Don’t write off the small partnership

Lithuania: Starting from 1 September 2012, when the Law on Small Partnerships came into force, more than 5,700 small partnerships have been registered.

However, there has been discussion in public space regarding SP as a legal form of activity having become inappropriate and regarding the collapse of existing SP, since the end of 2014 when Parliament considered amendments to the Law on State Social Insurance (SSI Law).

On 11 December 2014 amendments to the SSI Law were passed (in force on 1 January 2015) establishing mandatory SSI and health insurance (HI) contribution payments for SP members calculated from the minimum monthly salary, even if the individual concerned does not receive income from the SP. Only if the exceptions listed in the SSI Law are met can mandatory contributions be exempt (e. g., a SP member is employed elsewhere or performs individual activity, or during the first year of SP activity, etc). However, in our opinion, even though the SSI Law is in force, SP should not be written off as a legal form of activity.

Indeed, in comparison with other legal forms SP taxation should be attractive for the following reasons:
– A civil service agreement is signed with the head of the SP. Taxation of the agreement is 15 % for personal income tax with no obligation to pay social security contributions. A member of the SP can be assigned to be the head of the SP.
– When a SP member withdraws income for personal needs, this is subject to the annual SSI and HI contributions “ceiling“ (20,688 EUR).
– Distribution of profit is possible before the end of the financial year.
– Expenses under a civil service agreement and income withdrawn for personal needs of a SP member can be attributed to SP allowable deductions and thus reduce SP profit.

Are you interested in the advantages of a SP? If so, please contact us and we will be happy to present these in detail, evaluate your situation and whether you might operate as a SP.

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