Founded in 1989 in Finland by entrepreneur Mr. Leinonen, the company began with a simple yet powerful mission: to let business owners and leaders focus on their core business and goals, while Leinonen handles the rest—financial accounting, payroll, tax, and legal compliance. This vision still drives the company today.

Leinonen journey into the Lithuanian market: From Family Business to Regional Leadership

What began as a small Finnish family business evolved into a multinational service provider. The decision to expand wasn’t driven by ambition to grow—it was a response to client needs.

In the early 1990s, as the Baltic region emerged, clients came with a pressing need: reliable and professional partners who could guide them through uncertain, high-risk markets. Leinonen answered that call, expanding first into Estonia, then Latvia, and soon after, Lithuania. Today, the Group has 12 offices across 11 countries, including Sweden, Norway, Poland, Bulgaria, Hungary, Ukraine, and Kazakhstan.

Among the offices, Leinonen Lithuania has become a flagship office—the most developed, dynamic, and revenue-generating branch of the Group. It embodies the company’s values: trust, quality, adaptability, and client-focused, dedicated team of professionals.

The office has become not only a regional leader but also a model of best practices for the entire organization.

What Sets Leinonen Apart

Leinonen was founded on a solid, values-driven foundation—ethical and transparent business practice, commitment to client-centricity, continuous improvement, and the dedication of talented, professional people. These principles are more relevant than ever in a world where trust is currency and connection is a competitive edge.

While our services are grounded in deep technical excellence—accurate accounting, efficient and mistake-free payroll processing, digital and automated financial data processing, timely regulatory reporting, certified quality (ISO 9001) and data security (ISO 27001) standards — the foundation of our long-term success goes far beyond that.           

“Business leaders today seek reliable partners—professionals who genuinely care and understand their unique needs,” shares Povilas Sadaunykas, Baltics Regional Director. “Outsourcing is no longer just a transaction—it’s a relationship. Clients come to us for our financial and regulatory expertise, but they stay because they feel seen, understood, and supported. That’s the Leinonen difference: a rare combination of technical excellence and genuinely personalized care.”

Unifying the Baltics: One Partner, Seamless Service

A major strategic achievement in recent years has been the unification and harmonization of the Baltic operations. Instead of managing three different providers in Lithuania, Latvia, and Estonia, businesses now can experience one point of contact, one standard of excellence and seamless service across all three countries.

The recent client satisfaction survey confirms the value of this transformation. The streamlined structure reduces inefficiencies, minimizes administrative burden, and delivers a consistent, high-quality experience regardless of the country.

“We don’t just simplify operations—we empower our clients to build smarter, more resilient businesses,” explains Povilas Sadaunykas.

Shaping the Future

As Leinonen approaches three decades of success in the Lithuanian market, its focus is firmly set on the future. The company remains committed to continuous improvement, investing in people, technology, and smarter ways to support an expanding and evolving client base.

“We deeply appreciate the trust our clients have placed in us,” says Povilas Sadaunykas. “Our promise remains unchanged: to deliver exceptional experiences, exceed expectations, and be the first choice for both clients and employees.”

With a legacy built on trust and a clear vision for what lies ahead, Leinonen is not just celebrating the past—it’s actively shaping the future of financial accounting services across the Baltics and beyond.

The post From Finland to the Baltics: The Story of Leinonen Transformation and Growth appeared first on Leinonen Lithuania.

Article 57 of the Labour Code of the Republic of Lithuania (hereinafter – LC) outlines the grounds that allow the employer to initiate the termination of an employment contract without employee fault. This article also details situations where the employment relationship is terminated due to the redundant nature of the employee’s function, which results from changes in the employer’s operations or optimization.

Below, we will discuss the main requirements of this process and the key aspects that the employer should pay attention to.

Termination of Employment Contracts Due to Redundant Functions: Requirements and Case Law

According to Part 2 of Article 57 of the LC, changes in work organization or other reasons related to the employer’s activities can serve as grounds for terminating an employment contract only when they are real and lead to the redundancy of a specific employee’s or group of employees’ job functions. In this case, the employment contract can only be terminated if, from the notice period to its end, there are no vacant positions that the employee could be transferred to with their consent.

Supreme Court of Lithuania (hereinafter – LAT) Case Law

The LAT assesses the reality of the grounds for dismissal and considers whether they have been artificially created by looking at the following requirements:

LAT case law also emphasizes that it is necessary to evaluate whether the reasons for dismissal are fictitious. This means that the employer cannot artificially create situations that would justify terminating the employment contract.

Priority Right to Stay in Employment

When positions are eliminated, and multiple employees perform the same job functions, the LC (Article 57) establishes an employee selection procedure to ensure fairness and objectivity in the process of terminating employment relationships. This process helps determine which employees have the right to remain employed based on legal grounds and criteria set by the employer.

Priority rights are first granted to employees who meet the priorities specified in the law. This includes employees who raise children or care for dependents requiring special care, employees with long service, and those nearing retirement age. Priority may also be granted to union representatives or employees whose rights are established in a collective agreement.

Additionally, the employer may establish criteria tailored to the company’s specific needs. This may include knowledge of foreign languages, specific job skills, or longer service within the company.

The selection process begins by coordinating the criteria with the works council or trade union. A selection committee is then formed, with a representative of the employees participating. The committee evaluates the employees’ situation based on the established criteria and submits recommendations to the employer. The employer makes the final decision, taking into account the committee’s suggestions.

Clearly established selection procedures help ensure fairness and protect employees’ interests, thus preventing potential disputes or discrimination.

Selection Procedure in Employment Relationships Involving Foreign Elements

Termination of employment due to job redundancy caused by reorganization or other employer-related reasons also raises specific issues, when foreign elements are involved in the employment relationship. When determining the applicability of the selection process, we recommend considering the following aspects:

The selection process applies only to employees whose employment relationships are closely linked to Lithuania. Employees working abroad who are not subject to Lithuanian labor law regulations are not included in the selection process, even if they work for the same company or its subsidiary.

