LithuaniaTax Obligations Detailed

Employers in Lithuania have various tax obligations related to their employees. These obligations include withholding and remitting income tax, as well as contributing to social security.

Income Tax

• Standard Rate: The standard personal income tax (PIT) rate is 20% on employment income.
• Higher Rate: A 32% PIT rate applies to the portion of annual employment income exceeding EUR 126,532.80 (60 times the average monthly salary). This higher rate is applicable from January 1, 2025.
• Withholding: Employers are responsible for withholding income tax from employee salaries and remitting it to the State Tax Inspectorate monthly.
• Remittance Due Dates: Payments are due by the 15th of the month if salary is paid between the 1st and 15th, or by the end of the month if paid between the 16th and 31st.
• Non-residents have different payment deadlines.
• Annual Reporting: An annual payroll tax report (PAŽYMĄ form) must be filed by February 15th of the following year.

Social Security Contributions

• Employer Contributions: The standard employer social security contribution rate is 1.77%. This rate is not capped.
• Employee Contributions: The standard employee contribution is 19.5%, plus an additional 3% if participating in a second-pillar pension fund.
• Contribution Base: Contributions are calculated based on the employee's gross salary.
• Minimum Threshold (Floor): For part-time employees earning less than the minimum monthly salary (MMS) of EUR 1038, contributions are calculated based on the MMS. Certain exceptions apply, such as having multiple employers or receiving a state pension.
• Maximum Threshold (Ceiling): Social security contributions are generally calculated up to the annual ceiling of EUR 126,532.80. However, the 6.98% compulsory health insurance portion of the contribution has no ceiling. For income above the ceiling, only the 6.98% health insurance contribution applies. If an employee has more than one employer, a refund for overpaid SSC is possible at the year's end.

Other Taxes and Reporting

• Employers also contribute to the Guarantee Fund and the Long-term Employment Fund. Rates for these funds vary.

Tax-Exempt Income and Benefits

• Non-taxable Income: Various non-taxable income amounts exist based on the employee's income level. Calculation is dependent on the level of income.
• Tax-Exempt Benefits: Certain benefits are not subject to taxation.

Additional Information

• Payroll Cycle: Semi-monthly
• Payslip Format: Paper or digital
• Tax Year: Calendar year
• Currency: Euro (EUR)
• Individual Tax Returns: Employees are generally responsible for filing their annual income tax return by May 1st of the following year. However, filing isn't required if the employee only received employment income within Lithuania, has no deductions to apply, and their income did not exceed the threshold for the higher PIT rate.

It's important to note that this information pertains to the 2025 tax year and is current as of February 5, 2025. Tax laws and regulations are subject to change. Consulting with a tax professional is advised for personalized guidance.

In Lithuania, employee tax deductions encompass several areas, including income tax, social security contributions, and specific deductible expenses.

Income Tax

• Progressive Rates: A progressive income tax system applies to employment income. The standard rate is 20% for annual income up to €126,532.80. Income exceeding this threshold is taxed at 32%. A reduced 15% rate applies to sickness pay.
• Tax-Exempt Amount (TEA): A monthly TEA reduces the taxable base for employment income. The TEA is €747 for monthly income up to €1,038. For income between €1,038 and €2,387.29, the TEA is calculated as €747 - 0.49 * (Income - €1,038). For income between €2,387.29 and €2,865, the TEA calculation is €400 – 0.18 * (Income - €642). The TEA is proportionally reduced as income increases and ceases above a certain threshold.
• Withholding: Employers withhold income tax at source and remit it to the State Tax Inspectorate monthly. Payments are due by the 15th of the following month if salary was paid between 1st-15th. If Salary was paid between 16th-31th, then due date is 31st.

Social Security Contributions

• Employee Contributions: Employees contribute to social security, including health insurance, and pension.
• Contribution Ceiling: For employment income from a single employer exceeding €126,532.80 annually, contribution ceilings apply. Compulsory health insurance contributions (6.98%) do not have a ceiling.
• Multiple Employers: If an employee works for multiple employers and their combined income exceeds €126,532.80, they are entitled to a refund of social security contributions exceeding the calculated amount on their total earnings.

Deductible Expenses

• Limited Deductions: Certain expenses can be deducted from taxable income, including life insurance premiums, pension contributions, payments for vocational training or higher education. However, the total deductible amount is limited. The total amount of these deductible expenses is capped at 25% of the taxable income subject to 15%, 20%, and 32% PIT rates during the calendar year. Deductible life insurance premiums and pension contributions combined should not exceed €1,500 annually.
• Additional Deductions: Tax residents can deduct expenses related to building repair (excluding apartment renovations), car repair, and childcare for children under 18, up to €2,000 annually, if services are provided by registered Lithuanian taxpayers. This relief is applicable to 2019, 2020, and 2021.

Reporting and Deadlines

• Annual Income Declaration: Employees with additional income sources (other than standard employment) must submit an annual tax return by May 1st of the following year.
• Payroll Tax Report: Employers must file a monthly payroll tax report by the 15th of the following month, and an annual report by February 15th.

It is important to note that this information is current as of February 5, 2025, and may be subject to change. Consulting with a tax advisor is recommended for personalized guidance.

