Micro companies in Lithuania
A micro company (MB) is a legal form of business that was introduced in Lithuania in 2012.
MB is not required to have a minimum share capital, thus a micro company may be established with 1 EUR or any other tangible property contribution. And yet, it is still a limited liability company with certain unique traits and limitations for this legal form of business.
Incorporation of micro-company in Lithuania
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. In fact, micro company has less corporate compliance regulations and more similarities to a joint venture partnership. Founders may choose whether MB will have only the meeting of members (and a representative appointed by the members) or both the CEO and the meeting of members. Corporate structure and relationships between members are regulated less thoroughly for this type of company when compared with a common form of a limited liability company (UAB).
Advantages in comparison to common limited liability company
Micro companies (or “mažoji bendrija” in Lithuanian) have become quite popular among start-ups and small family businesses also due to lower accounting requirements and ability to use company funds for founder’s personal needs (e. g. services, representation etc.). For the purposes of an annual financial report of the MB, only a balance sheet, profit and loss statement and an explanatory note are necessary.
Taxation of micro company in Lithuania
Generally 15% CIT rate is applied. However, MB can enjoy 0% and 5% CIT rates.
If a legal entity has less than 10 employees and its turnover during the financial year does not exceed EUR 300 000, then 0% CIT rate is applied during the first taxable period. The 0% CIT rate is applied only to a legal entity, the main shareholder(s) of which is/are a natural person(s) and only if for three consecutive tax periods, including the first tax period the legal entity is not suspended, liquidated or reorganized and the shares, interests of the legal entity are not transferred to new members. In this case all MB members do not have more than 50 percent of shares in other companies (worldwide).
Also, it should be noted that Preferential 5% the rate is applied for the second and constative years of business, if above conditions are met (except three year rule), otherwise 15% is applicable.
Value Added Tax (VAT) - 21%.
MB members must register as VAT payers if their income in the last 12 months exceeds €45,000 (distant sales over internet – €35,000) or if the value of goods purchased from other Member States in the previous calendar year exceeded € 14,000.
Real estate tax - 0.3 - 3%.
Dividend tax - 15%.
Taxes on payments for personal needs received by MB members (as payroll):
PIT - 20%.
State Social Insurance (VSD) - 13.83 % (if MB member contributes 1.8% or 3% to the supplementary pension scheme) from 50 % of payments for personal needs.
Compulsory Health Insurance (PSD) - 6.98 % from 50 % of payments for personal needs.
Taxes on payments for personal needs received by MB manager, who is a MB member, performing management services under the civil service contract:
PIT - 15 %.
No VSD and PSD contributions.
Taxes on payments for personal needs received by a MB manager, who is not a MB member, performing management services under the civil service contract:PIT - 20 %.
State Social Insurance (VSD): 15.70%, 17.50% or 18.70%
To find out more about starting a micro company in Lithuania, please contact our lawyers at email@example.com
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