Taxation
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Shareholder loan to the company
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Updated 04.01.2024

 

When a shareholder grants a loan to a company, the tax consequences arise in the following cases:

1. The company may include interest paid in allowable deductions if the interest rate corresponds to market interest. If the amount of interest paid exceeds the interest available on the market, the excess will not be considered as a allowable deduction.

In order to prove the market interest rate, it is necessary to prove the interest that a particular company can borrow on the market from an unrelated person. Therefore, we recommend that you have documentation of the loan transaction with the shareholder that would justify the compliance of the applied interest rate with the interest in the market (for example, offers of commercial banks to the company to conclude a loan agreement).

2. If the amount borrowed exceeds the company’s equity * more than 4 times, the tax administrator may recognize the interest paid on the excess as a not allowable deduction and tax it as dividends if both of the following conditions are met:

a) The interest rate is higher than the market interest rate;

b) The shareholder (lender) controls ** the company on the last day of the tax period.

3. Interest paid to a natural person shareholder (both a resident of Lithuania and a foreigner) shall be taxed in Lithuania at the rate of 15% of personal income tax.

4. Interest paid to a Lithuanian legal entity is taxed at the applicable corporate income tax rate (15% or 5%).

5. Interest paid to a legal person registered in a state of the European Economic Area or in a state with which Lithuania has concluded a double taxation agreement is not taxable.

6. Interest paid to a legal person that is not registered in a state of the European Economic Area or in a state with which a double taxation agreement has been concluded shall be taxed at the rate of 10%.

7. A natural person shareholder may lend to the company without interest. In this case, there are no tax consequences for either the shareholder or the company.

 

* The ratio of borrowed amount to equity is calculated on the last day of the tax period (excluding the result of that tax period).

** A shareholder is considered to control a company if he directly or indirectly owns more than 50% of the shares or together with related parties holds more than 50% of the shares and the shareholder himself owns at least 10% of the shares.

 

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Taxation on transfer of shares
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Updated 04.01.2024

 

Taxation of the transfer of shares

When the income from the transferred shares is classified as taxable income, only the gain on the sale of the shares is taxable. i. y. the difference between the revenue received and the purchase price.
The purchase price of the shares consists of the shares purchase price, plus the actual acquisition costs of the shares: commission, taxes, state fees, etc.

 

Taxation of the resident (person)

When the personal income from the transferred shares is classified as taxable income, the share of the profit from the sale of shares not exceeding 120 VDU* (average salary) will be taxed at the rate of 15%, and the share of the profit exceeding 120 VDU at the rate of 20%.

Please note that when calculating whether the income of a resident did not exceed 120 VDU, not only the income from the sale of shares but also other income received by the resident is added together (excluding income from employment, dividends and individual activities), i.e. if you receive income from the sale of shares and other taxable income, it will be aggregated and the rates of 15% and 20% will be applied accordingly.

The part of the profit from the sale of shares not exceeding EUR 500 is not taxable. This relief does not apply when:

1. The shares are transferred to the company which issued them;

2. The shares were acquired by increasing the authorized capital from the company’s funds (there are additional conditions);

3. Income from the sale of shares received from foreign companies registered or otherwise organized in the offshore territories;

4. When the shares are deemed to have been transferred in the liquidation of the company.

 

Entity taxation

Capital gain from the sale of shares (the difference between the sale and purchase prices of shares) is subject to income tax at the rate of 5% or 15%.

Capital gain from the sale of shares is not taxable if both of the following conditions are met:

1. The company whose shares are transferred shall be incorporated or otherwise organized in a State of the European Economic Area, or in a State which has been concluded a double taxation agreement with Lithuania, and is liable to corporate tax or tax equivalent thereto.

2. The company transferring the shares shall hold more than 10% of the voting shares of the company whose shares are transferred for at least 2 years without interruptions.

This relief does not apply when the shares are transferred to the shares issuing company.

 

* 120 VDU, in 2024 amounts to EUR 228,324 (120 VDU * EUR 1902.70).

 

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Taxation on liquidation a company
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Updated 04.01.2024

 

Upon liquidation of a company (UAB, IĮ, MB), the remaining assets are transferred to its participant (shareholder, owner, shareholder). Upon the transfer of the assets of the company in liquidation, tax liabilities may arise for the company in liquidation and / or its participant (shareholder).

