Taxes in Lithuania

Employer Contributions in Lithuania

Social insurance

Employers and employees must contribute into the 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 into the social security, and 2.49% of a fixed-term employee’s salary.

The following funds are encompassed in the social insurance contributions:

Guarantee fund

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

Long-term employment fund

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.

Workers compensation insurance

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

• Category I: 0.14%
• Category II: 0.4%
• Category III: 0.7%
• Category IV: 1.4%

Employee Contributions in Lithuania

Residents of Lithuania are subject to tax on their worldwide income, whereas non-residents are subject to tax on the income generated only within the country. To be considered a resident, an individual must have a permanent place of residence during the tax year in Lithuania; have their personal, social, or economic interests during the tax year in Lithuania; spend more than 183 days per tax year or 280 days during two consecutive tax years (minimum of 90 days in each year) in Lithuania; and receive a Lithuanian sourced income while not residing in Lithuania.

Income tax

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 (for 2021 – €81,162), 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 applies to other personal income at a rate of 20%, capped at 120 average salaries annually (for 2021 – €162,324).

Lithuanian Income Tax

Employees on sick leave, maternity, paternity leave are taxed only 15% during their leave.

Social insurance

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 2.4% contribution. This contribution is slowly being increased yearly until it reaches 3%. For 2022, it will be 2.7%; for 2023, 3%. The government incentivises the second pillar pension fund by contributing an additional 0.9%, going up to 1.2% in 2022, and then up to 1.5% in 2023.

Individuals participating in second-pillar pension funds may choose to contribute 3% straight away.

All income received from employment, including bonuses, allowances, and severance payments, is taxable for social security. Employment income exceeding 60 average salaries (in 2021 – €81,162) is subject to social contributions at a rate of 6.98%. When the threshold is calculated, income received from all employers is considered.

Benefits in Kind

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 (In case the amount exceeds five minimal salaries (€3,210 – 2021), social security contributions are calculated from such income.)
• 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-Free Allowance in Lithuania

In Lithuania, employment expenses are not deductible from the employee’s compensation, and personal allowances do not exist.

Personal deductions

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

• Expenses they incur for their own or their spouse’s benefit in completing or repairing (except for apartment building renovation) a building, car repair, and childcare services (nursing) for children under 18 years, provided that the service provider is/should be registered as a Lithuanian taxpayer (The total annual amount of such expenses should not exceed €2,000. The relief is temporary and applies to 2019, 2020, and 2021.)
• Pension contributions paid by the tax resident to pension funds — second-tier pension fund contributions higher than the maximum established rate (These contributions must exceed 3% of the individual’s income on which social security contributions are calculated.)
• 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 program or formal vocational training program module (The employee must obtain a relevant qualification or competency after its completion. Included here are also payments for studies that help obtain a higher education qualification (if taking a loan, the repayments may be tax-deductible).)

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.

Standard deductions

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 (€730 – 2022), the amount is €530 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 = 400 - 0.18 x (monthly income - minimum monthly salary)).
• TEA is proportionally reduced as the income gets larger and caps out at €2,864.22 per month.

Annual TEA can also be applied to Lithuanian tax non-residents but only at the end of the tax if the annual gross income does not exceed €34,370.67. In addition, an annual PIT return will need to be submitted.
A higher TEA threshold may apply for individuals with a lower level of working capacity.

Family allowance

Families with children receive a monthly family allowance from the local government of €80.50 per child, from birth to the age of 18. The age threshold may be increased to 21 if the child studies according to a general curriculum.