Entering Lithuania Market

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Entering Lithuania Market

Foreign companies planning to expand into Lithuania will be met with one of the strongest manufacturing sectors in the world, a highly skilled and educated workforce, straightforward business procedures, and a variety of growth incentives for investors. However, setting up shop in an unfamiliar place comes with its own challenges. 

Foreign businesses must comply with employment, tax, payroll, and corporate legislation whilst ensuring that their employees are working productively and efficiently. At Bradford Jacobs we know that these complexities can counteract your plans. By using our Professional Employer Organization (PEO) you do not have to worry about these aspects since our in-country experts will handle every aspect of compliance.

In this guide we have set out some basic summaries of what you need to make the transition into Lithuania’s market, no matter the industry you are in and how you are planning to do it. 

Starting a Business in Lithuania

Lithuania’s position at the center of Europe means that the country has access to diverse marketplaces in the EU, the Baltics, and Asia. With a robust infrastructure, and a dominant ICT industry that makes over EUR 675.2 million in exports, this creates an attractive environment for any business owner who seeks to expand their business.

Lithuania’s biggest asset is its rising reputation as an entrepreneurial hub, with over 1,000 businesses from around the world planting their roots in the country, in which government start-up incentives (such as a start-up visa for foreign nationals) have played a huge part.

To start a business in Lithuania you must go through the registration procedure, which is straightforward and designed to be executed easily. These steps can be done online or in person, but for online registration, you will require an e-signature.

The necessary steps to start a business in Lithuania include:

  1. Obtaining a business address in Lithuania.
  2. Appointing a general manager.
  3. Acquiring any additional permits or documentation for the business’ operation.
  4. Reserving a temporary company name (optional).
  5. Opening an accumulative bank account in Lithuania and deposit the appropriate share capital.
  6. Preparing the appropriate registration documents and having them translated to Lithuanian and the national language of the founder(s).
  7. Notarizing the registration documents at a notary’s office.
  8. Registering the company at the Register of Legal Entities of Lithuania under the Center of Registers.
  9. Registering with the State Tax Inspectorate for a Tax Identification Number and a VAT Number no more than 5 days after registration.
  10. Registering with SODRA, the State Insurance Fund Board.
  11. Opening a bank account for normal commercial operation.
  12. Receiving the official company seal.

Expanding Business into the Lithuania

Foreign companies want to expand into a formidable market, with a large talent pool and attractive labor and administrative costs, which Lithuania provides. Lithuania is a world leader in technology, particularly in ICT services and product, and is fast-growing into an entrepreneur due to its location as well as its attractive company incentives.

Business opportunities in Lithuania include these top industries: global business services, ICT, manufacturing, technology, life sciences, furniture industry, transport and logistics, food and beverages, environmental protection and renewable energy, construction, paper and printing, apparel, textile and leather, chemicals, and wood product manufacturing.

Whilst these industries create opportune levels for international expansion, they can also be expanded locally to popular locations such as Kaunas, Vilnius, Klaipeda, Šiauliai and Panevežys.

Lithuania Business Facts

Capital City: Vilnius

Population: 3.5 million

Cities: Vilnius, Kaunas, Klaipėda, Šiauliai, Panevėžys, Alytus, Marijampolė, Mažeikiaj, Jonava, Utena, Kėdainiai, Tauragė, Telšiai, Ukmergė

Official language: Lithuanian

Economy/GDP (2020): $55,688 million, 83rd

World Ranking: 11th in Doing Business (World Bank, 2020)

Leading sectors – ICT, manufacturing, technology, life sciences, furniture industry, transport and logistics, food and beverages, environmental protection and renewable energy, construction, paper and printing, apparel, textile and leather, chemicals, metal, and plastic processing

• Main exports: Refined fuel, machinery and equipment, chemicals, textiles, furniture, plastics, wood, cereals, vehicles, other chemical goods

• Main imports: Crude petroleum, cars, packaged medicine, refined petroleum, and electrical machinery/electricity

• Main trading partners: Poland, Russia, Germany, Latvia, and the Netherlands

• Government: Unitary Semi-Presidential Republic

Currency: Euro

Advantages and Challenges of the Lithuanian Market

Expanding into the Lithuanian market has many advantages, which include:

