One of the most
common long-term benefits offered to employees in Lithuania is contributions to
third pillar pension funds. Accumulation in the third pillar pension funds is
gaining more popularity and is attracting more attention from employers as if
the conditions are met, contributions to third pillar pension funds may be
considered as not taxable income.
According to the
Lithuanian legislation, in case contributions to pension funds do not exceed
25% of employee’s annual salary, benefit received by the employee is not
considered as subject to Personal Income Tax and social security contributions.
are cases when entities or employees misuse this exemption (e.g. the employees withdraw funds
before reaching retirement age and the purpose of exemption – encouragement of
long-term saving is not met). Due to that the Tax Authority is inclined to
pay more attention to such benefits. Therefore, our recommendations to the entities willing to introduce such
benefit would be to take preventive measures in order to ensure that the
purpose of long-term saving is ensured.
employer shall clearly inform the employees that contributions paid to third
pillar pension funds are not considered as salary and their purpose is
long-term saving (i.e. the employee should understand that funds should not be
Additionally, the employer shall take effective internal arrangements (preparation and application of internal policies, agreements with employees, etc.) in order to prevent and ensure that the employee does not withdraw contributions paid to third pillar pension fund before he/she reaches retirement age.
If your company is considering to provide these or other benefits to employees and wishes to implement them in a way which does not create tax risks to the Company, please contact us and we will be happy to help you.
Information above was prepared by Leinonen Lithuania Tax Team.
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