Lithuanian citizens, residents and foreigners can open a sole proprietorship in Lithuania. The entity, also known as a sole trader, represents the simplest structure that can be registered under the Lithuanian commercial law. It is designed for natural persons who want to carry a business in their own name, the main characteristic being that the owner and business represent the same entity.
Although the Lithuanian sole trader is a very simple structure, without legal personality, it must go through the same registration steps established under the law for the process of company registration in Lithuania. We advise foreign clients to address our team of consultants in company formation in Lithuania for assistance during the incorporation formalities.
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What are the main registration steps required for a sole trader?
The process for Lithuania company formation concerning a sole trader implies the following basic steps:
- finding a suitable trading name;
- assigning a registered address;
- obtaining a license (it can be the case, but this applies only to certain business activities);
- registering for taxation with the State Tax Inspectorate;
- opening a bank account, etc.
The founder of the sole trader must present his/her identity documentation and, in the case in which the business owner is a foreigner, the immigration documentation that has allowed the person to arrive here must be added to the application file.
However, this rule does not apply to all foreigners, as EU and EEA citizens do not need to obtain immigration paperwork, as it is imposed solely to those who arrive from non-EU/non-EEA countries. Businessmen who are in this situation can rely on our specialists for legal assistance on their immigration process.
What are the advantages of a Lithuanian sole trader?
Besides being a very simple business structure, suitable for individuals who are not necessarily qualified in managing business-related matters (accounting, taxation, business planning, management, etc.), the sole trader has many other benefits. It is recommended to open a sole proprietorship in Lithuania for the following reasons:
- it can be set up with a very low capital (there aren’t any minimum capital requirements);
- it is not necessary to hire employees;
- it can be possible to change its legal structure into another company type (investors can open a Lithuanian company as a limited liability company provided that the activities of the sole trader expand);
- it offers the possibility to withdraw money from the business at any given moment (a right that does not apply in the case of business forms with legal personality).
What is the tax burden of a sole proprietorship?
Sole traders are liable to taxation, given that the purpose of the business is a commercial one, through which the founder can gain an income and business profits. Considering this, the structure must pay taxes, but the taxable income is charged with the personal income tax, instead of the corporate income tax.
This happens because the sole trader is considered, from a tax point of view, a natural person, as the law states that there isn’t any distinction between the founder and the business. There are various personal income tax rates applied in Lithuania, based on the nature of the income, and for the sole trader, the following are available:
- the standard personal income tax (PIT) rate that can apply to a sole trader is 15%;
- however, a taxable income below EUR 20,000 in a financial year is taxed with a PIT of 5%;
- income above EUR 20,000 and below EUR 35,000 is taxed with a PIT of 5% to maximum 15%;
- income above EUR 35,000 is imposed with a PIT of 15%.
The sole trader can also be liable to other taxes, such as the value added tax and employment levies. If you want to open a company in Lithuania as a sole proprietorship, we kindly invite you to address our consultants for further details on the registration process and the tax system applicable to this structure.