Many international founders assume that if they establish a UAB in Lithuania but live abroad, they can act as director without formal employment. Under Lithuanian law, this is incorrect.
A Lithuanian UAB must have an appointed director and that director must have a written employment contract. Work without an employment contract is considered illegal, regardless of nationality or country of residence.
However, when the director is a foreign resident and performs duties from another EU country, the tax and social security treatment may differ significantly.
This guide explains how Lithuanian law applies to foreign directors, how the A1 certificate works and where taxes and social contributions are paid in 2026.
Does a Lithuanian UAB director need an employment contract
Yes. Under Lithuanian law, a UAB must:
Appoint a director
Conclude a written employment contract with that director
There is no legal concept of a “non-employed” director in a Lithuanian UAB.
Even if the director is the sole shareholder.
Even if the director lives abroad.
Even if the director performs duties remotely.
Failure to formalise the employment relationship may result in:
Reclassification as illegal work
Administrative penalties
Tax and social security reassessments
For international founders, this is a critical compliance point when starting a company in Lithuania.
Can a foreign resident be director of a Lithuanian UAB
Yes. A Lithuanian UAB can appoint a foreign director.
The company must still:
Sign a Lithuanian employment contract
Register the employment relationship in Lithuania
Pay salary from the Lithuanian UAB
However, if the director performs their duties from another EU country and is tax resident there, EU coordination rules on social security apply.
This is where the A1 certificate becomes essential.
What is an A1 certificate and why it matters
An A1 certificate confirms in which EU country a person is covered by social security.
Under EU Regulation 883/2004, a person can generally be subject to social security in only one EU member state at a time.
If a foreign director:
Lives in another EU country
Performs management duties from that country
An A1 certificate may confirm that social security is covered in the country of residence instead of Lithuania.
In practice, this means:
The Lithuanian UAB signs an employment contract
The salary is paid by the Lithuanian company
Social security contributions are paid in the director’s country of residence
Not in Lithuania
Without an A1 certificate, Lithuanian social security obligations may apply.
Unsure whether your UAB director structure complies with Lithuanian labour and EU social security rules?
1Office Lithuania can review your setup and align employment, payroll and cross-border tax treatment correctly. Review my UAB director structure.
Where are personal income tax and social contributions paid
The tax treatment depends on:
The director’s tax residence
Where the duties are physically performed
Applicable double tax treaties
Whether an A1 certificate is issued
If the director is a foreign tax resident and works from their country of residence:
Personal income tax is usually paid in the country of residence
Social security contributions are paid there, based on A1 confirmation
Lithuania may not levy social contributions if the A1 certificate confirms coverage abroad.
However, each case must be analysed carefully, especially when:
The director travels frequently
The company has activities in multiple jurisdictions
There is partial physical presence in Lithuania
Incorrect structuring can lead to double taxation or social security exposure in two countries.
Can a Lithuanian UAB pay salary to a foreign director
Yes.
The Lithuanian UAB can:
Conclude the employment contract
Pay salary directly
Account for salary expenses in Lithuania
The key issue is not whether salary can be paid. It can.
The issue is where taxes and social contributions are due.
If EU coordination rules apply and an A1 certificate is valid, the Lithuanian company may not be required to pay Lithuanian social security contributions.
Proper payroll setup is therefore critical.
Common mistakes international founders make in Lithuania
When setting up a UAB in Lithuania, foreign founders often:
Assume no employment contract is needed
Attempt to classify the director as a contractor
Ignore A1 requirements
Fail to analyse tax residence properly
Register payroll incorrectly
These mistakes can trigger:
Labour law violations
Retroactive tax liabilities
Social security reassessments
Cross-border compliance issues
Lithuania has clear rules. The structure must be aligned from day one.
Incorrect director structuring can lead to labour law penalties and double social security exposure.
Get professional guidance before problems arise. Speak with our Lithuania accounting team.
Interaction with double tax treaties in Lithuania
Lithuania has an extensive network of double taxation treaties.
Where personal income tax is paid depends on:
Tax residency status
Permanent establishment risks
Physical presence
Treaty allocation rules
The existence of an employment contract in Lithuania does not automatically mean Lithuanian personal income tax applies.
The analysis must combine:
Lithuanian labour law
EU social security coordination
International tax treaty rules
This is particularly important for directors residing in Estonia, Latvia, Poland, Germany and other EU states.
Why this matters for remote business owners
Lithuania is attractive for international entrepreneurs due to:
Competitive corporate tax
EU single market access
Digital company administration
However, director compliance is not optional.
A UAB cannot operate without a properly employed director. At the same time, the director’s tax position may lawfully sit outside Lithuania if EU conditions are met.
This balance must be structured correctly.
How 1Office Lithuania supports foreign directors of UABs
Cross-border director structuring requires coordination between:
Labour law
Payroll registration
Social security authorities
Tax residence analysis
Double tax treaty application
1Office Lithuania supports international founders by:
Drafting compliant employment contracts
Structuring payroll correctly
Coordinating A1 certificate considerations
Aligning Lithuanian and foreign tax treatment
Ensuring UAB compliance with Lithuanian law
For founders operating remotely, this ensures that both Lithuanian requirements and EU rules are respected from the beginning.
Starting or already managing a Lithuanian UAB with a foreign director?
Ensure your employment contract, A1 documentation and tax position are structured correctly from day one with 1Office Lithuania.
Final thoughts
A Lithuanian UAB must have a director with a written employment contract. This is mandatory under Lithuanian law.
At the same time, a foreign director working from another EU country may be taxed and insured in their country of residence, provided that EU social security coordination rules and treaty provisions are properly applied.
The key is not avoiding employment. It is structuring it correctly.
For international founders starting or already managing a UAB in Lithuania, early planning prevents costly corrections later.
