For a small Lithuanian team with an uncertain future, examine an employer of record first, provided the proposed employment arrangement is suitable. For a durable operation that needs its own contracts, management and local business infrastructure, examine a Lithuanian entity. Also investigate direct foreign-employer registration: incorporation and outsourced employment are not the only possibilities.
Which route fits your plans in Lithuania?
An entity can suit one employee if the business needs an authorized local operation. A larger team may still justify EOR fees when company administration would consume scarce management capacity.
A customer commitment, work permission or unsuitable staffing arrangement can outweigh a fee saving. Confirm these before selecting a headcount threshold.
Which employment routes are available?
Establish what the EOR arrangement actually is
Under the Labour Code definition described by the labour inspectorate, temporary agency employment involves work for, and under the direction of, a user enterprise. Agencies must meet statutory criteria and appear on the inspectorate’s published list. Where your proposed EOR arrangement has those characteristics, verify the actual employer’s name and registration against that requirement.
Identify the role, worksite, client direction and assignment period in the proposal. Do not use agency employment to replace striking workers or to replace dismissed user-enterprise workers: these uses are prohibited by Article 79. A quote for such a case is not an available route.
Duration needs particular care. Article 72 permits fixed-term and open-ended temporary agency contracts. The fixed-term maximum is three years, including consecutive contracts with the same employee for the same work; gaps of no more than two weeks count as consecutive. That is a contract rule, not a universal three-year allowance for every EOR assignment. The budget examples below assume open-ended employment with a defined planning horizon. Have the provider identify the lawful assignment terms before accepting the plan. Ship crews governed by the merchant-shipping law fall outside this Labour Code section and need a separate assessment.
Direct foreign employment deserves a separate assessment
VMI provides foreign-company registration through FR0227. Its registration form includes state social insurance payer registration as a category distinct from operating through a permanent establishment.
For workers covered by EU social security coordination, Article 21 of Regulation 987/2009 expressly addresses employers based outside the competent member state. They must meet the applicable obligations, including contributions. An arrangement for the employee to pay contributions on the employer’s behalf does not remove the employer’s underlying responsibility.
For a permanent Lithuania-based employee, ask the foreign company’s accountant to document the applicable Sodra registration, reporting authority and income-tax payment or withholding treatment. FR0227 registration does not itself settle these questions or grant work permission. A foreign employer without a permanent establishment may have a different income-tax allocation from a UAB.
What each route requires your company to manage
A UAB is a private limited liability company that can have corporate shareholders. The Innovation Agency states that its minimum share capital is €1,000 and that it must have a manager. The capital requirement is company funding, separate from consumed registration or advisory expense.
The Centre of Registers’ formation instructions distinguish capital funding, signed documents and registration payment. They also describe registered-office consent and shareholder information. Prepare ownership evidence and bank due diligence alongside incorporation. Identify who will maintain beneficial-owner information through JANGIS services, rather than assuming the registration agent will do so indefinitely.
If the UAB needs a paid manager in addition to the employees being compared, add that person’s compensation and employer costs to the entity side. An assumed internal administration allowance does not establish a lawful manager arrangement.
Employment readiness has a separate deadline: Sodra says the 1-SD notification must be submitted at least one working day before the employee starts. Build payroll access, reporting authority, contracts and funding around the intended start date. A company certificate alone is insufficient.
The client retains consequential responsibilities
VDI’s workplace safety guidance assigns responsibilities to the temporary-work user, including informing and instructing workers about workplace risks. Office and industrial assignments therefore need different preparation.
The applicable collective agreement can also change the comparison. Lithuania has national, territorial, sectoral and employer-level agreements, as described by the labour ministry. Check coverage rather than assuming every agreement covers every employee. Under Article 75, agency pay generally must meet what the worker would receive if hired directly for the same job, with an exception for qualifying open-ended arrangements paying the same wage between assignments. The user has subsidiary liability for that pay obligation. Supply the relevant pay information before accepting a lower-cost proposal. VDI also explains posted-worker treatment where an assignment crosses into Lithuania.
Finally, assess the overseas company’s activities. VMI’s permanent-establishment guidance covers continuing business activity and dependent agents, including people who determine contract terms even when signatures occur abroad. Apply the relevant tax treaty as well. Using an EOR does not settle that analysis.
Compare costs on the same basis
What the local commercial evidence establishes
A local legal-services practice publishes starting prices of €350 for Lithuanian legal-entity incorporation and €300 per month for company legal administration, excluding VAT, checked October 20, 2026. These are advertised service entries, not a UAB employment-readiness package or an all-in accounting, payroll, management and closure budget. The page does not specify the employee count or included monthly hours. Obtain the engagement scope before substituting either price into a plan.
Recurring accounting, per-worker administration, EOR service and exit costs remain unverified for the matched cases below. Public entry prices cannot fill those gaps.
Define the comparable employment and cost scope
The following worksheet compares incremental route administration in euros. It assumes the same already work-authorized, full-time office employees, open-ended employment, €3,000 gross monthly salary each, identical working patterns and matched benefits. No relocation, regulated activity or unusual workplace insurance is assumed.
Salary, statutory employer contributions, paid leave, sick-pay obligations and matched benefits are excluded equally from both route totals. Salary alone would be €36,000, €360,000 and €2,160,000 respectively across the three plans. Those figures are not total employment costs. Obtain employee-specific payroll calculations and add any route-specific contribution, insurance, equal-treatment or benefit difference before making a purchasing decision.
These are replaceable illustrations, not evidenced Lithuanian company budgets or market crossover estimates. All commercial inputs in the worksheet are assumptions, not quotes or Borderless prices. The sourced starting prices above are kept outside the base calculations because their scope does not match the modeled bundle.