 

Company taxation

When the assets of a company in liquidation are transferred to its participant, the transferred assets are subject to income tax of 5% or 15% tax rate. 5% income tax rate applies if the average number of employees of the company in liquidation does not exceed 10 employees and the income for the tax period does not exceed EUR 300,000 (there are exceptions), if the company does not meet these conditions, 15% income tax rate shall apply.

Not the entire value of assets transferred to a participant is taxed, but only the income from the increase in the value of the assets, i. y. the difference between the fair market price of that asset at the date of transfer and its acquisition price.

If an asset that has been subject to depreciation or amortization is transferred, the acquisition price of the asset is reduced by the amount of the depreciation or amortization.

For example: Company X is in liquidation. The purchase price of her car, which is handed over to the participant, is EUR 35000. Prior to the liquidation of company X, a depreciation amount of EUR 25000 was calculated. At the date of the transfer, the real market price of the car is EUR 15000. Consequently, the increase in the value of the assets of company X in liquidation amounts to EUR 5000 (15000 – (35000 – 25000). Income tax will be payable on this amount.

 

Taxation of the participant (shareholder)

Upon transfer of the assets of the company in liquidation to its participant, the participant will pay the following taxes:

When the participant is a legal entity, the transferred assets are subject to income tax of 5% or 15% tax rate.

5% income tax rate applies if the average number of employees of the company in liquidation does not exceed 10 employees and the income for the tax period does not exceed EUR 300,000 (there are exceptions), if the company does not meet these conditions, 15% income tax rate shall apply.

When the participant is a natural person, the transferred assets are subject to personal income tax.

The 15% personal income tax rate is applied if the amount of increase in the value of assets received does not exceed 120 VDU (average salary) and the 20% tax rate is applied from the amount exceeding 120 VDU. The average salary in 2024 for the calculation of personal income tax amounts to EUR 228,324.

Please note that when calculating whether the amount of income did not exceed 120 VDU, not only the income from the increase in the value of the received assets is taken into account, but all other income received by the resident during the year, except income from employment, dividends and individual activities.

Not the entire value of assets received by the participant is taxed, but only the income from the increase in the value of the assets, i. y. the difference between the fair market price of the received assets on the date of transfer and the acquisition price of the shares held by the participant of UAB or the contribution not withdrawn by the participant of IĮ, MB.

For example: a participant of UAB X owns shares of UAB X purchased for EUR 5,000. UAB X is being liquidated and its car is being handed over to the participant. At the date of the transfer, the real market price of the car was EUR 15000. Consequently, the increase in the value of the assets received by the participant is EUR 10000 (15000 – 5000). From this amount, the participant will pay income or personal income tax.

 

Important to know

The company in liquidation must reimburse the VAT on the purchase of the transferred assets, which has been included in the VAT deduction. Refundable VAT is calculated on the basis of the amount of depreciation or amortization of the asset.

 

 

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Taxation of dividends
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Updated 04.01.2024

 

Important details

Dividends are entitled to shareholders who were shareholders of the company on the day of the shareholders’ meeting announcing the dividends, regardless which year profit are distributed.

Dividends are also considered to be shareholders’ income received by reducing the company’s authorized capital, if this capital has been increased from the company’s profit.

Income received by the owner of an Individual enterprise or a member of a Small partnership after the distribution of the company’s profits is treated as dividends.

Private limited companies (UAB) and public limited companies (AB) may pay dividends only in cash.

Dividends cannot be paid in advance. Dividends are usually paid once a year, when the result for the year ended, is calculated, but they can also be paid for a period shorter than the financial year, provided that all the requirements for the payment of interim dividends are met.

 

Taxation of dividends

If dividends are received by individuals, they are subject to personal income tax (PIT), if legal entities are subject to income tax (IT).

 

Lithuanian company pays a Lithuanian resident

Dividends paid by a Lithuanian company to a Lithuanian resident are taxed at 15% PIT.

 

Lithuanian company pays a foreigner

Dividends paid by a Lithuanian company to a foreigner are taxed at 15% PIT in Lithuania. If Lithuania has concluded a double taxation avoidance agreement with the state of residence of the foreigner receiving the dividends, then the dividends are taxed in both countries according to the rates provided for in the agreement, which in Lithuania is usually lower than the standard rate.

