Taxes in Lithuania

Employers and employees must contribute to social security, which funds retirement, unemployment, sickness, and maternity leave. Employers are also responsible for withholding the employees’ contributions during payroll.

Employers contribute 1.77% of a permanent employee’s salary to social security and 2.49% of a fixed-term employee’s salary.

The following funds are encompassed in the social insurance contributions.

Employers in Lithuania must contribute 0.16% of the gross salary payable to the employee into the country’s guarantee fund, which supports workers if the employer goes bankrupt.

Employers must contribute 0.16% of the employee’s gross salary into the long-term employment fund, which entitles employees to receive a payment if the employer terminates the employment agreement without cause.

Employers must make contributions for social insurance covering work-related accidents and occupational diseases. The rate of contribution depends on the company and industry’s risk profile as follows:

• Category I: 0.14%
• Category II: 0.49%
• Category III: 0.7%
• Category IV: 1.4%

In Lithuania, employees must pay two rates of income tax related to employment, depending on their gross income. If the income does not exceed 60 average salaries annually, there is a flat rate of 20%. For any amount exceeding this threshold, a progressive rate of 32% is applicable. Couples cannot file taxes jointly, and the employer withholds an employee’s income tax during payroll.

Progressive income taxation may also apply to certain other types of personal income. Depending on the nature of the income and applicable thresholds, income may be taxed at 15%, 20%, or 32%.

Employees must contribute to the social security at a rate of 19.50% of their gross salary. The social security contribution is withheld by the employer during payroll and comprises the following:

• 8.72% – pension social insurance
• 6.98% – health insurance
• 2.09% – sickness
• 1.71% – motherhood social insurance

Additionally, if the employee is part of a second pillar pension fund, there is an additional 3% contribution.

The contributions for 2026 are as follows: 19.5% employee’s contribution (social insurance contributions of 12.52% and health insurance contributions of 6.98%) 1.77% or 2.49% employer’s contribution (including 0.32% for the Guarantee Fund and the Long-Term Unemployment Fund) 19.5% rate of tax is also imposed on 90% of income earned by self-employed persons Special rules and rates are applied for sportsmen, performers, persons working under authorship agreements, farmers, owners of individual enterprises, members of micro companies and partners of partnerships.

The following employment benefits are exempt from income tax:

• Contributions to life insurance, additional (voluntary) health insurance, and pension, covered by the employer with a few conditions:
  • The total amount of such contributions should not exceed 25% of the employee’s annual income, and they should be in an EEA country.
  • Exemption on voluntary health insurance contributions is applicable only for payment for health care services. Gym membership, glasses, etc., are considered as taxable income, and exemption does not apply.
• Compensations included in the local Lithuanian legislation, such as business trip expense reimbursements, daily allowances, etc.
• Income received as non-monetary prize or gift from the employer if the value does not exceed €200 per tax year
• Payment for the employee’s public transport to and from work
• In the unfortunate event of an employee’s death, the payments made to their spouse, children, or parents
• In the unfortunate event of the death of an employee’s spouse, children, or parent, payments made to the employee by the employer (if the amount exceeds five minimum monthly salaries applicable in the relevant year, social security contributions are calculated from the excess).
• Employee stock options exercised at either no cost or one lower than their fair market value price (not earlier than three years following their grant date), applying to stock options granted after February 1, 2020

Tax residents in Lithuania can deduct the following from their taxable income:

• Pension contributions paid by the tax resident to voluntary pension funds (third-pillar pension funds).
• Life insurance premiums paid for the individual, their spouse, minor children, or disabled children’s benefit
• Payments for vocational training under a formal vocational training programme or higher education programme (the individual must obtain a relevant qualification or competency upon completion). Repayments of loans taken for qualifying studies may also be deductible, subject to statutory conditions.

The total amount of deductible expenses is limited to 25% of the taxable income (subject to 15%, 20%, and 32% income tax rates) in a calendar year. The total deductible life insurance premiums and pension contributions amount should not exceed €1,500. In addition, the repair work of buildings and cars, and nursing services should not exceed €2,000.

In Lithuania, something called a monthly tax-exempt amount (TEA) exists, which is applied to tax residents’ employment-related income, as follows:

• For income not exceeding the minimum monthly salary that was set on January 1 of the current tax year (€1,153 – 2026), the amount is €747 per month.
• If employment-related income is higher than the minimum monthly salary that was set on January 1 of the current tax year, TEA is calculated by a formula (Monthly TEA = €747 – 0.49 x (monthly income – €1,153).
• The TEA decreases proportionally as income increases and becomes zero once the calculated amount is negative.

A higher TEA threshold may apply for individuals with a lower level of working capacity.

Families with children receive a monthly family allowance from the local government of €129.50 per child, from birth to the age of 18. The age threshold may be increased to 23 if the child studies according to a general curriculum.