Lithuanian businesses are increasingly stepping boldly into foreign markets; however, legal or tax mistakes often occur at the most unexpected times. International expansion is not just about increasing sales or finding new customers. It is a complex process involving structural, tax, and legal solutions.
Unfortunately, many Lithuanian companies still follow a reactive rather than a proactive approach – problems are addressed only after they have already occurred.
International expansion mistakes: structural and operational
International expansion mistakes can be divided into two groups:
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Structural – arising from an insufficient assessment of the new jurisdiction, legislation, market practice, or institutions when starting operations;
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Operational – occurring due to insufficient planning while already conducting activities.
One of the most common structural mistakes is choosing based on familiarity rather than efficiency. When entering an international market through an acquisition, it is essential to choose the right transaction form. A traditional share deal is not always the best solution – in some cases, an asset deal (purchasing assets or a part of the business) can be far more favourable.
When expanding abroad, it is also worth considering which legal form to establish – a subsidiary or a branch – and if a subsidiary is chosen, what its specific legal form should be. This choice can lead to radically different tax burdens.
International expansion requires a systemic approach to structural decisions – from the transaction form to the business model abroad. Every organisational decision carries long-term tax and legal consequences.
The operational level: constant vigilance
At the operational level, proactive analysis and action are required continuously.
For instance, a product may be developed in Lithuania, yet the intellectual property rights to it may remain unclear or belong to a natural person rather than the company – this can lead to serious legal problems in the future.
Situations where employees work in a foreign country for an extended period may be treated as working through a permanent establishment, which creates tax obligations in that country.
It is also crucial to constantly monitor legal changes in foreign countries. For example, significant tax changes will come into effect in Poland from 2026, which local experts describe as revolutionary. Therefore, corporate groups operating in Poland should assess the impact in advance and prepare.
Daily operations – from intellectual property management to the posting of workers – can imperceptibly create significant legal and tax obligations. Monitoring these aspects must become a permanent part of the business process.
Planning – not a luxury, but a necessity
Many Lithuanian companies start tax planning too late, only when they are already operating in several regions and revenues become significant. There is often a lack of a systemic approach to the application of Double Taxation Avoidance Agreements, and EU directives that would allow for more efficient management of dividend flows are frequently ignored.
An additional challenge is the BEPS 2.0 initiative (Pillar Two), which establishes a 15% minimum effective tax rate for large corporate groups. Although many Lithuanian companies are far from the €750 million consolidated turnover threshold, these changes must be evaluated now.
Delaying tax planning to a later stage means lost opportunities to optimise the tax burden and an increased risk of encountering double taxation or compliance issues once the business is already in full swing.
Due diligence – not a formality, but real protection
Legal, financial, and tax due diligence is an exceptionally important tool in international expansion. Every country has unique legal regulations, business practices, and institutional characteristics, and failing to evaluate them can lead to serious financial, operational, or reputational risks.
Depending on the nature of the acquired company or activity, technical or environmental due diligence is often also necessary.
Due diligence can be:
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Desktop analysis (documentary),
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On-site inspection.
The choice depends on the country and the planned scale of activity. In some jurisdictions, an on-site inspection is a necessity.
It is vital to choose a reliable legal and tax advisor in the country where the activity is planned. An experienced partner will not only perform the due diligence but will also share practical insights into market specifics, cultural differences, and planned regulatory changes – this provides additional value.
Investing in a thorough legal audit before entering a new market allows for the avoidance of expensive mistakes, ensures compliance with local requirements, and creates a solid foundation for long-term success.
In market practice, high-quality due diligence is considered an investment with a return ratio of up to seven times. It is important that such an audit is tailored to the specifics of the particular jurisdiction, rather than being performed according to a universal template.
Investing in legal and tax planning at the start of expansion is not an additional expense, but protection against costly mistakes in the future.
A strategic rather than a tactical approach is the essential difference between companies that merely “survive” in foreign markets and those that successfully expand within them.
An equally important aspect is the choice of a reliable legal and tax advisor.
Prepared by Jurgita Zakarauskienė, Senior Associate at the law firm Glimstedt.