 

Lithuanian company pays another Lithuanian company

Dividends paid by a Lithuanian company to another Lithuanian company are not taxable if the company receiving the dividends holds (or intends to hold) at least 10% of the voting shares in the company paying the dividends for 12 months.

If a company with the intention of holding shares for more than 12 months has benefited from this benefit but has subsequently transferred the shares before the end of 12 months, the dividends paid must be taxed at 15% IT.

If the company receiving the dividends does not meet any of these conditions, the dividends paid are taxed at 15% IT.

 

Lithuanian company pays a foreign company

Dividends paid by a Lithuanian company to a foreign company are not taxable if the foreign company holds (or intends to hold) at least 10% of the voting shares in the company paying the dividends for 12 months and is not registered in the offshore territories.

If a foreign company does not meet any of these conditions, the Lithuanian company must pay 15% IT when paying dividends. If Lithuania has concluded a double taxation avoidance agreement with the state where the foreign company receiving the dividends is registered, the rate provided for in the agreement shall be applied.

Note: If a foreign company meets the above conditions under which dividends paid to it are not taxable, then the tax rate provided for in the double taxation agreement does not apply.

 

A foreign company pays a Lithuanian company

Dividends paid by a foreign company to a Lithuanian company are not taxable in Lithuania if:

— The foreign company is registered in a state of the European Economic Area and is a payer of income tax or similar tax; or

— The Lithuanian company has been holding (or intends to hold) at least 10% of the voting shares in a foreign company paying dividends for 12 months without interruption and this company is not registered in the offshore territories.

If none of these conditions is met, the Lithuanian company pays 15% IT on the dividends received from the foreign company.

 

A foreign company pays a resident of Lithuania

Dividends paid by a foreign company to a resident of Lithuania are taxed at 15% PIT in Lithuania. If Lithuania has concluded a double taxation avoidance agreement with the state where the company paying the dividends is registered, then the dividends are taxed at the rate provided for in the agreement, which is usually lower than the standard rate.

 

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Advance income tax
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Updated 01.02.2024

 

Advance corporate income tax is payable quarterly on these dates 15.03 /15.06 / 15.09 / 15.12. The amount of the advance payment depends on the chosen calculation method. The following methods are available:

1. According to the profit of the previous year.

2. According to the profit for the following year.

If you forecast that the company’s profit in the current year will be lower than in the previous year, then the advance income tax will be lower using the 2nd calculation method.

If your accountant calculated the advance income tax using Method 1, consult with him about changing the method.

To change the method of calculating the tax, indicate this by submitting an advance income tax return. If you have already submitted a tax return for the first quarter and would like now to change your method, you can do so by resubmitting this tax return.

 

Notes

— Newly registered companies do not pay advance income tax for the first tax year. The tax is also not paid by companies whose taxable income in the previous tax period did not exceed EUR 300 000.

— The amount of advance income tax calculated on the basis of the expected profit must be at least 80% of the actual amount of annual income tax. If the forecasts are incorrect and the amount of the advance income tax is lower, the STI will charge interest.

 

 

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Labour law
Reduction of employee salary
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Updated 01.09.2021

 

The employer may not unilaterally reduce the employee’s salary without the employee’s consent, with the following exceptions:

1. When the remuneration of a certain industry, enterprise or category of employees is changed by laws or Government resolutions.

2. When the provisions of a collective agreement change the remuneration of the whole enterprise or of a certain category of employees. The written consent of an employee is required only if the change in the terms of remuneration reduces the employee’s salary agreed in the employment contract concluded prior to the conclusion of the collective agreement.

3. Where the conditions of remuneration are changed not in the employment contract but in the regulations, the orders of the head of the company, other administrative acts and the employment contract do not contain specific references to these documents.

 

Example

The employment contract stipulates the following payment terms: the employee is paid a fixed part of the salary of EUR 2,000 and a variable part – up to 30% the amount of the fixed part of the salary (there is no reference to a specific document). In this case, the variable part is calculated and paid according to the procedure approved by the order of the manager. Changing this procedure will not require the employee’s consent to the variable part, as the terms of payment set out in the employment contract will not be changed.

 

Tips for the employer

The employment contract shall provide only for a fixed part of the salary and shall not discuss the payment of bonuses or bonuses. It is recommended that bonuses and bonuses be provided in local documents (regulations, company manager’s orders, other administrative acts), as in this case the employer may change, pay or not pay bonuses and bonuses at its discretion and does not require the written consent of the employee.