Conclusion

The termination process due to job redundancy must be carried out according to a clearly defined plan while adhering to all the above-mentioned conditions to minimize the risk of potential disputes with employees.

Leinonen’s legal team is always ready to provide personalized legal consultation on this or other employment termination matters and to prepare the necessary documents. You can contact us via email at lithuania.legal@leinonen.eu.

The post Termination of Employment Contracts Due to Redundant Job Functions: Key Requirements and Key Aspects appeared first on Leinonen Lithuania.

In this article, I outline the key challenges businesses face when entering the Baltic markets and offer practical solutions to overcome them.

Differences in legal requirements and tax systems

Despite the cultural and economic similarity, Lithuania, Latvia and Estonia have differences in legislation and applicable tax policies. For example, in Lithuania, relatively often changed tax laws require constant updating of accounting processes. In Latvia, payroll accounting is also not simple due to the existing legal regulations and specific calculation procedures, which require more attention and accuracy. In Estonia, high requirements for digitalization can become a significant challenge for companies that have not yet arranged the IT infrastructure in accordance with the latest requirements.

These differences make it necessary to constantly follow the changes in the law and taxes of each country in order to carry out activities legally and efficiently. Without proper competencies and sufficient resources within the organization, companies have to look for competent external partners advising on accounting, tax and legal issues.

High possibility of communication challenges and misunderstandings

Different languages and, in many cases, different working methods raise additional challenges in mutual communication with outsourced partners. Language barriers and varying work methods can complicate collaboration, leading to misunderstandings, information loss, wasted time, and delays in decision-making.  It is also much more difficult to prepare shared/ common corporate documents (e.g. payroll and accounting policies, employment contracts, etc.), especially when it comes to reconciling the requirements of different countries.

Smooth communication between the company and its partners ensures optimal processes, so it is more efficient to have a small and clearly defined network of partners than to look for different providers in each country.

Financial consolidation: the goal is clear, but it is not always easy to achieve it

One of the most challenging tasks for managers of multinational companies is the proper consolidation of financial data. The preparation of unified reports is complicated by the different standards and reporting formats applied in the countries. These discrepancies increase the risk of errors and hinder to accurately assess the performance of the business units. Moreover, the consolidation of financial data and reports in many cases may demand significant time and human resources.

Instead of focusing on strategic financial management, company directors and chief financial officers find themselves managing the daily tasks of accounting service partners. They must ensure compliance not only with local regulations but also with mutual agreements, such as reporting deadlines or the use of appropriate cost centres, made with partners.

These challenges are more effectively addressed by engaging financial management partners who operate seamlessly within the same markets as the company, as a result, the finance unit manager no longer has to devote time to additional coordination of work. This alignment can ensure modern, informative and effective data consolidation.

Traps – differences in payroll accounting

In all three Baltic states, the personal income tax base, the non-taxable amounts are calculated differently, and different tax rates are applied. In Latvia, the calculation of salaries is regulated by the rules requiring holidays, which coincide with weekends, are transferred to the nearest working day. As a result, more time has to be devoted to payroll administration.

Payroll accounting in Lithuania is also complex. It is aggravated by frequent changes in tax laws, so companies have to constantly monitor law changes and adapt their accounting systems accordingly.

In Estonia, where there is a significant state-driven advancements in digitalization and automation, the process of calculating wages and reporting has become notably simpler and more efficient compared to Latvia and Lithuania. Companies have the ability to automate payroll management, as well as to submit reports to state authorities more easily and quickly. With the help of modern accounting management systems, it is possible to achieve high efficiency, but the installation and maintenance of such systems requires additional investments.

Payroll processes must be handled with the utmost care and precision in order to ensure accurate data that is provided timely. In such cases, a partner working in the Baltic region can effectively optimize the payroll calculation processes, thus making it easier to reduce the administrative and time costs associated with the management of different suppliers.

A unified platform or system allows for a faster response to changes in legislation, for example, on the calculation of sickness leave payment, bonuses, business trip allowances, and provides an opportunity to maintain transparency between the employer and the employee. Finally, working with one partner helps to ensure data protection and comply with GDPR requirements, as the data is managed centrally, and not on different platforms by different providers.

If you work in several Baltic states, choose the right partners

Geographical developement/ growth is inseparable from partnerships with local regulation experts (legal, tax, financial, etc.). I will give a few basic recommendations for choosing such partners.

First, look for an equal partner. Global business service companies may not be interested in smaller projects, while local small businesses may not have sufficient resources or ensure high-quality services.

Secondly, when choosing an external provider, it is critically important to evaluate its reliability. Find out if the partner has the necessary certificates, professional insurance, experience in the markets that are relevant to you.

Thirdly, before choosing an advisory or services partner, look into the company’s clients and ask for recommendations from current or former clients.

Fourth, ask if the partner will ensure the use of unified systems and processes across all Baltic states.

The article in Lithuanian has been published on Verslo žinios portal: 
https://www.vz.lt/izvalgos/2025/01/27/pleciate-versla-baltijos-salyse-kokie-issukiai-laukia-ir-kaip-juos-iveikti-562849

The post Expanding your business in the Baltic States: what challenges lie ahead and how to overcome them appeared first on Leinonen Lithuania.

In this article, we will outline the key criteria to consider when selecting an accounting management program.

Company specifics, goals and needs

A key criterion for selecting a financial accounting program is its ability to comprehensively cover all essential areas of the company’s operations. Depending on the company’s size, growth potential, and specific activities (such as production, trade, or e-commerce), it is important to assess the program’s functionalities and capacity. This includes managing purchase and sales documents, overseeing assets, stock, and warehouse accounting, as well as handling wages, contracts, and project accounting.

For large or fast-growing companies, another critical factor is the availability of accounting modules and the ability to customize them to meet the specific needs of the enterprise.

