Lithuania is the largest and one of the most diversified hubs economically among the Baltic States. It had intensive industrialization when under the Soviet regime. This led to several enterprises specializing in chemicals, electronics, metal processing, food processing manufacturing, and construction material.
Since 1990, Lithuania has seen hefty investment and massive privatization of earlier state-owned enterprise formations. Along with this, the country has also seen much-improved infrastructure and modernization and boosted investments Large-scale privatization of many of the larger formerly state-owned enterprises and improved infrastructure have boosted investment opportunities.
As per the World Bank ease of doing business report 2020, Lithuania ranks 11th among 190 countries. Therefore, setting up a subsidiary in Lithuania is not challenging as you might imagine. The GDP of Lithuania touched USD 65.48 billion —in 2021. Also, the structure for taxation of foreign subsidiaries in Lithuania is not very complicated. This makes Lithuania an attractive hub for big names to set up subsidiaries.
Establishing a subsidiary here is the first step if you plan to expand your business in the country. This guide will help you set up a subsidiary in Lithuania and also get you to understand what the process is like.
What are the Types of Subsidiaries in Lithuania?
When you set up a subsidiary in Lithuania, it is part of any foreign legal entity. It is an establishment having no fixed obligations for investors in the parent company.
A Lithuanian company in which any foreign company owns the capital’s majority share is branded a subsidiary. Foreign companies pick this type of establishment instead of a branch since the former comes with limited liability for the foreign shareholder. This is also a preferred pick, thanks to the tax incentives offered. If a company belongs to a country with a double-tax treaty signed with Lithuania, setting up a subsidiary is a considerable advantage.
When you set up a subsidiary in Lithuania, the same is considered a legal entity. It may acquire real estate, hire staff and conclude contracts sans any parent company’s approval. A common form of a subsidiary in Lithuania is a private company.
However, there are more types of subsidiaries that you can incorporate into the country. While establishing a subsidiary business in Lithuania, you may select from the options below:
The parent company owns 1–49 % control over its stock in a partly-owned subsidiary. The former, however, have voted in all significant decisions.
A parent company entirely owns a wholly-owned subsidiary. It has complete control over a wholly-owned subsidiary regarding board seats and voting rights to set up a subsidiary in Lithuania.
Joint venture subsidiaries
A parent company forms a joint venture subsidiary when two companies come together and own half of the subsidiary’s stock. Both parent companies appoint half the board members and get one vote in all major decisions.
Private company is the most commonly established subsidiary form. This is formed by a single or multiple founders. The shareholder count cannot go over 250. A private company will deposit a minimum share capital of LTL 10,000 news in a local bank account. The shareholder liability is only limited to the contribution to capital. Management of such a type of company stands assured from the end of a management board that gets elected by the general meeting of all shareholders.
This is a joint-stock company, locally called the Akcine Bendrove, requiring a minimum of 40,000 Euro share capital. It needs to have one shareholder at the least who enjoys limited liability in company matters.
You can choose from these options when you set up your subsidiary business in Lithuania.
How to Set Up a Subsidiary in Lithuania?
Establishing a subsidiary in Lithuania is the easiest way to enter the European market. Check the step-by-step procedure for starting a subsidiary business in Lithuania.
Step 1: Register your subsidiary
- Initiate the process of setting up a subsidiary in Lithuania by registering the company with the Company Register and the Lithuanian Revenue Authority.
- The complete process for registration takes around 22 days.
Step 2: Set up a bank account
- Once the registration of a subsidiary in Lithuania stands initiated, the next step is opening a bank account and depositing the capital.
- A founder must deposit the same at the Company Register, State Tax Inspectorate (for all VAT and corporate taxation reasons), and the State Insurance Fund Board.
- Post these deposits, the subsidiary in Lithuania will receive-
– VAT number
– Tax identification number
– Certificate of registration
– Unique registration number
Step 3: Obtain the official seal
- Once the bank account is opened, the company can obtain an official seal for the subsidiary.
As per the latest provisions of Company Law since 2021, a subsidiary and any company in Lithuania may open accounts at any licensed local e-money institution besides the regular commercial banks.
Benefits of Setting Up a Lithuania Subsidiary
Setting up a subsidiary in Lithuania offers several benefits-
- A significant benefit of setting up a Lithuania subsidiary is its legal ability to conduct operations in the country. You can also hire local workers.
- The two entities have limited liability over the former as a parent company and subsidiary. This spares the parent company from pending litigation or related potential loss.
- This limited liability factor allows a Lithuanian subsidiary to conduct operations in line with local culture.
- The main framework to set up a subsidiary in Lithuania enables employers to establish a clear identity different from a parent company. This allows the subsidiary to conform to the country’s overall culture and business norms.
You may benefit more from outsourcing the subsidiary establishment with a global PEO. Multiplier helps smoothly set up the Lithuania subsidiary, enabling you to begin hiring employees and kick-start work sooner. Multiplier also acts as an Employer of Record, and you stand spared from being held liable for any compliance.
Documents to Prepare When Opening a Subsidiary in Lithuania
Essential documentation includes the following-
- Any foreign company setting up a Lithuania subsidiary must get a tax number to be a foreign investor.
- Company seal
- Bank account proof
- Declaration of parent company owners that acknowledges opening of the subsidiary
- Trade Register issued information in the parent company’s home country as proof of validity.