 

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What the director is responsible for
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Updated 12.02.2024

 

Duties of the director

The Civil Code (CC) and the Law on Joint-Stock Companies (ABĮ) establish duties for the director, which he must comply with and which he must be guided by in his activities:

1. Duty to act honestly and reasonably;

2. Duty to act for the benefit of the company’s shareholders;

3. Duty of loyalty;

4. Duty of confidentiality;

5. Duty to avoid conflicts of interest;

6. Non-use of the company’s information and property;

7. Informing about the director’s transactions with the company.

These duties oblige the director to follow the criteria of reasonableness and honesty, to comply with the requirements established by laws and other legal acts, to act in such a way that his activities do not conflict with the company’s operational goals and are harmonized with the company’s internal documents. In case of violation of the specified duties and requirements, the question of the director’s responsibility arises.

 

Responsibility Types

Depending on the actions performed, different types of responsibility may be applicable to a director:

1. Disciplinary liability may be applied for gross breaches of duty, for example, by disclosing commercial or technological secrets; shareholders may impose one of the disciplinary sanctions on the director – a warning, reprimand, or dismissal from employment;

2. Civil liability is related to shareholders’ right to file a lawsuit against the director for full damages arising from failure or improper performance of director’s duties, for example, by entering into a contract exceeding their competence limits;

3. Administrative liability is applied by imposing administrative fines for administrative law violations, for example, the tax inspection may impose an administrative fine for accounting violations;

4. Criminal liability, whose sanctions include the prohibition of certain work or activities, fines, arrest, deprivation of liberty, may be applied for crimes against the financial system (including negligent, fraudulent accounting practices, and tax evasion). The applicable sanction for criminal offenses and crimes is proposed by the prosecutor, and the decision on its imposition is made by the court.

 

What the Company Director is Responsible for 

1. The director of the company is responsible for damages due to non-compliance or improper compliance with requirements established in laws and other legal acts:

a) In accordance with Article 28 of the Law on Companies’ Financial Statements, the company’s director ensures the selection of the person preparing financial statements and the timely provision of accurate, comprehensive information about economic operations and other information necessary for the preparation of financial statements to the person preparing financial statements. Additionally, the company’s director is responsible for the preparation and submission of the company’s financial statements to the Registrar of Legal Entities (administrative liability applies);

b) In accordance with Article 37 (12) of the Law on Joint-Stock Companies, the director is responsible for various areas of organizational management (administrative liability applies);

c) In accordance with the Tax Administration Law, the director is responsible for non-compliance or improper compliance with obligations prescribed in this law, for example, failure to declare the declared tax, or unlawfully applying a lower tax rate, resulting in unlawfully reducing the payable tax (both administrative and criminal liability may apply).

2. The director is responsible for damages arising from the violation of the company’s statutes, other internal documents (shareholders’ decisions, board resolutions):

a) If the director breaches the duty of confidentiality and loyalty and discloses information about the company that does not correspond to reality, thereby damaging the company’s reputation, the director may be required to compensate for non-pecuniary damages;

b) If the director breaches the duty of loyalty and the duty to act in the interests of the company’s shareholders, and concludes a transaction under different conditions than those provided in the board’s or shareholders’ decision, resulting in losses for the company, the director may be required to fully compensate for the damages.

If the director concludes a transaction exceeding his/her competence, such transaction becomes obligatory for the company. The law provides an exception – the case where a third party who concluded the transaction knew that the director was exceeding his/her competence. In such case, the transaction does not incur obligations for the company.

A director who exceeds his/her competence is subsidiarily liable for the performance of the company’s obligations to a third party under this transaction, i.e., if the company does not satisfy the requirements of a third party, such obligation falls on the director who concluded the transaction.

 

Limiting the Director’s Actions

Transaction restrictions – the company’s articles of association may establish restrictions on the director’s activities for certain transactions, requiring shareholder approval for transactions exceeding the amount specified in the articles of association, for decisions regarding long-term assets whose value exceeds that specified in the articles of association, investments, transfers, or leases. The approval of the general meeting of shareholders does not exempt the director from liability for the decisions made.