Costs of purchasing, maintaining and updating the accounting program

When evaluating the cost of an accounting program, it’s essential to consider not only the initial license fee but also the ongoing expenses for maintenance and updates.

The total cost often includes installation and training, ongoing technical support, user guides, and administration. It is important to clarify in advance whether future updates are included in the purchase price or if additional fees will apply.

The more tasks and responsibilities employees within the company can handle independently, the less you will need to rely on software implementation partners, reducing additional expenses. However, for more complex accounting programs with non-standard functionalities tailored to the unique needs of a specific company, the costs of maintenance and administration tend to be significantly higher.

Capabilities of automatic integrations and interfaces with other business management programs

Capabilities of Automatic Integrations and Interfaces with Other Business Management Programs

A key advantage of an accounting program is its ability to directly integrate with the document management system. Through such integrations, specific catalogs, such as received VAT invoice registers, can be seamlessly linked to the accounting program, allowing automated import into the accounting system using advanced solutions.

Integration with personnel management programs also significantly simplifies accounting and HR administration. By automating the exchange of information, such as employee absences (illness, vacation, or other leave) and salary-related data (business trips, parental allowances, number of children, etc.), these programs enable automated calculations for wages, taxes, and benefits. This reduces the need for manual data entry and minimizes the risk of errors.

For companies managing substantial goods or inventory flows, assessing the accounting program’s integration capabilities with warehouse management systems is essential. Such integrations are particularly relevant for businesses operating in trade, manufacturing, logistics, e-commerce, pharmaceuticals, and food and beverage industries. They streamline order execution and inventory tracking, provide real-time updates on stock, generate informative reports, and optimize supply chain processes. These integrations not only boost operational efficiency but also strengthen a company’s competitive edge.

Another critical factor is the program’s interface with other business management systems, such as CRM, e-commerce platforms, EDI, or business intelligence tools like Power BI. Such system integrations ensure seamless data import into the accounting system in real-time.

It is also essential to verify whether the accounting system supports the required report formats, such as SAF-T or other mandatory reports dictated by legislation.

With these integrations and tools, company managers can access up-to-date information and make strategic decisions quickly.

Possibilities of accounting automation: essential solutions for modern accounting

Today, many repetitive financial accounting operations are facilitated by automated or robotic solutions that allow you to work faster, more accurately and efficiently.
Below are some of the most popular solutions that have become essential in modern accounting management practices:

• Automatic import and export of payment information into electronic banking systems.
• Automatic settlement of receipts and expenses with debts, including sending reminders for overdue debts.
• Generation of sales invoices in alignment with orders placed.
• Calculation of wages and related taxes based on predefined settings.
• Mass accounting period closing procedures, such as automated handling of depreciation of fixed assets.

In addition to the standard and above-mentioned functionalities, modern accounting systems are increasingly incorporating innovative solutions. While not yet widely adopted, these features are becoming a significant factor when choosing an accounting program:

• Automatic registration of invoices in accounting systems.
• Automated generation of payments to suppliers and institutions;
• Preparation of tax reports and declarations in compliance with existing legislation, in the formats established by authorities or through direct integrations with institutional data systems.
• Real-time formation of financial and management reports, with data analysis carried out using integrated financial analytics tools.
• Automatic registration, verification, approval, conformity assessment, and control of projects, contracts, and other accounting operations and expenditure documents.
• Automatic budget control.

By adopting these automated solutions, businesses can enhance the efficiency of their accounting processes, ensure accuracy and compliance while minimizing errors and manual workload.

The company’s development plans and the opportunity to expand into international markets

The accounting program must comply with both local and international accounting standards. As the company grows and expands its operations, it is essential that the program remains flexible and easily integrates with new modules and functionalities. Additionally, it must be capable of processing an increasing number of documents and users while enabling straightforward administration and access management for users with different levels and rights.

For companies within a corporate group, the selection of an accounting program should consider the ability to automatically consolidate and exclude the operations of subsidiaries and related companies, eliminate intergroup transactions in financial statements, and, if necessary, recalculate financial data in the base currency. The program should also support the use of standard templates for generating essential reports and data.

The ability to form management reporting templates

It is important for managers of organizations to quickly and conveniently generate monthly, annual, and other relevant reports. The capability to create custom reporting templates and sets within the accounting program enables faster and data-driven decision-making. Some accounting programs include analytics modules that allow for easy filtering, grouping, and visualization of information, simplifying the synthesis and presentation of key data to company representatives.

Compliance with security, GDPR and other regulatory requirements

Ensuring the security of financial data is one of the greatest challenges in the digital era. When selecting an accounting program, it is essential to ensure that financial data is collected and stored in full compliance with the latest data protection regulations, including GDPR. The system should offer automatic backup and restoration options to prevent data loss in cases of system failure, cyberattacks, or natural disasters.

To maintain data security, the implementation of robust protection measures against unauthorized access is crucial. This includes password management, data encryption, and strict control over user authentication and access. Advanced systems should allow for the assignment of user rights, ensuring employees only access financial information relevant to their roles. All critical actions or changes performed in the system must be logged and protected, along with the identification of the users who carried them out.

Finally, a modern accounting management system must be equipped with antivirus, anti-intrusion, and cyber-attack prevention solutions.

Convenience of use, mobility and remote access

When selecting an accounting system, user convenience is paramount. Key aspects include a well-structured control panel, an intuitive interface for operations and reporting, and fast, seamless data entry where information entered once is automatically applied to related operations. An intuitive system fosters quicker adoption and smoother daily use.

The ability to access the system through a mobile application or browser is a significant advantage, especially given the widespread adoption of remote and hybrid work models. Mobility and accessibility are closely tied to the ability to connect from various devices, such as computers, tablets, or phones, enabling users to efficiently manage accounting data and share information regardless of location or device type.

An accounting program that allows communication and information exchange both within the system and with external contacts greatly simplifies the work of accountants. Features such as document viewing, validation, and digital signing streamline accounting processes. Additionally, automated functionalities for sending notifications, reconciliation acts, purchase orders, or confirmations contribute to a more efficient, high-quality, and documented workflow.

