Although Lithuania ranks 5th overall on the 2025 International Tax Competitiveness Index, one of the most challenging aspects of investing and operating in Lithuania is complying with the country’s tax system. Lithuania’s tax system is structured to align with European Union (EU) regulations, offering a transparent and investor-friendly environment. The system encompasses various taxes, including corporate income tax, VAT, personal income tax, corporate tax, value-added tax (VAT), and social security contributions.
If you’re working in Lithuania under a permanent contract, many employers will handle your tax under the pay-as-you-earn system. This means that they calculate your taxes in Lithuania for you and then send you a net wage. Your income tax, public health insurance, social security and other contributions will all be covered by this payment. In Lithuania, managing payroll requires in-depth knowledge of tax regulations, labor law, and precise accounting. Otherwise, companies risk non-compliance, penalties, and employee dissatisfaction.
Lithuanian Tax Reform from 1 January 2026
From 2026, Lithuania will raise its standard corporate income tax rate from 16% to 17%. For small businesses with annual revenue under EUR 300 000 the reduced rate will increase from 6% to 7%.
Lithuania is also introducing a progressive personal income tax regime, taxing total income – including employment, self-employment, rental income, and capital gains—at 20%, 25%, or 32%, depending on income level. Dividends and certain capital gains will continue to be taxed at a flat 15% rate.
Significant changes are also coming to real estate taxation. Primary real estate valued below EUR 450,000 will be exempt. Other properties will be taxed progressively at 0% to 1%, depending on value, commercial and corporate-owned real estate will incur an additional 0.2% defense contribution.
Accounting in Lithuania
Both Business Accounting Standards and International Accounting Standards can be applied for financial reporting and accounting. There are certain companies (e.g. insurance companies) having obligation to apply International Accounting Standards, other companies may choose which standards to apply for the reporting.
Accounting in a company can be performed by an internal accounting department or by an external provider. Accounting must be made in EUR and in Lithuanian language. Financial statements must include: balance sheet, profit and loss account, cash flow statement, statement of changes in equity.
Investors planning to start business operations or open a company in Lithuania are welcome to address experts of AUDIT AND ADVISORY LITHUANIA for company incorporation, tax registration, accounting, audit, payroll, employment and legal services.
