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:
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.
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 that covers accidents at work and occupational diseases. The rate of contribution depends on the company and industry’s risk profile as follows:
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.
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).
|GROSS INCOME||TAX (%)|
|Up to €90,246||20|
|More than €90,246||32|
Employees on sick leave, maternity, paternity leave are taxed only 15% during their leave.
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:
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.
The following employment benefits are exempt from income tax:
In Lithuania, employment expenses are not deductible from the employee’s compensation, and personal allowances do not exist.
Tax residents in Lithuania can deduct the following from their taxable income:
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:
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.
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.