Reputation, reliability and experience of the program partners

When establishing long-term business relationships and selecting partners for accounting or business management systems, it is crucial to carefully assess who will be entrusted with the program’s implementation. The partner’s ability to fulfill long-term commitments and promptly address critical issues is essential for successful cooperation.

Partners with several years of market experience are likely to be more reliable, having learned from previous projects and able to perform installations with greater quality and efficiency. Choosing experienced partners helps avoid mistakes and additional costs. Moreover, their experience with similar companies can be a significant advantage, enabling tailored solutions to meet the specific needs of your business.

After evaluating the above criteria, selecting an accounting program becomes a more informed and reasonable decision that delivers long-term value. If a company lacks sufficient human and financial resources or expertise for effective financial management, outsourcing accounting processes or parts of them to external partners may be a beneficial option. Accounting service providers typically possess extensive experience across various business sectors, broader competencies, and knowledge of compliance requirements. They also select accounting programs adapted to diverse company needs, ensuring sustainable and successful partnerships.

The post Key Criteria for Choosing an Accounting Program: Essential Solutions for Effective Financial Management appeared first on Leinonen Lithuania.

BASIC REQUIREMENTS FOR EMPLOYMENT CONTRACT

An employment contract must be concluded in writing between the employer and the employee. The contract shall be prepared in two copies, one for each party. Each employment contract must specify and mutually agree upon the essential terms and conditions, including:

• Workplace (enterprise, agency, organization, structural subdivision, etc.);
• Working functions (work of a certain profession, specialty, qualification or specific duties);
• Wage;
• Rights;
• Responsibilities;
• Duties;
• Other.

TYPES OF EMPLOYMENT CONTRACT

Taking into account the nature of the work and the method of its performance, the following types of employment contracts may be concluded:

• Open-ended Employment Contract;
• Fixed-term Employment Contract;
• Temporary Work Employment Contract;
• Apprenticeships Employment Contract;
• Contract on Project Work;
• Workplace Sharing Employment Contract;
• Employment Contract for Multiple Employers;
• Seasonal Employment Contract.

DURATION OF THE PROBATION PERIOD

The Lithuanian Labour Code provides the option to establish a probation period of up to 3 months for a new employee. For short and fixed-term employment contracts, the probation period must be set proportionally to the total length of employment. The duration and conditions of the probation period must be clearly specified in the employment contract.

WORKING TIME

• Standard working time: 8 hours per day and 40 hours per week;
• Shorter working time regime is obligatory for:
  • Persons under 18 years of age;
  • Employees performing work that involves higher mental or emotional strain. The procedure for establishing shorter working hours is outlined in the resolutions of the Government of the Republic of Lithuania.
  • Part-time work (e.g., 1 hour per day).

The maximum working time, including overtime, must not exceed 48 hours per week. The total working time, including overtime and additional work, must not exceed 60 hours over a 7-day period or 12 hours per day. For employees working under a summary recording of working time system, the maximum weekly working time is 52 hours.

MINIMUM WAGE FROM 1 JANUARY 2025

The minimum hourly wage in Lithuania is EUR 6.35, and the minimum monthly salary is EUR 1 038.

RULES FOR OVERTIME

Overtime is permitted only in the cases specified in the Lithuanian Labour Code. Overtime work for each employee shall not exceed 8 hours in one week and 180 hours per year. With the written consent of the employee, overtime can be extended to up to 12 hours per week.

The pay for overtime shall be at least one and a half times the employee’s regular hourly rate. Overtime pay may be higher if the work is performed during public holidays, nighttime, or other special circumstances.

ANNUAL LEAVE

Employees are entitled to use part of their annual leave as soon as they accrue the right to at least one day of leave. For the second and subsequent working years, annual leave may be granted at any time during the working year according to the schedule of annual leave.

The minimum annual leave entitlement is:

• 20 working days per year for employees working five days per week.
• 24 working days per year for employees working six days per week.

If the workweek consists of fewer than five days or a different schedule, the employee is entitled to four weeks of annual leave.

Employees must be paid their average salary during annual leave. The rules for calculating the average salary are established by the Government of the Republic of Lithuania.

TYPES OF OTHER LEAVE

Other:

• Educational leave;
• Sabbatical leave;
• Leave for performance of official or public duties;
• Unpaid leave.

TERMINATION OF THE EMPLOYMENT CONTRACT

The employment contract may be terminated for the following reasons:

• During the probation period by either party;
• By agreement between the parties;
• Upon the employment contract’s expiry;
• Upon the notice of an employee;
• On the initiative of an employer without any fault on the part of an employee;
• Without notice (If the employee performs their duties negligently, violates workplace rules, or commits other significant breaches of labor discipline);
• On the employer’s will.

In cases of dismissal, the employee is entitled to severance pay, which ranges from one to six average monthly salaries, depending on the grounds and circumstances of termination.

PUBLIC HOLIDAYS IN LITHUANIA

• 1 January – New Year’s Day;
• 16 February – Day of Re-establishment of the State of Lithuania;
• 11 March – Day of Re-establishment of Lithuania’s Independence;
• (Western Church) Easter and Easter Monday;
• 1 May – the International Labour Day;
• 1st Sunday in May – Mother’s Day;
• 1st Sunday in June – Father‘s Day‘;
• 24 June – Midsummer and St. John’s Day
• 6 July – Day of the State (Coronation of King Mindaugas);
• 15 August – Assumption Day;
• 1 November – All Saints’ Day;
• 2 November – All Souls’ Day;
• 24 December – Christmas Eve Day;
• 25 and 26 December – Christmas days

THE TAXES APPLIED ON EMPLOYMENT INCOME

Source:

Personal Income Tax (PIT)
Employee’s social security contributions
Social security contributions paid by the employer

TAX-EXEMPT AMOUNTS FOR SALARY REMUNERATION

Depending on the gross salary amount the following non-taxable amounts are applied for Lithuanian tax residents:

• Gross salary amount is equal or less to EUR 1 038 – non-taxable amount is EUR 747;
• Gross salary amount is more than EUR 1 038 but less than EUR 2 387,29– non-taxable amount is calculated according to the following formula: 747 – 0,49 x (Gross Salary – 1 038);
• Gross salary amount is more than EUR 2 387,29 but less than EUR 2 865– non-taxable amount is calculated according to the following formula: 400 – 0,18 x (Gross Salary – 642);
• Gross salary is above EUR 2 865– all amount is taxed.

