Taxation of IT Companies in Lithuania

Lithuania is one of the most attractive jurisdictions in Europe for running an IT business. Thanks to its flexible tax policies, support for innovative industries, and access to the European Union (EU) market, the country actively attracts startups, software developers, fintech companies, and outsourcing teams. The Lithuanian government is consistently developing the digital economy by reducing administrative barriers and offering special tax incentives to IT companies, making the country a competitive alternative to more expensive Western European markets.

In this article, we’ll explore the tax system’s structure for the IT sector in Lithuania, including corporate income tax rates, VAT, social security contributions, and available incentives for companies operating in special economic zones and startups. We’ll also review the available business structures for IT companies and the specifics of taxation for remote employees. This guide is helpful for entrepreneurs planning to start a company in Lithuania, as well as investors and tax advisors in the IT field.

Legal Forms for Running an IT Business in Lithuania

Starting an IT company in Lithuania begins with choosing the appropriate legal form. For most entrepreneurs, including foreign founders, the optimal choice is to establish a private limited liability company — Uždaroji akcinė bendrovė(UAB), which is the Lithuanian equivalent of an LLC.

Key features of a UAB include:

• Minimum share capital: €1,000.
• Can be established by a single founder (individual or legal entity).
• Liability of shareholders is limited to their capital contributions.
• Corporate profits are taxed at a standard rate of 15% (with potential exemptions).
• Dividends can be distributed to shareholders after taxes.

This form is especially convenient for IT companies due to its simple management structure, flexibility in hiring employees, and the ability to contract with service providers, including those abroad.

Other available business forms in Lithuania include:

• Individual activity – Used by freelancers and self-employed IT professionals. Offers a simplified registration process and reduced taxes for low turnover.
• MB (Mažoji bendrija) – A small partnership form with no minimum share capital. Suitable for microenterprises with flexible internal governance.
• Branch or representative office of a foreign company – Suitable for businesses already registered outside Lithuania that want to enter the local market without forming a separate legal entity.

Company Registration in Lithuania

Registering a UAB typically takes 2 to 5 business days and involves:

• Choosing and reserving a company name.
• Preparing incorporation documents (articles of association, founders’ resolutions).
• Opening a temporary bank account for the share capital deposit.
• Submitting documents to the Centre of Registers (Registrų centras).
• Obtaining a company registration number, tax identification number, and VAT number (if needed).

The company can be registered remotely using a qualified electronic signature or through an authorized representative. This is especially convenient for foreign investors and IT specialists who plan to operate remotely or on a temporary basis in Lithuania.

Specifics for Non-Residents

Lithuanian law does not restrict foreign nationals from being shareholders or directors. A non-resident can:

• Establish and fully own a Lithuanian company.
• Appoint themselves or a trusted individual as company director.
• Open a bank account in Lithuania or with an EU-based payment service provider (subject to compliance requirements).
• Apply for a residence permit based on business activity or participation in startup programs.

Lithuania actively encourages foreign entrepreneurs, particularly in the IT and innovation sectors. Physical presence is not required to start a company, and most formalities can be completed online or via a power of attorney.

Corporate Income Tax

Corporate income tax (pelno mokestis) is a key component of the taxation system for IT companies in Lithuania. It applies to legal entities registered in Lithuania, as well as to foreign companies earning income from Lithuanian sources. The overall tax framework is transparent and predictable, making Lithuania a favorable environment for IT businesses.

Standard corporate income tax rate: 15%
The standard rate is 15% of the taxable profit. This profit base includes total company earnings after allowable deductions, such as:

• Salary expenses and social contributions.
• Rent, utilities, and administrative costs.
• Marketing, advertising, and travel expenses.
• R&D expenses and equipment purchases.

IT companies may deduct both direct costs related to the development of digital products and services and indirect expenses, provided they are justified from a business perspective.