Formation of the Board –bby forming a board, decision-making on the most important matters of the company’s activities is delegated to board members, of which there must be no fewer than three, for example, the board makes decisions for the company to become the founder of other legal entities, decisions regarding the investment or encumbrance of long-term assets. If a board is not formed in the company, decision-making on all specified matters rests with the director.

Quantitative representation – the company’s articles of association may stipulate that only a few persons together may conclude transactions on behalf of the company. Such representation is called quantitative. The articles of association must establish specific rules for such representation, for example, indicating that the director acts together with one board member or together with the entire board. If quantitative representation is established in the company’s articles of association and is registered in the Register of Legal Entities, a transaction concluded by only one of the persons entitled to conclude it does not create obligations for the company until the will of others, specified in the rule of quantitative representation, is expressed.

 

Limiting the Director’s Liability

The possibility of an exception to full damages compensation is provided in the Civil Code, i.e., the director’s liability may be limited by statutes or by agreement between the company’s director and the company. Ways to limit director’s liability:

1. Include provisions limiting the director’s liability in:

a) Employment contract;

b) Full material liability agreement;

c) Articles of association.

It is important that liability-limiting provisions do not contradict imperative (mandatory) legal norms. An agreement limiting or excluding the director’s liability for damages caused by intent or negligence is not valid. Civil liability may be limited by:

— Establishing the maximum amount of compensable losses;

— Restricting liability for direct damages, for example, only specific expenses.

2. Establish employee job descriptions, indicating specific employee duties and responsibility for non-performance or improper performance of those duties, thus “dividing” the director’s liability with the employees.

3. Insure the director’s civil liability. Insurance provides insurance protection for the consequences of the director’s improper actions – the insurer compensates for damage to third parties or the company.

In practice, the most common breaches by directors include: failure to ensure proper accounting and reporting management of the company; failure to comply with basic business administration rules (e.g., lending funds without assessing the borrower’s risky financial situation); assuming obligations without properly assessing the company’s capabilities; failure to meet legitimate and reasonable demands of the company’s creditors; concluding transactions with related parties not under market conditions or establishing conditions that, although legal, are not beneficial to the company, etc.

There are not many disputes resolved by Lithuanian courts regarding the compensation of damage caused to the company by the company manager’s illegal actions, which allows us to make two assumptions: first, disputes related to the manager’s liability issues are resolved out of court; secondly, the principles of the manager’s responsibility have not yet been fully implemented in the Lithuanian legal system.

 

Legal Acts:

— Civil Code

— Law on Joint Stock Companies

— Law on Accounting

— Law on Financial Statements of Enterprises

— Law on Tax Administration

 

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Start a business
What company type to choose
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Updated 31.01.2024

 

These forms of companies are most often used in Lithuania:

— Limited liability company (UAB) – the most popular form of a company, suitable for any size of businesses.

— Small partnership (MB) – is a popular company form for a small business.

— Personal enterprise (IĮ) – is a company form intended for a small business, but the founder can be only one person, and the founder is responsible for the company’s obligations with his own assets.

— Public limited company (AB) – appropriate for a large business.

— Public Institution (VšĮ) – adapted for non-profit activities.

 

The most important criteria for choosing the legal form of a company are:

1. Liability of the founders (whether the company’s obligations are covered by personal assets).

2. Management, decision-making and voting methods.

3. Taxation.

 

UAB features 

— UAB is a limited liability legal entity. This means that the shareholders are not liable with their own assets for obligations of UAB.

— The founders can be natural and legal persons of any state. The number of shareholders is not limited.

— The minimum amount of authorized capital is EUR 1000.

— The director (manager) of UAB may be only a natural person, but of any nationality. It is mandatory to hire a manager. An employment contract must be concluded with the manager.

— Shareholders have the right to receive a share of profit (dividend) in proportion to the number of shares held. UAB profits can be distributed more than once a year. Advance payment of dividends is prohibited.

— UAB can be liquidated if it has no debts. The liquidation procedure lasts 5-8 months

 

Decision-making methods

— The most important management decisions of the company are made by shareholders by voting. Each share carries one vote, so the person with the most shares has the greatest influence on voting.

— Decisions may be adopted if more than 1/2 of the votes of the shareholders who participated in the voting are collected for it.

— Some decisions require a majority of at least 2/3 or 3/4 of the votes cast, e.g. a decision on the payment of dividends may be adopted if at least 2/3 of the votes are cast for such a decision.

