Why Lithuanian legal system is suitable for a startup?

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Elena Vėgėlyte, Tax Associate at Law firm COBALT10th March, 2016

From a Garage to a Global Business

Why Lithuanian legal system is suitable for a startup?

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Migration

Requirements, timing and expenses

• Visa <90 DAYS during 180 days period

• Temporary residence permit

• Worker, highly-skilled worker, business owner

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Requirements

Worker Highly-skilled worker Business owner

Requirements

• Work permit

• No university diploma

• Contract with a local employer for > 6 m.

• Worker has a qualification and >1 year experience

• There is labourdemand

• University diploma

• Contract with a local employer for > 1 year

• Salary > 1.470 EUR (2 x average salary)

• There is a labour demand unless salary > 2.205 EUR (3 x average salary)

• Evidence of possession of sufficient funds (350 EUR / month)

• 1/3 shareholder of LT Co carrying activity for > 6 months

• LT Co employs > 3 employees

• Equity 28k EUR, from which 14k EUR invested buy foreigner

• 1/3 shareholder of LT Co carrying activity for > 6 months

• LT Co employs > 5 employees

• Foreigner’s investment into equity of LT Co > 260k EUR

Duration Max 2 years Max 3 years Max 1 year Max 3 years

Timing 3 + 4 months 1.5 + 2 months 4 months 4 months

Family After 2 years No limitations After 2 years No limitations

Expenses State fee 100 EUR; rent 300 EUR / month; health insurance costs (approx. 90 EUR / month)

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Migration. Practical Ways out

Establishing a group company and sending to long-term trip:

• Management or specialist

• 1 year working experience in the foreign company

• Don’t need a work permit – save 4 months

• Can stay for 2 years and extend for 1 year

Coming to work with a blue card for salary > 2.205 EUR (3 x average salary):

• Don’t need labour demand inquiry – save 4 months

• Can stay for 3 years

More info:http://www.migracija.lt/index.php?-1045199246

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• Limited liability – you don’t risk your personal wealth that is not in the company

• 2.500 EUR – minimum share capital (once company is established, you can use these funds as you want)

• CEO – obligatory body, while management board can be formed (if needed)

Establish Your Own Company in LT

• As many business partners as you want (from 1 to 250)

• Easy profit distribution (1% of shares –1% profit, 20% of shares – 20% profit)

• Suitable form to attract investors and receive investment

• Takes 5-10 days to establish

5-10 days

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Management Structure

Obligatory bodies:

• General Meeting of Shareholders

• CEO

Not obligatory bodies:

• Management Board

• Supervisory Board (formed mostly in the state owned enterprises)

• Several shareholders and investors in the company – Board is needed

• Supervision via board members appointed by investors/shareholders

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• More than 1 shareholder in the company –advised to have a SHA

• Third party investor will always require to sign the SHA

• Parties in the SHA agree on:

• election of the CEO and the Board members procedure

• profit distribution

• disposition of shares (tag along, drag along, exit clauses)

• investment in the company

• employees incentives etc.

Shareholders’ Agreement

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• Lithuanian laws & European Union laws

• Rule of law guarantees effective protection of IP

• IP rights can be transferred, pledged or disposed in any other way

• Make an IP due diligence:

• to attract investments

• owners of IP rights, what are the sources of IP rights, are IP rights protected, have other persons any possible claims to IP rights and etc.

Intellectual Property

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Taxation: level of business

Human capital taxation VAT

Profit tax

• Local supply 21%

• Supplies exceeding 45.000 EUR threshold are taxable with VAT

• Standard 15% and small, businesses 5%

• Incentives: R&D triple deduction from income; Reduction of profit (up to 50%) by investment expenses• Personal income

tax is 15%

• SSC at the total rate of 39.98%

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Cross-Boarder Digital E-commerce Transactions

Intra-EU supply for e-commerce:

• B2B no VAT charged (reverse charge)

• B2C VAT in the country where customer belongs

Ouside EU:

• no EU VAT, if effectively used outside EU

InvoicePrice € 100VAT € 19

€ 119

VAT € 19

Consumer

Tax office

Company

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Taxation: Level of Investor

Finance of business:

• Debt to equity ratio 1:4

• Arm’s length principle

Participation exemption rules:

• Dividend income is non-taxable, if > 1 year >10% in EU/non-EU countries

• Capital gains are non-taxable, if >2 years, >25% in EU/DAIS countries

Dividend income: 15%Board bonuses: 15%Sale of shares: 15%Interest income: 15%

Dividend income: non-taxable*Sale of shares: non-taxable*Interest income: 15%

* If participation exemption rule applies

Holding

Company

Natural person

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Transfer of Assets / Business to Lithuania

BY Co

LT Co

2) Loan capitalization

1) Sale of assets/business

• Transfer of business alternatives:

• Contribution into the share capital

• Sale of business / assets

• BY Co sells assets/business to LT Co with deferred payment and BY Co capitalizes receivables to LT Co shares

• Taxation of sale of assets/business from BY perspective

• Transfer pricing requirements in Lithuania and BY

EstoniaNiguliste 410130 TallinnTel. +372 630 [email protected]

LatviaValdemara 20LV-1010 RigaTel. +371 6724 [email protected]

LithuaniaLvovo 25LT-09320 VilniusTel. +370 5250 [email protected]

BelarusPobediteley ave. 100-207220020 MinskTel. +375 17 336 [email protected]