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According to Unicorns Lithuania, in Q3 2022, the country’s 700 active startups have paid €74.4M into the state budget, which is almost 45% more than last year and more than during this year’s previous quarters (Q2 2022 – €73.8M, Q1 2022 – €57.4M). Given that the amount of taxes paid by startups has been consistently growing for two years in a row now, we’ve decided to find out why.
Rising corporate tax and decreasing VAT payments
Interestingly, the growth of corporate tax paid by startups far exceeds that of other taxes, and is becoming increasingly significant over time. According to the State Tax Inspectorate, during the three quarters of this year, Lithuanian startups have paid as much as 68% more corporate tax compared to last year.
Noticeable growth has also been recorded with regard to personal income tax paid by startups, which applies to employment-related or equivalent income. Current data suggests a 38% change over the course of this year.
On the other hand, VAT paid by startups as a percentage of the overall tax burden has been consistently decreasing, with a 41% reduction noted for this year alone. This indicates that startups are selling their services in Lithuania less frequently than before. The approach many of them used to have in the past – “If it works in Lithuania, we’ll simply adapt it internationally” – has been replaced by thinking globally from the get-go. Fewer products sold nationally means that less VAT is being paid into the budget.
Startups are attracting foreign investment and creating jobs, as well as paying taxes, specifically in Lithuania.
What comes next?
Based on available data, the startup ecosystem is clearly no longer a “black hole for investors’ money” – a type of unfounded stereotype we used to hear in the past.
In reality, as the ecosystem matures, its path is becoming increasingly clear – Lithuanian startups are multiplying, growing, and becoming stronger with support from the local community and a favorable business and regulatory environment. They’re hiring and training internationally competitive talent – mostly Lithuanian – and paying a sizeable amount of money back into the national budget. In other words, they’re attracting foreign investment and creating jobs, as well as paying taxes, specifically in Lithuania.
During the first three quarters of 2022, Lithuanian startups have already paid over €205M in taxes, as compared to €200M for the entirety of last year. The average wage in startups now stands at €3,200 (gross), representing a 14% increase. Startups are currently employing 16,400 specialists, which is 18% more than in 2021. The largest startups are hiring new team members to this day.
For most, the present economic cycle, whether we call it a recession or a crisis, is exceptionally difficult. Lithuanian startups are also carefully monitoring the situation and assessing risks, hoping to safeguard their business, products, and employees in the long run. In Q3 2022, a significant number of startups have decided to hit the pause button and reconsider their business development and cost management processes. Nonetheless, the overall situation in the sector remains stable. As the sector matures, we’ll be hearing more and more stories not just about successful funding rounds, but also about impressive profits and a bigger state budget.
