Introduction to Lithuania

Formerly a Soviet bloc country, Lithuania is the southernmost of the Baltic States, bordering Poland, Latvia, and Belarus. Its capital is Vilnius, and its population was about 2.71 million in 2023.Lithuania joined the EU and NATO in 2004. It is also a member of the Eurozone, the UN, the World Trade Organization (WTO), the Council of Europe, the Schengen Area, and the OECD.

Lithuania: An Onshore Location

The corporate tax rate in Lithuania is attractive, making it a strategic incentive for foreign investors to domicile their companies there. Moreover, most Lithuanian banks offer attractive deals for companies managed by foreign entrepreneurs, allowing them access to the entire European market.

Different Types of Companies in Lithuania

Link : Commercial Register

Taxation and Accounting

• Non-residents are taxed on Lithuanian-source income (permanent establishment) or other income not from a permanent establishment.
• There are two income tax rates: 15% for distributed profits, interests, sports or artistic activities, royalties, sales or rentals, or other transfers of property, and pensions paid from Lithuanian pension funds; 33% for other sources of income.
• Lithuanian entities are taxed on their worldwide income, and foreign entities on their Lithuanian operations through a permanent establishment. Additionally, certain foreign entity incomes received in Lithuania but not via a permanent establishment are subject to a 10% withholding tax, and dividends and other distributed incomes: 15%.
• VAT rates in Lithuania are 21% + two reduced rates: 9% and 5%.

Economic Activity

Lithuania is currently considered one of the fastest-growing FinTech centers in Europe. In 2020, there were 230 FinTech startups operating in Lithuania, employing over 4,000 people. Known for having the world's fastest WIFI and the highest internet bandwidth in the EU, Lithuania ranks 4th in the international fintech rankings. The country offers a perfect mix of infrastructure solutions for startups, encouraging growth in a science and innovation-valuing environment, along with technology parks, accelerators, co-working spaces, and hubs. Additionally, Lithuania has numerous companies specializing in electronic manufacturing services (EMS) producing industrial electronic and telecommunications equipment. Niches such as defense and medical electronics are booming, as well as high-end consumer electronics and computer storage. In 2021, Lithuania exported goods worth €31.2 billion, with its main imports coming from Poland, Germany, Russia, and Latvia.

Strengths and Challenges

Strengths include a well-trained, competent, and often multilingual workforce, excellent telecommunications infrastructure, rich natural resources, and special economic measures for investors in the technology sector.

The main challenge is intense competition with Scandinavian countries.

Market and Legislation

After a significant post-Covid rebound in 2021, the outlook changed drastically with Russia's invasion of Ukraine, affecting trade flows with Russia and Belarus. This situation has led to high inflation, particularly due to rising energy prices. Due to its border with Belarus and the Russian enclave of Kaliningrad, Lithuania faces significant geopolitical security issues. EU and NATO membership limits the threat of military confrontation, but Lithuania maintains a very hostile stance toward Russia.

The President of the Republic of Lithuania (Gitanas Nausėda) is directly elected for 5 years (no more than two terms). The Prime Minister (Ms. Ingrida Šimonytė) is appointed and removed by the President with the approval of the Seimas, the Lithuanian Parliament.