Lithuania vs Latvia: two Baltic neighbours, one decisive tax difference
Lithuania and Latvia are both excellent Baltic choices. But one fundamental difference separates them: Latvia's 0% on reinvested profits. Lithuania taxes every euro of profit at 15%.
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 all profits at 15% as soon as they are generated, even if you reinvest them. Over 5 years of growth, the capitalisation gap is substantial.
Lithuania vs Latvia: the complete comparison
| Criterion | Lithuania | Latvia |
|---|---|---|
| CIT on reinvested profits | 15% (5% small companies) | 0% |
| CIT on distributed profits | 15% CIT + 15% dividend WHT | 20% (CIT + dividends included) |
| Small company reduced rate | 5% (<300K EUR rev., <10 employees) | 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 | 2 days |
| Minimum share capital | 2,500€ (UAB) | 2,800€ (SIA) |
| Formation cost | 300-600€ | ~350€ |
| 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.
15% on every euro of profit
Lithuania taxes all profits at 15% as soon as they are generated, whether you reinvest them or not. Even the reduced 5% rate for small companies applies to all profits. In Latvia, reinvested profits are at 0%. Not 5%, not 10%: zero. For a growing business, this capitalisation difference is decisive over 3-5 years.
The 5% reduced rate is very restrictive
The 5% rate only applies to companies with less than 300,000 EUR in revenue AND fewer than 10 employees. As soon as you exceed either threshold, you jump to 15%. 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.
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 every euro of profit at 15%, 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. 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.
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.
5% for very small companies
The reduced 5% rate for companies under 300,000 EUR revenue and under 10 employees is attractive. But it applies to all profits, not just distributed ones. And as soon as you grow, you jump to 15%. 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.
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?
Latvia, thanks to its 0% on reinvested profits system. Lithuania taxes all profits at 15% (5% for small companies under 300,000 EUR revenue and under 10 employees). Even Lithuania's reduced 5% rate applies to all profits, while Latvia only taxes distributed profits at 20%.
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 or Latvia? Let's talk.
30 minutes, free, no obligation. We compare both options based on your specific situation.