Corporate Income Tax in the Baltic States: How Estonia, Latvia and Lithuania Tax Company Profit

The three Baltic states are often described as one low-tax region, and the headline Baltic corporate tax rates seem to confirm it: 22%, 20% and 17%. These three numbers cannot be compared directly. Two of them are charged only on money that leaves the company. The third is charged on every euro the company earns, whether or not the owner ever sees it. A founder who picks a country by the lowest percentage usually picks the wrong one.

This guide is written for a founder who is comparing the three countries for the first time. It compares corporate income tax in the Baltic States on one set of rules, in the order you need them: how each model works, what the rates are and what they add up to over a few years. It then covers the two things most guides leave out: the tax on money that leaves the company by the back door, and the tax you still pay at home. This Baltic tax comparison stays with that one tax, and terms are explained where they first appear. The details of each country are on their own pages, for corporate income tax in Estonia, corporate income tax in Latvia and corporate income tax in Lithuania, and the wider question of where to register is answered in our comparison of a company in Estonia, Latvia and Lithuania. The figures below are current as of October 2026.

Two Tax Models in Three Baltic Countries

In most countries a company works out its profit at the end of the year and pays tax on it, whether the owners take the money or not. Estonia dropped that model in 2000 and Latvia followed in 2018 with its current Corporate Income Tax Law. In both countries the company pays nothing on the profit it earns and keeps. The tax is charged on distributed profit only, usually dividends, and on anything that reaches the owners by a side route, such as a private expense paid from the company account. Because the tax is postponed until the money is paid out rather than cancelled, this is called a deferral, not an exemption.

Lithuania kept the usual model under its Law on Corporate Income Tax: the company pays tax on each year’s profit, and when it later pays dividends, the shareholder is taxed again. That one difference shapes everything else about corporate tax in the Baltic countries, so the table of Baltic corporate tax rates starts with it.

Two lines in this table are easy to misread. The Estonian 22% and the Latvian 20% are percentages of the whole payout, tax included: if the owner wants €80 in hand, the Latvian company spends €100 (€80 to the owner, €20 in tax) and the Estonian company spends €102.56. That is why the same rates are also written as 20/80 and 22/78, and why you will see the Latvian rate quoted as 25% and the Estonian as 28.2%, which are the same taxes measured against what the owner receives. The Lithuanian 0% is not a general rate for new companies either: it depends on who owns the shares, on an income limit that counts the owner’s other companies together with this one, and on the company not being sold or restructured for three years. Our Lithuanian page goes through the conditions one by one.

Rates That Guides Still Quote and That No Longer Apply

Many comparisons of the Baltic States in search results carry figures that are out of date. Estonia’s rate was 20% until the end of 2024, its lower 14/86 rate for regular dividends has been abolished, and a 2% annual tax on all company profit and a rise to 24% were both passed into law and then cancelled before they took effect. Lithuania’s standard rate was 15%, then 16% and is now 17%, the small-company rate went from 5% to 7%, the 0% period from one year to two, and the old limit of ten employees no longer applies. If a page shows 15% for Lithuania or 14/86 for Estonia, it was written before these changes.

One Company, Three Countries, Three Years

The headline rates say nothing about timing, and timing is the whole difference between the two models. Take a company that earns €60,000 of profit a year for three years, keeps all of it in the business and at the end of the third year pays everything out to its sole owner, a private individual. The last column is a new Lithuanian company that qualifies for the 0% rate in its first two years and the 7% rate in the third, which assumes its income stays below €300,000.

The table shows three things. For an ordinary company, 0% on reinvested profit in Estonia and Latvia beats the Lithuanian annual tax by a wide margin, and the gap grows with every year of reinvestment, because the Lithuanian company starts each year with less money. A new Lithuanian company that qualifies for the 0% and 7% rates comes out best over these three years, which is the strongest argument for Lithuania. It holds only while the company stays under the income limit, keeps its individual owners and is not sold or restructured, and the advantage sits almost entirely in the two years at 0%: from the third year on, 7% plus 15% on the dividend takes about 21% of each year’s profit, level with Latvia and just under Estonia, while a company that keeps reinvesting pays nothing in those two countries. And taking the profit out every year instead of at the end changes none of the totals in any column, only how much money is left in the business in the meantime. The Estonian and Latvian model is about timing: you decide when the tax is paid, and until then the money works for you.

