Lithuania operates a progressive tax system encompassing personal income tax and mandatory social security contributions. Employers play a crucial role in this system by withholding taxes and contributions from employee salaries and making their own contributions to state funds. Understanding these obligations is essential for compliant operation within the country. The tax year aligns with the calendar year, and both employers and employees have specific reporting responsibilities to the relevant authorities, primarily the State Tax Inspectorate (VMI) and the State Social Insurance Fund Board (Sodra).
Employer Social Security and Payroll Tax Obligations
Employers in Lithuania are responsible for contributing to the State Social Insurance Fund (Sodra) on behalf of their employees. These contributions cover various social benefits, including pensions, sickness, maternity, and unemployment. The employer's contribution rate is calculated based on the employee's gross salary.
For 2025, the standard employer Sodra contribution rate is expected to be approximately 1.77%. Additionally, employers contribute to the Guarantee Fund and the Long-term employment benefit fund, which are small percentages also based on gross salary. These rates are subject to annual review but typically remain stable or see minor adjustments.
Employers are also responsible for calculating and withholding the employee's portion of social security contributions and personal income tax from the gross salary before paying the net salary.
Income Tax Withholding Requirements
Employers are required to withhold Personal Income Tax (PIT) from employee salaries. Lithuania has a progressive PIT system, meaning the tax rate increases with income. The tax base for PIT is the employee's gross salary minus their mandatory social security contributions and any applicable Non-Taxable Income (NTI).
For 2025, the PIT rates are expected to be:
- 20% for annual income up to a certain threshold.
- 32% for annual income exceeding that threshold.
The threshold for applying the higher 32% rate is linked to the national average wage (VDU) and is adjusted annually. For withholding purposes, employers typically calculate PIT based on monthly income, applying the progressive rates proportionally or using specific formulas provided by the tax authority, which account for the expected annual income and applicable NTI.
Employee Tax Deductions and Allowances
Employees in Lithuania can benefit from certain tax deductions and allowances that reduce their taxable income for PIT purposes. The most significant is the Non-Taxable Income (NTI - Neapmokestinamasis pajamų dydis).
The amount of NTI an employee can claim depends on their income level and whether they have dependent children.
- Basic NTI: A standard NTI amount is applicable to all employees, but it decreases as income increases. For higher earners, the basic NTI can be reduced to zero. The formula for calculating the basic NTI is progressive and depends on the monthly gross income.
- Additional NTI for children: Employees with dependent children are entitled to an additional NTI amount per child. This additional NTI is applied on top of the basic NTI and is not reduced based on the employee's income level.
Employers typically apply the applicable NTI when calculating monthly PIT withholding, based on information provided by the employee. Other potential deductions might include contributions to certain pension funds or life insurance premiums, subject to specific conditions and limits.
Tax Compliance and Reporting Deadlines
Employers in Lithuania have strict compliance and reporting obligations to both Sodra and the State Tax Inspectorate (VMI).
Key reporting requirements include:
- Monthly Sodra Declarations (SAM forms): Employers must submit monthly reports detailing employee salaries, social security contributions (employer and employee portions), and other relevant information. These are typically due by the 15th day of the following month.
- Monthly PIT Declarations (GPM312 form): Employers must declare the PIT withheld from employee salaries and paid to the state budget. This declaration is also typically due by the 15th day of the following month.
- Annual Employee Income Declarations (GPM311 form): Employers must submit an annual declaration summarizing the income paid and taxes withheld for each employee during the previous calendar year. This is typically due by February 15th of the following year.
- Annual Sodra Reports: An annual summary report is also required by Sodra.
Meeting these deadlines and ensuring accurate reporting is critical to avoid penalties and interest.
Special Tax Considerations for Foreign Workers and Companies
Tax obligations for foreign workers and companies in Lithuania depend primarily on tax residency status.
- Tax Residents: Individuals who are considered Lithuanian tax residents (generally, those whose permanent place of residence is in Lithuania or who spend 183 days or more in the country within any 12-month period) are taxed on their worldwide income. If employed by a Lithuanian entity or a foreign entity with a permanent establishment in Lithuania, their employer is responsible for withholding PIT and Sodra contributions as for any local employee.
- Non-Tax Residents: Individuals who are not Lithuanian tax residents are generally taxed only on their Lithuanian-sourced income. If a non-resident is employed by a Lithuanian entity, the employer must withhold PIT from their Lithuanian-sourced salary. Sodra contributions may also apply depending on the employee's country of residence and social security agreements.
- Foreign Companies: A foreign company employing individuals in Lithuania may trigger the requirement to register as an employer for tax and social security purposes, even if it does not have a formal legal entity or permanent establishment, depending on the nature and duration of the work performed in Lithuania. Double taxation treaties between Lithuania and other countries can affect the tax obligations of foreign workers and companies, potentially providing relief from double taxation or determining which country has the primary right to tax certain income. Understanding these treaties is crucial for compliance.
