Is Lithuania a Tax Haven? Offshore Jurisdiction Review

The Baltic nation of Lithuania is one of the top offshore corporate tax havens in Europe. The main attractions of Lithuania as a tax haven are its comparatively low corporate and personal taxes by European standards, its solid reputation as a fully-fledged member of the EU, and the economic opportunities that this brings.

Table of Contents:

• Why Choose Lithuania As An Offshore Tax Haven?
• Benefits Of Setting Up An Offshore Business In Lithuania
• Background Information About Lithuania
• Location
• Political Structure
• Economy And Infrastructure
• Population, Language And Culture
• Exchange Control
• Type Of Law
• Principle Corporate Legislation
• Taxation
• Corporate Tax
• Personal Income Tax
• Capital Gains And Dividends Tax

Why Choose Lithuania as an Offshore Tax Haven?

Lithuania is one of several countries around the world (which include the likes of the UAE) that has established so-called “free economic zones” which provide additional benefits for offshore companies incorporating in these areas. There are a total of seven free economic zones operating in Lithuania. They offer advantages in the form of reduced taxation and favourable corporate legislation. 

Lithuania offers a sound balance between low taxation with a corporate-friendly environment and good reputation with a stable economic and political landscape. There may be many traditional tax havens which seem to offer more attractive tax-saving features than Lithuania, but they do not provide the same degree of reputability that owning an offshore company in the EU brings.  

The Benefits

The most popular type of offshore corporate structure in Lithuania is a Lithuanian Private Limited Company (UAB). It provides many advantages when set up as an offshore company by a foreign national, including:

• Low corporate tax: the standard corporate income tax (CIT) rate in Lithuania is 15%, which is well below the average for EU countries. Small companies can apply for a reduced CIT rate of 0% in their first year and 5% thereafter if certain criteria are met.
• Additional tax breaks in free economic zones: Lithuania has seven “free economic zones” in which there are significant tax incentives for foreign companies who conduct at least 75% of their business in one or more of these zones. In addition, they also provide favourable corporate legislature and reduced operating and reporting requirements. 
• 100% foreign ownership: the shares of a UAB may be completely owned by foreigners or a single foreigner. 
• Minimum of only one shareholder and director is required who may be the same person or any legal entity. 
• Limited liability protection: a Lithuanian UAB provides limited liability protection to its shareholders, which makes it an ideal vehicle to safeguard assets offshore. 
• Low capital requirements: The minimum registered share capital required is only €2,900 which must be kept in a Lithuanian bank account.
• Fast and simple incorporation process: all the filing for a Lithuanian UAB can be completed in one day and can be done completely online. Thereafter, it takes only 6 days for the trade register to approve the new company and issue the certificate of incorporation. 
• Access to a reputable EU tax haven: Lithuania is a full member of the European Union, which makes it the perfect entry to the benefits of owning an EU company that is based in a tax haven. 
• Setup and maintenance fees: Setup fees are low and include a €100 fee for the preparation and legalisation of the company’s registration documents, and an approximately €60 fee for registering with the trade register. There are few ongoing maintenance costs other than hiring an accountant when needed and paying the registered agent if you choose to use third-party services. 
• Filing requirements: annual filing and reporting requirements are not stringent. An audit is required only if a UAB’s annual gross revenue exceeds €1.4 million. 
• Shelf companies are available to purchase for easier and faster incorporation.

Background Information about Lithuania

Location

Lithuania is situated in the Baltic region of North-eastern Europe. It has a land area of 65,300 square kilometers (25,200 sq. mi). Lithuania shares land borders with Latvia to the north, Belarus to the east, and Poland and the Russian province of Kaliningrad to the south and southwest. To the west, Lithuania has a coastline which meets the Baltic Sea.

Political Structure

Lithuania was a former satellite of the Soviet Union and officially declared the restoration of its independence on 11 March 1990. It joined the European Union in 2004. 

Lithuania held its first independent general elections on 25 October 1992. It was during this election that the majority of voters supported the new constitution. Lithuania has a semi-presidential system whereby the president serves alongside the prime minister and cabinet. The head of state is officially the president who is directly elected for a maximum of two five-year terms. The current president is Gitanas Nausėda (assumed office on 12 July 2019) and the prime minister is Ingrida Šimonytė (Assumed office on 11 December 2020). 