— UAB must have one-person management body – the director (manager), a collegial management body – the board is optional.

 

MB features

— The small partnership (MB) is a limited liability legal entity. The members are not liable for the obligations of MB with their own assets.

— MB may be set up by a maximum of 10 natural persons (legal entities cannot be founders).

— When setting up the partnership there is no need to contribute a required amount of share capital, but members must make contributions (the amount is determined by the members themselves).

— MB profits are distributed in proportion to the size of the member’s contribution. MB profits can be distributed more than once a year. Advance payment of dividends is prohibited.

— A member may work for MB without entering into an employment contract (no need to pay high taxes on wages). MB can only enter into employment contracts with employees who are not members of the partnership.

— MB can operate with or without a manager. If there is a manager, a civil contract is concluded with him. Income under such contract is taxed at a rate of 15%, what is significantly less than under employment contract ̴ 40%.

— MB can be transferred in to UAB.

 

Decision-making methods

The following MB management bodies are available:

1. Meeting of members only. In this case, the meeting of members is also the management body, one of the members being appointed as the representative of the small partnership, who in principle performs the functions of the director (manager).

2. The meeting of members plus the one-person management body – a manager.

 

— The most important management decisions of the company are made by members by voting.

— One member shall have one vote, regardless of the size of its contribution.

— If the small partnership has a director (manager), the regulations may provide for a different voting procedure (eg the number of votes depends on the size of the contribution).

— Decision is may be adopted if more than 1/2 of the votes of all members of the small community are in favor.

— Some decisions have a majority of at least 2/3 of the votes (eg on the distribution of annual profits), there are decisions that are taken unanimously (eg on the distribution of profits for a period shorter than the financial year).

 

MB is well appropriate in the following circumstances:

— If the business is small (income does not exceed 100.000 Eur).

— If the business will be not hindered by the image of a small company.

— If some tax savings are significant to your business.

 

 

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Shareholders conflicts
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Updated 01.11.2023

 

The classic situation

2 shareholders set up a company, the shares of which were divided equally 50/50, and one of them became the manager.

The company has been operating successfully for some time, orders have been growing and profits have been rising, but one day the attitude of the shareholders differed. As the disagreement escalated, they encountered unexpected problems:

— the company did not pay dividends because none of the shareholders had enough votes to make a decision;

— the shareholders could not change the manager because none of them had enough votes to make a decision;

— the shareholder who became the manager was able to act at his own discretion and use the company’s resources, as the manager is allowed to make many decisions without the consent of the shareholders;

— the manager could fire another shareholder (who worked for the company) and separate him from the company’s activities.

Unfortunately, such situations occur often and regardless of the number of shareholders in the company.

 

Shareholders’ agreement

To avoid similar situations, shareholders can enter into a shareholders ’agreement and agree on how they will behave in certain situations.

For example, shareholders may agree that if the shareholders do not make a decision on the distribution of profits, the company must pay a proportion of the distributable profits as dividends.

The shareholders may agree that the manager is appointed for a specified period, after which the decision on the manager is made by another shareholder.

Shareholders may also agree: how the shares would be redeemed if they could no longer work together; whether shareholders can engage in competing activities; how the shareholder can obtain information about the company’s activities; and other issues.

A shareholders’ agreement can be concluded when setting up a new company or already in operation, it is important to do so before the start of disagreements.

 

 

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How to divide shares between cofounders
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Updaited 25.04.2023

 

If a company is setting up by several shareholders, the number of shares held by each shareholder will determine:

— who have a decisive influence on decision to the distribution of profits and the payment of dividends;

— who have a decisive influence on decision to the appointment or removal of the CEO;

— who determine due to the change of the company’s capital, reorganization, liquidation, etc.

 

Learn about several stock distribution models:

— 50% + 50%. With two shareholders in a company, such a allocation of shares can cause difficulties in the event of disagreement between shareholders, as neither can have a decisive influence on decisions that are important to the company. If one of the shareholders is a CEO of the company, the management of the company is in his hands and he has the opportunity to act in his favor, while the other shareholder has almost no means of influencing either the company’s activities or the distribution of profits.

— 33%+33%+34%. With such a share allocation model, the company may get stuck making decisions that require a qualified majority, for example, distributing profits requires at least 2/3 of the votes, so two shareholders with 33% each will not have enough votes to realise such a decision.

