Lithuania Regulatory Enviroment

Regulatory environment: Lithuania as a business-friendly hub

Lithuania offers a favourable regulatory environment for businesses, making it a competitive choice for entrepreneurs and investors alike. Its streamlined procedures, moderate tax burden, and strategic incentives support a business-friendly climate that aligns with international standards. In this blog, we delve into the key aspects of Lithuania’s regulatory framework, showcasing why it is a prime destination for both local and foreign businesses.

Ease of doing business: rankings and recognition

Lithuania’s commitment to fostering a supportive business environment is reflected in its strong performance on global indices. Ranked 32nd in the World Competitiveness Index (2023) by the IMD World Competitiveness Center, Lithuania stands out among its Baltic neighbours for its pro-business reforms and transparent regulations.

The country’s emphasis on digitalisation and efficiency in administrative procedures further enhances its competitiveness. For instance, Lithuania has embraced e-governance tools, enabling seamless interactions between businesses and public authorities. These efforts reduce bureaucracy and create a more accessible environment for companies to thrive.

Sources: IMD World Competitiveness Yearbook 2023, Invest Lithuania’s report Lithuania. Your Targets. Exceeded (February 2024). Lithuania: Your Targets. Exceeded, Invest Lithuania, February 2024.

Time and cost to start a business: quick and cost-effective

Entrepreneurs in Lithuania benefit from streamlined procedures for company registration, ensuring businesses can be operational in just 3 to 4 days. The process is supported by the government’s efficient digital platforms, which enable online submission of documents and minimise administrative delays.

The cost of starting a business in Lithuania is also competitive:

• Company registration fees: Approximately €200-€300, depending on the legal form of the company.
• VAT registration: No additional fee when completed simultaneously with company registration.
• Unique Registry Code: Included in the registration fee.

These affordable costs and efficient timelines make Lithuania an attractive choice for both local entrepreneurs and foreign investors.

Sources: Invest Lithuania, EuroCorp Services.

Tax Burden on businesses: competitive and incentive-driven

Lithuania’s tax regime strikes a balance between competitiveness and simplicity, offering moderate rates that attract both startups and established firms.

Source: Lithuania: Your Targets. Exceeded, Invest Lithuania, February 2024.

Key highlights include:

• Value Added Tax (VAT):
  • Standard rate: 21%.
  • Reduced rate: 9% for specific goods and services, such as books and medicines.
• Corporate Income Tax (CIT):
  • Standard rate: 15%.
  • Reduced rate: 5% for small businesses with annual revenue below €300,000.
  • Special incentives: Businesses operating in Free Economic Zones (FEZs) may qualify for tax exemptions or reduced rates, fostering innovation and growth in designated areas.

Lithuania’s corporate tax incentives are particularly appealing to businesses in research and development (R&D) and green technologies, enhancing its reputation as an innovation hub.

Sources: Invest Lithuania, Deloitte Lithuania Tax Summary 2024.

Comprehensive tax framework: ensuring clarity and flexibility

Lithuania’s tax system is designed with transparency and flexibility in mind, enabling businesses to plan effectively:

• Who pays corporate income tax?
  • Lithuanian legal entities, including subsidiaries of foreign entities.
  • Foreign entities with a permanent establishment in Lithuania or earning income from Lithuanian sources.
• Fiscal year:
  • Default fiscal year follows the calendar year, with options to opt for an alternative year-end to align with specific business needs.
• Deductibility of expenses:
  • Business expenses are generally deductible if deemed necessary for generating income. Certain expenses, such as fines and penalties, may be non-deductible as outlined in the Lithuanian Tax Code.
• Tax losses:
  • Tax losses can be carried forward for up to 5 years, helping businesses manage periods of lower profitability.
• Taxable base:
  • Taxes are applied to profits, calculated as revenues minus deductible expenses.

These elements reflect Lithuania’s business-friendly approach, ensuring that tax policies support growth while maintaining compliance with EU regulations.

Sources: Deloitte, World Bank’s Doing Business 2023.

Simplified income tax reporting

Lithuania prioritises efficiency in tax reporting, requiring companies to file an annual corporate income tax return. The streamlined reporting system ensures compliance while reducing administrative burdens on businesses.

By embracing digital platforms for tax submission, Lithuania enhances accessibility for both local and international companies, aligning with its broader digitalisation goals.

Green corridor for large-scale investors

Lithuania’s regulatory framework offers a compelling mix of ease, affordability, and clarity, creating a business ecosystem that attracts startups, SMEs, and multinationals. The country has a framework of tax incentives and state support that makes it quicker and easier for international businesses to establish and grow their large-scale operations in Lithuania.

Source: Lithuania: Your Targets. Exceeded, Invest Lithuania, February 2024.

Learn more about Lithuania’s business environment

• Invest Lithuania: Business Setup Guide.
• Invest Lithuania: Free Economic Zones.
• World Bank: Doing Business Reports.
• Deloitte International Tax Lithuania Highlights 2024.

Watch and learn

Invest Lithuania YouTube channel.