Economy and Infrastructure

Lithuania’s open and mixed economy has been classified as a “high-income economy” by the world bank (countries with a GNI per capita of $12,236 or more for the 2018 fiscal year). They have a high GDP per capita which is estimated at $25,015 nominal and $46,479 PPP adjusted in 2022 (39th highest in the world). 

Lithuania’s economy is geared towards services, which comprise 68.3% of their GDP. Industry and Agriculture make up the remaining 28.5% and 3.2% respectively. Their largest exports industries are agricultural products and food (18.3%), chemical products and plastics (17.8%), machinery and appliances (15.8%), mineral products (14.7%), and wood and furniture (12.5%).  

Lithuania has highly developed infrastructure that is comparable with other first-world European nations. Transportation is the third largest sector in their economy, and they have one of the most extensive networks of motorways in Europe. They have a well-developed communications infrastructure and have one of the largest fresh water supplies in Europe. 

Population, Language and Culture

The 2021 population estimate of Lithuania was at approximately 2.8 million. This is a reduction of almost 1 million from 1990, the year it declared its independence, when the population stood at about 3.7 million. The major driver of the negative population growth has been international migration, along with natural changes in population. 

Lithuanians are by far the largest ethnic group, accounting for 84.6% of the population. Eastern Europeans make up most of the remainder, which includes Poles (6.5%), Russians (5%), Belarusians (1%), and Ukrainians (0.5%). Other ethnicities only make up the final 2.3%. Lithuanians are the most “homogenous” ethnic group of the Baltic states, whose genetics have remained largely unchanged since the Neolithic period (7000 – 1700 BCE), despite demographic movements. There are no apparent genetic differences between ethnic subgroups. 

The official language is Lithuanian, but there is also significant presence of the other eastern European languages in some areas, such as Polish, Russian, Belarusian, and Ukrainian. Approximately 85% of the population speak Lithuanian as their native language. Most schools teach English as the first foreign language, and 31.1% of Lithuanian residents are able to speak English as a foreign language. 

Christianity is the predominant religion (79.4% of the population), of which most follow Catholicism (74.2% of the population).

Exchange Control

On 1 January 2015, the euro replaced the litas at a rate of EUR 1 = LTL 3.4528. There are currently no exchange controls.

Type of Law

Lithuanian law belongs to the civil law legal system. It is largely based on the legal systems of France and Germany.

Principle Corporate Legislation

Corporate entities in Lithuania are primarily governed by Lithuania’s Civil Code and the Law on Companies. The Law on Companies regulates activities such as: registration, liquidation, rights and duties of members, division and/or transformation, and the registration of different branches, The law also outlines all the details related to the content of the documents needed for incorporation. 

Taxation

Lithuania has low taxes across the board compared to other EU nations, along with additional tax incentives for small businesses, and offshore entities operating in their economic free zones. This has made them one of the most attractive corporate tax havens jurisdictions in Europe. 

Corporate Tax

Lithuania has a standard flat corporate income tax rate of 15%. 

A company may qualify as a microbusiness if they have an average of less than 10 employees and earn less than €300,000 in gross annual revenue. If these criteria are met, their corporate tax rate is reduced to 0% in their first year of operation and only 5% thereafter. 

Tax incentives are also available for foreign companies who invest more than EUR 1 million in Lithuania, and conduct at least 75% of their business operations in one of Lithuania’s seven Free Economic Zones. These companies can apply for complete exemption from corporate tax during their first five years of operation, and a 50% reduction from the standard for the following ten years. Companies who operate in these free zones but invest less than EUR 1 million still benefit from VAT and real estate tax exemptions. 

Personal Income Tax

Lithuania has a flat personal income tax rate of 20% for income which does not exceed EUR 90,246 in the calendar year. The PIT rate increases to 32% for income in excess of the threshold. 

Capital Gains and Dividends Tax

Both capital gains and dividends are also taxed at a flat rate of 15%.