Lithuanian tax residents with limited working capacity are eligible for specific individual non-taxable amounts. These include:

• EUR 1 127, in case the working capacity is 0-25%;
• EUR 1 057, in case the working capacity is 30-55%.

PROGRESSIVE PERSONAL INCOME TAX RATE

Employment income in Lithuania is subject to a 20% Personal Income Tax (PIT) rate. A reduced 15% PIT rate applies to sickness pay.

Starting in 2025, if annual employment income exceeds 60 average monthly salaries (EUR 126 532,80), a higher 32% PIT rate will apply to the excess amount.

Employees are responsible for reporting their annual income and fulfilling any additional Personal Income Tax obligations due to the progressive rate.

SOCIAL SECURITY CONTRIBUTIONS “FLOOR”

Employers in Lithuania must pay social security contributions for part-time employees whose monthly salary is lower than the minimum monthly salary (MMS), currently EUR 1038, based on the gross MMS amount.

Exemptions from the social security contributions “floor” include cases where the employee:

• Is employed by another employer in Lithuania (total wages do not need to reach the MMS);

• Receives a state pension for old age or a lost capacity (disability) pension;
• Is not older than 24 years;
• Has a working capacity of 0-55%;
• Receives maternity, paternity, or parental leave benefits.

SOCIAL SECURITY CONTRIBUTIONS “CEILINGS”

In 2025, if employment income from the same employer exceeds 60 average monthly salaries (EUR 126 532.80), social security contributions ceilings will apply.

It is important to note that the social security contribution rates include compulsory health insurance contributions (6.98%), which are not subject to the ceilings.

Therefore, for any income exceeding the threshold, only the 6.98% compulsory health insurance contribution rate will be applied to the excess amount.

TAX EXEMPT BENEFITS

The following payments are not considered benefits in kind and are therefore exempt from taxation:

• Non-monetary prizes and presents with a value not exceeding EUR 200, received from the employer.
• Compensations made by the employer to cover health treatments, when required by law.
• Working clothes, shoes, equipment, and other assets provided by the employer exclusively for performing work functions.
• Amounts paid directly by the employer to educational institutions for an individual’s education.
• Benefits received by employees when the employer pays for rail and road public transport tickets used for commuting to and from work.
• Personal income tax, social security, and compulsory health insurance contributions paid on behalf of an individual by the employer.

Please note that any benefits in kind not included in the above list are taxed as employment income.

BUSINESS TRIPS AND PER DIEM

Employees are entitled to the following guarantees during business trips: retention of their job/position during the business trip and full payment of their regular wage.

Additional compensation:

• Per-diem rates to cover daily expenses.
• Reimbursement for costs directly related to the business trip.

The legislation establishes the maximum allowable per diem amounts.

For business trips within Lithuania, per diem rate is EUR 28.

For one-day business trips within Lithuania, a per diem may not be paid according to the Lithuanian Labour Code.

Per diem rates for business trips outside Lithuania are established by the Government and vary depending on the destination.

If the payable rates exceed those regulated by local legislation, the difference will be subject to taxation.

Lithuanian labor laws are designed to balance the interests of both employers and employees, ensuring fair treatment and fostering a stable working environment. Staying informed about payroll regulations, tax obligations, and employment rights is key to seamless business operations. If you need guidance on contract drafting, wage calculations, or managing absences and leaves, our expert advisors are here to help ensure compliance and efficiency in your workplace.

The post PAYROLL IN LITHUANIA: KEY INSIGHTS INTO REGULATION AND TAXATION appeared first on Leinonen Lithuania.

The amendments to the Law impose stricter requirements on employers hiring foreign workers: 1) Companies must hold the necessary licenses, 2) have no penalties for failing to report data changes or submitting false information, and 3) actively conduct legitimate business operations in Lithuania.

Operating business in Lithuania is a key requirement for the legal employment of third-country nationals. Simply establishing or acquiring an “empty” company is no longer sufficient for a foreign individual to apply to the Migration Department for a residence permit based on business activities. Similarly, employers can no longer use such newly established companies for employing third-country nationals.

The company (prospective employer) must justify its decision to invite foreign workers by demonstrating to the Migration Department that the company has generated income from the relevant business activity over the past six months. To prove the activity, the company is required to provide documentation such as contracts with service providers and clients, bank statements and other relevant evidence of business.

If the Migration Department determines that a company seeking to employ a foreigner is not conducting real business activities in the Republic of Lithuania (or fails to meet other criteria indicated the Law), the company may be prohibited from issuing mediation letters for at least six months from the date this is confirmed.

Additionally, companies looking to hire third-country nationals are now required to pay a 50 EUR fee for each completed mediation letter (a cost that did not exist previously). It is important to note that the fee for the mediation letter cannot be paid via bank transfer. The payment must be made directly through the MIGRIS account where the mediation letter is being filled. Additionally, employers are not allowed to pay for multiple mediation letters in advance and only after the payment fill them out individually.

Employment opportunities for Ukrainians in Lithuania are also becoming more challenging. Previously, foreigners unable to return to Ukraine and not eligible for temporary protection were exempt from needing a work permit if they met certain exceptions. Meanwhile, as of 1 September 2024, a foreigner who is not entitled to temporary protection but cannot return to Ukraine because of the war and who has applied for a temporary residence permit on the basis of work or humanitarian grounds, acquires right to work not from the date of submission of his/her application, but from the date of obtaining the residence permit.

