Special tax and corporate structure advantages in Lithuania
Research and Development is highly encouraged in Lithuania as firms can deduct R&D expenditures 3 times. Moreover, 5% Corporate Income Tax is possible for the small firms with an annual income of 300,000 EUR or less. A micro company is perfectly suitable for startups as it has less strict corporate structure and tax advantages.
Micro company in Lithuania is perfect for small businesses and startups
A micro company (MB) is not required to have a minimum share capital, thus micro company may be established with 1 EUR or any other tangible property contribution. A founder can only be a natural person (max 10 persons). Founders of MB work for company without employment contract (except CEO) and receive payments for personal needs out of company account or distributed profits. Micro company has less corporate compliance and more similarities to joint venture partnership.
In both cases you should be registered as CEO of company (incl. your personal registration in tax authority) and pay taxes on salary. If we apply ½ time and minimum salary (375 EUR /2) then taxes would be apx 75 EUR/month. We would advise you to establish a micro company due to lower accounting requirements and ability to use company funds for establisher’s personal needs (e. g. services, representation, etc). However, with micro company bank may request some additional info like contract of your bank account in PL + statement.
If you don’t pay out dividend which under law becomes subject to double taxation and declaration of LT income in PL your foreign income should not be visible by Polish authorities.
Tax advantages of Lithuania over Poland
Lithuania levies 15% Corporate Income Tax whereas in Poland it amounts to 19%. In addition to this, since January 1, 2012 small companies employing 10 employees or fewer, with an annual income of 300,000 EUR or less, have been subjected to 5% of Corporate income tax (exceptions apply). In April 2008 special tax scheme for research and development (R&D) was introduced as Lithuania aims at boosting the high value-added generating industries and encouraging business to invest in the areas like R&D. This tax scheme is very generous because expenses incurred by companies while carrying out R&D as well as by acquiring R&D carried out in EEA countries or countries with DTA can be deducted from taxable income thrice (300%). Whereas in Poland since January 1st 2016, companies are able to deduct only from 110% to 130% of the costs incurred for R&D. Lithuania also employs super-accelerated depreciation in regards to R&D. This means that acquisition price of fixed assets used in the R&D activities can be written-off within two years. Additionally, all investments into R&D disregarding the type of company or the amount of the investment qualify. Since Lithuanian legislation does not stipulate specific rules for arm’s length payments, general transfer pricing guidelines take place.
To find out more about tax advantages in the Baltics (Estonia, Latvia, and Lithuania), please contact our lawyers at info@gencs.eu.
T: +371 67 24 00 90
F: +371 67 24 00 91