- Notarized statutory document of subsidiary
- Document for legal address and local representatives of subsidiary
- Document with all shareholder and subsidiary-typesubsidiary type details
- Articles of Association
As per the Civil Code of the Republic of Lithuania, Book Two, a subsidiary establishment must meet specific requirements, as below:
- Form JAR-5 completion
- Company name selection
- Deposit of minimum specified share capital of around EUR 2,500 (or LTL 10,000)
- Fee payment at a standard value amounting to EUR 57,34
What Business Forms can Lithuania Subsidiaries Take?
A Lithuanian subsidiary is a separate legal entity formed under the country’s laws.
The parent organization owns 100% of a subsidiary and can set up a wholly-owned subsidiary. Companies can also set up partial subsidiaries if the parent organization owns less than 100% of stocks for setting up a Lithuania subsidiary. In coalition with another company, there is a joint venture option where a parent company sets up a subsidiary in which each owns half the stocks.
When opening a subsidiary in Lithuania, pick a business form applicable to subsidiaries. Make sure you know the benefits and taxation around each type of subsidiary set up in Lithuania before deciding on one.
Lithuania Subsidiary Laws
A company is considered a parent company when it directly or indirectly holds majority voting rights in another company. While setting up a subsidiary in Lithuania, the parent company will have majority voting rights in the subsidiary on acquiring shares. A parent company gets over 50% voting rights at the General Meeting. For purposes of the Law, any company will be in a position to exercise a dominant influence over the subsidiary when it holds shares in it.
Moreover, Lithuania subsidiary law varies depending upon what structure companies opt for. You need to set up a Lithuanian bank account to make paymentspayment and stay compliant with subsidiary laws. Before starting a subsidiary, you need to deposit the required share capital in the bank account, depending on the type of subsidiary you have opted for. You also need to register the company with Lithuanian Revenue Authority and make all tax declarations on time.
Post Incorporation Compliance
Any foreign entity can trade in Lithuania once it sets up a subsidiary.
You must ensure compliance with the following:
- Local language version of all documentation from the parent company
- Tax norms
Other mandatory documentation submissions, post-establishment of a subsidiary, include-
- Data of founder (the company name, the registration code, the address, the director or management bodies’ details such as the first name, surname, code, and residential address that declares the residence of the representative)
- Data of director of the company
- The name of the subsidiary
- Owner consent for address use
- The exact address of subsidiary
- A statement certifying founder registration in the foreign state under the registration center for legal entities
- Annual report of the parent company
- Company’s decision to establish the subsidiary
All documents must be submitted to Lithuanian State Authorities, and all certification to the notary can be carried via a valid power of attorney duly certified from a notary’s end.
Taxes on Subsidiaries in Lithuania
A subsidiary for a foreign company stands subject to limited taxation in Lithuania. This signifies that an entity pays tax on legal entities in Lithuania from income received in the territory.
Tax optimization can be possible. On providing reports on payment of branch income tax to the head office of the foreign company, a credit stand was made on the profit tax of this parent company.
- The profit tax rate is 15%, and 5% for small enterprises.
- The tax for dividends is 15%.
- VAT rate is 21%. On performing export operations, a refund is possible for paid VAT.
- Social insurance for paying employee salaries is permitted up to 40% of salary.
Tax Incentives for Businesses Setting Up a Subsidiary in Lithuania
Foreign tax credit
A company can reduce the tax on a few foreign-sourced incomes in Lithuania. This is doable via taxes paid on income in a foreign country if the Lithuanian company can produce a notice from the country concerned.
Entities engaged in any investment project can reduce the taxable profits by up to 100% of the incurred acquisition cost of long-term assets that meet specific requirements. The depreciation expenses for such assets will be deducted.
Taxable profits will stand reduced by costs incurred from 2009 to 2023.
Such relief stands applicable for fixed assets:
- Machinery or equipment
- Computer equipment
- Software plus intellectual property rights
- Communication equipment
- Lorries, trailers, or semi-trailers (the relief for such investments stands capped at the price of EUR 300,000 per year)
All costs exceeding these limits mentioned above will be carried forward for a time of four years.
Free economic zones
Entities that invest in the Lithuanian free zones are entitled to partial or complete CIT relief (as per investment amount). These also get relief on real estate tax and a 50% slash on land lease taxes.
Other Important Considerations
Initiating activities with the local Register of Companies and the Tax Office shows that you are actively engaged in trade. Therefore, you must file monthly declarations of tax. You might forget to take into consideration hiring an accountant. Unless you choose to hold on hiring any staff, you are liable for taxation because of trading activities.
Consider hiring a delegate to handle establishing a company’s Lithuanian subsidiary if your schedule doesn’t allow you to make the necessary travel arrangements.
How Can Multiplier’s Employer of Record Help You Hire & Expand in Lithuania?
Business expansion in Lithuania demands effort and money. Apart from this, you must stick to the country’s laws and follow all industry norms.
Multiplier offers the infrastructure to help employ talent in Lithuania without needing an employer to be present to start a subsidiary. This helps in testing markets and establishes teams in Lithuania. Multiplier takes care of all formalities such as employment contract generation, payroll, multi-currency payments, and contingent workforce management.