Forms of Business
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1. INDIVIDUAL ACTIVITY CONDUCTED UNDER A BUSINESS LICENCE

This type of activity appears to be the easiest way to engage in economic activities. However, registration of a business license is subjected to a condition that a specific type of activity, e.g. peddling trade is included into the list of activities authorised to be performed under a business certificate. The list of such types of activities was approved by the Resolution No. 1797 of 19 November 2002 of the Government of the Republic of Lithuania On the Rules for the issue of business licences to residents. This legal act is rather significant by establishing the rules governing the activities of a person holding a business licence. Another legal act important in this relation is Resolution No. 1976 of 17 December 2002 of the Government of the Republic of Lithuania On the procedure of accounting of residents operating under a business licence. Equally account should be taken of the provisions of the Order No. 379 of 31 December 2002 of the Head of the State Tax Inspectorate under the Ministry of Finance On the approval of the form of receipts of the purchase-sale of goods (services) and the procedure for the issue such receipts (Official Gazette, 2003, No. 2-67), and the Order No. VA-16 of 8 March 2007 of the Head of the State Tax Inspectorate under the Ministry of Finance On the filling in of receipts of the purchase-sale of goods (Official Gazette, 2003, No. 31-1151).

Residents operating under a business licence shall be registered as VAT payers where the amount of the consideration received or receivable for the goods sold and/or services rendered in the course of the year (within the last 12 months) exceeds the amount of EUR 45,000.

2. INDIVIDUAL ACTIVITY UNDER A CERTIFICATE (SELF-EMPLOYED PERSONS)

The principal difference between the individual activity under a business license and under a certificate lies in the requirement, in relation to registration of a business certificate, to pay the income tax of residents in advance. Persons operating under certificates are not aware of the exact amount of the income tax of residents this being directly dependant upon the amount of the income earned. This type of activity is more appropriate to those who incur significant costs in relation to their activities since those are deductible from the income thus reducing the amount of the personal income tax payable. Another important characteristics of economic activities under a certificate is that the person may engage in any commercial activities since it is not limited by any list of authorised activities. The same person operating under a certificate may simultaneously engage in types of activities that may be performed under a business license. This type of economic activities is governed by more legal acts that the activities under a business license. The principal legal act governing economic activities under a certificate is the Law on Income Tax of Individuals.

Legal acts governing accounting of individual activities:

  1. The description of the procedure for the assignment of the costs related to the receipt or earnings of individual activities of a resident of the Republic of Lithuania to allowable deductions and the procedure for the calculation thereof approved by Order No. 303 of 25 September 2002 of the Minister of Finance of the Republic of Lithuania (Official Gazette, 2002, No. 95-4149);
  2. Order No. 372 of 24 December 2002 of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania On the approval of the Form FR0457 on the notification of a natural person on the assignment of fixed assets or part thereof to individual or other economic activities and the Rules on the filling in and the submission to the Tax Administrator of the form of the additional sheet FR04557P (Official Gazette, 2003, No. 1-30, 2009, No. 148-6652);
  3. Form FR0457 on the notification of a natural person on the assignment of fixed assets or part thereof to individual or other economic activities approved by Order No. 372 of 24 December 2002 of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania (Official Gazette, 2003, No. 1-30; 2009, No. 148-662);
  4. Order No. 1K-208 of 2 June 2004 of the Minister of Finance of the Republic of Lithuania On the amendment of the Oder No, 1K-040 of the Minister of Finance of the Republic f Lithuania On the approval of the Rules on accounting of persons engaged in individual activities (except those operating under business certificates) (Official Gazette, 2004, No. 92-3373).

The personal income tax (5% or 15%) is not the only tax levied upon persons engaged in economic activities. Depending on the types of economic activities such persons are subjected to the mandatory health insurance tax (9% from Minimal Salary) and the State social insurance contributions (50% of basic pension). Any person whose income generated from individual activities exceeds the amount of EUR 45,000 shall be also subject to a value added tax. The rates of the value added tax, the procedure for the calculation and payment thereof is governed by the Law on Value Added Tax of the Republic of Lithuania.

Governing legislation:

  1. The Law on Health Insurance of the Republic of Lithuania (Official Gazette, 1996, No. 55-1287; 2002, No. 123-5512);
  2. The Law on State Social Insurance of the Republic of Lithuania (Official Gazette, 2004. No. 171-6295);
  3. The Law on Value Added Tax of the Republic of Lithuania (Official Gazette, 2002, No. 35-1271, 2004, No. 17-505) (Art. 71 (1, 2, 7).

3. INDIVIDUAL ENTERPRISES

Individual enterprises have lately become specifically unpopular in view of the significant tax burden provided by the relevant legal provisions. Nevertheless, despite the heavy taxation individual enterprises do have some organisational advantages if compared to public and private companies. Firstly, the accounting of individual enterprises is significantly simplified. Therefore the accounting of such companies may be conducted without referring to the services of professional accountants. Such enterprises may consist of its owner only, or the owner may also hire other employees.

Taxes payable by individual enterprises: personal income tax (15 percent), corporate income tax (15 or 5 percent), mandatory health insurance tax (9 percent), and State social insurance contributions (28.5 percent). Where the turnover of the enterprise exceeds the amount of EUR 45,000, the enterprise is to be registered the VAT payer (at the rate of 21 percent).

Legal acts governing the activities of individual enterprises:

  1. Civil Code (Official Gazette, 2000, No. 74-2262);
  2. The Law on Individual Enterprises (Official Gazette, 2003, No. 112-4991);
  3. Accounting Law (Official Gazette, 2001, No. 99-3515);
  4. Business Accounting Standards;
  5. Resolution of the Government No. 719 On the approval of the Rules for stock-taking (Official Gazette, 1999, No. 50-1622);
  6. Resolution of the Government No. 179 On the approval of the Rules for the organisation of cash registers and the performance of cash operations (Official Gazette, 2000, No. 15-398);
  7. Law on Financial Statements of Entities (Official Gazette, 2001, No. 99-3516);

Taxes: Comparative table

Personal Income Tax Corporate Income Tax State Social Insurance  Mandatory Health Insurance  Value Added Tax (VAT)
 Individual activities under a Business licence  Fixed-amount fee at the beginning of the activity  –  56 EUR/month (in proportion to the number of days of business licence)  31,5 Eur/month and (in proportion to the number of days of business license)  21%
(where the turnover exceeds Eur 45,000)
 Individual activity under a certificate (self-employed persons)  5 % or 15% of taxable income*  –  28,5 % of 50% taxable income Where the person is employed under an employment, the person is not obliged to pay EUR 31,5/month and at the end of the year recalculates the premiums paid and adds to make the total payments equal to 9 percent of 50 percent of his total taxable income.

Where the person is not employed under an employment contract, he is obliged to pay EUR 31,5/months and recalculate the amount at the end of the year to make it equal to 9 percent of 50 percent of his total taxable income.

 21%
(where the turnover exceeds EUR 45,000)
 Individual enterprise  15 % of the amount withdrawn  15% / 5% (rate applicable to small enterprises) 28,5 % of 50% taxable income  9 % of 50% of taxable income.   21%
(where the turnover exceeds EUR 45,000)

*Depending on the activities,”intellectual/professional services” are taxed by 15%. Seek the Tax Inspectorate’s or an accountant´s/auditor´s advise.


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