Internal effort is valued as a cost even where existing staff absorb it without a new invoice. The entity assumptions cover a simple employment vehicle. They exclude a separate manager, ongoing legal retainer, licensed activity, office lease, audit and complex intercompany work. Add the costs your operation requires. For example, buying the advertised €300 monthly legal-administration service on top would add at least €7,200 over 24 months before VAT, subject to the actual scope; it is not mandatory for every UAB.
Three headcount and time-horizon scenarios
For constant headcount N over M months, the assumed EOR expense is €500 + N × €500 × M + N × €100. The entity expense is €3,000 + €950 × M + N × €50 × M + €3,000.
Each total includes the assumed administrative exit reserve. It excludes the common employment costs and cash funding described above. Both routes remain conditional on legal suitability.
The five-person entity calculation is €3,000 + €22,800 fixed overhead + €6,000 variable administration + €3,000 closure reserve = €34,800. No share capital has been charged as expense.
A sensitivity that changes the answer
For five employees over 24 months, reducing the assumed EOR service fee from €450 to €200, while keeping €50 internal effort, produces €500 + 5 × €250 × 24 + €500 = €31,000. EOR then costs €3,800 less than the assumed entity route. The conclusion reverses without changing headcount. To test it, obtain matched five-employee, 24-month proposals: the EOR fee schedule and assignment acceptance, plus entity bookkeeping, per-worker payroll/HR, manager, legal-support and exit scopes. Check whether the lower EOR price excludes work included in the entity quote.
Under the original inputs, equality is expressed by N × (€450 × M + €100) = €5,500 + €950 × M. This is a worksheet relation, not a reliable market break-even. Actual fees, company overhead, taxes and exits remain quote-dependent.
Model growth month by month. Hiring twenty people in month thirty does not justify charging twenty employees for all thirty-six months. Also price direct foreign employment separately: it avoids subsidiary formation costs but retains employer administration.
How to move between routes later
- Make the receiving employer ready. Identify EOR A or the UAB as the receiving legal employer. Complete registrations, funding and employment administration before ending the old service.
- Determine the employment mechanism. Establish whether a business transfer applies or a different lawful arrangement is needed. Changing the invoice recipient alone does not move employment.
- Reconcile continuity and balances. Record service dates, unused leave, benefits, payroll balances, expenses, confidentiality and IP arrangements.
- Check permission before cutover. Under the Article 44 process, ordinary work-based residence-permit holders generally apply after six months from permit issuance, except for permits issued for less than six months or specified Article 50(2¹) cases, and start with the new employer only after approval. The statutory decision period is one month; approval is valid for one month. Check the permit category, not just the residence card’s expiry.
- Close both sets of obligations. Coordinate final and first payroll, statutory notifications, service notice, funding reconciliation and any continuing company filings.
VDI’s transfer explanation says that where Labour Code Article 51 applies, the successor takes over employment rights and duties, with continuity of service and accrued rights. Assess whether the facts meet that mechanism; an EOR-to-UAB move should not be assumed to qualify automatically.
Article 79 invalidates agreements that prohibit or restrict a temporary worker’s direct employment by the user. It still permits agreed remuneration for assignment, recruitment and training services. A Lithuanian appellate ruling applied that distinction to a one-year hiring ban and penalty. Do not assume either that a hiring ban is enforceable or that all service charges disappear. Check who is the actual user, the fee’s basis and the proposed move.
Moving into an EOR also leaves the old company’s records, filings or liquidation to resolve. If employment ends, budget actual notice, leave and severance separately from commercial cancellation.
Decide what to confirm before committing
Obtain five items before choosing a start date:
- The actual employing company, agency status where applicable, permitted assignment and allocation of workplace duties.
- A written choice among EOR, UAB and eligible direct foreign employment, including parent-company tax exposure.
- Matched proposals separating fees, internal work, statutory payroll costs, capital, funding and tax.
- Evidence of payroll readiness and each employee’s right to work under the chosen arrangement.
- A transition or exit plan covering employment continuity, permissions, service notice and company obligations.
Can we employ someone without incorporating a UAB?
Potentially, through a suitable EOR arrangement or direct foreign employment with the required registrations. FR0227 and the applicable social security rules justify examining the latter. Neither route removes employer or business-tax obligations.
Does an EOR let us conduct a licensed Lithuanian business?
Do not assume so. Identify the legal person that will perform the activity, contract with customers and hold any required authorization. An employment service agreement answers a different question.
Does a Lithuanian entity make a non-EU hire immediately eligible?
No. For ordinary sponsorship under Article 44, the employer generally needs six months of the relevant activity, with specified investment-agreement exceptions. A brand-new UAB lacking that history and an applicable exception is not available for an immediate hire on that basis. Other permit categories need their own assessment. Obtain the worker’s permit basis and the receiving employer’s eligibility record first.
For planned applications, also check the November 2026 change: from November 1, some applicants relying on Schengen or another country’s national visas will lose the ability to submit work- or study-based residence applications inside Lithuania. This is an application-route change, not a universal ban on employment.
Is €1,000 enough to launch the entity route?
It is the minimum UAB share capital. You also need setup expenses, payroll and operating liquidity, administrative capability and any activity-specific authorization. Capital funding is not a substitute for those resources.
When should we leave an EOR for our own entity?
Reassess when a durable local operation needs its own contracting structure or matched proposals show savings after internal effort and migration costs. Require the receiving employer’s readiness and any immigration approval before turning that saving into a cutover date.
Borderless AI provides EOR services covering employment administration, payroll and taxes, as described on our EOR service page. Book a discussion with your Lithuania role, worker status, headcount forecast and horizon. Ask us to confirm the proposed arrangement, responsibilities and a scoped quote before you commit.
