Choosing between the United Kingdom and Lithuania for a fintech license is one of the most consequential decisions a payments or e-money startup can make. The two jurisdictions represent distinct regulatory philosophies: the United Kingdom offers a globally recognised, rigorous framework administered by the Financial Conduct Authority, while Lithuania has positioned itself as the most accessible EU gateway for electronic money institutions and payment service providers. This guide compares both jurisdictions across licensing types, regulatory requirements, timelines, costs, tax treatment, and strategic considerations - giving founders and CFOs the information they need to make an informed choice.
The United Kingdom';s financial services framework is governed primarily by the Financial Services and Markets Act and the Payment Services Regulations, with the Financial Conduct Authority (FCA) acting as the principal regulator for payment institutions and electronic money institutions. Post-Brexit, a UK licence no longer provides automatic passporting rights into the European Economic Area. Firms licensed in the United Kingdom must establish separate arrangements to serve EU customers, typically through a subsidiary or branch in an EU member state.
Lithuania, by contrast, operates within the EU regulatory framework under the revised Payment Services Directive (PSD2) and the Electronic Money Directive (EMD2), transposed into Lithuanian law and supervised by the Bank of Lithuania. A licence granted in Lithuania carries full EU passporting rights, allowing the holder to provide services across all 27 EU member states through a notification procedure rather than a full re-licensing process. This single-passport advantage is the primary reason Lithuania has attracted hundreds of fintech firms since it opened its doors to the sector.
The Bank of Lithuania has actively marketed itself as a fintech-friendly regulator. It introduced a dedicated licensing track and a regulatory sandbox, and it processes applications faster than most EU peers. The FCA, while respected globally, is known for thorough and sometimes lengthy reviews. Both regulators require substance - genuine operations, qualified management, and robust compliance frameworks - but the practical bar differs in meaningful ways.
In the United Kingdom, the FCA issues three main categories relevant to fintech operators. An Authorised Payment Institution (API) licence covers payment initiation, account information, money remittance, card issuing, and acquiring. A Small Payment Institution (SPI) licence is available for lower-volume operators below defined transaction thresholds. An Electronic Money Institution (EMI) licence authorises the issuance of electronic money and the provision of payment services linked to it. Each category carries different capital requirements, safeguarding obligations, and ongoing reporting duties.
In Lithuania, the Bank of Lithuania issues equivalent licences under EU law. The Electronic Money Institution licence and the Payment Institution licence are the two primary authorisations sought by international fintech founders. Lithuania also offers a limited network exclusion and a small payment institution registration for lower-risk, lower-volume activities. The EMI licence in Lithuania is particularly popular because it combines e-money issuance with a broad range of payment services and comes with EU passporting.
A non-obvious requirement in both jurisdictions is that the licence type must match the actual business model precisely. A common mistake is applying for a broader licence than the business currently needs, which increases capital requirements and scrutiny without adding near-term commercial value. Conversely, underestimating the scope of planned services and applying for a narrower licence creates the need for a costly variation application later.
United Kingdom - FCA authorisation
The FCA application process for an EMI or API licence is detailed and document-intensive. Applicants must submit a comprehensive regulatory business plan, a financial crime risk assessment, a safeguarding policy, an IT and operational resilience framework, and individual assessments for each person performing a Senior Management Function under the Senior Managers and Certification Regime (SM&CR). The SM&CR is a UK-specific requirement with no direct EU equivalent; it places personal accountability on named individuals for specific regulatory outcomes.
The FCA expects applicants to demonstrate genuine UK substance. This means a physical office, locally based senior managers, and a compliance function that operates in the United Kingdom rather than being outsourced entirely offshore. The regulator has publicly stated that it will reject applications where the proposed firm appears to be a shell with no real decision-making in the jurisdiction.
In practice, founders should consider engaging a specialist regulatory consultant or law firm before submitting, because incomplete or inconsistent applications are returned without a refund of the application fee. The FCA';s statutory determination period is three months from receipt of a complete application, but in practice the process frequently extends to six to twelve months due to information requests and back-and-forth on the business plan. Complex applications involving novel business models can take longer.
Lithuania - Bank of Lithuania authorisation
The Bank of Lithuania has a statutory review period of three months for payment institution applications and three months for EMI applications, measured from the date the application is deemed complete. In practice, the Bank of Lithuania is known for processing straightforward applications within this statutory window, making it one of the faster EU regulators. The regulator communicates actively with applicants during the review and issues written queries that must be answered within defined timeframes.
