Most guides on Baltic tax rates mention Lithuania’s 15% corporate tax rate and move on. That number is not wrong, but it applies to mid-size companies. Early-stage companies meeting Lithuania’s small company criteria pay 0% in years 1 and 2, then 5% from year 3 — and this is a statutory rate, not a discretionary incentive or a tax holiday requiring government approval.
This is the detail that consistently surprises founders who have done the Estonia comparison but not looked carefully at Lithuania.
The core numbers
- 0% — corporate tax rate in years 1 and 2 for qualifying small companies
- 5% — rate from year 3 for companies remaining below the threshold
- 15% — standard small company rate (applies once revenue exceeds €300,000)
- 17% — standard corporate income tax rate for larger Lithuanian companies
- €300,000 — maximum revenue to qualify as a small company
- 10 — maximum employees to qualify
What the law actually says
Lithuania’s corporate income tax (CIT) regime is set out in the Law on Corporate Income Tax. The small company exemption is not a temporary programme or a special economic zone — it is part of the standard tax code.
A company qualifies for the reduced rate if it meets all of the following conditions:
- Average number of employees does not exceed 10
- Annual revenue does not exceed €300,000
- The company is not controlled by, or does not control, another company — meaning no complex holding structures or group companies that would aggregate the revenue and employee numbers
- The company is not in certain excluded sectors (financial institutions, insurance companies, and similar regulated entities are excluded)
If the company meets these conditions, the tax rate is 0% for the first two tax periods (tax years) and 5% from the third tax period onward, for as long as the company continues to meet the small company criteria.
When a company grows past the thresholds — revenue over €300,000 or more than 10 employees — it moves to the standard 15% rate for small-to-medium companies, or 17% for larger entities. The transition is not cliff-edged in the way some tax thresholds are; crossing the boundary in one year does not retroactively affect prior periods.
What this looks like in practice
Take a software consultancy incorporated in Lithuania in January 2026. It has 4 employees and generates €180,000 in revenue in year 1, with €70,000 in taxable profit after salaries and operating costs.
Under the small company exemption, it pays 0% CIT on that €70,000. At the standard 15% rate, it would pay €10,500. At the 17% rate, €11,900.
In year 2, the company grows to €260,000 in revenue and €95,000 in taxable profit. Still within the thresholds, still 0%. Tax saved in year 2: €14,250 at the 15% rate.
In year 3, the company crosses €300,000 in revenue. The 5% rate applies. On €110,000 in taxable profit, CIT is €5,500. At the 15% standard rate, it would be €16,500.
Across three years, the tax saving compared to the standard small company rate is roughly €37,000. That is a meaningful number for a company at this stage.
How this compares to Estonia
Whether Lithuania’s model is better or worse than Estonia’s retained earnings model depends on one thing: whether you plan to distribute profits, and when.
Estonia’s model is a deferral, not an exemption. Estonian companies pay 0% corporate tax on retained earnings indefinitely, but when profits are distributed to shareholders, a 20% rate applies (on a gross-up basis). If you never distribute, you never pay. If you distribute regularly, you pay on each distribution.
For founders who are taking a salary from the company but not distributing profits, the Estonian model and the Lithuanian small company model can produce similar outcomes in the first two years — but they diverge in structure. The detailed head-to-head is at Estonia 0% corporate tax guide.
For a founder who expects to be profitable in year 1 or 2 and wants to distribute a portion of those profits, Lithuania’s zero-rate period is worth more in cash terms than Estonia’s deferral, because the Lithuanian tax saving on that profit is permanent (you never pay it back), while Estonia’s deferral accumulates as a liability payable on future distribution.
For a founder building toward a large retained earnings pool, reinvesting everything, and planning to exit or hold long-term, Estonia’s model remains more favourable because the deferred profit can grow tax-free indefinitely.
The Estonia vs Lithuania startup comparison covers this trade-off in more depth.
The shareholder structure condition
This is the condition that catches founders who set up with a holding company or group structure.
The small company exemption requires that the company is not controlled by, and does not control, another entity. In practice, this means:
A single-founder company with no parent company qualifies straightforwardly. A company owned by a holding company in Estonia, Ireland, or elsewhere does not qualify for the Lithuanian small company rate — the revenue and employee tests would need to be met at group level, and the group relationship itself disqualifies the subsidiary.
For founders considering a holding company structure above their operating Lithuanian entity, the small company exemption is not available. The EU corporate tax holding structure guide covers the trade-offs between holding structures and small company rates across multiple jurisdictions.
Vilnius as a base
The tax efficiency of Lithuania’s small company regime is more useful if you are actually operating in Lithuania, because the costs of running a company there — salary costs, office rent, accounting and legal fees — are lower than in most other EU capitals.
Vilnius has a growing fintech and tech cluster. Median tech salaries are roughly 15 to 20% below Tallinn for comparable roles. The Bank of Lithuania runs a progressive licensing framework for payment institutions and e-money institutions, which has attracted a concentration of fintech companies and the regulatory and legal expertise that comes with them.
For a company that will be profitable early and wants to keep operating costs low while doing so, Lithuania combines two advantages at once: the tax saving and the cost base.
Who this is actually for
The exemption is most useful for companies that will be profitable in years 1 or 2 on revenue under €300,000: consultancies, agencies, software businesses with early paying customers, services companies. For a pre-revenue startup burning runway, the rate is irrelevant because there is no taxable profit.
It is less useful if you are planning a holding structure above the operating company, because the group relationship disqualifies the exemption. And if you expect to cross €300,000 in revenue by year 2, you will only capture one year at 0% before transitioning to 15%. The maths still works, but the window is shorter.
It is a poor fit for high-growth companies scaling headcount quickly, companies that need holding structure flexibility for investor rounds, or founders who want Estonia’s e-residency infrastructure for remote management.
The broader Baltic picture
Lithuania’s tax position sits alongside Latvia’s within the broader Baltic startup ecosystem comparison. All three Baltic states have startup-friendly tax environments relative to Western Europe, and all three appear near the top of the EU lowest corporate tax ranking. The decision between them is less about which is tax-efficient in the abstract and more about which combination of rate structure, operating costs, ecosystem depth, and visa path fits the specific company.
For early-stage companies that will be profitable quickly on modest revenue, Lithuania’s 0% window is the most underused tax advantage in the Baltics — and given how rarely it appears in startup guides, that is unlikely to change soon.