How to Register a Sole Proprietorship in Lithuania

Lithuania offers substantial business opportunities for entrepreneurs. This country has everything a business person requires to invest in Europe (EU/EEA). It provides a talented workforce, growth-oriented business environment, EU-leading infrastructure, innovations and R&D, and six free Economic zones. The country’s top sectors for business include information technology, client support, transportation, renewable energy, logistics, and the production of bioplastics. 

The country has immensely benefited from EU assistance and from development funds grants, which amounted to around 180 million EUR every year since it joined the EU. This led to the modernization of the economy. The country is also a Schengen Area member, which eases the moving of goods and trade across borders.

Lithuania ranks 11th on the World Bank Ease of Doing Business report 2020. The country has also been part of the Eurozone since 2015. Many industries like IT in Lithuania are highly developed, sponsored, and well-invested in. This makes Lithuania a good choice for entrepreneurs setting up a sole proprietorship in Lithuania. 

Who can be a Sole Proprietor in Lithuania? 

A sole proprietorship or trading entity is owned and controlled by a single person. As a sole proprietor entrepreneur, you face all consequences and soak in all benefits of the business activities. 

There is no specified eligibility to be a sole trader in Lithuania. Any natural person can register sole proprietorship in Lithuania. 

Setting up a sole proprietorship in Lithuania is not complex. According to Lithuanian law, you can start a sole proprietorship across any business sector. However, in specific sectors here, there are free economic zones that you can take advantage of as a sole proprietor in any business type. Knowing the rule to incorporate a sole proprietorship in Lithuania is helpful at the outset.

Benefits of Sole Proprietorship in Lithuania

Setting up a sole proprietorship means an individual lays down a new business and has unlimited liability. Setting up a sole proprietorship in Lithuania comes with several advantages-

• The simplest form of a business entity
• Easy procedures for proprietorship incorporation
• Ease of documentation
• Easy transfer of company shares when any
• Confidentiality of companies in Lithuania

Documents Required for Registering Your Business in Lithuania

The documents required for registering a sole proprietorship in Lithuania are as follows: 

• Articles of association
• Notarized Founding act/ agreement
• Business address
• Temporary organization name reservation (this is optional) via Form JAR-5 application to Register of Legal Entities
• Bank account proof for share capital deposit, if any
• Certification from Apostille if you belong to a country part of the 1961 Hague Convention
• Registration proof r of legal entities

Other Criteria for Registering a Sole Proprietorship in Lithuania

While starting a sole proprietorship in Lithuania, companies must keep the following pointers in mind:

1. When you prepare the articles of association, ensure the founding act is in place. This is why you need a local business address. You can appoint a manager just one day after you receive all documentation and information. You must pay the legal costs for this procedure.
2. The company name reserved stands valid for six months. This takes just one day and requires only around 16 Euros.
3. When you open an accumulative account at a bank, the timeline varies as per the nature of the business. Later, it isn’t necessary to continue operations with the same bank. There are no charges for the same, while the share capital if any, has to be a minimum of 2500 Euros.
4. Notarization takes between 1 and 2 days, and you incur charges between 72 and 290 Euros.

   You can convert an accumulative account into a bank settlement account within 2-7 days for a charge deemed fit by the concerned bank. 

5. Tax Identification Number or TIN

More Considerations For Sole Proprietor in Lithuania

• Non-EU nationals require a visa and a valid passport to stay in Lithuania for more than 90 days. 
• If you need to stay longer, you must register and obtain a temporary residence permit from the Migration Department.
• A residence permit is issued for two years but can get extended for more than two years or indefinitely.
• If you have a Schengen Visa, you get allowed a stay in the country for 90 days. Your sole proprietorship needs to be active for at least six months before applying for a residence permit or a Schengen visa.
• Foreign investors must have invested at least €14,000 in the business.
• You may tap a Temporary residence and a work permit as a start-up founder. This remains valid for a year, with the possibility of an extension for one more year. After this, you will get a permit as per the meeting of general immigration requisites. You can then bring your family members.

As a sole proprietor in Lithuania, you must keep a few things in mind while implementing and growing your business.

Under a sole proprietor firm, you may cover

• Independent commercial related or production related activities
• Business activities under the business certificates
• Independent work that is a creative or professional independent
• Sports activities

You can choose between a couple of options as a sole proprietor: 

• Becoming self-employed as per business certificate
• Becoming self-employed as per certificate for self-employment

Take note of some critical differences:

• Business certificate – You need to make an advance payment of fixed income tax.
• Self-employment certificate – You must make a tax payment at the end of the taxation period every year.

Taxation

You need to get a Lithuanian Taxpayer Identification Number (TIN) to identify as a taxpayer and then facilitate the administration’s management of your tax affairs.

1. The introductory rate for income tax for employment income is 20%, while the highest threshold is 32%. 
2. Social security contributions- If you hire employees to manage sole proprietorship, you are liable to make social contributions as an employer. Contributions to social security funds stand due on the employee’s income. These get paid to the  State Social Insurance Fund Board and consist of two taxes-
   • State social insurance
   • Compulsory healthcare insurance
   • As of 2021, employee contributions stand withheld from the salary at 19.5%-22.5% rate.
   • Employer contributions are around 1.77% but might vary by 0.14%-2.49% 
   • All Lithuanian companies operating in the country via permanent establishment get taxed on worldwide income.
   • Most companies get taxed at 15%.
   • Rate of 5% gets applied to small companies and agricultural enterprises, as per law. 
   • Startups pay 0% corp tax for their first fiscal when income is below 300 000 EUR
   • A 10% rate applies to interest and the royalty income paid to non-resident entities. 
   • Dividend income is taxed at 15%.

As for VAT, the following rates apply-

How to Register a Sole Proprietorship Company in Lithuania?

Here is a simple overview of how to register a sole proprietorship in Lithuania.

Step 1- Prepare Articles of Association

Companies first need to draft Articles of Association. It must specify the regulation for a company’s activities and operations. For this, you need to have a Lithuanian business address. 

Step 2 – Reserve company name

Next step is to submit an application form (Form JAR-5) to the legal entities to reserve a name. Make sure that the company name at least hints at your business activity. 

Step 3 – Register a sole proprietorship 

When you begin registration for a sole proprietorship in Lithuania, ensure that you have the following handy-

• Passport copy
• Address in a native country
• Contact related details

Once you decide to incorporate a sole proprietorship in Lithuania, visit the registered notary’s office and get founding documents notarized.

• Certification from Apostille if your country has joined the 1961 Hague Convention.  
• If not in the list of countries, legalize your documents issued by foriegn institutions

Visit the Register of Legal Entities with all the documents and register your business. This whole process takes around 4-5 days. 

Step 4- Open a local bank account

• A sole proprietorship in Lithuania needs a bank account in the country.
• Documents of business incorporation, registration, and tax will suffice for opening this. 

You must register as an employer to hire employees and pay them and also to pay social contributions.

Conclusion

Sole proprietorship in Lithuania does not set any minimum requirements for paid-up capital.

Lithuania’s taxation and filing procedures for sole proprietorship are not complex.

You can choose to explore new business opportunities when you set up a sole proprietorship in Lithuania. 

As you expand teams and employees in Lithuania, payroll and team management come across as challenges. This is where you can contact Multiplier. 

Multiplier is a global employment solution for sole proprietors. It offers reliable EOR solutions to ease your recruitment and management process of international employees. We have one-click pay management  services to help seamless payments for international employees and freelancers. 

Our experts also help onboard employees and HR responsibility management in Lithuania. All our services comply with local rules and bylaws for establishing a business in the country.