Tax Incentives for Small Businesses: 5% Rate
Lithuanian tax law supports small enterprises by allowing them to apply a reduced corporate income tax rate of 5%, provided certain conditions are met:

• The company’s annual revenue does not exceed EUR 300,000.
• The average number of employees does not exceed 10 people.
• The company does not operate in licensed financial services or gambling industries.

This provision is particularly relevant for early-stage IT teams, small development studios, outsourcing agencies, and startups operating in test or MVP (minimum viable product) mode.

Investment Incentives and Accelerated Depreciation
Lithuania allows IT companies to optimize their tax burden through:

• Accelerated depreciation of equipment and intangible assets, including servers, software, licenses, and patents. This enables businesses to reduce taxable profits more quickly.
• Investment deductions — if a company invests in modernization, infrastructure expansion, or R&D, these expenses can be partially or fully deducted from the profit base.
• Triple R&D deduction — if research and development expenses are properly documented, companies may deduct them from taxable income at three times the actual cost.

These measures encourage IT businesses to reinvest profits into technology and talent development without significant tax pressure.

Special Conditions for Startups
Lithuania actively supports its startup ecosystem and offers the following tax benefits:

• Corporate income tax exemption in the first years of operation — subject to the conditions of the Startup Lithuania program.
• Possibility of raising investments in exchange for equity without immediate tax consequences.
• Access to grants and subsidies that do not increase the taxable base.

Participation in startup programs helps reduce initial operational costs and allows entrepreneurs to focus on product development and market entry.

VAT – Value Added Tax (PVM)
Lithuania imposes a Value Added Tax (VAT) known as PVM (pridėtinės vertės mokestis), which is regulated in accordance with EU directives. For IT companies providing services and digital products both within Lithuania and internationally, understanding VAT registration, applicable rates, and transaction rules is essential.

Standard VAT rate: 21%
The general VAT rate in Lithuania is 21%, applied to all taxable goods and services unless specified otherwise. This rate typically applies to:

• Software licenses
• Website and app development
• IT system support and maintenance
• Paid subscriptions to digital services

Reduced rates of 9% and 5% exist for specific categories of goods and services, but they usually do not apply to the IT sector.

VAT Registration Threshold
A company is required to register as a VAT payer in Lithuania when:

• Its turnover from transactions within Lithuania exceeds EUR 45,000 over the last 12 months.
• It conducts intra-EU trade (e.g., receiving or providing services to/from other EU countries).
• It plans to issue invoices with VAT or participate in supply chains involving other VAT payers.

Registration is carried out through the tax authorities and can be completed remotely. Upon registration, the company is assigned a PVM code, which is used in invoicing and reporting.

VAT-Exempt Transactions in the IT Sector
Certain IT-related services and transactions may be exempt from VAT if they meet specific criteria. Examples include:

• Export of services to non-EU countries (third countries).
• Services provided to foreign parent or subsidiary companies.
• Specific intra-group transactions within VAT groups (in case a VAT group is formed).

These exemptions must be properly documented through contracts, service reports, and work completion certificates.

Providing Services to Other EU Countries
Lithuanian IT companies often serve clients across the EU. In such cases, the reverse charge mechanism applies:

• If the client is an EU-based legal entity with a valid VAT number, the Lithuanian company issues an invoice without VAT, and the client accounts for VAT in their own country.
• If the client is an individual or a business without a VAT number, the Lithuanian company must charge and remit 21% VAT.

Additionally, IT companies providing digital services to EU consumers (e.g., SaaS products, online platforms, digital content) can register under the One Stop Shop (OSS) scheme — a simplified VAT reporting and payment system that allows companies to manage VAT obligations across EU countries via a single portal.

Proper VAT registration and compliance are crucial for IT businesses, particularly those engaged in cross-border operations. Errors in applying VAT rates or invoicing may lead to additional tax assessments and penalties, so it’s important to maintain accurate records and seek advice from tax professionals when needed.

