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Lithuania introduces minimum salary and tax changes for 2020

Written by
COBALT, the full-service law firm in Lithuania of choice for local and multinational businesses and global top law firms.
Employers and employees in Lithuania will need to adapt to an increase in the minimum wage and in income tax in the New Year.

The New Year will bring changes to all employers and employees in Lithuania.

Minimum wage

Firstly, the minimum gross monthly salary will rise from EUR 555 to 607, which corresponds to a 9.4% increase. In turn, the hourly wage will increase from EUR 3.39 to 3.72. It is strongly recommended that employment contracts and other employment related documents that include the EUR 555 salary (or EUR 3.39 hourly wage) are amended by January 2020.

Income tax raise

Secondly, the Parliament of Lithuania has approved the decision to raise personal income tax to the employees receiving gross salaries exceeding around EUR 9223.20 per month. While it was initially decided at the end of 2018 that these employees would be taxed with 27% personal income tax, it has now been decided that from 1 January 2020, personal income tax will increase to 32%. From 1 January 2021, 32% personal income tax will also apply to employees receiving gross monthly salaries of our above EUR 6588. It should be noted that the above salary figures depend on the average monthly salary in the country and will be recalculated automatically as the average monthly salary in Lithuania increases.

Tax on per diems

Lastly, taxation of per diem payments will also change starting in the New Year. In Lithuania, a per diem is a daily amount that is paid to all employees who are sent on a business trip within Lithuania and (or) abroad. Even in cases where the employers cover all the business trip-related expenses, they cannot refuse to pay a per diem (although it may be reduced). Per diems are not taxed with social security insurance taxes and personal income tax provided that specific conditions (the amount of salary paid to the employee being among them) are met. From 1 January 2020, only employees receiving the minimum monthly salary multiplied by a coefficient of 1.65 or more will qualify for tax-free per diems. As the minimum monthly and hourly salary will increase from the New Year, this sum will correspond to EUR 1001.55 per month (instead of EUR 721.15) or EUR 6.14 per hour (instead of EUR 4.41 per hour). If the employee‘s salary is lower than the above amounts, only part of per diem will be tax-free.

Jovita Valatkaitė
Senior Associate - Lithuania
COBALT (Lithuania)