As before, newly arrived war refugees eligible for temporary protection can begin working after applying for a residence permit under this status.

Please note that foreigners can still work remotely in a company established in the Republic of Lithuania. Such foreigner is exempted from obtaining a work permit and does not need a residence permit, but his/her employment contract should outline the terms for remote work, including the work location (specific address), workplace requirements, tools to be used and other relevant details. It’s also recommended to consult lawyers and tax advisors in the foreign country where the foreigner will be working remotely to better understand the company’s tax obligations there. In the light of the amendments to the Law, before starting official third country nationals’ employment procedures, employers should evaluate the duration of their actual business activity in Lithuania, ensure proper filling of mediation letters and carefully select future employees by assessing their qualifications, professional experience also consider the possibility of a remote employment contract with the foreigner as an option.

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Cash bonuses are effective but subject to the highest tax rates

One of the most popular and highly valued incentives for employees is cash bonuses. One of the most popular and highly valued incentives for employees is the cash bonus. These bonuses can be paid annually, semi-annually, quarterly, or even monthly, often awarded based on performance, quality of work, or results achieved. However, it is important to note that annual or quarterly bonuses are taxed similarly to regular salary: personal income tax (PIT) at 20% (32%) and state social insurance contributions (19.50% employee’s share + 1.77% employer’s share) are applied.

Without health insurance, highly qualified specialists do not even consider a workplace

Health insurance has become an essential benefit that most employees expect from their employers. The ability to access private healthcare without long waits, undergo timely medical exams, purchase medicines, or visit a dentist is now a standard expectation for employees in high-demand professions.

Health insurance is one of the perks, since it is exempt from personal income tax (PIT) if several conditions are met – contributions for health insurance during the tax period do not exceed 25% of the salary calculated for the employee during the tax period, and the object of insurance is the payment of health care services of the insured person.

The State Tax Inspectorate (STI) has provided a list of services attributable to health care services in the commentary on the Law on Personal Income Taxes. However, this list is not exhaustive. This exemption may be applied to contributions paid by the employer on behalf of an employee for such health insurance, which pays for health care services, including the consultation, prevention, diagnosis, treatment, rehabilitation, nursing of the insured person, as well as the provision of medical equipment to the insured person.

The health insurance contract does not exclude services that are not related to health care, such as spa services or the purchase of cosmetics. However, such services are subject to PIT. Thus, if the company covers spa procedures of the employee, it is considered a benefit in kind, taxed in the same way as salary, even if health insurance is also paid.

Training is a mutually beneficial benefit, but mind its relevance

Employee training is a valuable benefit for both the company and its employees, and it often comes with favorable tax treatment. Companies can cover the costs of employee training, conferences, or language courses, both domestically and internationally, with these expenses considered allowable deductions. However, it is crucial that the training is directly related to the employee’s job functions within the company.

If the training to the employee which costs are covered by the employer is not related to the employee’s work activity or job functions, for example, the employee wants to learn Japanese or dance, it is considered that the employee received benefit in kind, which is taxed as a salary. If training or conferences are related to the employee’s work functions, the benefit in kind is not calculated, for example, an accountant is attending bookkeeping courses, during which he raises his qualifications. In such cases, the company can categorize these expenses as allowable deductions.

It is also important to note that if the training is not related to the employee’s job functions, the VAT on such expenses cannot be deducted.

Treats and travel: tax implications depend on purpose and recipient

Providing feasts, refreshments, or similar perks is one of the most popular and relatively inexpensive incentives used by companies. If an organization provides employees with fruit snacks or provides other benefits where it is impossible to identify the specific benefit each individual receives, these costs are considered non-allowable deductions for income tax purposes, employees are not taxed as receiving a benefit in kind. If the company has entered into a collective agreement, these costs can reduce taxable income.

A common mistake occurs when the recipient of a benefit is clearly identifiable and the value can be measured, for example, a trip is bought for an employee. However, such expenses are attributed to non-allowable deductions in terms of income tax and the PIT is not applied. It is often believed that if expenses are attributed to non-allowable deductions, there is no need to calculate benefit in kind – unfortunately, this is not the case.

Another way of tax optimization often applied in the organizations is to classify the cost of a team lunch as representation expenses. Unfortunately, such attribution is incorrect and risky. Representation expenses are specifically for networking with potential or existing clients. Therefore, a lunch with colleagues does not qualify as representation.

Additionally, VAT is not deductible on catering services provided to employees.

Team building events and trips

When employers organize team-building events, it is important to distinguish whether the event is for entertainment or educational purposes. If the event is of entertainment nature (for example, a Christmas party), the employee may be considered to have received a benefit in kind, depending on whether the benefit for each individual can be measured. When the cost of renting a venue and catering is incurred, we cannot determine the benefit provided to each employee, so no obligations of PIT arise. However, if employees receive specific gifts during the event (e.g., a trip to the Maldives), these gifts will be taxed as a benefit in kind, similar to salary.

For educational events, no PIT or state social insurance obligations arise. A common error companies make is attempting to classify entertainment events as educational or representation (where clients are expected to participate), despite few or no clients being present, such as in cases where the ratio of employees to clients is disproportionate (e.g., 20 employees to 2 clients). The State Tax Inspectorate (STI) can easily determine whether the event was truly educational or entertainment-based during inspections.

Please note that an educational event can be documented as a business trip. Another aspect that is worth paying attention to is that if a collective agreement is in place, the cost of an entertainment event for a company, when a specific benefit to a person cannot be determined, is attributed to the allowable deductions. If there is no such contract concluded, then the costs will be attributed to the non-allowable deductions. Accountants often mistakenly believe that if an expense is classified as a non-allowable deduction, no PIT or social insurance contributions need to be calculated for benefits in kind. This is incorrect. PIT and social insurance contributions must be calculated if the employee receives a benefit in kind. However, companies are permitted to give employees gifts worth up to EUR 200 per year without incurring additional taxes.