Payroll Taxes and Contributions
Like any other employer, Lithuanian IT companies are required to withhold and pay taxes and social contributions on employee salaries. The Lithuanian labor taxation system is transparent, and electronic reporting makes administration manageable even for remote teams.

Personal income tax rate: 20%
The main tax withheld from salaries is the personal income tax (GPM – gyventojų pajamų mokestis). As of 2025, the rates are:

• 20% on annual income up to EUR 101,094.
• 32% on the portion exceeding EUR 101,094.

Employers deduct this tax with each salary payment and transfer it to the state budget. Salaries are usually indicated on a gross basis, and all payroll taxes and contributions are calculated from this amount.

Additionally, employees are entitled to a non-taxable minimum (NPD), which reduces the taxable base depending on income level. This is especially relevant for lower-paid staff, such as junior specialists or part-time employees.

Social Contributions: Employer and Employee Share

Lithuania’s social contribution system includes several mandatory payments, some of which are deducted from the employee’s salary, while others are paid by the employer:

Employee side (deducted from salary):

• 8.72% — contribution to the social insurance system (pensions, benefits, healthcare).
• An additional 2.4% or 3% — for voluntary participation in the second-pillar pension accumulation scheme.

Employer side (not deducted from salary):

• 1.77% – 2.49% — depending on the risk category, paid to the social insurance fund.
• 0.16% – 0.2% — contributions to the Guarantee Fund and the Long-Term Employment Fund.

As a result, the total tax burden on the gross payroll amounts to approximately 32–34%, including all mandatory deductions and employer contributions.

Alternative Forms of Employment

For IT companies, especially in the startup environment, flexible cooperation models are common:

• Civil contracts (self-employed professionals, freelancers)
• Hourly pay or flexible working hours
• Work under individual activity certificates — frequently used by programmers, designers, and consultants.

However, it is important to consider that if the nature of the work reflects typical employment (regularity, adherence to internal regulations, lack of entrepreneurial risk), the tax authorities may reclassify the contract and apply taxes at employer rates.

Thus, Lithuania’s payroll tax burden is relatively moderate by European standards. The availability of official employment, clear regulations, and an electronic reporting system makes the country attractive for international IT teams and professionals.

Tax Incentives and Stimulus Measures for IT Companies

Lithuania actively supports the IT sector with a wide range of tax incentives and support programs aimed at attracting investment, fostering innovation, and enhancing the competitiveness of its digital economy.

Special Economic Zones (SEZ) Benefits
Companies operating within Special Economic Zones (SEZs) enjoy substantial tax reliefs:

• Corporate income tax exemption for 6 years, followed by a reduced rate of 7.5% for the next 10 years.
• Exemptions from real estate tax and dividend tax, subject to certain conditions.
• Access to developed infrastructure and local government support.

The most active SEZs are located in Vilnius, Kaunas, Klaipėda, and other major cities. For IT companies establishing development offices or support centers, this can be a cost-effective long-term model.

Startup Visa Program and Tax Relief for Startups
The Startup Visa Lithuania program targets non-EU citizens planning to launch innovative startups in Lithuania. Benefits of participation include:

• Accelerated residence permit processing for founders and key personnel.
• Company registration with minimal administrative burden.
• Tax benefits for eligible startups: corporate income tax exemptions during the early years, simplified expense accounting, and reduced payroll contributions.
• Access to state and venture capital grants.

The program is run in partnership with accelerators and technology parks, which assist with idea evaluation, document preparation, and project scaling.

Triple Deduction for R&D Expenses

IT companies investing in research and development (R&D) can take advantage of a unique tax incentive — the triple deduction of R&D expenses. This allows qualified expenses to be:

• Deducted at three times their value when calculating corporate income tax.
• Applied not only to developer salaries but also to licenses, equipment, rent, and related costs.
• Carried forward to future periods if the company is temporarily unprofitable.

This benefit is available regardless of company size and is particularly valuable when developing new digital products or technologies.

