Lithuania's 0% Corporate Tax: What It Is and How to Qualify

Last updated: April 2026

Lithuania operates one of the most competitive corporate tax systems in the European Union. Rather than applying a single flat rate to all businesses, the system uses a tiered structure that rewards small and newly established companies with significantly reduced — or even zero — tax obligations.

There are three rates to know. The 0% rate applies to qualifying small companies during their first two years of operation. The 7% rate kicks in after the tax holiday period ends, provided the company continues to meet the same eligibility criteria. The 17% standard rate applies to all other companies — those that exceed the revenue threshold. Understanding which rate applies to your business, and how to qualify for the most favourable one, is one of the most important decisions you will make when setting up in Lithuania.

How to Qualify for the 0% Corporate Income Tax Rate

The 0% rate is not automatic — it comes with specific conditions, and how you register your company matters more than most people realise.

To qualify, your company must meet the following criteria:

• Annual revenue must not exceed €300,000

• The tax holiday lasts for the first two years of the company's operation

• After the two-year period, the rate moves to 7% — provided the same revenue threshold is still met

However, there is one critical detail that is frequently overlooked: the 0% rate is only available to companies registered fresh through a notary directly in the founder's name. If you purchase a ready-made company instead, you enter the tax system at the 7% rate from day one — the holiday period is not available to you.

This is not a minor technicality. It is a meaningful financial difference, particularly in the early stages when revenue is being reinvested and every euro counts. If qualifying for the 0% rate is a priority for your business, registering a new company from scratch is the only route that gets you there.

Once the two-year holiday period ends, the company does not automatically jump to the 17% standard rate. If your annual revenue remains below €300,000, you continue paying at the reduced 7% rate for as long as those conditions are met. Only if your business grows beyond that threshold does the standard 17% rate apply.

Can Both MB and UAB Qualify for the 0% Rate?

Yes — both the MB (Small Partnership) and the UAB (Private Limited Company) can qualify for the 0% corporate income tax rate, provided they meet the same eligibility conditions.

For an MB, the structure is already designed with small operators in mind. No minimum share capital is required, the administrative overhead is low, and qualifying for the tax holiday is straightforward as long as the revenue threshold is not exceeded. It is a particularly attractive combination for freelancers, consultants, and early-stage founders who want to keep costs and obligations minimal while benefiting from the full tax exemption in the first two years.

For a UAB, the same 0% rate is available — again, provided the company is newly registered through a notary and not purchased as a ready-made entity. The UAB is the better long-term structure for businesses that plan to grow, hire staff, or bring in investment, and starting one fresh means you do not have to sacrifice the tax holiday to get the structural benefits.

The key takeaway is that the legal structure itself does not determine your eligibility — the registration route and your revenue level do. Whether you choose an MB or a UAB, registering it fresh gives you access to the same two-year 0% window.

What Happens After the Tax Holiday Ends?

The end of the two-year period is not something to be caught off guard by. Planning ahead makes the transition smooth and keeps your tax position optimised.

If your company's annual revenue remains below €300,000 at the end of the holiday period, you move to the 7% rate — still well below the EU average for corporate tax. This rate continues to apply for as long as you stay within that threshold, with no fixed time limit.

If your business has grown beyond €300,000 in annual revenue, the 17% standard rate applies. At that point, proper accounting and expense management become even more important, as corporate tax is calculated on profit after deductible expenses — not on total revenue.

Does the 0% Rate Mean Zero Tax Obligations?

This is a common misconception worth addressing directly. The 0% corporate income tax rate means you pay no tax on company profits during the holiday period — but it does not eliminate all financial obligations.

VAT registration becomes mandatory once your annual turnover exceeds €45,000, at which point you are required to charge, report, and remit VAT at the standard 21% rate. Dividend distributions are subject to a separate 15% withholding tax. And if you pay yourself a salary through the company, personal income tax and social security contributions apply to that salary regardless of the CIT rate.

In other words, the 0% holiday is a genuine and valuable advantage — but it applies specifically to corporate profit tax, and your overall financial picture will still include other obligations depending on how you structure your income.

Is the 0% Rate Worth Planning Around?

For most small businesses and solo founders, absolutely. Two years of zero corporate income tax on profits up to €300,000 is a meaningful financial advantage, particularly during the phase when you are building cash flow, reinvesting in the business, and finding your footing in a new market.

The decision to register fresh rather than purchase a ready-made company is a small procedural difference with a potentially large financial payoff. If you are at the planning stage and the 0% rate is relevant to your situation, it is well worth structuring your registration accordingly from the outset.

If you are unsure whether your business model qualifies or which structure — MB or UAB — makes the most sense for your goals, speaking with a formation specialist before registering is the smartest first step.