— For some decisions, the law provides for a majority of at least 3/4 of the votes, so a 25% stake may be significant in making important decisions for a company. The articles of association may provide for more decisions requiring a 3/4 majority, thus giving more control to shareholders holding 25% of the shares.

 

Please note that votes are not counted from all, but only from the number of shares held by the shareholders present at the meeting. Thus, with the participation of not all shareholders in the general meeting of shareholders, a small number of shares gain more importance.

The setting up of a company is not only the registration of documents in the Center of Registers. Decisions made during start-up can have a significant impact in the future, so be careful.

 

 

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Accounting
If you change your accountant
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What you need to know

— The accountant can be changed at any time, there is no need to wait for the end of the year.

— If you decide to change the accounting service company, agree on the termination of the contract (long notice periods may be provided).

— Agree on which last month the current accountant will handle and from which month the new accountant can start. Also, agree on which accountant will prepare the annual financial statements, as this often becomes a point of contention.

— If you decide to work with us, we will make sure that your accounting is transferred in an orderly manner.

 

How the transfer of accounting takes place

— We will contact your accountant and coordinate how he should prepare the accounting for the transfer.

— We will check whether the prepared accounting data meets the requirements.

— We will take over the data and documents and sign the transfer-acceptance deed.

— We can take over the accounting without your presence.

 

 

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Who is required to conduct audit
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Updated 05.02.2024

 

The annual financial statements must be audited by:

— state and municipal companies;

— public interest companies;

— joint stock companies;

— closed joint-stock companies in which the state and/or municipality is a shareholder;

closed joint-stock companies, cooperative companies (cooperatives), real partnerships and limited partnerships, in which all real members are joint-stock companies or closed joint-stock companies;

if at least 2 of their indicators exceed the following amounts on the last day of the financial year:

 

1. Net sales revenue during the reporting financial year – EUR 3,500,000

2. The value of assets indicated in the balance sheet – EUR 1,800,000

3. Average annual number of employees during the reporting financial year – 50

 

Legislation:

1. Law on Corporate Accountability (see Article 24)

2. Law on Consolidated Financial Reporting of Enterprise Groups

3. Audit Law

 

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Consolidated financial statements
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Updated on 06.02.2024

 

Consolidated financial statements are financial statements of a group of companies, compiled and presented as financial statements of a single company.

A group of companies is not obliged to prepare consolidated financial statements, if the total indicators of the annual financial statements of the group of companies, for two consecutive financial years, including the reporting financial year, do not exceed two of the following criteria:

1. Net sales revenue during the reporting financial year – EUR 9,600,000;

2. The total value of assets indicated in the balance sheet – EUR 6,000,000;

3. The average annual number of employees during the reporting financial year is 50.

 

Financial statements of a subsidiary may not be consolidated if at least one of the following conditions is met:

1. Shares of a subsidiary company are acquired with the intention of selling them within one year from the date of acquisition;

2. Subsidiary’s activities are subject to significant long-term restrictions that limit its ability to transfer assets and funds to the parent company and exercise management;

3. The information required for the preparation of consolidated financial statements cannot be provided without extremely high costs and waste.

 

The financial statements of a subsidiary company may not be consolidated if that company is insignificant from the point of view of the company group, i.e. its assets at the end of the financial year do not exceed 5 percent of the parent company’s assets, and its net sales revenue during the reporting year does not exceed 5 percent of the parent company’s net sales revenue during the same period. This provision does not apply if there are several subsidiaries in the group of companies and if their financial statements are not consolidated, the principle of materiality and the requirement to correctly show the financial status of the group of companies would be violated.

A parent company that only has subsidiaries that are individually and collectively insignificant may not prepare consolidated financial statements.

 

Legislation

1. Law on Consolidated Financial Reporting of Enterprise Groups

2. 16th Business Accounting Standard “Consolidated Financial Statements and Investments in Subsidiaries”

 

 

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Finance management
Share buyback
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Updated 01.09.2023

 

Why companies buy back their own shares

— Companies whose shares are traded on the stock exchange can distribute profits to shareholders in this way, it is like paying out dividends, only in this case the shareholders do not receive money, but acquire the right to a larger share of the company’s assets and future profits. Such stock buybacks are similar to reinvesting money without paying the money.