In Lithuania, Value Added Tax (VAT) is a consumption tax applied to most goods and services.

VAT Rates

• Standard Rate: 21% (general goods and services).
• Reduced Rates:
  • 9%: Applies to specific goods and services, including certain food products (effective July 1, 2025), books, newspapers and magazines (both physical and electronic formats), accommodation services, public transport, heating for residential premises, and firewood for household use.
  • 5%: Applies to certain medical products (prescription drugs, medical aids), technical aids for disabled individuals, and specific food products for special medical purposes.
• Zero Rate (0%): Applies to exports outside the EU, intra-community supplies to VAT-registered businesses in other EU member states, and certain international transport services. Supporting documentation is required to prove export from the EU.
• Exempt: Certain goods and services are exempt from VAT. These sales are exempt from VAT, without the 'right to deduct'. These include education, healthcare, financial services, social services supplied by non-profit entities, and cultural and sports services rendered by non-profit entities.

VAT Registration

• Threshold: Businesses operating in Lithuania must register for VAT if their annual turnover exceeds €55,000 (effective May 1, 2025).
• Distance Selling: The EU-wide distance selling threshold of €10,000 applies in Lithuania for cross-border B2C sales of goods. Businesses exceeding this limit must register for Lithuanian VAT. Non-resident businesses must register regardless of turnover if they store goods in Lithuania or use fulfillment services there.
• Acquisitions from Other EU Countries: Businesses must register if the value of goods acquired from other EU Member States exceeds €14,000 in the current or preceding calendar year.
• Voluntary Registration: Businesses can register voluntarily even if they are below these thresholds.
• Non-EU Businesses: Fiscal representation may be required for non-EU businesses.

VAT Filing and Payment

• Returns: Generally filed monthly. Businesses with annual sales below €300,000 may opt for quarterly filings, those below €60,000 may file semi-annually and some small businesses can use the EU's Small Business Scheme (SBS).
• Deadline: Returns and payments are due by the 25th day of the following month/quarter (or half-year), or the next business day if it falls on a weekend or holiday.
• Annual Return: Required by October 1st of the following year.
• Electronic Submission: All returns must be filed electronically.

VAT Deduction

Registered businesses can generally deduct input VAT (VAT paid on purchases) from output VAT (VAT charged on sales). Exceptions exist for certain goods and services, such as passenger cars (with some exceptions), entertainment expenses, and passenger transportation by car. VAT credits can be rolled over or refunded. Refunds for non-EU businesses depend on reciprocity agreements.

Penalties

Penalties for late filing and incorrect reporting can range from €200 to €390, plus a daily interest of 0.03% on any unpaid VAT. Incorrect reporting penalties can range from 10% to 50% of the underpaid VAT. The statute of limitations is five years (eight in cases of fraud).

Administration

The State Tax Inspectorate (STI), under the Ministry of Finance, administers VAT in Lithuania. Additional information and resources are available on their website.

Lithuania offers various tax incentives for businesses and individuals in 2025. These incentives aim to stimulate economic growth, encourage innovation, and attract foreign investment.

Corporate Tax Incentives

• Free Economic Zones (FEZs): Businesses operating within designated FEZs can benefit from significant tax breaks. Qualifying companies are exempt from corporate income tax for the first 10 years of operation and receive a 50% reduction in the standard corporate income tax rate for the subsequent 6 years. Additional benefits may include exemptions from real estate tax and reduced land lease tax. Eligibility requires a minimum investment of €1 million for most activities or €100,000 for service providers with at least 20 employees, and at least 75% of the company's income must be derived from activities within the FEZ.

• Research and Development (R&D): Companies engaged in R&D activities can deduct R&D costs three times from their taxable income, effectively lowering their tax burden. A reduced corporate income tax rate of 6% applies to profits derived from copyrighted software or patented inventions resulting from R&D conducted in Lithuania.

• Investment Incentives: Tax incentives are available for companies making significant investments, particularly in technological renewal. Large-scale investment projects meeting specific requirements may qualify for a corporate income tax exemption for up to 20 years. These projects typically involve substantial investment amounts and job creation commitments.

• Tax Incentives for Startups: Small business startups (micro-companies) may qualify for a corporate income tax holiday during their first year of operation and then a reduced rate for several more years.

Personal Income Tax Incentives

• Investment Account (IA): Individuals can defer paying income tax on investment income by utilizing an IA. Tax is only levied when funds are withdrawn for non-investment purposes. The IA must be a personal account (not joint) held in an EEA or OECD member state or a country with which Lithuania has a Double Tax Treaty, and it must be reported to the Lithuanian Tax Authority.

• Pension and Life Insurance Contributions: Tax relief is available for contributions up to €1,500 made towards unit-linked life insurance contracts and pension funds.

• Personal Deductions: Certain expenses, such as those related to home renovation and repair, car repairs, and childcare services for children under 18, may be deductible from taxable income, up to a certain limit.

Changes to Tax Rates for 2025

• The standard corporate income tax rate increased from 15% to 16%.

• The reduced corporate income tax rate for qualifying profits from patentable inventions and software increased from 5% to 6%.

It's important to consult with a tax advisor for personalized advice and to ensure compliance with all applicable regulations. Tax laws and incentives are subject to change. This information is current as of February 5, 2025.