With its location at the heart of Europe, a bustling digital economy, and a government dedicated to digital transformation, Lithuania comes across as an excellent country for starting a business. If you've been giving this idea a thought, you probably want to know how to set up as an independent contractor.
Lithuania offers two ways to start an individual business: individual enterprise and individual activities. This article is here to provide you with all the details on how to proceed with both.
Disclaimer: Please bear in mind that this article doesn't substitute legal advice. Always check official websites or seek legal advice before you take action.
Why start a business in Lithuania
Lithuania benefits from a stable economic environment, and its economy is the largest among the three Baltic States (Estonia, Latvia, Lithuania). As a Northern European country, Lithuania is a member of NATO, the EU, and the Schengen Agreement. It is one of the best destinations for foreign investors, offering a favorable tax policy.
Registering as an Individual Enterprise
Simplicity, ease of set-up, low cost: this is what the process of registering looks like in Lithuania. The individual enterprise is the most common legal form you choose to start up a business. Formed as one unlimited liability person who doesn't need a minimum initial capital to operate, you will be personally responsible for everything, including your debts. Your assets are not separated; you will be liable for all the obligations linked to your enterprise. It means that in case of bankruptcy, all enterprise debts are transferred to you to cover. As an individual enterprise, you do not pay VAT unless the aggregate amount of revenue for 12 months is over 45,000 EUR. You do have to pay the compulsory health insurance, as well as the state social insurance contributions.
You also need to register a company name, which you can do in the Register of Legal Entities.
Finally, you are required to have a permanent legal registration address. The company can operate at that address, but it's not mandatory.
The place to go for company address registration is the State Enterprise Centre of Registers.
Individual Activities in Lithuania
Apart from the Individual Enterprise, there is another way to start your business in Lithuania: Individual Activity. When you want to implement your business on your own or for a specific period, this is the recommended form. For executing an Individual Activity, you do not register as a legal entity.
You can choose between two possibilities to lead your Individual Activity. The first one is to acquire a Business Certificate. The second one is to obtain an Individual Activity Certificate (self-employment certificate). Both mean you are self-employed, but with some differences in the documentation and your activities.
Business Certificate in Lithuania
If you choose to be self-employed according to a Business Certificate, keep in mind these are issued only for certain types of activities. The Business Certificate grants you permission to perform the indicated business activities, sell the goods you have produced, and render services to residents and legal entities.
To obtain this document, one must address a local division of the State Tax Inspectorate (STI). A business certificate can be issued for the period indicated by the applicant, but not exceeding one calendar year and not shorter than five days. The accounting of activities performed under a business certificate is straightforward. Persons who do not use a cash register to account for revenues must fill in the income and expenditure accounting register. Upon the buyer's request, the seller must issue a sale and purchase receipt. A person can perform activities under a business certificate only when he/she is not required to register as a VAT payer or is not registered as a VAT payer. A business certificate does not grant the right to engage in licensed activities.
Individual Activity Certificate in Lithuania
Suppose you are self-employed according to a certificate of self-employment. In that case, you may engage in any activities that meet the criteria of independence, continuity, and commercial advantage.
The exceptions are activities that require incorporation of a legal entity and activities that require permits and licenses.
Taxes in Lithuania
Lithuania has one of the lowest tax rates in the whole European Union. Individual enterprises pay 15% corporate income tax, and the VAT rate is 21%. However, the duty to register as a VAT payer only happens once the turnover exceeds 45,000 EUR.
The personal income tax rate is between 5% and 15% for people performing individual activities. Non-Lithuanian residents are taxed at the same rate, as long as they earn the income in Lithuania. This tax is called gyventojų pajamų mokestis or GPM in Lithuanian.
When it comes to income tax, an advance payment of it is mandatory for business certificates. For the self-employment certificate, you pay the income tax upon the end of the tax period.
Health Insurance in Lithuania
The Compulsory Health Insurance is called Privalomasis sveikatos draudimas or PSD in Lithuanian. Everyone has to pay it, regardless of the business form they choose.
According to the National Health Insurance Fund website, the tariff of the PSD contributions for people engaged in individual activities is at 6,98% of the income the social insurance contributions are calculated from).
When it comes to individual enterprises, compulsory health insurance amounts to 6,98 % from 50% of the funds withdrawn for personal needs.
Now that you have gathered all information, you can start choosing the form of business that works best for you. If you plan on having international clients, consider using Deel for your contracts and payments.
Benefits of using Deel
- A centralized platform that takes care of all the documentation, such as contracts, invoices, and compliance documents
- Manage payments in different currencies and withdraw with a payment method of your choice (Revolut, PayPal, Payoneer, bank transfer, or other)
- Get 24/7 access to customer support and a team of experts