MB Accounting, Taxes, and More Made Simple (2024–2025 Small Partnership Tips)

A Small Partnership (MB) is one of the most favorable legal entities in Lithuania, sometimes referred to as a middle ground between individual activity and a private limited liability company (UAB).

It is an excellent choice for formalizing a medium-sized business. In this article, we will discuss the advantages and disadvantages of small partnership accounting, taxes, and other nuances that will help you better understand MB accounting.

Small partnership accounting includes all financial records related to the partnership's activities. This means recording income and expenses, filing tax returns, and managing other financial documents. Proper accounting is essential to ensure that the Small Partnership complies with all legal requirements and can effectively manage its finances.

One of the biggest advantages of an MB is that no share capital is required to establish the partnership. This means that starting a business costs less than establishing a UAB. Additionally, MBs have limited liability, so in the event of bankruptcy, only the company’s assets are at risk, not the personal assets of the owners.

MB members can operate without signing an employment contract, which allows them to avoid certain taxes. Moreover, any member can leave the partnership at any time and withdraw their contribution.

However, MBs also have disadvantages. First, only natural persons can be founders, and the number of founders is limited to 10. Also, all founders are responsible for the company’s operations, so resolving issues can be difficult without compromise.

Small partnership accounting also includes tax obligations. If MB members are not covered by compulsory health insurance in other ways, they must pay PSD (compulsory health insurance), which is 9% of the minimum monthly wage (MMA). At the end of the year, a 15% corporate income tax must be paid. However, a reduced 5% tax rate applies if the MB has no more than 10 employees on average per year, annual income does not exceed €300,000, and MB members do not own more than 50% of shares or stakes in other companies.

If the MB’s income reaches €45,000 in the last 12 months, the partnership becomes a VAT payer, and the VAT rate is 21%. The personal income tax (GPM) is 15% and is paid once a year upon submitting the annual income declaration. Additionally, each member must pay state social insurance contributions, which provide protection against illness and help accumulate pension benefits.

MB accounting requires proper document management. The main documents are:

• Invoices: All income and expenses must be documented with invoices.
• Cash Book: Records all cash transactions.
• Payroll Accounting: Required if the MB has employees.

Establishing an MB is a simple process consisting of several steps. First, a name must be chosen and registered. Then, founding documents such as the partnership agreement and articles of association are prepared. Next, the MB is registered in the Register of Legal Entities, a bank account is opened, and, if applicable, it is registered as a VAT payer.

The advantages of small partnership accounting include easy and simple establishment and management, lower administrative costs, and flexibility in profit distribution. However, limited liability can be a disadvantage when trying to attract larger investors, and the lower prestige compared to a UAB can also be a significant drawback.

One of the most common mistakes is improper documentation of income and expenses. VAT requirements are also often not followed, and insufficient attention is paid to social insurance contributions.

The MB establishment process is simple, but it is important to ensure that all documents are in order from the beginning to avoid problems in the future. Although MBs are a popular choice for small businesses, there are other business forms such as UAB or individual activity. Each form has its own advantages and disadvantages, so it is important to choose the right one based on your business needs.

Using a business management and accounting system, such as Rivile ERP, MBs can manage their finances more efficiently. The Rivile ERP system is tailored for medium and small businesses, allowing detailed accounting of inventory balances, pricing of goods and services, and is very convenient for small businesses that only need summary accounting. The system also ensures that accounting processes are carried out in accordance with all requirements.

How long does it take to establish an MB?
Usually, establishing an MB takes from a few days to a few weeks, depending on the speed of document preparation and registration.

Do MB owners have to pay social insurance contributions?
Yes, MB owners must pay social insurance contributions from their personal income.

Can an MB be a VAT payer?
Yes, if the MB’s turnover exceeds €45,000 per year, the partnership must register as a VAT payer.

Relevant:

• Business management system Rivile ERP
• Warehouse management system Rivile MSCAN