0% corporate tax for the first 2 years: who qualifies

A newly established small company in Lithuania can pay 0% corporate income tax (CIT) for its first two tax periods — but only if it meets three conditions at the same time: it has fewer than 10 employees, its annual revenue stays below EUR 300,000, and the company is not part of a group of related companies. If even one condition is not met, the relief does not apply and the company pays the ordinary rate from the start. The standard CIT rate in 2026 is 17% (up from 16%) and for small companies it is 7% (up from 6%), so those first two years at 0% corporate tax can mean thousands of euros saved and reinvested into growth.

In this article I explain who exactly qualifies for the 0% corporate tax, when it does not apply, what happens once the relief period ends, and what to keep in mind while you are setting the company up. All rates, thresholds and amounts here are indicative (2026) — always verify the current figures at VMI and the Register of Legal Entities, as they are reviewed every year.

0% corporate tax is not a loophole — it is a state incentive to help a young small business get on its feet. The point is not to "slip through" but to cleanly meet all three conditions and keep meeting them.

0% corporate tax: who the relief is actually for

Corporate income tax (CIT) is charged on a company's profit (revenue minus deductible expenses), not on turnover. That is why the 0% relief matters only to legal entities — above all the UAB (private limited company) and the small partnership (MB). The state uses this incentive to encourage new small firms to form and to ease the hardest years — the very first ones — when income is still unstable and start-up costs are high. If you operate as individual activity or under a business certificate, you pay personal income tax (GPM), not corporate tax, so this particular relief does not apply to you — we cover the differences between forms in the guide on how to start a business in Lithuania in 2026.

Before a company can claim 0%, it first has to be set up. As a reminder, here are the indicative (2026) amounts: UAB share capital is EUR 1,000, of which at least 25% (EUR 250) must be paid in before registration, whereas an MB requires no share capital at all. Electronic registration at the Register of Legal Entities costs about EUR 30, name reservation about EUR 16 (valid for up to 6 months), and, if a notary is needed, about EUR 85–338 depending on capital. Registration takes about 3 business days (in practice often 5–10). An MB is sometimes chosen precisely because there is no capital to raise, but the right to 0% depends not on the form but on the three conditions below.

When you qualify for 0%: three key conditions

The relief applies to a newly established small company for its first two tax periods, provided all three conditions are met at the same time:

• Fewer than 10 employees. The average listed number of employees during the period must be below 10.
• Annual revenue below EUR 300,000. Cross this line and the right to 0% is lost.
• The company is not part of a group of related companies. The exact meaning of a "group" and of related persons is defined in law — if the same shareholders also control other companies, this condition may not be met; check with VMI.

It is important to understand that this is not an option you choose but a rule that applies automatically when the conditions are met. So when setting up, it is worth assessing right away whether you might realistically exceed the employee or revenue limit in those first two years.

When 0% does not apply: the most common exceptions

The relief does not kick in, or is lost, when:

• At least one of the three conditions fails — more than 10 employees, revenue above EUR 300,000, or the company belongs to a group.
• The company is not "new". If it was created through reorganisation or is closely tied to existing companies, the right to 0% may be restricted — the specific exceptions for related persons are set in law, so check them with VMI.
• The first two periods have passed. The 0% applies only at the start; afterwards the 7% or 17% rate is charged.
• You operate as a natural person (individual activity or a business certificate) — then you pay GPM, not corporate tax.

One more point: even if the company met the conditions in year one but outgrew them in year two (for example, revenue exceeded EUR 300,000 or the headcount reached 10 or more), 0% no longer applies for that year.

What happens after two years: 7% or 17%

Once the relief period ends, the company moves to the ordinary rate:

• 7%, if it still meets the small-company criteria (fewer than 10 employees and revenue up to EUR 300,000).
• 17%, if it no longer meets those criteria or the standard rate applies.

So it is worth planning your third year in advance: once the relief ends, a tax cost appears, and it is smart to model that cash flow while you are still setting up. Beyond corporate tax, do not forget dividends: if you distribute profit to yourself as dividends, they are subject to 15% personal income tax (GPM) — a separate tax from corporate tax, so 0% CIT does not remove it. What a company really pays over a year, step by step, is unpacked in the article on what taxes a UAB pays in 2026.

The 2026 reform: why 0% became even more valuable

From 2026 the corporate tax rates went up: the standard rate from 16% to 17%, and for small companies from 6% to 7%. The 0% relief for new small companies stayed in place, so its relative value actually grew: the higher the "ordinary" rate, the more you save in those first two years. For the other tax changes that took effect, see our overview of what changes for business under the 2026 reform.

VAT and other obligations do not go away

0% corporate tax does not remove your other obligations. The main ones:

• VAT (value added tax). If the company's turnover over the last 12 months exceeds EUR 45,000, you must register as a VAT payer, regardless of the 0% CIT. You can work out prices with the 21% standard VAT using the VAT calculator.
• CIT return to VMI — filed by 15 June, even when the amount payable is EUR 0.
• Annual financial statements to the Register of Legal Entities — by 30 June (for the calendar year).

In other words, the relief reduces the tax, not the bookkeeping and reporting work — that still has to be done just as carefully.

Worked example: a new UAB with EUR 30,000 profit

Say a UAB is set up in 2026: 4 employees, annual revenue EUR 120,000, taxable profit EUR 30,000. Because it has fewer than 10 employees, revenue below EUR 300,000 and is not part of a group, the first two periods are taxed at 0% corporate tax:

• Years 1–2: EUR 30,000 × 0% = EUR 0 in corporate tax.
• Later, if it stays a small company: EUR 30,000 × 7% = EUR 2,100.
• Later, if the standard rate applies: EUR 30,000 × 17% = EUR 5,100.

In the first two years alone this business saves on its tax bill roughly what it would later pay over one or even three years. If the owner then decided to pay out that EUR 30,000 profit as dividends, an extra 15% GPM would apply: EUR 30,000 × 15% = EUR 4,500 (this is relevant even during the 0% period). The figures are illustrative; in your case everything depends on actual profit and costs.

0% corporate tax and EU support: how to combine the incentives

0% corporate tax is not the only boost for a young company. For start-up investment, digitalisation or export activity you can also look for European Union funding; how the instruments work and who they are for in the 2024–2027 period is described in our guide to EU business support. The combination is simple: 0% CIT leaves more of the earned profit inside the company, while EU support covers part of the investment — together they let you grow faster than on your own turnover alone.

Check your numbers and conditions before you register

Before choosing a form and planning your first years, it is worth running your own numbers. Check prices with VAT and your margin using the VAT calculator, and verify the current corporate tax conditions, the definition of a "group" and your employee and "Sodra" obligations at the official sources — VMI and "Sodra". These are where you will get the most accurate answer for your own situation.

Disclaimer: all rates, thresholds and amounts in this article are indicative (2026) and for general understanding only — this is not tax or legal advice. Always check the current figures and the conditions of the 0% relief at the official VMI and "Sodra" sources, or consult an accountant.

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