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DOING BUSINESS IN LITHUANIA / LITHUANIA BUSINESS GUIDE

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DOING BUSINESS IN LITHUANIA / LITHUANIA BUSINESS GUIDE

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Postby Lithuania Info » Fri May 11, 2007 8:58 am

DOING BUSINESS IN LITHUANIA

STARTING A BUSINESS

STANDARDIZED COMPANY
Legal Form: Private Limited Liability Company
Minimum Capital Requirement: 10,000
City: Vilnius

Registration Requirements:

Procedure 1. Open bank account with minimum capital and get a bank certificate proving the availability of the funds; pay the registration fee and obtain the document evidencing the payment


Time to complete: 1 day

Cost to complete: no charge

Procedure 2. Notarise the agreement / memorandum of incorporation and by-laws; notarise the application for the registration of the private limited liability company

Time to complete: 2 days

Cost to complete: LTL 400

Comment: Under the new resolution establishing the Company Register, all registration documents (including the documents concerning the establishment of the branches and representative offices of all foreign legal persons) have to be verified by the notary. Previously the notaries verify only the founding act and the signatures of the founders in the articles of association of the companies to be established. Therefore the notarial expenses have increased considerably, e.g. the notarial fee for verification of the conformity of the registration documents of a limited liability documents with the legal requirements amounts to LTL 350 (approx. EUR 101).

Formerly the notarial expenses for the registration of a company usually were smaller as the verification of the founding act cost LTL 100-300 (approx. EUR 29-87) and the verification of each signature in the articles of association cost LTL 3 (approx. EUR 0,9). The longer term is due to changes in laws.

Procedure 3. Register at the Company Register, including registration with State Tax Inspectorate (the Lithuanian Revenue Authority) for corporate tax, VAT and State Social Insurance Fund Board (SODRA)


Time to complete: 5 days

Cost to complete: LTL 120

Comment: Required documents: application for the registration of the company; certified agreement/memorandum of incorporation; licence if applicable; minutes of the statutory meeting; certified by laws; corporate decisions regarding the appointment of directors; bank certificate proving payment of the authorised capital; document evidencing the payment of the registration fee. The Register is obligated to issue a decision within 30 days.

As compared with the old agency, tThe Company Register has the following new responsibilities:

• All legal persons, including private and public legal persons, their branches and subsidiaries, as well as the branches and subsidiaries of foreign legal persons, are registered in the Company Register. The "old" system, on the contrary, was based on separate registers for enterprises, public organisations, associations, budget institutions, credit unions etc;

• According to the rules governing the new system, the Company Register contains the foundations acts, bylaws and certain other registration documents of the legal persons. Besides, the legal persons are required to submit to the Company Register their financial accountability documents;

• The Company Register registers procurations (general powers of attorney);

• Since 1 January 2004 the company names are no longer registered with the State Patent Bureau. The company names are now registered with the Company Register. Before registering the company, the Company Register has a responsibility to check the conformity of the company name with certain requirements specified by the legal acts.According to the Resolution No 1694 of the Government of the Republic of Lithuania, December 24, 2003, the fee payable to the Registrar of Enterprises was reduced to 120 Litas. Such amendments are due to the fact that basic function for checking the legality of incorporation documents lies on the shoulders of notaries.

In 2005, tax and social security registrations were simplified. The Register of Legal Entities informs the Tax Inspectorate of the newly registered legal entity and passes basic data about it. The data are included in the Register of Taxpayers automatically within 2 working days. Therefore, there is no need to appear in the Tax Inspectorate and register as a corporate taxpayer additionally. The identification number ascribed to taxpayer is identical with the identification number prescribed to legal entity by the Register of Legal Entities. On registering a legal entity as a corporate taxpayer, a legal entity is herewith registered as an insurer and the data are passed to SODRA. Therefore, there is also no need to register as an insurer in SODRA separately.

The Tax Inspectorate informs a legal entity about its registration in the Register of Taxpayers by sending a form of registration within 5 working days from the day of registering it as a corporate taxpayer. Herewith, the Tax Inspectorate may send two more forms requesting additional information that have to be filled in and send back within 5 working days from the receipt. These forms include information on the contacts, activity, working hours, accountant and subdivisions of a legal entity.

Procedure 4. Complete VAT registration

Time to complete: 10-15 days

Cost to complete: no charge

Comment: A company must be registered as a corporate taxpayer within 5 days of registering with the Enterprise Registry. Since 2005, the registry automatically forwards the relevant information to the tax office (see comment in previous procedure) To register, a form needs to be filed with the Tax Registration Office. All taxes except VAT and social security are taken care of with a single form. Registration for VAT involves in filling out another application form at the same office.

Since 2004, the procedure for the registration of companies as VAT payers has been made more lengthy and complicated. The representatives of the company willing to register as a VAT payer are required to attend the interview with the officials from the State Tax Inspection. During the interviews very detailed questions are asked about the company, its business, shareholders etc.

Procedure 5. Inform the State Labor Inspectorate of the startup of the company by free-form letter or phone call

Time to complete: 1 day

Cost to complete: no charge

Comment: This is formal requirement, but in practice it is usually ignored. 10 days before the start of operation, an employer must inform the SLI by free-form letter or a phone call. The SLI may send someone to inspect the premises for safety and to review the work contracts with the employees.

