The Baltic states, including Lithuania, Latvia and Estonia, represent one of the best development conditions for IT business in 2023, having clear advantages in the field of regulatory framework, business conduct, migration policy and tax structures.
Dynamics of regulation
Various regulations regulate IT businesses around the world, with some countries offering preferential terms. The Baltic states maintain a balance, allowing enterprises to choose between general and specialized regimes, which contributes to increased competitiveness.
IT professionals have various options for registering a business, including legal entities, branches or working as individual entrepreneurs. Contracts can be concluded with local or foreign organizations, providing flexibility and variability of conditions.
The Baltic States adhere to an open migration policy. While some countries impose quotas and restrictions, these countries create favorable conditions for IT business. Unique initiatives for startups and simplified processes demonstrate an interest in attracting and retaining qualified personnel.
Advantages concerning Lithuania and Latvia
- Lithuania: Special modes for IT startups, fast LLC registration and universal business models make Lithuania popular. Citizens of non-EU countries enjoy work permits, but the absence of quotas encourages inclusivity.
- Latvia: Despite the absence of a special IT regime, Latvia provides opportunities for the creation of legal entities and a fast registration process. The absence of quotas for foreign labor increases the availability of IT business.
- Estonia: A minimum wage is not required for a director or a member of the company’s management board. There is no need to contribute an articular capital, it is enough just to declare it, the minimum amount of which is 2500 euros.
Understanding the intricacies of each country’s tax system plays an important role for effective business planning in the Baltic States.
- Lithuania: Progressive personal income tax, moderate social contributions and a VAT rate of 0% on exported IT services are attractive to specialists. Income tax for legal entities in the amount of 15%. If the profit exceeds €2 million per year, an increased rate of 20% applies. At the same time, companies with up to 10 employees and an annual profit of up to 300 thousand euros pay a 5 percent tax. At the same time, social protection will cost 37.5%, but the amount cannot exceed €20.7 thousand per year.
- Latvia: Thanks to a fixed personal income tax rate and reasonable social contributions, Latvia offers a stable tax environment for IT businesses. For startups, there is a single amount of a fixed tax on an employee’s salary — €301.77 per employee, regardless of the amount of salary. Zero corporate income tax if these funds are invested back into the company. At the same time, the employees of the startup company do not pay income tax.
Tax benefits in Estonia
Over the past decade, Estonia has taken significant steps to attract IT businesses, especially through corporate tax reforms.
- Deferred income tax: Estonia’s unique approach allows companies to pay income tax only when distributing dividends, providing flexibility and facilitating reinvestment.
- Reduced income tax rate: The introduction of an income tax rate of 14% increases the attractiveness of Estonia, especially when the dividends distributed correspond to the average.
- Income tax exemption: Estonia exempts dividends from income tax by encouraging investor-friendly policies. The 7% rate applies only if dividends are paid to individuals at a reduced corporate tax rate of 14%.
Thus, in 2023, the Baltic States are an attractive center for IT business, offering a combination of regulatory flexibility, strategic migration policy and competitive tax structures. Estonia’s innovative tax reforms further strengthen the region’s position as a major focus for IT innovation and sustainable growth.
Similar benefits with more favorable conditions are available in the Belarusian Hi-Tech Park. You can find out more here.
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