Company formation begins long before the incorporation documents are signed. Choosing the right legal structure, defining an effective management framework, and assessing the relevant tax implications are all key decisions that should be made before registering a legal entity.
The two most common business structures in Lithuania are the Private Limited Liability Company (UAB) and the Small Partnership (MB). While both provide limited liability protection, they differ significantly in their management structure, incorporation process, taxation, and suitability for different business models.
Before registering a company, it is therefore essential to choose the most appropriate legal structure and carefully evaluate all relevant legal and tax considerations. Professional legal guidance helps you make informed decisions, minimize potential risks, and ensures a smooth and efficient company formation process.
Why choose Lithuania for Your business?
Lithuania is one of the most attractive jurisdictions in the European Union for establishing and growing a business. A company incorporated in Lithuania can operate throughout the EU, while the country’s transparent legal framework, competitive tax environment, and efficient incorporation process provide favourable conditions for both domestic and foreign investors.
Lithuania also offers a clear and business-friendly regulatory framework for companies operating in certain high-tech and defence-related industries. This provides greater legal certainty and predictability, enabling businesses to plan their operations and investment projects with confidence.
Key advantages of establishing a Company in Lithuania
- Member State of the European Union;
- Access to the EU Single Market;
- Competitive corporate income tax rates and available tax incentives;
- No requirement to appoint a local director;
- Shareholders of a Private Limited Liability Company (UAB) may be Lithuanian or foreign individuals or legal entities;
- Company incorporation is typically completed within 2–4 business days;
- A clear and business-friendly regulatory framework for companies operating in the defence sector;
- The possibility of opening a bank account or an account with an Electronic Money Institution (EMI) in Lithuania or another jurisdiction.
Company Formation: more than just registration
Company formation involves much more than preparing incorporation documents and filing them with the Register of Legal Entities. Before incorporating a company, it is essential to consider the legal, tax, and organisational aspects that will shape its future operations.
In practice, many founders choose a legal structure based primarily on incorporation costs or administrative simplicity, and only later consider the legal and tax implications of their decision. As the business grows, this often results in the need to restructure the company or address issues that could have been avoided with proper planning from the outset.
Before incorporating a company, it is advisable to consider:
- which legal structure – a Private Limited Liability Company (UAB) or a Small Partnership (MB) – best suits your planned business activities;
- who the shareholders or members will be and whether they meet the applicable legal requirements;
- how the company’s governance and management will be structured;
- whether the company should be registered for VAT;
- how the company’s accounting and bookkeeping will be organised;
- whether the company will require a registered office and a bank account or an account with an Electronic Money Institution (EMI);
- the tax obligations applicable to the intended business activities.
Carefully assessing these matters before incorporation helps minimise legal and tax risks, avoid unnecessary administrative burdens, and ensure a smooth start to your business operations.
UAB or MB: which business structure is right for You?
Choosing the right legal structure requires careful consideration of your planned business activities, the composition of the founders, future growth plans, and the applicable tax implications. These factors will determine whether a Private Limited Liability Company (UAB) or a Small Partnership (MB) is the more suitable option for your business.
Private Limited Liability Company (UAB)
A Private Limited Liability Company (UAB) is the most common type of limited liability legal entity in Lithuania. It is suitable for small, medium-sized, and large businesses, as well as companies planning to attract investment or expand into international markets.
Key features of a UAB:
- may be established by one or more individuals and/or legal entities;
- minimum share capital of EUR 1,000;
- shareholders’ liability is limited to the amount of their capital contributions;
- the appointment of a managing director is mandatory;
- shares may be transferred in accordance with applicable laws.
Small Partnership (MB)
A Small Partnership (MB) is a private limited liability legal entity, most commonly chosen by small and medium-sized businesses.
Key features of an MB:
- no minimum capital requirement;
- may be established by one to ten individual founders;
- legal entities cannot become members of an MB;
- the appointment of a managing director is optional, as the MB may be represented by one of its members;
- the rights and obligations of the members, as well as the rules governing their contributions, are set out in the partnership’s articles of association.
Comparison of UAB and MB
| Criteria | UAB | MB |
|---|---|---|
| Founders | Individuals and legal entities | Individuals only (up to 10 members) |
| Minimum share capital | EUR 1,000 | No minimum capital requirement |
| Liability | Limited | Limited |
| Managing director | Mandatory | Optional |
| Owners | Shareholders | Members |
| Typically suitable for | Businesses seeking a clear governance structure, investment opportunities, or international expansion | Start-ups, family businesses, service providers, and other small-scale commercial activities |
Corporate taxes and tax reliefs in Lithuania
When establishing a company in Lithuania, it is important to consider not only the choice of legal structure but also the applicable tax regime. Lithuania offers a competitive corporate tax system, including a number of tax reliefs for companies that meet the statutory requirements. Choosing the appropriate business structure from the outset can therefore have a significant impact on a company’s tax position, operating costs, and long-term growth.
Corporate income tax
The applicable corporate income tax rate depends on the company’s circumstances and whether it meets the conditions set out in the Law on Corporate Income Tax.
| Corporate income tax rate | Application |
|---|---|
| 0% | May apply during the company’s first two tax periods, provided that the conditions set out in the Law on Corporate Income Tax are met. |
| 7% | May apply to small companies with annual revenue not exceeding EUR 300,000, provided that the statutory requirements are met. |
| 17% | Standard corporate income tax rate. |
Value Added Tax (VAT)
The standard VAT rate in Lithuania is 21%.
VAT registration may be:
- voluntary;
- mandatory where the company’s annual taxable turnover exceeds EUR 45,000;
- mandatory in other cases provided for under the Lithuanian Law on Value Added Tax.
Dividend taxation
The taxation of dividends depends on the status of the recipient and the specific circumstances of each case.
- In certain cases, dividends paid to corporate shareholders may be exempt from corporate income tax (0% rate).
- Dividends paid to individual shareholders are generally subject to a 15% withholding tax, unless a lower rate or exemption applies under an applicable double taxation treaty.
Please note: Applicable tax rates and eligibility for tax reliefs depend on the specific circumstances of each company and the legislation in force at the relevant time. Before establishing a company in Lithuania, it is advisable to assess the planned business activities and obtain advice on the tax implications relevant to your particular situation.
How Creada can help
Creada provides comprehensive company formation and corporate legal services, from the incorporation of UABs and MBs to legal, tax, and administrative advisory services.
Our services include, but are not limited to:
- incorporation of UABs and MBs;
- preparation of incorporation documents, corporate documentation, and commercial agreements;
- provision of a registered office address;
- VAT registration;
- accounting and bookkeeping services;
- assistance with opening bank accounts or accounts with Electronic Money Institutions (EMIs), including for newly incorporated companies that do not yet have an established economic substance, subject to the financial institution’s internal policies and regulatory requirements;
- corporate restructuring and reorganisations;
- corporate law and tax advisory services.
Planning to establish a company in Lithuania? Contact Creada to discuss your plans. We will help you choose the most appropriate business structure and ensure a smooth and efficient company formation process.
