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Changes in non-taxable income in Lithuania

Non-taxable income amount changes starting 1 July 2020


In order to promote consumption and increase the income of the lowest earners, amendments to the Law on Personal Income Tax (PIT) regarding the amount of non-taxable income were adopted during the Parliament session. Starting from 1 July 2020 the non-taxable income amount increases to EUR 400 (previously EUR 350), the non-taxable income formula changes as well.

The provisions of the Law on PIT come into force from 1 January 2020 and are valid until 31 December 2020. It means, that salaries may be recalculated from the beginning of the year. We would like to point out that the provisions of the Law on PIT does not impose an obligation on the employer to recalculate salaries. It can be done if there is a mutual agreement between the employer and the employee.

Below we provide simplified example of how the new non-taxable income amount affects an employee ‘s salary and the PIT payable.

In the example the monthly salary set for the employee is EUR 1.000, the employee does not pay voluntary pension contributions.

 

Based on old non-taxable income amount formula

Based on new non-taxable income amount formula

Difference

Gross salary

1000

1000

 

Non-taxable income amount

283,19

325,33

 

PIT, 20%

143,36

134,93

-8,43

Social security contributions, 19,50%

195

195

0

Netto salary

661,64

670,07

8,43

 

We would like to note that if the company decides to recalculate salaries from the beginning of the year, the company should evaluate the resulting administrative burden. In this case, the remuneration of all employees to whom non-taxable income amount is applicable should be recalculated and the monthly PIT returns for the period January – June 2020 should be adjusted.

In case salaries are not recalculated for previous periods (i.e. from January 2020), the employee will be able to recover the resulting PIT difference in 2021 by submitting the annual PIT return for 2020.

 

Please follow the link below to find the legal act (available only on Lithuanian):

Law of the Republic of Lithuania on Personal Income Tax (01/07/2020)

 

In case you have any further questions regarding the application of non-taxable income amount or other questions related to payroll taxation, the Leinonen team of tax specialists will be happy to assist you.

 

Information above was prepared by Leinonen Lithuania Tax Team.



01.07.20


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Evelina Dausėnaitė

Evelina Dausėnaitė

Head of Tax & Legal

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Mobile: +370 699 77637

Email: evelina.dausenaite(at)leinonen.lt

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