Are you self-employed or an online business person? Do you have clients in Europe and don´t see yourself in an offshore location? Would you still like to minimize your tax burden without paying much for it?
We´ve already spoken about some of the many options in Europe, but there´s still more. Setting up a company in Lithuania can prove to be a success for small entrepreneurs, we´ll explain why.
A great option within the EU to register a company as an individual entrepreneur
You will have realised that it´s practically impossible to evade regulations and taxes if you live in the European Union (although the closest you´ll get to this dream, and not have to pay taxes, is with the residency in Cyprus). However, the EU has something that many readers miss in classic offshore locations: a good reputation and often clearer rules.
It´s not easy for those who deal with clients in Europe to explain that although their company operates from an offshore location in the Seychelles or in the Caribbean, that it´s still perfectly reliable and that they have nothing to hide.
It may not always be rational, but alarm bells start to ring in many peoples minds which causes their confidence in the company to plummet. Am I going to hire services or buy products from a company that works from a banana republic?
If not it´s because the client has a lot of trust in the other party (bloggers usually have an advantage here) or because they have a strong need for it, this could often be a problem to close the sale.
Of course, this isn´t always the case, especially in the case of online businesses. Tax Free Today for example wouldn´t have any qualms about it, it´s normal for a blog that discusses offshore issues to have its headquarters in a tax haven (in fact, alarm bells would sound if it was the opposite).
However, it´s likely that for many of you Tax Free Today readers, this is different, and in these cases selling through a company in the European Union gives us an extra reliable point.
As we previously mentioned, today we´ll be talking about Lithuania, an Eastern European country that is part of the EU and whose currency is the euro. Luckily, in a harmonized legal space such as the one in the EU, it´s no longer relevant where the company is located, provided that it´s inside the EU.
We mustn´t forget that European countries still differ considerably despite political unification, especially in tax legislation, something that we have often seen how to take advantage of.
Entrepreneurship in Lithuania isn´t going to allow you to get rid of taxes altogether, nor save on bookkeeping. However, as a small business owner, you will be able to greatly reduce your tax burden and the time you spend on bureaucracy.
There´s only one downside: You can´t earn that much money.
Entrepreneurship in Lithuania
We talked about the options we offer of setting up an Estonian company not long ago; the innovative European country that launched its electronic residency service (or e-residency) and an efficient economic system with relatively low taxes.
As you can read about in the article on Estonia, it´s an appealing country for startups or as a vehicle to invest, but not so much for small entrepreneurs or those who are self-employed.
Lithuania certainly doesn´t shine as much on the international stage as Estonia does, but it´s not actually that far behind in terms of opportunities for entrepreneurs. Since their independence from the Soviet Union, they have developed formidably.
Thanks to a relatively free market and its reduced state debt, the country enjoys good and sustained growth, and offers extraordinary opportunities for small entrepreneurs.
Latvia was once an appealing country for small entrepreneurs, but given its rather negative evolution in tax matters, it isn´t so appealing anymore (you know that you always have to keep yourself up to date with tax matters like these, if you want you can sign up and become a subscriber so we can help you with that).
These countries occupy positions 16 (Lithuania) and 19 (Latvia) in the ease of doing business index from World Bank Group, therefore, we aren´t alone when we say it´s easy to register companies and cooperation’s there.
You can have a fairly high salary as a small business owner in Lithuania; maybe even enough for you to want to be a small business owner forever.
You would only pay a minimum amount of taxes for your company there and you won´t complicate your life with accounting. In addition, registering in Lithuania is relatively easy and inexpensive. You could do it with about €200; a small sum compared to the economic offshore sites such as Belize and the Seychelles, where you have to have at least €1,000 for the company’s constitution and fees, not to mention their bad reputation!
Of course, keep in mind that having the company in Lithuania (or whatever country) doesn´t allow you to avoid income tax in the country where you live. So, if you haven´t chosen your country of residence well, you´ll have to pay taxes on your profits.
If you live in Lithuania, income tax is already included in the small businesses taxation. I.e., you only pay taxes once; a good reason to completely move your residence to Lithuania or Latvia, something that is very easy to do thanks to the free movement of people policy in force in the EU.
Either way, the numerous double taxation agreements signed between Lithuania and other countries will allow you to greatly reduce your taxation level.
If you still have to pay taxes in your home country, but you plan to emigrate later, you could leave the profits in the company. This has the advantage that, as long as they have been obtained abroad (or online), you won´t have to pay income tax in your home country.
Setting up a business in Lithuania: another paradise for small entrepreneurs
There is no special program for micro-enterprises in this Nordic country per se, but there are tax privileges for small businesses. They only pay 5%, instead of a fixed rate of 15%. This 5% applies whenever the company has less than 10 workers and doesn´t make more than €300,000. It´s called Small Partnership.
Does it sound too good to be true? Actually, not all the costs are included here. Social security expenses of small businesses are relatively high, at 37.5%, but they only pay for half of their income and for a maximum amount of up to €20,700 per year.
Those with a high salary will be able to earn much more money here and pay less than in other countries like Latvia, for example. In addition, social security in Lithuania at least has real use, despite being state-owned they still haven´t driven it to the verge of bankruptcy like in many other countries.
Registering a business in Lithuania is very simple. Costs amount to about 750 euros, there is no need to make a capital outlay and you only have to carry out a three-stage process, but this depends on the type of company you want to register.
According to the ranking of ease of doing business, you will have registered the company in 3-4 days, something you can even do online. Taxes are paid once a year, which facilitates accounting.
In general, other taxes are also reduced in Latvia, which makes the country very appealing for long-term residence, as long as the cold isn´t a problem for you.
Therefore, within the EU, their capital taxes are the second lowest and their income taxes are the lowest. Therefore, the country can be perfectly considered as a tax haven, without having to suffer from its disadvantages. As a member of the EU, the country possesses a good reputation, and it´s in the euro zone. Lithuania won´t be found on any blacklist.
Do you like what you´re reading? Delve deeper into the rabbit hole and let us accompany you on this path to greater personal freedom.