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Lithuania’s business landscape in late 2025 is a study in contrasts. On one hand, the economy is outperforming expectations with robust GDP growth projected at roughly 2.7% this year and wages continuing to rise. On the other, businesses are navigating a shifting tax environment—with the small business Corporate Income Tax (CIT) rate currently at 6% and set to inch up to 7% in 2026.
For small and medium-sized enterprises (SMEs), Lithuania remains one of the most attractive jurisdictions in the EU. But this “promising economy” comes with a catch: strict regulatory oversight. Specifically, Lithuanian law has zero tolerance for businesses that let negative equity slide.
If you are a business owner riding the wave of Lithuania’s economic growth, you need to understand not just the perks, but the pitfalls—specifically Article 59 of the Law on Companies.
The “Good” News: Why Lithuania is Still a Magnet for SMEs
Before we tackle the compliance warning, let’s look at why businesses are here in the first place. Despite recent global headwinds, Lithuania’s economy has shown remarkable resilience. Private consumption is rebounding, and the government continues to incentivize entrepreneurship.
For small businesses (entities with fewer than 10 employees and under €300,000 in annual revenue), the tax environment remains highly competitive:
Current Reality (2025): You are likely paying a reduced CIT rate of 6% (compared to the standard 16%).
Future Outlook (2026): While the rate is set to increase slightly to 7% next year to fund national defense, the government is balancing this with new perks. Most notably, the “tax holiday” for new businesses is expanding—startups established in 2026 are expected to enjoy a 0% CIT rate for their first two years (up from just one year previously).
This pro-business framework is designed to help you grow. But growth often requires initial investment, which can lead to initial losses. And that is where the law draws a hard line.
The “Bad” News: You Cannot Ignore Accumulated Losses
In many jurisdictions, a company can operate with negative equity for years as long as it pays its bills. Lithuania is different.
According to Article 59 of the Law on Companies, if your company records accumulated losses, you cannot simply “wait for a better year.” The General Meeting of Shareholders is legally obliged to make a decision on how to cover these losses.
The Strict Order of Coverage: When you close your financial year with a negative result, the law mandates that losses be covered in this specific order:
Transfers from reserves not used in the financial year.
The Mandatory Reserve.
The Share Premium (capital in excess of the nominal value of shares).
If these buckets are empty or insufficient, you face a critical test: The 50% Equity Rule.
The Danger Zone: When Equity Falls Below 1/2 of Capital
This is the most common trap for foreign investors and new local businesses. Lithuanian law states that a company’s equity (net assets) cannot fall below 50% of its registered share capital.
Scenario A: Your equity is positive but you have losses. You can carry these losses forward to the next financial year—but only if your equity remains above that 50% threshold.
Scenario B: Your losses are so significant that your equity drops below 50% of your registered capital. (For a standard UAB with a €2,500 minimum capital, this means your equity cannot dip below €1,250).
If you fall into Scenario B, you must act immediately. Shareholders are required to restore the equity to the required level. This is usually done by:
Covering losses with shareholder contributions (injecting cash without issuing new shares).
Increasing the authorized capital (issuing new shares).
Why You Must Act Now
In practice, many companies ignore this rule until they try to sell the business, apply for a bank loan, or undergo a tax audit. This is a mistake.
Legal Liability: Failure to address negative equity can lead to the forced liquidation of the company by the Register of Legal Entities.
Director Liability: If the company becomes insolvent and the management failed to act on these capital requirements, directors can face personal liability.
Creditworthiness: In a growing economy like Lithuania’s (2025-2026), banks are lending, but they strictly scrutinize balance sheets. Negative equity is an immediate red flag.
Summary: The Balanced Approach
Lithuania offers an incredible launchpad for small businesses, with a 2026 outlook that includes extended tax holidays and a robust economy. However, these benefits are reserved for compliant companies.
If your year-end financials show accumulated losses, do not view it merely as an accounting detail. Check your equity ratio. If it is below the 50% mark, convene your shareholders and restore your capital. It is the only way to ensure your business survives to enjoy the economic upswing. Contact 1Office Lithuania already today to sort it out!
