What should be taken into account when starting up a business in the Baltics?
According to the widely discussed analyses of the World Bank on business regulations and their enforcement across 145 countries, there are big differences in the three Baltic countries with respect to company-establishment procedures and timeframes. Specifically, the respective analyses claim that in Estonia it takes 72 days to establish a company, in Lithuania 26 days and in Latvia 18 days.
The main reason for Estonia's lengthy time requirement is the line at the notary's office and registration in the Commercial Register. For some transactions an appointment at the notary can be acquired in two-three months' time, while at the same time lines at the notary's are almost nonexistent in Latvia and Lithuania. Also, the Estonian Commercial Register has a 15-day time period for registering the company, while the Latvian Commercial Register registers the company within three working days minimum, and the Lithuanian Commercial Register has five days to register the company.
If we rely only upon statistics, the situation could indeed be interpreted in a way that entrepreneurs should be prepared for a long wait in Estonia and a shorter one in Lithuania and Latvia. Still, entrepreneurs who have been engaged with establishing businesses in every Baltic country are aware that registration of a VAT-liable entity takes more time in Latvia and Lithuania.
Upon registration of a VAT-liable entity, the company is required to calculate VAT on its taxable supply and is entitled to the deduction of VAT upon purchase of goods and services. Consequently, entrepreneurs planning to start up a business in the Baltic states should take into account that in order to start the everyday activities of the business so that the deduction of VAT is applicable, the VAT-registration procedure must be acknowledged.
In Estonia the registration of a VAT-liable person takes three working days. This is applicable with the assumption that the business entity actually starts its activities and is not a shelf-company. The Estonian Tax and Customs Board fixes registration as the date of submission of the application. The respective time period that the entrepreneur is faced with in Latvia is two weeks, and this time period cannot be shortened.
The situation in Lithuania, however, is far more complicated. The time period for registering the business as a VAT-liable entity is one month. In addition, as of August 2004 the Lithuanian State Tax Inspectorate started to invite the relevant VAT applicants to interviews before registration. The interviews are conducted in Lithuanian, and during the interview applicants are required to fill in a questionnaire of about 20 pages. Among others, questions, for example, concern the assets of shareholders and management.
Respectively, it must be admitted that although all Baltic states have carried out successful reforms regarding the establishment procedures, to some extent entrance to the business scene is still somewhat cumbersome.
In addition to a simple company registration and registering the company as a VAT-liable entity, an entrepreneur most likely, depending on the country, will also need employment agreements and agreements for the individuals in management structures, lease/rent agreements for the premises in use, trademark registration, etc. In some cases the internal bookkeeping regulations or internal work regulations (e.g., if more than four employees are hired in Estonia) are also obligatory.