Estonia vs Lithuania: an e-residency comparison guide

As the digital world continues to evolve, countries are offering innovative solutions to attract global entrepreneurs. Two such countries leading the way are Estonia and Lithuania, with their respective e-residency programs. 

Deciding where to base yourself digitally and open a business is a big decision. Get it wrong, and you could compromise your tax situation, or regulatory environment. Understanding the key differences between these two country’s e-resident programs should help you make an educated decision, if you’re trying to build your business in Europe.

What is Estonian e-Residency, and how does it work?

Estonian e-Residency, launched in 2014, is a government-issued digital identity that provides global entrepreneurs with remote access to Estonia's transparent business environment. It allows non-Estonians to have remote, digital access to a range of e-services such as company formation, banking, payment processing, and taxation. Estonian e-residents also receive a pretty sweet digital ID card, which they can use to securely authenticate themselves online and digitally sign, encrypt, and send documents. 

Requirements and cost to apply to be an Estonian e-resident

Applying for Estonian e-residency is a straightforward process that can be done entirely online. The application costs between €100 and €130. Xolo can support you through the process, which will involve a visit to your local pickup point when your ID kit is ready – there are more than 50 of these worldwide to choose from, and you won’t need to visit Estonia at any point. 

This ID card is valid for 5 years, after which you must reapply.

Opening a business using Estonian e-Residency

With Estonian e-Residency, you can establish an Estonian company that can be run from anywhere in the world. Once you have your e-resident ID, you can form that company extremely fast, usually within hours if not minutes.

The cost of starting a business is €265, and the annual company running costs range from €120 to €730 for a legal address and contact person. The corporate tax rate in Estonia is 0% until dividend distribution, and a flat 14% or 20% at corporate profit distribution.

💡What’s that about taxes? Estonia’s 0% corporate tax rate on undistributed profits, means you can reinvest in your business like crazy! When you’re ready to pay out some of the profits for salary, then the standard corporate tax rate applies. Or, if you pay yourself salary or consulting fees, you may not pay any taxes in Estonia at all!

I’m ready to get started with Estonian e-Residency and my e-resident business - let’s go!

What is Lithuanian e-residency, and how does it work?

Lithuanian e-residency, implemented in 2021, allows foreign citizens to access the administrative, public, or commercial services provided in Lithuania electronically. Currently, the services available to e-residents are limited, but the range of services is expected to expand in the future to enable digital possibilities of developing business relations, company establishment, and management, performing financial operations, and accessing other services relevant to foreigners.

In the future, Lithuanian residency may provide foreign entrepreneurs access to a unique regulatory environment for fintech, as Vilius Šapoka, Lithuania’s minister of finance, told a conference audience in January: ‘‘Lithuania offers so much for new business. For example, a quick license process, tax holidays if it is a start-up, a nicely designed newcomers program at the central bank, and a regulatory sandbox there too. If your business participates in R&D activities in Lithuania, expenses will be deducted by triple the original amount.”

The 'regulatory sandbox' that Šapoka mentioned is a government supported mechanism which permits companies to experiment with financial innovations in a real-world setting for a duration of up to 6 months, all under the direct supervision of a Lithuanian central bank. Throughout this experimental phase, participants operate under relaxed regulations in a controlled environment. If the trial proves successful, companies can then transition to regular operating conditions.

Requirements and cost to apply to be a Lithuanian e-resident

Applying for Lithuanian e-residency seems to require a physical presence in Lithuania, both for the application and the collection of the e-residency card (the government website mentions the existence of “chosen external service providers” in their e-residency FAQ, but no further information is provided about who they are or where they are located.) 

The application costs €90, and the card is valid for 3 years.

Opening a business using Lithuanian e-residency

At present, Lithuanian e-residency does not yet allow individuals to register companies, open a business bank account, or take advantage of the local tax system. 

However, these services are expected to be added in the future, and we anticipate they will follow Estonia’s example of highly digital access to infrastructure and support. Just as the Estonian system has grown and evolved over its 9 years of existence, we have every confidence that Lithuania will do the same.

Estonian e-Residency vs. Lithuanian e-residency: the similarities

It will not surprise you to read that the e-residency schemes of these two countries have a lot in common. After all, Estonia and Lithuania are almost neighbors, and share much when it comes to culture, climate, population and business practice.

Both are members of the EU, and so provide access to the world’s largest single market. Both score highly on Ease of Doing Business ratings, and Ease of Paying Taxes. Both have a high level of English spoken, in addition to their native tongue, and also Russian.

E-residency statuses of both countries are granted at the discretion of the respective governments, and subject to legal checks, such as anti-money-laundering (AML), international sanctions, and Schengen Information System alerts on criminal activity. As part of the application process and obtaining of e-residency identity credentials, both nations require a physical inspection and identity check, as well as the collection and storage of biometric data (e.g. fingerprints).

From a business perspective, both countries are thriving innovation centers, with reputations and success stories exceeding their small populations and physical sizes. So it is unsurprising that the concept of e-residency is thriving across this corner of the Baltics! Fintech and business technology are strengths for both nations, and Lithuania’s LT IBAN will be familiar to users of neo-banking services across Europe such as Revolut.

