Starting a business in Lithuania can be a rewarding experience for entrepreneurs looking to expand their operations to the European Union (EU). The country offers a favorable business environment, an educated workforce, and a strategic location in the Baltic region. However, starting a business in a foreign country can be daunting, and entrepreneurs need to understand the legal and regulatory requirements to succeed.
In this article, we will explore the steps involved in starting a business in Lithuania, from registering the company to obtaining necessary licenses and permits.
Choose the Right Business Entity
Selecting the appropriate business entity is crucial when starting a business in Lithuania. Business accounting professionals in Lithuania can guide you through the process of choosing between the limited liability company (UAB) and small partnership (Mazoji bendrija).
The UAB is the preferred option for many entrepreneurs due to its limited liability protection and straightforward setup process, while small partnerships are often utilized by businesses with a small number of partners.
Register Your Business
The next step is to register your business with the Lithuanian Business Register. You will need to provide information about your company, including its name, address, business activities, and the names and addresses of the founders. You will also need to pay a registration fee, which varies depending on the type of business entity you choose.
Obtain Necessary Licenses and Permits
Depending on the nature of your business, you may need to obtain additional licenses and permits. For example, if you plan to operate a restaurant, you will need to obtain a food service permit from the National Public Health Center. If you plan to import or export goods, you will need to obtain an import/export license from the Lithuanian Customs Department.
Open a Bank Account
To operate your business in Lithuania, you will need to open a bank account. You will need to provide your business registration certificate, identification documents, and other relevant information to open an account. Most banks in Lithuania offer a range of services for businesses, including business loans and credit lines.
Hire Employees
If you plan to hire employees in Lithuania, you will need to register with the State Social Insurance Fund Board (SODRA). You will also need to obtain an employment contract and comply with labor laws and regulations. It is recommended that you work with a local HR firm to ensure compliance with local laws and regulations.
Obtain Tax Registration
All businesses operating in Lithuania are required to register for tax purposes. This involves obtaining a tax identification number (TIN) from the State Tax Inspectorate, which is the primary tax authority in Lithuania. The TIN serves as a unique identifier for your business, allowing you to pay taxes and file tax returns.
To register for tax, you will need to submit an application to the State Tax Inspectorate, which will require information about your business, including its name, address, and legal structure. You will also need to provide identification documents for the business owners, such as passports or ID cards. In addition to obtaining a TIN, businesses that exceed a certain annual turnover threshold must also register for Value-Added Tax (VAT). The current threshold for VAT registration is €45,000 per year, but it is subject to change.
VAT is a consumption tax that applies to most goods and services sold in Lithuania, and businesses must charge and collect VAT on their sales if they are registered for it. VAT registration requires additional documentation, such as proof of business activities and bank account information.
Set Up Accounting and Bookkeeping
All businesses operating in Lithuania must maintain accurate accounting records and prepare annual financial statements in compliance with Lithuanian accounting standards. This requires setting up a robust accounting and bookkeeping system.
You can choose to hire an accountant to manage your finances, or you can use accounting software to keep track of your financial transactions. Many software providers offer localized versions specifically designed for Lithuania. Your accounting system should include a chart of accounts, which categorizes your business transactions, and a general ledger, which summarizes all financial transactions for each account.
You will also need to keep track of other financial documents, such as receipts, invoices, and bank statements. These documents should be stored in an organized manner and retained for a certain period of time in case of a tax audit or other regulatory inquiry.
Preparing annual financial statements involves compiling a balance sheet, an income statement, and a cash flow statement. These statements provide a snapshot of your business’s financial health and are used by stakeholders such as investors, lenders, and regulatory authorities.
Obtain Business Insurance
While business insurance is not mandatory in Lithuania, it is highly recommended. Business insurance can protect your company from unexpected events such as natural disasters, theft, and liability claims. You can work with a local insurance broker to obtain the right coverage for your business.
Last Word
Starting a business in Lithuania can be a complex process, but with the right guidance and preparation, it can be a rewarding experience. By following the steps outlined above, you can establish a strong foundation for your business and succeed in the Lithuanian market. Remember to seek professional advice when necessary and stay up-to-date with changes in laws and regulations.