Social Tax in Lithuania
Social Security tax (Social Insurance in Lithuania) contributions are mandatory payments to the Lithuanian government who in return provides such social benefits as medical care, parental leave, unemployment insurance, retirement pension and disability allowance. They are administered by the State Social Insurance Fund Board (SoDra) and are collected in the form of a payroll tax. The whole contribution is made up of both employee and employer’s obligatory and voluntary contributions.
An employer is obligated to pay 1,61%-2,49% which is calculated on top of an agreed gross salary. In case of fixed-term employment contracts, the employer’s social security contribution can be increased to 2,49%.
An employee is obligated to pay 19.5% which is deducted from a negotiated gross salary and covers the following benefits:
- 2,09% illness insurance
- 1,71% maternity insurance
- 6,98% health insurance
- 8,72% pension insurance (1st pillar)
Depending on the financial priorities, employees can voluntarily opt for an additional pension accumulation scheme (2nd pillar) which is considered one of the most worthwhile ways to increase funds for retirement. Current rate of this non-obligatory contribution is 2,7%, and it is set to increase gradually to 3% in 2023. This approach is supported by the government through additional government contributions of 0,9%-1,5% to those employees who choose this pension scheme.
Moreover, employees can decide to opt for the 3rd pillar of the pension scheme, which is also voluntary and the most flexible with a minimal role of the government. It’s up to the employee to decide how much money to invest, and he/she can opt out any time. This contribution is inheritable and eligible for the personal income tax allowance.
- The tax year runs from the 1st of January until the 31st of
- Payments of Social Security tax contributions and Social Security tax reports must be made by the 15th of the following month, or by the first preceding regular working day, if the 15th is not a regular working day (e.g. weekend or a public holiday).
Key governmental authorities:
New employees cannot begin to work until they are registered at the Social Security Tax Office by submitting a 1-SD form designed for notifying about the beginning of the personal social income. This must be completed no later than a day prior to the start of the employment.
If an employee decides to terminate a job contract and depart from Lithuania, the Social Security Office must be informed of the leaver by submitting a 2-SD form (notification of termination) on the day of the official notice of termination.
Lithuanian policies and law for social security are matched with the EU regulations, which exempt EEA/Switzerland–based residents temporarily working in Lithuania and their employers from social security contributions in Lithuania if an A1 certificate is obtained.
Should an employee come from a country which has no such social security agreement with Lithuania, he/she is obligated to pay social security taxes in Lithuania only on the following instances: 1) if Lithuania becomes his/her permanent place of employment, 2) if his/her temporary work in Lithuania is longer than a year.
Social Tax For a Sole Trader
A sole trader is a person who is the only owner of a business (a Sole Proprietorship company type in Lithuania), paying personal income tax, including social security tax contributions, on the profit generated from the business. The social tax rate for this type of a taxpayer consists of the Mandatory Health Insurance (6,98%) and the Social Insurance (12,52%). The latter covers retirement, unemployment periods and parental leave but omits sick leave.
If a sole trader decides to voluntarily opt for an additional pension accumulation scheme, the following Social Insurance rates apply:
- With the extra 2,7% accumulation – 15,22%
- With the extra 3% accumulation – 15,52%
While Mandatory Health Insurance contributions are paid monthly for the current month, until the last day of the month, there are two ways to pay Social Insurance contributions to the State Social Insurance Fund Board (SoDra):
- Monthly – if a taxpayer pays contributions in advance, the contributions are paid once a month by the last day of the current month.
- Annually – if the amount of the contributions depends on the income received during the previous year, the contributions shall be paid by the 2nd of May each year.
Taxpayers can calculate the amount of contributions they should pay by using the Self-Employment Tax Calculator.
Social Tax Allowance in Lithuania
There are several instances when the requirement to pay social tax contributions might be waived, subsidised, or it may enable access to tax allowances.
A non-standard tax allowance (non-taxable income status) is applied to the voluntary additional contributions to the 2nd and 3rd pillar pension funds and health insurance. If these contributions are declared to the State Tax Inspectorate by the 2nd of May, the employee will be refunded part of the paid personal income tax.
Owners of sole proprietorships, members of small partnerships, full members of economic partnerships, farmers and their partners as well as persons engaged in individual activities are allowed not to pay social security contributions for one year from the first commencement of activities.
The government also favours employment of individuals with disabilities. For each disabled person employed for a specified period, a subsidy is paid each month to partially reimburse social security tax contributions calculated on the basis of the agreed salary.
In conclusion, social security tax calculation might be bewildering. If you’re wondering where to start, highly qualified accounting consultants of the Company in Lithuania UAB team will be pleased to assist you. We very well understand the ecosystem of Lithuanian social security legislation and thus can guide you through the peculiarities. Order our accounting consultation now.
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