Finally, if the team building event organized by the employer is for entertainment, VAT deduction on the event’s costs is not possible. Conversely, if the event is educational, VAT deduction on the event’s expenses is possible.

Contributions to the employee’s third-pillar pension accumulation fund

In more advanced companies, contributions to an employee’s third-pillar pension accumulation fund are one of the most popular methods of motivation – they are not subject to personal income tax (PIT), if the contributions to the pension account in the pension fund during the tax period do not exceed 25% of the salary calculated for the employee during the tax period. If it exceeds the specified amount, the excess part is taxed as wages.

Successful promotion system depends on the perception of benefits by employees

In Lithuania, companies currently offer over 40 different types of employee benefit incentives. In addition to the above, some companies provide unique benefits, such as offering company shares, paying for bachelor’s or master’s degrees, insuring family members, covering taxi services, reimbursing car use and parking fees, offering additional vacation days, covering the cost of necessary tools for remote work, organizing events and trips abroad, shortening working hours, sponsoring gym memberships, and giving gifts for significant occasions.

However, for a benefits scheme to truly motivate employees, it’s essential to consider both the employer’s capabilities and the employees’ specific needs. For example, if an employee is motivated by the company covering their studies in areas not directly related to work (such as plant care or art courses), this can be an effective way of promoting job satisfaction for both the employee and the employer. From an accounting perspective, this type of benefit would be classified as a benefit in kind and taxed as part of the employee’s remuneration. However, by calculating the total cost of such benefits for the company, a balance can be found that meets both the employee’s desire for personal development and the company’s budget for employee incentives. Striking this balance is key to creating a benefits system that promotes motivation and loyalty among employees.

The article in Lithuanian has been published on Verslo žinios portal: Darbuotojų motyvavimas: kaip rasti balansą – Verslo žinios (vz.lt)

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When can liquidation be initiated?

According to Article 2.70 of the Civil Code (hereinafter – CC), the Register Center has the right to initiate the liquidation of a legal entity if at least one of the following circumstances exists:

1. The legal entity has not submitted the annual financial statements within 12 months after the deadline.
2. There are no governing bodies in place, and no decisions have been made for more than 6 months.
3. The registered office of the legal entity has not been specified in the register for more than 6 months.
4. The legal entity has not updated its data in the register for 5 years, and there is reason to believe that it is not operating.
5. The company’s share capital is less than the required minimum amount.
6. The court refuses to open bankruptcy proceedings for an insolvent legal entity and mandates the Register Center to initiate liquidation.

New legal regulation of the liquidation procedure

On September 1, 2024, important changes to the CC came into effect, bringing about significant modifications to the liquidation procedures of legal entities. According to Article 2.70(5) of the CC, legal entities for which the Register Center has initiated liquidation can now cancel this procedure without a court decision. Instead of applying to the court, it is possible now to apply directly to the Register Center. This new provision not only simplifies the resumption of legal entities’ operations but also shortens the process, ensuring a faster and more efficient renewal of activities.

The legal status of a legal entity as “initiated liquidation” can be canceled by submitting documents that negate the circumstances that led to the initiation of the liquidation procedure. This could include the submission of financial statements or updating the company’s data.

It is important to note that companies seeking to cancel the initiated liquidation shall apply directly to the Register Center within 12 months from the date of registration of the “initiated liquidation” status.

Creditors’ rights and protection

Article 2.70(5) of the CC also provides creditors with additional options to apply to the court within one year from the registration of the “initiated liquidation” status. Creditors may seek to cancel the liquidation procedure and initiate proceedings for the enforcement of the legal entity’s obligations or insolvency. Additionally, creditors with enforceable documents may demand that these be fully executed.

How to avoid initiating liquidation?

To avoid the initiation of liquidation, it is significantly important for companies to submit financial statements on time and update their data. Before initiating liquidation, the Register Center typically sends a notice regarding the planned initiation of liquidation. Upon receiving this notice, the company is given a 3-month period to meet the requirements and submit financial statements. If this is not done in time, the liquidation process may begin.

Additionally, it is important to emphasize that failure to submit financial statements not only increases the risk of liquidation but may also result in administrative liability. According to the Administrative Violations Code, failure to submit financial statements on time may result in a fine for the manager of the legal entity ranging from EUR 600 to EUR 1,450. The liability in such cases rests with the person officially registered as the legal entity’s manager.

Help is needed? Contact us

If the liquidation process has already been initiated for your company, Leinonen’s legal team can provide individual legal consultations, prepare the necessary documents, and represent the company at the Register Center in order to cancel the liquidation procedure. Contact us at lithuania.legal@leinonen.eu.

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Although the procedure to establish a business in Lithuania is quite straightforward, the help of experienced lawyers and specialists is needed. Throughout the years we have helped hundreds of companies to settle in Lithuania.

At Leinonen we offer high-quality accounting, financial, tax and legal services, enabling clients to focus on their core business. Therefore, we try to simplify even more the process of opening a business in Lithuania by talking our clients through the steps required by respectful authorities.

Leinonen’s team provides support when selecting which establishment form would be the most suitable for you (e.g. limited liability company, branch, etc.). It should be noted that the company’s activity in Lithuania may not require establishment of the company, i.e. tax registration for VAT, payroll or corporate income tax purposes may be sufficient.

Contact one of our experienced team members for further information regarding opening a company in Lithuania as well as registering a legal address in the country.

TAXATION IN LITHUANIA

Lithuania is a business-friendly country. In addition to the stress-free procedure of opening a business in the country, from 2025 tax year, the standard corporate income tax (CIT) will be increased up to 16% (currently the rate is 15%) and the reduced CIT will be increased up to 6 % (currently the rate is 5 %) as a result of increasing costs for national Defense Fund package. In addition, if a company covers specific requirements, there may be no tax applied in the first year of operation!