Lithuanian law requires the applicant entity to be incorporated in Lithuania. The company must have a registered office and at least one locally resident director or a person with sufficient authority and presence in Lithuania. The management board must include individuals with relevant financial services experience, and the regulator assesses fit-and-proper criteria for all key function holders. Unlike the UK';s SM&CR, Lithuania applies the standard EU fit-and-proper framework, which is less prescriptive in form but still substantive in practice.
A common mistake made by foreign founders is treating Lithuania as a low-effort jurisdiction where a nominee director and a virtual office will suffice. The Bank of Lithuania has tightened its substance requirements in recent years and will scrutinise whether the management genuinely operates from Lithuania. Many underestimate the cost and complexity of building real local substance, including hiring a qualified AML officer and a compliance manager with EU regulatory experience.
Capital requirements differ significantly between the two jurisdictions and between licence types, though both follow the same EU-derived or UK-equivalent thresholds.
For a UK EMI licence, the initial capital requirement is set at a defined minimum under the Electronic Money Regulations, with ongoing own funds calculated as a percentage of outstanding e-money or payment volumes, whichever is higher. The FCA also requires firms to hold safeguarded funds - client money - in segregated accounts or covered by an insurance policy or guarantee, and to report on safeguarding compliance regularly.
For a Lithuanian EMI licence, the initial capital requirement mirrors the EU minimum under EMD2. Ongoing own funds requirements follow the same EU methodology. The Bank of Lithuania requires quarterly reporting on own funds and safeguarding, and firms must appoint an approved external auditor. The capital thresholds themselves are broadly comparable between the two jurisdictions because both derive from the same EU legislative source, though the UK has retained equivalent levels post-Brexit.
In practice, founders should consider that minimum regulatory capital is rarely sufficient for a functioning business. Regulators in both jurisdictions expect firms to hold capital above the minimum to demonstrate financial resilience. Investors and banking partners also typically require a buffer. Professional fees, technology infrastructure, and staffing costs mean that a realistic launch budget in either jurisdiction runs well into six figures before the first transaction is processed.
If you are weighing up which jurisdiction better fits your capital position and investor profile, contact info@vlolawfirm.com. We can help structure the setup correctly the first time.
United Kingdom
The United Kingdom';s corporate tax rate has moved upward in recent years, with the current headline rate applying to profits above a defined threshold and a lower rate for smaller companies. The UK has an extensive network of double tax treaties, making it attractive for holding structures and for firms with global operations. The UK also offers the Patent Box regime and R&D tax credits, which can be relevant for fintech firms investing in proprietary technology.
Value added tax treatment of financial services in the UK broadly follows the pre-Brexit EU approach, with most payment and e-money services exempt from VAT. However, the UK has diverged from EU VAT rules in certain respects since Brexit, and firms providing cross-border services into the EU must analyse their VAT position carefully under both UK and EU rules.
The UK';s transfer pricing rules, controlled foreign company rules, and diverted profits tax are sophisticated and actively enforced by HMRC. International groups using a UK entity as part of a broader structure must ensure that intercompany arrangements are properly documented and priced at arm';s length.
Lithuania
Lithuania';s corporate income tax rate is among the lower rates in the EU. A reduced rate applies to small companies meeting defined criteria on headcount and revenue. Lithuania has no withholding tax on dividends paid to EU or EEA parent companies in many circumstances, and its participation exemption rules can make it attractive for holding structures within an EU group.
Lithuania is a member of the EU VAT area, and the VAT treatment of financial services follows the EU VAT Directive. Payment and e-money services are generally exempt, consistent with the treatment across the EU. Firms passporting into other EU states must monitor the VAT rules in each destination country, particularly for B2C services.
The Lithuanian tax authority has been increasing its scrutiny of transfer pricing and substance requirements for holding and IP structures. Firms that establish a Lithuanian entity primarily for licensing purposes but book profits elsewhere must ensure their arrangements withstand a substance-over-form analysis.
Costs in both jurisdictions span three categories: state and regulatory fees, professional fees for legal and compliance preparation, and ongoing operational costs.
In the United Kingdom, the FCA charges application fees that vary by licence type and are non-refundable. Annual supervision fees are levied on authorised firms based on a tariff that scales with business size. These fees are publicly available on the FCA website, but the more significant cost for most applicants is professional preparation. Engaging a law firm and a regulatory consultant to prepare an FCA application typically costs in the range of tens of thousands of pounds, and complex applications can cost more. The time cost of a twelve-month process must also be factored in.
