Vilnius is ranked among Europe’s top cities for digital nomads. If you are also looking to be self-employed or start a business in Lithuania, here is a guide on how to formalise your activities.
LRT English brings you the Guide to Lithuania, a series of articles by International House Vilnius, an initiative helping new arrivals settle in Lithuania. You can find all the explainers here.
What is self-employment?
Self-employment activities, like regular employment, generate income over a period of time. For example, manufacturing, commercial services, or even creative, scientific, and sporting activities all fall under the mandatory requirements for self-employment.
Self-employed foreigners and Lithuanians alike must register with the State Tax Inspectorate (VMI), declare their income, pay taxes, and comply with any other legal requirements.
Individual activity certificate or business licence?
Before kicking off with self-employment, you’ll first have to establish whether your work falls under an individual activity certificate (individuali veikla) or a business licence (verslo liudijimas). The main differences between the two are as follows:
– Activities
Any activity not prohibited by law can be carried out under an individual activity certificate. Meanwhile, in the case of a business licence, there is a limited list of activities that could be undertaken.
– Time period
The time period of self-employment under an individual activity certificate is indefinite. The maximum duration of self-employment under a business licence, however, is one calendar year. The minimum duration for trade under a business licence is one day and five days for services and manufacturing. A business licence may be renewed.
– Taxes
Under an individual activity certificate, annual income not exceeding 20,000 euros is taxed at a rate of 5 percent, and 15 percent when the annual income is higher than 20,000 euros (where profits reach 35,000 euros per year). The tax on self-employment under a business licence is fixed and calculated daily.
– Restrictions
An individual activity certificate allows for all activities except those that require the establishment of a company. A business licence is permitted if income from the activity does not exceed 45,00 euros per calendar year.
Residents who have obtained a business licence can provide services and sell their manufactured goods to legal entities if the type of activity indicated in the business licence is not the same as the activity carried out by that legal entity.
– People
The individual activity certificate covers the person who has registered the certificate, as well as people employed by him or her. The business licence only allows its owner’s spouse, parents, a child aged 14 years and over, foster child, and guardian (caregiver) to participate in the activity covered by the license.
– Accounting
If a resident is self-employed under an individual activity certificate, one must keep a register of income and expenditure and issue invoices, cash receipts, and Value Added Tax (VAT) invoices. In the case of self-employment under a business licence, the resident must keep a register of income and expenditure and issue a receipt for the purchase and sale of goods and services.
Paying taxes
If you are self-employed under a business licence or individual activity certificate, your taxes will consist of:
– Personal Income Tax;
– Compulsory Health Insurance contributions;
– State Social Security contributions;
– In some cases, Value Added Tax.
If you’re a permanent resident of Lithuania, you must take care of your taxes even if you decide to work abroad for a while. In other words, all income of Lithuania’s permanent residents, received in and outside the country, must be considered subject to income tax in Lithuania.
If you earn income in a foreign country, which has a treaty with Lithuania to avoid double taxation, the issue of this income being subject to taxation in Lithuania must be in line with the provisions of the treaty.
Date to bear in mind
In Lithuania, May 1 marks the end of the income declaration season. Everyone, whether self-employed under an individual activity certificate or a business licence, is obliged to declare their income earned during the previous calendar year. For example, if you start your activities in 2023, you will need to declare your income by May 1, 2024.
If you have an individual activity certificate and have earned income, you must declare it and pay Personal Income Tax. If you haven’t earned anything, you don’t need to submit a tax return form.
If you have a business licence and have earned more than 45,000 euros during the year, you must declare this income by May 1 of the subsequent year and pay Personal Income Tax. If the income doesn’t exceed the threshold, you don’t need to declare it.
Declaring your income
The most convenient way to submit your income tax return is by logging into the Electronic Declaration System. Personal Income Tax returns are completed using an easy-to-navigate guide. Once the tax return has been generated, the amount to be refunded or paid is immediately displayed. When there is an amount due, it can be paid via e-banking.
More information on income declaration and answers to frequently asked questions can be found on the State Tax Inspectorate (VMI) website. If you need advice, register for a consultation with VMI at International House Vilnius.
LRT English Newsletter
Every Friday morning.
