Prior to starting a business, a person must have a clear vision for his/her activities, and then decide what form of activity is the most appropriate in a specific case. Thus, first and foremost, one needs to decide whether business will be started by establishing a legal business entity or being self-employed.
The right to exercise self-employed activities, without establishing a company, is set forth in the Civil Code of the Republic of Lithuania and in the Law on Personal Income Tax of the Republic of Lithuania. It is recommended to pursue this form of activity if you plan to implement your business idea on your own, and especially when you are planning to conduct economic ad commercial activities for a limited period of time.
Self-employment (independent activity) means:
- independent commercial or production activities of any nature, including business activities under business licenses (manufacture of textiles, repair activities, etc.);
- independent creative work, professional and other similar independent activities, including business activities under business licenses (lawyers, notaries, etc.)
- independent sport activities;
- independent performers’ activities (actors, musicians, etc.)
You may choose between two options:
- Become self-employed without taking a business certificate (according to a certificate of self-employment);
- Become self-employed according to a business license.
Self-employment without taking a business license (according to a certificate of self-employment)
A certificate of self-employment is a document certifying that you can engage in self-employment activities for an unlimited period of time, aimed at generating revenue or other economic benefits and which is characterized by continuity. Basically, you can conduct any economic commercial activities (except for a list of activities that are unlicensed but can only be performed by legal persons (in Lithuanian)).
The application for the issue of a self-employment certificate is submitted not later than on the day of the launch of activities. The application can be submitted at a STI (hereinafter referred to as State Tax Inspectorate) division, via mail or e-mail. If a person decides to terminate his/her activities, he/she must notify the STI within 5 working days before the planned day of termination.
When independent activities are conducted under a self-employment certificate, income tax is paid from the actual annual income earned out of independent activities. When calculating the taxable income from the earned revenues, it is possible to deduct allowable deductions (expenses incurred while earning revenues). A fixed amount can be considered as allowable deductions, that is, 30 percent from all the revenues gained from independent activities.
A person performing independent activities under a self-employment certificate is required to fill in the Income and Expenditure Accounting Register and issue one of the accounting documents:
- a receipt for the goods (services) bought or sold;
- an invoice;
- a VAT invoice;
- a cash register receipt.
Detailed information is specified in the Rules of Accounting of Residents’ Individual Activities (except for residents holding business licenses) (available here (in Lithuanian)).
Self-employment activities under business licenses:
This is one of the easiest ways of pursuing an economic activity. A business license is a document certifying that you have paid a fixed fee for a business license and have the right to perform the activities indicated in the business license for a certain period of time, to sell the goods you have produced and to render services to residents and legal entities. The amount of income tax is determined by local authorities (calculator of this tax is available here (in Lithuanian))
Business licenses are issued only for certain types of activities. A list of eligible activities is available here (in Lithuanian). If you want to find out whether certain planned activities can be pursued under a business license, you should check a NACE (classification of economic activities) code of the activity, which is available here, as well as call Statistics Lithuania or STI (State Tax Inspectorate) (tel. 1882)
To obtain this document, one must contact a local division of the STI or apply by e-mail via Mano VMI domain. A business license can be issued for the period indicated by the applicant, but not exceeding one calendar year and not shorter than 5 days, except for trade business licenses (trade business licenses can be issued for 1 or several days, or a longer period, but not exceeding one calendar year). All the rules regarding the issuance, extension and termination of a business license are available here.
The accounting of activities performed under a business license is very simple. Persons, who do not use a cash register for the accounting of revenues, must fill in the income and expenditure accounting register. Upon the buyer’s request, the seller must issue a sale and purchase receipt.
Detailed information is specified in the Rules of Accounting of Residents holding Business Licenses. (available here) (both in Lithuanian)
It should be noted that a person can perform activities under a business license only when he/she is not required to register as a VAT payer or is not registered as a VAT payer.
- Selling goods or services to legal persons is only allowed in case the type of activity which may be conducted under a business license (excluding trading) is not one of the activities the legal person in question actually engages in.
- Wholesale trade under a business license is not possible. A person having obtained a trade business license cannot sell goods to another person performing trading activities (the one who has obtained a business license, and the one who has registered independent (individual) activities).
- A business license does not grant the right to engage in licenced activities
For more detailed information about the commencement of self-employment activities please visit the ‘Enterprise Lithuania’ information portal.
Or contact an ‘Enterprise Lithuania’ consultant, the one closest to you.
Since 2018, a new exemption was adopted which now allows self-employed citizens to use the privilege of not paying social insurance tax for the first year from the starting date of self-employment. However, this is voluntary option which if used, for the same term denies one’s accessibility to financial contributions for illness, motherhood, fatherhood or accumulative work experience. The same privilege applies to seniors who are working in the form of Small Partnership, have individual business or work under self-employment certificate. For more information click here (available only in Lithuanian).
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