In Lithuania, the Bank of Lithuania charges application fees that are lower than FCA fees in absolute terms. Annual supervisory fees are also lower. However, the professional fees for preparing a Lithuanian application are not negligible - a well-prepared EMI application requires legal drafting, AML policy preparation, IT security documentation, and business plan modelling. Professional fees for a Lithuanian EMI application typically start from the low tens of thousands of euros. Ongoing compliance costs include the AML officer, compliance manager, external auditor, and reporting obligations.
A hidden cost in Lithuania that many founders underestimate is the cost of building and maintaining genuine local substance. Renting office space in Vilnius, hiring qualified local staff, and covering their social contributions adds a recurring cost that is not always visible in initial budget projections. In the United Kingdom, equivalent substance costs in London are higher in absolute terms, but the business case for a UK presence is often stronger given the depth of the local talent pool and the proximity to major banking and investment partners.
Scenario one: EU-focused payments startup
A founder building a B2B payment processing platform targeting merchants across Germany, France, and the Netherlands will find Lithuania the more practical choice. A Lithuanian payment institution licence with EU passporting allows the firm to notify regulators in each target country and begin operating without separate national licences. The lower initial costs and faster timeline allow the firm to reach market sooner. The Bank of Lithuania';s active engagement with fintech applicants reduces uncertainty during the application process.
Scenario two: Global fintech with UK market ambitions
A well-capitalised fintech firm targeting UK consumers and institutional clients, with plans to list on a UK exchange or raise from UK institutional investors, will find the FCA licence more strategically valuable. The FCA';s global reputation adds credibility with banking partners, card scheme sponsors, and enterprise clients who conduct due diligence on their payment providers. A UK entity also simplifies access to the UK';s deep capital markets and its established ecosystem of banking-as-a-service providers.
In practice, founders should consider that these two scenarios are not mutually exclusive. A dual-jurisdiction structure - a UK entity for UK operations and a Lithuanian entity for EU operations - is a common solution for firms with genuine ambitions in both markets. The cost of maintaining two regulated entities is significant, but for firms above a certain scale it is often more efficient than the alternative of seeking separate national licences across multiple EU countries.
To discuss which structure fits your specific business model and investor requirements, contact info@vlolawfirm.com. We can assist with documents and filings across both jurisdictions.
What is the main practical difference between a UK FCA licence and a Lithuanian Bank of Lithuania licence for a fintech startup?
The most significant practical difference is the geographic scope of the licence. A Lithuanian licence carries EU passporting rights, allowing the holder to serve customers across all EU member states through a notification process. A UK FCA licence does not carry EU passporting rights following Brexit, meaning a UK-licensed firm must obtain separate authorisation in any EU country where it wishes to operate. For a startup focused on the EU market, this makes Lithuania the more efficient starting point. For a startup focused on the UK market or on global credibility, the FCA licence carries greater weight with banking partners and institutional clients.
How long does it take to obtain a fintech licence in each jurisdiction, and what drives the timeline?
In Lithuania, the Bank of Lithuania has a statutory three-month review period for complete applications, and straightforward cases are often resolved within this window. In the United Kingdom, the FCA';s statutory period is also three months from a complete application, but in practice the process frequently takes six to twelve months due to information requests and the complexity of the FCA';s review. The main drivers of timeline in both jurisdictions are the quality and completeness of the initial submission, the complexity of the business model, and the regulator';s current caseload. Firms that submit well-prepared applications with experienced legal support consistently achieve faster outcomes.
Can a firm hold both a UK and a Lithuanian fintech licence simultaneously, and is this cost-effective?
Yes, a firm can hold licences in both jurisdictions simultaneously, and this is a common structure for fintech groups with operations in both the UK and the EU. Each entity must meet the substance, capital, and compliance requirements of its respective regulator independently. The cost of maintaining two regulated entities - including dual compliance functions, dual audits, and dual regulatory fees - is substantial and typically only justified for firms above a meaningful revenue threshold. For early-stage startups, the more common approach is to choose one jurisdiction first, build a track record, and then expand to the second jurisdiction once the business has sufficient scale and resources to support dual regulation.
The United Kingdom and Lithuania each offer a credible and well-structured path to fintech authorisation, but they serve different strategic needs. Lithuania is the preferred entry point for EU-focused operators seeking speed, cost efficiency, and passporting rights. The United Kingdom remains the stronger choice for firms targeting UK customers, seeking global brand credibility, or accessing UK capital markets. The decision should be driven by the firm';s target market, investor profile, and long-term structure rather than by cost alone.
VLO Law Firms advises international clients on fintech licensing in the United Kingdom and Lithuania. We can assist with licence type selection, application preparation, regulatory correspondence, substance structuring, and ongoing compliance management. To request a consultation, contact: info@vlolawfirm.com