— When paying dividends, you need to pay income tax, but when you buy your own shares, there are no taxes, so this method has a significant advantage.

— Companies can buy back their shares in order to give them to their employees as a motivational tool.

— Private companies can use share buybacks to buy back shares from shareholders who want to exit. If the exiting shareholder’s shares are purchased by the company itself, then the exiting shareholder sells the shares and the remaining shareholders gain a larger share of the company’s assets and future profits without investing personal funds.

 

What is the impact of buying own shares

— The number of shares and, accordingly, the authorized capital decreases.

— The company’s assets decrease because the company spends money to buy shares that it later cancels.

— The number of shareholders decreases, so the company’s assets and future profits accrue to a smaller number of shareholders.

— The price of a publicly traded stock has a tendency to rise, as a decrease in the number of shares results in more profit per share, and in addition, the P/E and return on equity ratios improve.

— The liquidity ratio deteriorates because the company spends money while the liabilities remain the same.

 

Legal restrictions in Lithuania

— The total nominal value of the company’s owned and/or purchased own shares cannot exceed 1/10 of the authorized capital.

— The company cannot buyback its shares if its own capital becomes less than the amount of the authorized capital, the mandatory reserve and the reserve for the purchase of its own shares, therefore the decision to buy back its own shares affects the payment of dividends.

— After the company has boughtback its shares, it will not have the right to use the property and non-property rights provided by them, e.g. the company cannot distribute dividends to itself, purchased shares will not be able to participate in voting.

 

 

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How much does a car really cost
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Updated 09.02.2024

 

If you buy a new car for 30,000 and an old one for 15,000, you probably think that the old car costs 15,000 cheaper.

But the reality is that a car is only worth what it depreciates over the life of it. If you used the car for 5 years and then sold it, then you spent the difference between the purchase and sale prices.

 

An example

You bought a new car for 30,000, sold it for 15,000, so you spent 15,000 in 5 years.

You bought an old car for 15,000, sold it for 5,000, which means you spent 10,000 in 5 years.

 

Conclusion

A new car cost more, not 15,000 as it seems at first glance, but 5,000.

Dividing this amount by 60 months (5 years), we get that a new car cost 83 per month more. In addition, lower fuel and repair costs should be subtracted, and higher insurance costs should be added, and you will get an exact amount that will probably surprise you.

 

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Relevant
Obligation to register Ultimate Beneficial Owners
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Updated 10.02.2022

 

From January 2022, legal entities of all legal forms established in Lithuania are required to provide data on their Ultimate Beneficial Owners (UBO).

The data can only be submitted in electronic form at the self-service of the Center of Registers. This can be done by a manager or an authorized person.

 

Who is the Ultimate Beneficial Owner

UBO is the natural person who owns the legal person or who directly or indirectly controls or otherwise controls the legal person.

A person who owns more than 25% of the shares in a legal person or who owns more than 25% of the assets of a legal person is considered to be a direct controlling person.

Indirectly controlling – a natural person whose controlled company or companies own 25% plus one share or more than 25% of the assets in another legal entity.

 

Responsibility

Failure to comply with the requirements set out in the Law on the Prevention of Money Laundering and Terrorist Financing may result in administrative liability and fines of between

EUR 500 and EUR 1 800 for liable persons, between EUR 1 500 and EUR 5 200 for repeated infringements and between EUR 2 000 and EUR 3 500 for directors, EUR 3 500-5 800 for repeated infringement).

Also, legal entities run the risk of being included in a publicly published list of unreliable taxpayers for one year, which may lead to the exclusion of a supplier from a public procurement procedure.

 

Provision of data

The following details of the UBO will have to be disclosed to the Registry: name, date of birth, identity number, country that issued the identity document, place of residence, nationality, country of residence for tax purposes, information on ownership (or other control rights).

Where a legal entity is controlled by one or more other legal entities, the full structure of the legal entity up to the final beneficiary, the natural person, will have to be submitted to the Register and details of these intermediate legal entities will be provided.

When providing data on intermediate foreign legal entities, legalized and translated into Lithuanian extracts from these legal entities from the relevant foreign state registers will have to be submitted. The exception applies when the information in such registers is public and available to the public free of charge.

 

If you need help submitting data to the Registry Center, please contact us.

 

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