Lithuania vs Latvia: two Baltic neighbours, one decisive tax difference
Lithuania and Latvia are both solid Baltic choices, and the tax model is what separates them. Latvia taxes profit only when it leaves the company. Lithuania taxes it every year: 17% as a rule, 7% for small companies, and 0% in the first two years of a new small company owned by individuals.
Lithuania for a new small company that pays out its profit, Latvia when profit stays in the business
A new Lithuanian company owned only by individuals, with revenue up to EUR 300,000, pays 0% on its first two financial years and 7% after that. If you plan to take profit out early, Latvia cannot match it. Latvia comes out ahead once you reinvest, pass EUR 300,000 of revenue or hold the company through another company: profit kept in an SIA is taxed at 0% for as long as it stays there, and at 20% when you distribute it.
Two Baltic neighbours, very similar profiles
Lithuania and Latvia share a border, a history and similar institutions. Both are in the EU, the Eurozone, Schengen and the OECD. Yet one structural tax difference separates them.
Striking similarities
Same region, same banks (Swedbank, SEB, Luminor), same access to the European single market. Both countries offer a cost of living 30-40% below Paris, modern infrastructure and an administration that works in English. On paper, they are equal.
The difference that matters
Latvia applies the Estonian system: 0% CIT on reinvested profits. You only pay the 20% CIT when you distribute dividends. Lithuania taxes profit in the year it is made, at 17% as a rule, even if you reinvest it. Over 5 years of growth, the capitalisation gap is substantial.
Lithuania vs Latvia: the complete comparison
| Criterion | Lithuania | Latvia |
|---|---|---|
| CIT on reinvested profits | 17% (7% small companies) | 0% |
| CIT on distributed profits | 17% CIT + 15% dividend WHT | 20% (CIT + dividends included) |
| Small company reduced rate | 7% (up to 300K EUR rev.); 0% in the first 2 years of a new company owned by individuals | N/A (0% reinvested for all) |
| Social charges (total) | ~31.2% (~19.5% + ~11.7%) | ~34% (23.59% + 10.50%) |
| VAT | 21% | 21% |
| Company formation (time) | 3-5 business days | 1 to 3 business days |
| Minimum share capital | 1,000€ (UAB) | 2,800€ (SIA), or less with reduced capital |
| Formation cost | 300-600€ | €75 state fee (excl. advisory fees) |
| EU member | Yes (since 2004) | Yes (since 2004) |
| Eurozone | Yes (since 2015) | Yes (since 2014) |
| Schengen Area | Yes (full) | Yes (full) |
| OECD | Yes (since 2018) | Yes (since 2016) |
| ITCI ranking | ~5th globally | 2nd globally |
| Tax treaties | 56+ DTTs | 63+ DTTs |
| Fintech ecosystem | 300+ licensed fintechs | Growing |
| CPI (Transparency International) | ~36th (slightly better) | ~39th |
| French-speaking support | Very rare | Yes (Balt Partners) |
Lithuania's limitations
Lithuania is an excellent country. But on certain key points, Latvia has a structural advantage.
17% on profit, reinvested or not
Outside the small-company rules, Lithuania taxes profit at 17% in the year it is made, whether you reinvest it or not. The 7% rate and the two years at 0% also cover all profit, but only while the company stays small. In Latvia, reinvested profit stays at 0% with no size condition. For a business that keeps growing, that difference adds up year after year.
The 7% reduced rate has a revenue cap
The 7% rate and the 0% for a new company only apply up to 300,000 EUR of revenue, and the 0% also requires every shareholder to be an individual. Above the threshold, the rate is 17%. In Latvia, the 0% on reinvested profits applies to all companies, with no conditions on size or revenue.
Lower ITCI ranking
Latvia ranks 2nd globally on the Tax Foundation's Tax Competitiveness Index, Lithuania around 5th. This index measures the competitiveness and neutrality of a country's tax system. The gap is mainly explained by Latvia's system of taxing only distributed profits.
No French-speaking support
Finding a reliable French-speaking partner in Lithuania for company formation, accounting and tax is a real challenge. Balt Partners operates exclusively in Latvia and supports its clients in French at every step. This is a concrete advantage for French-speaking entrepreneurs.
There's a European country with 0% corporate tax, stable banks and French-speaking support
And it's not Estonia, Ireland, or Dubai.
Why Latvia?
0% on reinvested profits
As long as your profits stay in the company, you pay zero tax. This is the Estonian system applied in Latvia since 2018. You only pay the 20% CIT when you distribute dividends. Lithuania taxes profit every year, at 17% as a rule and 7% for small companies, even if reinvested.
