Individual Activity or Business Certificate – Which Option Is Better?

Self-employment in Lithuania is a popular way to start a business or earn additional income. The two main paths are individual activity under a certificate and a business certificate. Both options have different advantages, tax rules, and accounting requirements. This article will help you understand which option is more suitable for your situation.

Individual activity and business certificate are two forms of self-employment in Lithuania, both of which can be registered through the State Tax Inspectorate (VMI). Individual activity offers flexibility and allows cooperation with companies, while a business certificate involves fixed taxes and is suitable for working with private individuals.

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Individual activity under a certificate is a flexible business form suitable for various activities: both services and trade. It allows working with both individuals and companies, making it ideal for those looking to expand their client base or collaborate with business partners. Income from individual activity is taxed based on actual profit, and the person can choose the accounting method – either record actual expenses or apply a 30% standard deduction.

In contrast, a business certificate is a simpler but more restrictive form, usually suitable for smaller businesses. In this case, annual income cannot exceed €45,000, and the list of permitted activities is limited and defined by law. Business certificates apply fixed taxes paid in advance, making accounting much simpler – only an income journal is required.

Individual activity is registered through the “Mano VMI” portal. The process is simple and free. You can start the activity on the same day.

A business certificate is also issued through VMI, but the issuance can take up to 4 working days. Its validity is limited – up to one year, but it can be extended.

Advantages:

• High flexibility – you can easily change the activity field or expand the range of services/products without re-registering.
• Allows working with both individuals and companies – useful for growing businesses or freelancers.
• Taxes are paid only on actual profit – if you have high expenses, your tax burden decreases.
• You can choose to declare actual expenses or apply a 30% standard deduction.
• You can become a VAT payer – enabling cooperation with VAT-registered companies and VAT refunds.
• You can hire employees, even for multiple positions.
• No need to pay fixed taxes in advance – you can start with minimal costs.

Disadvantages:

• More complex accounting, especially if using actual expenses.
• You must keep an income and expense journal, save invoices, and submit an annual income declaration to VMI.
• You must manage all social insurance matters (PSD, VSD) yourself – pay contributions, track deadlines and amounts.
• Negligence can lead to debt to Sodra or loss of social guarantees like pension accumulation or sickness benefits.

Advantages:

• One of the simplest business forms in Lithuania.
• Fast registration – often takes just a few days, and you can start almost immediately.
• Fixed taxes allow you to know exactly how much you’ll pay – easier planning and accounting.
• Very simple accounting – just keep an income journal.
• Most activities don’t require saving invoices or complex bookkeeping.
• Ideal for seasonal or temporary work – e.g., summer trade, short-term services, or side income.

Disadvantages:

• Income limit – cannot exceed €45,000 per year. If exceeded, you must register individual activity or establish a legal entity.
• Can only work with individuals – cooperation with companies is limited to specific cases (e.g., services for municipalities or public sector).
• No option to deduct expenses – less beneficial for businesses with high costs (e.g., equipment, transport, materials).
• Limited list of activities – may restrict business growth or expansion into other areas.

Individual activity:

• Personal income tax (GPM): 5% or 15%, depending on annual income and chosen expense deduction method.
• Compulsory health insurance (PSD): 6.98% of 90% of profit or from the minimum monthly wage (MMA) if profit is not calculated.
• State social insurance (VSD): 12.52%, or 15.22% if contributing to a pension.
• If annual income exceeds €45,000 – VAT registration becomes mandatory.

Business certificate:

• Fixed GPM rate set by municipalities, depending on activity type and location.
• PSD: 6.98% from MMA.
• VSD: proportional to the period for which the certificate is issued.

When choosing between individual activity and a business certificate, it’s important to assess your activity type, expected income, client type, and business duration. If you plan long-term activity, want to work with companies, or expect high expenses – individual activity is likely more suitable. If your activity is seasonal, simple, and aimed at individuals – a business certificate may be enough.

Still unsure which form to choose? You can find more information on the VMI website:
“Which activity form is right for me?” – an official VMI questionnaire to help you choose based on your answers 

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• Small Partnership (MB) – another alternative?
• Income Declaration – important for individual activity operators
• Payroll Accounting – relevant if you plan to hire employees
• VAT Law – when individual activity income exceeds €45,000
• Reverse VAT – relevant if your activity involves certain services or trade