Understanding Lithuania’s Tax System: A Guide for Employers and Employees

As Lithuania continues to attract international employers and skilled professionals, understanding its tax and social insurance obligations is crucial for smooth business operations and compliance.

Employer Contributions

Lithuanian employers must make multiple payroll-related contributions to social insurance, which supports employee benefits like pensions, health coverage, unemployment, and maternity leave. The rates are as follows:

• 1.77% of salary for permanent employees
• 2.49% for fixed-term employees

Employers must also contribute:

• 0.16% to the Guarantee Fund, offering worker protection in bankruptcy situations
• 0.16% to the Long-Term Employment Fund, which supports employees terminated without cause
• Between 0.14% and 1.4% to Workers’ Compensation Insurance, depending on industry risk level

Employee Contributions

Employees in Lithuania contribute 19.5% of their gross income to social security. This includes:

• 8.72% for pensions
• 6.98% for health insurance
• 2.09% for sickness benefits
• 1.71% for maternity/paternity leave

An additional up to 3% is required for second-pillar pension funds, with optional participation and government co-financing.

Income Tax Structure

Lithuania employs a progressive income tax system:

• 20% on income up to €126,532
• 32% on income exceeding that amount
• A 15% rate applies to those on sick, maternity, or paternity leave

Unlike many countries, Lithuania does not allow joint tax filing for couples, and the employer is responsible for withholding all income taxes during payroll.

Benefits and Allowances

While Lithuania does not allow employment expense deductions, several non-taxable benefits exist, such as:

• Employer-paid contributions to life, health, and pension insurance (under conditions)
• Business expense reimbursements
• Public transport payments
• Certain non-cash gifts and death-related compensation
• Stock options held for over three years (post-Feb 2020)

Lithuanian tax residents may also deduct up to 25% of taxable income through life insurance, pension contributions, childcare services, and education costs, though some of these deductions were only applicable through 2021.

Tax-Exempt Amount (TEA)

Employees benefit from a Tax-Exempt Amount (TEA) which reduces their taxable income:

• Full €747/month for those earning the minimum wage (€1,038 in 2025)
• TEA decreases as income increases and phases out at €2,864.22/month
• Non-residents may claim the annual TEA (up to €34,370.67 gross income) at year-end

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