Taxation of Foreign Workers in a Lithuanian Company
Foreign permanent residents of Lithuania pay the same tax contributions to the Lithuanian government as Lithuanian citizens. The salary structure consists of the employee contribution and employer contribution. The former pays Personal Income Tax (20%-32%) and Social Insurance (19,5%) deducted from a negotiated gross salary and the latter pays Social Insurance (1,61%-2,49%) calculated on top of an agreed gross salary. The income tax amount is calculated from the person’s income received in Lithuania and abroad.
A status of a permanent resident of Lithuania is applied to temporary foreign workers only when:
- An individual is present in Lithuania for a period or periods in the aggregate of 183 days or more during the tax period.
- An individual is present in Lithuania for a period or periods in the aggregate of 280 days or more during two successive tax periods and who stays in Lithuania for a period or periods in the aggregate of 90 days or more in any of such tax periods.
Non-permanent residents of Lithuania are obligated to pay Personal Income Tax from that part of income which is derived in Lithuania. They are, however, exempt from Social Insurance contributions in Lithuania if they’re EEA/Switzerland–based residents temporarily working in Lithuania provided that they have a European A1 certificate which is normally valid for a period of 24 months.
According to EU law, an employee can only be paying one country’s social security taxes at a time. An A1 certificate is used to prove already existent social security payment contributions in a country of residence. Such a certificate should be issued every time prior to starting a new temporary work assignment (secondment) in a foreign country. The taxable period coincides with the calendar year.
Non-permanent residents of Lithuania must declare tax returns on a monthly basis and pay Personal Income Tax within 25 days from the receipt of income obtained from being employed by foreign companies who don’t have permanent establishment in Lithuania.
Individuals are obligated to file the annual non-resident tax returns in case of the higher Personal Income Tax applied to the income amounts exceeding the established thresholds. In case of overpaid Personal Income Tax, the taxpayer is entitled to receive a tax refund. The deadline for submitting such an annual declaration is the 2nd of May of the following year.
Tax Allowances in Lithuania
A standard tax allowance is applied after the calculation of the taxable employment income of permanent residents. The size of the annual tax-exempt amount depends on the total amount of annual taxable income before taxes and all allowances. Current standard non-taxable amounts are set to be the following:
- If the gross salary amount is equal to or less than 642 EUR, the non-taxable amount is 400 EUR.
- If the gross salary amount is more than 642 EUR but less than 2,864.22 EUR, the non-taxable amount is calculated according to the following formula: 400 – 0,18 x (Gross Salary – 642).
If the gross salary is above 2,864.22 EUR, the whole amount is taxable.
A non-standard tax allowance (non-taxable income status) is applied to the voluntary additional contributions to the 3rd pillar pension funds and health insurance paid by permanent residents. Furthermore, a number of the following expenses incurred by a resident of Lithuania during the tax period may be deducted from his/her annual income:
- The 2nd pillar pension contributions, paid by employees, exceeding 3% of taxable wage related income.
- Life insurance contributions paid for his/her own benefit or for the benefit of his spouse or underage children under life insurance contracts which provide for an insurance benefit not only upon the occurrence of an insurance event, but also upon the expiry of the term of the insurance contract.
- Payments for higher education, including repayment of loans received for this purpose; if the resident doesn’t earn any annual income, the deduction can be made by parents and/or a spouse (unlimited allowable annual amount).
- Payments for home, car repairs and childcare services settled for one’s own benefit or for the benefit of one’s spouse (maximum allowable annual amount 2000 EUR).
The following allowances are applied to the income earned by permanent residents with disabilities:
- The working capacity is 0-25% – non-taxable amount is 645 EUR
- The working capacity is 30-55% – non-taxable amount is 600 EUR
Company in Lithuania UAB offers private tax advice for permanent and non-permanent foreign residents planning to declare their income in Lithuania. If you wish to learn more about the taxation of foreign residents in Lithuania, our dedicated team will be glad to provide an individualised consultation. We guarantee confidentiality and efficiency. Contact our specialist now to receive the best offer.