Fund Board (Sodra) and making regular social security contributions on their behalf. This includes both employer and employee contributions, which cover social security, health insurance, and pension funds.

Maintaining Statutory Records and Registers

A UAB must maintain several statutory records, including the register of shareholders, minutes of general meetings, and records of directors’ decisions. These documents should be kept at the registered office and be readily accessible for inspection by authorities. The company must also ensure that any changes in its corporate structure, such as changes in shareholding, directors, or registered office, are promptly reported to the Register of Legal Entities.

Visas for foreign investors and employees in Lithuania

Visas for EU/EEA Citizens

EU/EEA citizens can enter Lithuania using just an ID card or passport for stays up to 90 days. However, if they plan to stay longer, they must register with the Migration Department and obtain a residence permit. This straightforward process allows EU/EEA nationals to reside and work in Lithuania without needing additional visas or permits.

Visas for Non-EU/EEA Citizens

Non-EU/EEA citizens need specific visas and permits to start a business or work in Lithuania. Below are the key visa options available:

• Schengen Visa (Type C) - The Schengen visa permits a stay in Lithuania for up to 90 days within a 180-day period. It is a relatively simple and quick visa to obtain, suitable for short-term visits such as business trips or preliminary explorations of the Lithuanian market.
• EU Blue Card -The EU Blue Card is designed for highly skilled non-EU nationals and serves as both a work and residence permit. It is valid for up to three years and can be renewed for another three years. The Blue Card allows the holder to bring their family to Lithuania and provides a pathway to permanent residency after five years.

National Visa (Type D) for Business Owners

For foreign investors and business owners looking to establish a company in Lithuania, the national visa (Type D) is the most relevant option. This long-stay visa is specifically designed for individuals who wish to manage or participate in a Lithuanian company. Key details include:

Eligibility Requirements:

• The business must have been operational for at least six months.
• The company must have a minimum equity of €28,000, with at least €14,000 invested by the foreign applicant.
• The company must be established not earlier than one year before the date of the visa application.

VAT and tax considerations for companies in Lithuania

Corporate Income Tax Rate

In Lithuania, the corporate income tax rate is set at 15% of the company's annual tax profits. These profits are determined based on the company's accounting profits, which are adjusted according to tax regulations. This rate applies to most businesses operating in Lithuania. However, there is a reduced tax rate of 5% for small businesses, particularly those engaged in agricultural activities, as well as for companies with annual profits not exceeding €300,000. This favorable tax environment is designed to support the growth and sustainability of small enterprises within the country.

VAT for Established Companies in Lithuania

Value-added tax (VAT) in Lithuania is a crucial consideration for companies once their turnover exceeds the established thresholds, requiring them to register for VAT. The standard VAT rate is 21%, which applies to most goods and services. However, Lithuania offers reduced VAT rates of 9% for certain goods and services, such as books, periodicals, and public transport. Additionally, a 0% VAT rate is applicable to specific international transportation services. Companies must ensure compliance with VAT registration and reporting requirements to avoid penalties and maintain smooth business operations.

Personal Income Tax

Personal income tax in Lithuania varies depending on the type of income. For employment income, the tax rate ranges from 20% to 27%, depending on the individual's income level. For sole proprietors and individual entrepreneurs, a flat personal income tax rate of 15% applies. This structure provides a clear and straightforward tax obligation for both employees and self-employed individuals, ensuring that personal taxation aligns with the overall tax policy in Lithuania.

Other Taxes for Company Management

In addition to corporate income tax and VAT, companies in Lithuania may be subject to other taxes depending on their activities and assets. These include environmental taxes, which are levied on companies that engage in activities affecting the environment, and vehicle taxes for company-owned vehicles. Real estate taxes also apply, ranging from 0.5% to 3%, depending on the property's value and location. Furthermore, a 15% withholding tax is imposed on dividend payouts to shareholders. Companies must account for these various taxes as part of their financial planning and compliance obligations.