  • Low operating costs: Employment and operational costs are lower compared to other European countries but boasts one of the best cost-to-quality ratios in Europe.
  • Competitive tax system: Lithuania has the third-lowest corporate profit tax in the CEE (KPMG, 2019).
  • Educated workforce: Lithuania is the fourth highest in the EU concerning the share of youth in tertiary education (Eurostat, 2019).
  • Language: English is the favoured language for doing business in Lithuania, and most workers are multilingual.
  • Ease of Business: Lithuania is 8th in the EU for digital public services for businesses (European Commission, Digital Economy and Society Index 2020).
  • Logistics: The infrastructure of Lithuania is highly developed, and has access to the rest of Europe, the Baltics and Asia in a matter of days.
  • EU Benefits: Lithuania is a member of the European Union and enjoys the same trade benefits of other EU nations.

The biggest challenge facing the Lithuania market currently is the effects of COVID-19, like many other nations in the EU and around the world. Other challenges include income disparity, slow tax reforms, and low healthcare spending, but reforms are taking place to combat these challenges.

Limited Company/Subsidiary or Branch in Lithuania

A subsidiary established in Lithuania is considered a legal entity that is separate from the parent company, with independent administration and management. This provides more freedom for market exploration and creating international credibility.

A branch however, does not have any independence from the parent company, is not treated as a resident entity of Lithuania, and is limited in its administration and management.

The main characteristics of a subsidiary:

• Both public and private limited companies require a management body, and an annual shareholders’ meeting.

• A subsidiary is a legal entity in Lithuania and can benefit from taxation incentives and exemptions.

• A subsidiary requires a statutory audit to take place annual and be carried out by an auditor.

• Subsidiaries are subject to the same taxation principles as resident companies.

• A subsidiary in Lithuania benefits from independence from the parent company.

• Liability of investors is limited to the investments they made.

Main characteristics of a branch:

• The parent company is responsible for all liabilities of the branch office.

• The branch office can only conduct trade within the scope that has been set by the parent company.

• At least one manager must be residing in Lithuania.

No formal auditing is required.

Assessing the comparative advantages and disadvantages between a subsidiary and a branch and choosing the right option for your expansion is best done with expert guidance.

Legal Structures for Lithuania Market Entry

Depending on the company structure that you choose to set up, establishing a subsidiary or branch requires meeting certain legal requirements. A subsidiary is incorporated under Lithuanian law, whereas a branch must operate under certain local laws (taxation, social security etc.), but are incorporated under the laws of the parent company’s country and uses the company’s Articles of Association.

The legal structures of a private limited liability company (UAB) are:

A private limited company is popular among small investors. For incorporation, the minimum number of people required is 1 director (who must be a natural person), and 1 shareholder (who does not have to be a resident of Lithuania). The maximum number of shareholders this company can have is 250.

The minimum share capital required is EUR 2,500. After incorporation, private companies must appoint an auditor to submit annual audited financial statements. Annual tax returns must also be paid, and all businesses are required to file and pay VAT returns every month.

A private limited liability company must have a general manager, as well as an annual shareholder’s meeting. A supervisory board is also possible but is not obligatory to form.

The legal requirements for a public liability company (AB):

A public liability company is the most common business type for medium and large companies. For incorporation, the minimum number of people required is at least 1 director and 1 shareholder of any nationality, as well as a minimum share capital of EUR 40,000 (with at least 25% to be paid up in the registration process).

Public companies must appoint an auditor to submit annual audited financial statements. Annual tax returns must also be paid, and all businesses are required to file and pay VAT returns every month.

A public company must also have a general manager, a supervisory board (optional), as well as an annual shareholder’s meeting.

The legal requirements for a branch:

In Lithuania, a branch must have a registered office. For incorporation, a branch needs only 1 shareholder and a minimum share capital of EUR 1. However, a resident corporate agent must be appointed to represent the branch in any relations with third parties.

Branches also require the appointment of an auditor to submit annual audited financial statements.

Open a Business Bank Account in Lithuania

To do business in Lithuania, whether it is through establishing a subsidiary, a branch, or moving employees to the country to test out the market, a local company bank account is required. An entity must deposit the requested share capital before company registration, as proof of funds.

To register for a business bank account, it is vital for foreign investors to acquire the necessary paperwork. Foreign nationals might also need to translate and notarize some of these documents. However, some banks will accept documents in English, besides Lithuanian. It is important to check what the bank needs prior to registration, as delays can add to the complexity of registration procedures.