They also share features in terms of what their respective e-residency programs are NOT as well:

Neither country is offering a travel document or visa through this specific program, and e-residents have no right to enter or reside in Estonia or Lithuania, beyond that which they already hold (e.g. by virtue of an EU passport.) Estonia has a digital nomad visa program if you want to settle there for up to a year, and Lithuania has a tourist visa for up to 90 days.

And while both countries rank highly for their ease of paying taxes and double-taxation agreements with partners around the world, neither of them are tax havens either! 

Transparency and accountability are an important part of both nation’s principles of governance, so if you want to hide ill-gotten gains or avoid paying your way, you’ll need to look elsewhere.

Estonian e-Residency vs Lithuanian e-residency: key differences

Let’s look at the two programs alongside one another, and explore the important differences between them. Much of the data about Lithuania relates to present business formation and operation requirements in general, rather than e-residency specifically, as that functionality is not yet available:

* In both nations, banks are private enterprises distinct from government infrastructure, so while e-residents may be able to use their digital IDs as credentials, access to accounts/products remains at the banks’ discretion.

While both programs offer the opportunity to access services electronically, there are significant differences between them. The Estonian program is more mature, with a dedicated management team and infrastructure, a maturing ecosystem of expert service providers, and a growing community of over 100,000 e-residents who have started 25,000+ businesses. 

In contrast, the Lithuanian program is in its infancy and offers considerably fewer advantages and benefits to participants. For example, a Lithuanian e-residency card simply grants a foreigner the ability to log into the government’s e-services portal and use digital signatures. Additional features are clearly intended to be rolled out in the future, but it is difficult to obtain information about them, with a single page of information available that appears to have been machine translated into English.

The Estonian program offers significantly more services to its e-residents, such as online company registration, remote business management, submitting online tax declarations, and being able to use Smart-ID to sign documents digitally. There is also a thriving marketplace of service providers you can work with for a diverse range of professional services, to support the needs of e-residents operating around the world in their own fiscal environments.

Corporate tax rates: Estonia vs Lithuania

One of the key considerations for entrepreneurs when choosing an e-residency program is the corporate tax rate. Both Estonia and Lithuania offer competitive tax rates, but there are significant differences between the two.

In Estonia, the corporate tax rate is 0% until dividend distribution. This means that companies can reinvest their profits without any immediate tax liability. When profits are distributed as dividends, a flat tax rate of 20% applies (from 2024). 

This deferred corporate tax system is one of the unique features of the Estonian tax system and can be particularly advantageous for companies that plan to reinvest their profits. Many small and single-person businesses effectively pay no tax in Estonia, as they pay themselves salaries and fees rather than dividends.

In Lithuania, the corporate tax rate is 5% if the annual income is less than €300,000 and the company has up to 10 employees. It is not clear if any reinvestment incentive exists. however according to PWC “tax resident company is not subject to taxation in Lithuania if it was received from activities through a permanent establishment (PE),” so this may in future be of use to Lithuanian e-Residents.

For larger companies, the corporate tax rate is 15%. While this rate is higher than Estonia's, it may still be attractive to smaller companies or startups that meet the criteria for the lower rate.

Furthermore, there may be situations where a foreign tax authority could deem your Estonian or Lithuanian firm liable for corporate taxes in their jurisdiction, even if there is a double-taxation treaty in place between the two. This would create a condition of dual tax residency. For instance, if your presence or the predominance of your company's activities are in a particular country (such as client engagements, workforce hiring, or office operations), the Tax Authority might interpret this as your firm having established a Permanent Establishment (P.E.).

It's important to note that neither the Estonian nor Lithuanian e-residency programs provide an exemption for your company from forming P.E.s in other nations. However, in the Estonian e-Residency marketplace you can connect with advisers for indemnified professional support and tax advice in different countries, who can help you navigate this sensitive specialist area.

So, which e-residency program should you choose – Estonia or Lithuania?

While both Estonia and Lithuania offer e-residency programs, they are at different stages of development and offer different benefits. For entrepreneurs looking to start and manage a business entirely online, Estonian e-Residency is currently the most comprehensive and beneficial program. However, as Lithuania expands its e-residency services, it may become a more attractive option going forward.

In the future, we may expect Lithuania to expand their offering along similar lines, and we have to consider that factors like the global pandemic and Russia’s illegal war in Ukraine have doubtless impact on the growth and rollout of the program. We look forward to being able to update this article with further information about the progress of our near neighbor’s e-residency evolution.

Meanwhile, for those specifically searching for "Lithuania e-residency," it's important to be aware of the Estonian e-residency program and consider it as a viable alternative. With its evolved ecosystem, established community, ease of use, and comprehensive services, Estonian e-residency offers a unique opportunity for global entrepreneurs to operate within the EU's business-friendly environment.

And if you want to get started with Estonian e-Residency and even open your own private limited company in the Baltics, then Xolo is the perfect place to start.

About Maya

Maya Middlemiss is a freelance journalist and author, excited about the future of work, business, money, and technology. She operates her e-resident business through Xolo Leap, so that she can work frictionlessly with brands and publications all over the world, and she is the host of the Future is Freelance podcast. Exploring the social impact of technology on our changing world, and bringing those stories to life in an accessible and inclusive way, is her passion — because all of this is far too exciting to leave it to the geeks. Maya is a 'digital slowmad', originally from London, presently living with her family in Eastern Spain.