2nd in global tax competitiveness (ITCI)
Latvia ranks 2nd globally on the Tax Foundation's Tax Competitiveness Index. This is no accident: the system of taxing only distributed profits is one of the most competitive in the world. Lithuania is around 5th, an excellent ranking, but behind Latvia.
airBaltic hub
Riga is the hub of airBaltic, with direct connections to 80+ European destinations. Riga's air connectivity is superior to Vilnius for European business travel. A practical advantage for entrepreneurs who travel regularly.
Complete French-speaking support
Balt Partners supports you in French at every step: company formation, residence, accounting, tax, banking, as in Bulgaria or Georgia. In Lithuania, finding a reliable French-speaking partner is a permanent challenge. Our clients handle zero paperwork in Latvian.
Same quality of life, same region
Riga and Vilnius offer comparable quality of life: modern infrastructure, fibre optic, quality healthcare. The two cities are 300 km apart. The cost of living difference is marginal (5-10%). The choice is made on tax fundamentals, not lifestyle. For entrepreneurs comparing other EU options, see also our analysis of Bulgaria or Ireland versus Latvia.
Yes, Lithuania has real strengths
We do not hide it: Lithuania is an excellent country with specific advantages. But the tax fundamentals favour Latvia.
An exceptional fintech ecosystem
Lithuania hosts Revolut's European headquarters and over 300 licensed fintechs. It is a leading fintech hub in Europe. If your business is directly linked to fintech, Lithuania deserves consideration. For other entrepreneurs, Latvia offers the same core banking services.
0%, then 7%, for small companies
A new company with up to 300,000 EUR of revenue and only individuals as shareholders pays 0% on its first two financial years, then 7%. If you take profit out early, that beats Latvia. The rate covers all profit, distributed or kept, and rises to 17% once revenue passes 300,000 EUR. In Latvia, the 0% on reinvested profits has no size conditions.
Slightly cheaper
Vilnius is about 5-10% cheaper than Riga. This is a real but marginal advantage. Both cities are already 30-40% cheaper than Paris. The cost of living difference does not compensate for the tax difference on reinvested profits.
Lithuania is excellent. Latvia is simply better suited.
This is not a choice between a good and a bad country. It is a choice between two excellent Baltic countries where Latvia has a structural tax advantage (0% reinvested) and French-speaking support that Lithuania cannot offer.
Between two nearly identical Baltic countries, it is the tax system that makes the difference. And 0% on reinvested profits is an advantage Lithuania simply does not offer.
The final score
Lithuania wins on 3 criteria (fintech, cost of living, CPI). Latvia wins on the fundamentals: 0% reinvested, ITCI, connectivity and French-speaking support. For non-EU alternatives, see how Georgia or Dubai compare with Latvia. When the choice is made, we can help you form a Latvian SIA: the Register of Enterprises registers it within 1 to 3 business days of filing.
Frequently asked questions
Are both Lithuania and Latvia in the EU, Eurozone, Schengen and OECD?
Yes, both countries score 6/6 on international accreditations: EU, Eurozone, Schengen, OECD, NATO and EEA. Latvia joined most of these organisations slightly before Lithuania (Eurozone 2014 vs 2015, OECD 2016 vs 2018).
Which country has lower taxes?
It depends on what you do with the profit. Lithuania's standard rate is 17%. A Lithuanian company with revenue up to 300,000 EUR pays 7%, and a new one owned only by individuals pays 0% on its first two financial years. Latvia taxes retained profit at 0% and distributed profit at 20%, whatever the company's size. If profit stays in the company, Latvia costs less. If a small new company pays out its profit early, Lithuania does.
Is Lithuania cheaper to live in?
Slightly. Vilnius is about 5-10% cheaper than Riga on major expense categories. But the difference is marginal between these two Baltic capitals. Both cities offer a cost of living 30-40% below Paris.
Which has better banking?
Both countries share the same major banks (Swedbank, SEB, Luminor). Lithuania has a more developed fintech ecosystem with over 300 licensed fintechs, including Revolut. Latvia offers the same core banking services with a stable regulatory environment.
Can I get French-speaking support in Lithuania?
Very rare. Balt Partners operates exclusively in Latvia and offers complete French-speaking support: company formation, residence, accounting, tax, and banking. Finding a reliable French-speaking partner in Lithuania remains a challenge.
Lithuania is not the only destination entrepreneurs compare to Latvia. See also our analyses on Estonia and its e-Residency model, Cyprus or Malta.