Procedure 6. Open a settlement bank account (to handle normal commercial transactions)

Time to complete: 1 day

Cost to complete: no charge

Procedure 7. Obtain the official seal of the company

Time to complete: 2 days

Cost to complete: LTL 30-90

FORMS OF BUSINESS ORGANISATION

1. Public Companies
2. Private Companies

Foreign enterprises are entitled to establish their subsidiaries in Lithuania as legal entities (public or private companies), or open branch offices or representative offices that are not legal entities. A public company needs a minimum authorised capital of LTL 150,000; the minimum for a private company is LTL 10,000. A private company must have no more than 250 shareholders.

TAXATION

Corporate tax

Main rate: 19% effective rate (2006)

Lithuanian entities are subject to tax on their worldwide income; non-resident entities are taxable on Lithuanian-source income only. Any commercial enterprise registered under Lithuanian law is regarded as a Lithuanian entity for tax purposes. The corporate tax rate is 15%, but under incentive legislation some companies may be entitled to a 13% rate. From January 1st 2006 a temporary social tax of 4% also applies (to be reduced to 3% in 2007). Distributions by one resident company to another are subject to the 15% withholding tax, but there is a participation exemption where 10% of the shares have been held for one year. Crossborder payments of interest are subject to a withholding tax at a rate of 10%, except for interest payments for government securities issued in the international financial markets, interest paid out for deposits or for certain subordinated loans.

Individual tax
Flat rate of 33% (27% from July 1st 2006)

Resident individuals are taxed on their worldwide income; non-residents are taxed on Lithuanian-source income only, including foreign-source income derived from a fixed base in Lithuania. An individual is resident if having a permanent home in Lithuania, or staying in Lithuania for 183 days in a tax year or 280 days in two consecutive tax years, including at least 90 days in each of the two years. A Lithuanian national employed by the Lithuanian government is always regarded as resident.

Individual income tax is charged at a flat rate of 33%, but the government plans to reduce this to 27% from July 1st 2006 and to 24% from January 1st 2008. There is a reduced 15% rate applicable to certain types of income, including income from distributed profits, rent or sale of property, creative activities and other individual activities.

Capital gains
Company gains taxed as income

Capital gains of resident companies, including permanent establishments, are taxed as part of general taxable income at a 15% rate. For non-residents only capital gains on immovable property are taxed at 10%.

Individuals are taxed at 15% on gains on the disposal of any property, including shares. Gains on the disposal of shares held for more than one year, however, are exempt subject to certain conditions, including that the seller has not had a 10% shareholding in the relevant entity in the past three years. In addition, gains by individuals on the disposal of Lithuanian immovable property owned for more than three years are exempt.

Indirect tax
Standard rate: 18%; Lower rates: 9%, 5%, 0%

Value-added tax (VAT) applies to most transactions. Registration is compulsory for Lithuanian businesses whose annual turnover exceeds LTL 100,000, but voluntary registration is possible. For foreign companies the turnover threshold is not applicable and they have to register irrespective of turnover. Foreign taxable persons must register either through a local affiliate or via a fiscal agent. Only companies established in EU member states may register directly. It is possible for foreign taxable persons to be refunded for VAT paid in Lithuania subject to certain conditions.

The standard rate is 18%, and a 9% rate applies to the construction and renovation of buildings financed from certain sources. A 5% rate applies to passenger and luggage transport, books and newspapers, pharmaceuticals, hotel accommodation and certain foodstuffs. Zero-rated items include the export of goods and some related services, international transport, supplies of ships and aircraft, and certain cases of international trade or supplies to other EU member states. VAT exempt items include education, healthcare, insurance and financial services; the leasing of dwellings and other immovable property; and the sale or transfer of immovable property. Social, cultural, sports, radio and television services if supplied by non-profit-seeking entities are also exempt from VAT.

Tax administration and compliance
Tax year: Corporations: accounting year; Individuals: calendar year

Companies must make quarterly advance payments of corporate income tax, and the final balance is payable by the time limit for submitting the annual tax return, which is the first day of the tenth month following the tax year. A tax return for income sourced in Lithuania for non-residents must be submitted no later than 15 days after the end of the month when the income was paid. Employment income is taxed by deduction at source. Individual tax returns are due by May 1st following the end of the tax year.

The deadline for submitting VAT returns and paying the tax is the 25th day of the next month after the end of the tax period, and October 1st of the next year for the annual VAT return.

Additional tax information

Withholding taxes:
Dividends 15%, Interest and Royalties 10%. Rates may be reduced by tax treaty or the application of EU directives.

Tax treaties: Lithuania has concluded more than 30 tax treaties.

Dividends: Dividends are taxable, but exempt where the recipient company has a 10% shareholding for at least 12 months.

Revenue protection: Lithuania has anti-tax-haven legislation.

Groups: There is no provision for group taxation.

Incentives: Small enterprises; free economic zones.

Other taxes: Customs duties, Excise taxes, Land tax, Lease tax, Tax on immovable property, Tax on pollution, Tax for use of state capital, Natural resources.
Lithuania Info
 
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