Incentives for Hiring Foreign Specialists
Lithuania encourages the recruitment of qualified IT professionals from abroad through several supportive measures:

• Fast-track procedures for obtaining work visas and residence permits.
• Preferential tax treatment for the income of highly skilled foreign employees — for example, partial exemption from income tax during the first few years of employment.
• The possibility for employers to reimburse relocation, housing, and training expenses without increasing the employee’s taxable income.

These measures enable companies to scale their teams more quickly without being limited to the local labor market.

Specifics of Cross-Border Operations for IT Companies in Lithuania
Lithuanian IT companies working with international clients or operating distributed teams must be aware of the tax rules applicable to cross-border activities. Key considerations include VAT, corporate taxation, and the potential risk of establishing a permanent establishment in foreign jurisdictions.

Taxation of Services Provided to Other EU Countries
According to EU regulations, the reverse charge mechanism applies when IT services are provided to clients in other EU countries. This means:

• If the client is a legal entity with a valid VAT number, the service is not subject to VAT in Lithuania, and the VAT liability shifts to the service recipient in their own country.
• If the client is a private individual, a company without a VAT number, or a user from a non-EU jurisdiction, the Lithuanian company must charge and remit VAT based on the customer’s country rules (e.g., via the OSS system).

IT companies offering digital services (SaaS, cloud solutions, licensing) must carefully track the customer’s country of residence and VAT status to ensure correct VAT accounting.

Application of Double Taxation Avoidance Agreements (DTAs)
Lithuania has signed double taxation avoidance agreements (DTAs) with more than 55 countries. These agreements:

• Help avoid double taxation on income such as profits, dividends, interest, and royalties.
• Define the tax jurisdiction and residency status of taxpayers.
• Allow foreign taxes paid to be credited when filing the annual tax return in Lithuania.

For IT companies with foreign clients, contractors, or subsidiaries, these agreements are especially important. To benefit from DTAs, it is necessary to collect supporting documentation such as tax residency certificates, contracts, service delivery records, and payment confirmations.

Permanent Establishment and Taxation Risks in Other Countries

IT companies actively operating outside of Lithuania may face the risk of being deemed to have a permanent establishment in another country. This risk arises when:

• There is an office or a team in the foreign jurisdiction acting on behalf of the company.
• A local representative concludes contracts on behalf of the Lithuanian company.
• The business activities are carried out systematically and have a commercial nature.

If a permanent establishment is recognized:

• The company must register with the local tax authorities.
• The profit attributable to these activities may become taxable in the respective jurisdiction.
• There may be an obligation to file local tax returns, maintain separate accounting records, and potentially withhold taxes at source.

To minimize such risks, IT companies should:

• Carefully analyze the structure of their international operations.
• Establish subsidiaries or use service agreements where appropriate.
• Seek advice from tax professionals specializing in international law.

Conclusion

Lithuania is rightly considered one of the most attractive jurisdictions for IT business in Central and Eastern Europe. A transparent tax system, moderate fiscal burden, well-developed digital infrastructure, and a wide range of incentives create favorable conditions for both startups and international tech companies.

Flexible tax regimes, access to R&D deductions, and special innovation support programs significantly reduce costs, allowing companies to focus their resources on product and team development. Additional advantages include the ease of company registration, the possibility of remote business management, and an extensive network of double taxation treaties.

However, when entering international markets, hiring foreign staff, or providing cross-border services, it is essential to consider the nuances of international taxation and adapt the company’s legal and financial structure accordingly.

Thorough planning and professional guidance during the launch and growth stages of an IT company in Lithuania can help avoid unnecessary tax risks and maximize the use of available incentives.

How to contact us 

For more information or advice on issues related to taxation of IT companies in Lithuania or in Belarus, do not hesitate to contact us. We are here to help and support you.

Phone and email communication options are available for your convenience:

• +375293664477 (WhatsApp/Telegram/Viber);
• info@spex.by.