Under Latvia’s optional regime the same €180,000 would cost €27,000 in corporate tax and €9,180 in personal income tax, €36,180 in all, so almost exactly what the standard rate costs. The tax you pay at home on the dividend comes on top in every column, and the section on the second layer below explains why that matters more for Estonia and Latvia than for Lithuania.

What Each Country Taxes as a Distribution

The 0% in Estonia and Latvia holds only while money stays in the business. Both countries tax, as if it were a dividend, any value that reaches the owners by another route. Estonia calls this a hidden profit distribution or, when it goes to an employee or board member, a fringe benefit. Latvia calls it conditionally distributed profit. Lithuania reaches a similar result by a different path: the same spending is not allowed as a business cost, so it stays in the taxable profit and is taxed at the company’s rate. The table covers the cases that come up most often.

The pattern is the same in all three countries: a euro that reaches the owner is taxed somewhere, and what differs is the name and the rate. In Estonia the most common way a founder ends up with a corporate tax bill without ever declaring a dividend is a shareholder loan that is never repaid. In Latvia it is the same loan, taxed at the year end. In Lithuania it is the private expense that the accountant cannot deduct.

The Second Layer: Dividend Tax and Tax at Home

Most readers of this page live outside the Baltic States, and the tax they pay at home on the dividend matters as much as the Baltic rate. Two terms help here. Withholding tax is tax the company deducts from the dividend before paying it, on the shareholder’s behalf. A tax credit is what your home country gives you for tax already paid abroad on the same income, so that you do not pay twice; a tax treaty is the agreement between two countries that sets which of them taxes what and secures that credit. On dividend tax the three countries treat the shareholder differently, and this is where a Baltic tax comparison most often goes wrong.

The last row is the one that surprises founders. The Estonian and Latvian tax is a tax on the company, so most countries refuse to credit it against the shareholder’s own income tax on the dividend: a German or Spanish resident pays 22% or 20% in the Baltics and then the full home rate on top. Lithuania’s 15% is withheld from the shareholder, and a tax treaty normally credits it. That is why Latvia introduced its optional regime: 6% is a small amount, but it is 6% that comes off the home tax bill. Check how your own country taxes foreign dividends before you compare the Baltic rates, not after. The Estonian side of the question, including interim dividends and the salary-or-dividend choice, is covered in our guide to dividends in Estonia.

One more rule applies to all three countries alike. Registering a company in Tallinn, Riga or Vilnius does not decide where it pays tax. If the company is in fact run from your home country, that country may treat it as its own resident company, or find that it has a taxable presence there, and tax its profit every year under local rules. The comparison on this page holds when the company is run as a Baltic company; our guide to running an Estonian company from abroad explains where the line runs.

Filing and Paying Corporate Income Tax in the Baltics

Filing is not a tax, but for a foreign owner it is part of the cost, and here the three countries differ more than their rates suggest.

In our practice this row decides more cases than the rate. The Latvian model is the Estonian one, yet we regularly register Estonian companies for Latvian residents who have given up on dealing with their own tax office: replies take weeks, borderline questions are read strictly, and nothing arrives in any language but Latvian. Lithuania asks for an accountant with a power of attorney from day one and then runs smoothly through that accountant. Only in Estonia can a foreign owner submit the tax return personally, in English, from wherever they happen to be.

Which Baltic Corporate Tax Model Fits Your Business

There is no lowest corporate tax in the Baltics, only a model that fits a particular company. The table matches the common situations to the country whose corporate tax works best for them, on this one tax alone.

Many founders come to us with Lithuania in mind, because 0% and 7% read well on paper, and change their minds once they see that the 0% depends on conditions most of them do not meet, and that from the third year the annual tax runs whether or not they take money out. Those who keep Lithuania usually have one of three reasons: a company small enough to hold on to the reduced rate, a home country that credits only withheld tax, or a business that is in Lithuania regardless of the tax. Each is a sound reason, and the numbers show which one applies to you. If your shortlist is down to two countries, our pairwise guides for Estonia and Latvia and for Estonia and Lithuania cover registration, capital and daily administration as well as tax.

Choosing a Baltic Country With Eesti Firma

We register companies in Estonia and Lithuania, and for most of our clients the choice is between those two. We do not set up companies in Latvia, and if your business is rooted there, a Latvian accountant will serve you better. Tell us how much the company is likely to earn, whether the profit will stay in it or come out, and where you live, and we will say which Baltic corporate income tax model fits and what it will cost in the first three years. For an Estonian company, our accountants then make sure the deferral stays intact: every payout gets a legal basis before the money moves.

Send a Request

Frequently Asked Questions