Generally, the documents you will need to open a business account in Lithuania are as follows:

  • As an Individual As a Corporation
  • Your Passport Company documents proving the company’s legal status
  • Proof of temporary or permanent residence/EU Identity Card (if from the EU or EEA) Personal details, legal documents and passports of company directors and shareholders
  • Financial documents and history Business plan/financial history

These requirements will vary, according to each case. It is best to enquire on what you need with the chosen bank, as well as with legal representatives in Lithuania. The registration process for a bank account may be done online or in-person (this depends on the bank).

Company Formation Lithuania

There are 6 major company forms in Lithuania:

• Private Limited Liability Company (UAB)

• Public Liability Company (AB)

• Small Partnership (MB)

• Individual Enterprise (IĮ)

• Agricultural Company (ŽŪB)

• Branches

The company formation process varies according to the company type, but the standard registration procedure is as follows:

  1. Prepare the articles of association, as well as the founding act/agreement, and have them translated to Lithuanian.
  2. Obtain a business address in Lithuania and prepare the documents for registration.
  3. Reserve a temporary company name (optional).
  4. Opening an accumulative bank account in Lithuania and deposit the appropriate share capital.
  5. Notarize the founding documents at a registered notary’s office.
  6. Register the company at the Register of Legal Entities of Lithuania under the Center of Registers.
  7. Register with the State Tax Inspectorate for a Tax Identification Number and a VAT Number.
  8. Register with SODRA, the State Insurance Fund Board.
  9. Convert the accumulative bank account or open a new bank account into a settlement account for normal commercial operation.

Find an office in Lithuania

Lithuania’s property market remains healthy and robust, with a rising interest in the commercial market due to the increase in foreign investments. Prices are affordable, and the country offers a variety of commercial types to choose from, depending on your needs – commercial rent and sales, industrial spaces, co-working spaces, virtual offices, and more.

Acquiring an office in Lithuania involves engaging the services of a local real estate office – but finding the right agency and agent may take time and can involve certain barriers, such as the language and business customs.

This is where Bradford Jacobs can step in and act as an office broker for companies wishing to expand into Lithuania. With our experience in international expansion, we can find the right space for you in no time and prevent the stresses and complications that can accompany a property search.

Finding a Lithuania Manufacturer

Lithuania boasts a strong manufacturing sector, which means that the country possesses all a business needs to make sure products are made to perfection – with a skilled and eager workforce, a robust infrastructure, and support for growth. Lithuania is one of the top countries for global manufacturing, with specialties in mechanic, electronic, and machinery production, but has manufacturing companies for several industries. This variety comes with a great cost-to-quality ratio.

With many large-scale and medium-scale manufacturing companies to choose from – such as Bege, IKEA, Formula Air, AIMG Norway, and Kormotech, to name a few - finding the right fit should not require much hassle.

Finding a Lithuania Distributor

Successful integration into the Lithuanian market is not complete without a local distributor. The distributor you choose will have a great impact on your business and its objectives.

In Lithuania, a majority of product distribution and sales is carried out by private distribution networks – the country has many private specialized stores. With distribution networks, import companies generally possess their own store or have obtained exclusivity for foreign brand distribution. In these cases, import companies simultaneously function as importers, wholesalers, distributors, and retailers.

There are few large stores or shopping malls, and the market can be characterized as having many small retailers selling a wide selection of products at traditional prices. However, large-scale retail is a thriving sector in Lithuania, and can be seen in the growing number of large supermarkets, which is closely related to land-use planning and focuses on accessibility.

Enter New Markets with Bradford Jacobs

Bradford Jacobs opens the door for companies like yours seeking to explore new markets in your new territory. Lithuania offers expansion into a variety of markets, as well as growth and development support.

Part of this exploration includes recruiting the right staff to assist with your expansion plans. Our Professional Employer Organisation (PEO) specialist teams have in-depth global knowledge of how to expand into and recruit in new territories – and our Employer of Record (EOR) services will guarantee your company complies with local registration and recruitment law, taxation, and payroll. This is essential for Lithuania, where employment regulations depend on a mix of labour legislation, and collective arrangements with trade unions and work councils.

Work with Bradford Jacobs to expand your company and ensure the best people are on your team!