Furthermore, the current VAT rate in Lithuania is 21%, although, in a few cases, there are reductions which apply to books and non-periodical publications, public transportation services determined by the Ministry of Communications or municipalities as well as accommodation services. Moreover, a reduced rate of 5% is applied to technical and medical aid devices and their repair services. Reduced VAT rate might be also applicable to other goods and services, provided in the legislation.

Moreover, from 2025 tax year additional limitations will also be imposed on the deductibility of the purchase price and rental costs of cars. The new deduction regime will be referred to the CO2 emissions of the car. Regarding N1 class (cargo transport), no restrictions are provided in the amendment of the CIT, changes are planned only for M1 class (passenger) cars.

If you want to find out more regarding taxation and/or requirements for tax reduction, contact one of our experienced tax specialists.

PAYROLL IN LITHUANIA

Lithuanian labor laws apply to foreign nationals and foreign businesses in the same manner as to domestic entities. That is why the country hosts thousands of international companies. However, the need of experienced payroll specialist is present as there are specifications relevant to the legislation in the country. Therefore, at Leinonen we offer consultations regarding payroll details relevant to Lithuanian’s law.

It is important to note that in Lithuania, in addition to the standard income tax of 20% (or progressive 32%), there is also social security contribution of 21.27% (19.50% paid by the employee and 1,77% paid by the employer) as well as additional reductions such as pension funds.

Contact our experienced team if you wish to know more about the details regarding payroll in Lithuania.

BEING AN EXPAT

As Lithuania is a member of EU, travelling and working in the country has been made easier for EU citizens. However, certain migration documentation might be required if an individual wishes to reside in the country for longer periods.

Most of the workers reside in Vilnius and Kaunas which are the most developed districts in Lithuania. The living costs in the country are very low compared to other countries in EU, therefore Lithuania is a popular destination for expats.

If you wish to find out more about laws and regulations for expats in Lithuania, contact a member of our experienced team.

ACCOUNTING IN LITHUANIA

Accounting in Lithuania is regulated according to the following legal acts:

•  Accounting Law of the Republic of Lithuania;
•  Business Accounting Standards or International Accounting Standards;
•  Law on Company Financial Statements of the Republic of Lithuania;
• other legislation governing accounting and financial statements.

An employed accountant or a company providing accounting services is responsible for accuracy of accounting entries. It is important to note that all accounting records shall be supported by accounting documents (invoices, cheques, etc.). In addition, there are regulations that require specific documentation to be archived from 10 to 50 years. Therefore, having a reliable and experienced accountant is an essential part of any business.

Leinonen’s competitive advantage is the personal connection. We understand that accounting is a very important part of the business therefore we reachable and we can provide knowledgeable support at any time.

Contact one of our experienced accountants for more details related to accounting processes in Lithuania.

INTERESTING FACTS ABOUT LITHUANIA

• Lithuania is a member of both the European Union and the Eurozone, providing a stable and transparent business environment.
• Situated at the crossroads of Northern and Eastern Europe, Lithuania offers strategic access to both EU markets and Eastern Europe.
• Lithuania has a highly educated and multilingual workforce, with strong expertise in engineering, IT, and finance.
• Many Lithuanians are multilingual, with a significant portion of the population fluent in English (80% of young people), Russian (66% of population), and other languages.
• Lithuania ranks 11th out of 190 countries in the World Bank’s Ease of Doing Business 2023 report, excelling in areas like starting a business, getting credit, and trading across borders.
• Lithuania’s GDP grew by approximately 2.5% in 2023, showing resilience in a challenging economic environment.
• By 2023, 30% of Lithuania’s energy consumption was sourced from renewable energy, with targets to reach 45% by 2030, creating opportunities in the renewable energy sector.

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Individual activity is carried out based on a commercial (civil) contract. The Civil Code of the Republic of Lithuania regulates different kinds of contracts. The Law on Personal Income Tax of the Republic of Lithuania defines individual activity as an independent activity in which a resident seeks to obtain income or other economic benefits during a continuous period.

The difference between labor relations and service relations often seems insignificant. However, the taxation of income from employment and individual activity (self-employment) differs significantly. Therefore, to avoid possible tax consequences, it would be worthwhile to pay attention to the distinguishing features of these relations and to qualify them properly.

Features of labor relations:

• Subordination. The employee must follow the internal rules of the employer, the employee uses the work tools and equipment provided by the employer, working hours are set by the employer, holidays are agreed with the employer, the employee does not bear expenses related to his work, etc.
  
• The employee receives a fixed salary that does not depend on the work result. Under the employment contract, the parties agree on the performance of work functions, but not on the result.

Features of individual activity:

• Independence. The person himself decides the issues related to the performance of his activities, i.e. what hours to work and when to rest, the person covers his own operating costs, finds clients, etc.

• Continuity and pursuit of economic benefits. Transactions concluded by a person are characterized by continuity, as well as the motive and opportunity to enter future transactions and receive economic benefits from it.

Taxation of income from individual activity vs. employment contract

Individual activity can be carried out according to the business certificate or according to the certificate of individual activity. The business certificate is a document, that confirms the payment of the required fixed amount of income tax for carrying on independent activities and/or lease of property immovable by nature, if these activity types are included in the list of activities that is established by the Government of the Republic of Lithuania.

After acquiring the business certificate, the fixed personal income tax (PIT) is paid in advance, which depends on the type of activity and the period. Compulsory health insurance (CHI) contributions and state social security contributions (SSC) are paid each month when calculating the amount from the minimum monthly salary.

When carrying out individual activity according to the certificate of individual activity, the resident must pay PIT, which is calculated as follows: (income – expenses) x 15 % – credit, CHI payments (6.98%), and SSC payments (from 12.52 % to 15.52%). In addition, the obligation to pay VAT may arise (in case of some circumstances) in accordance with the Law on Value Added Tax of the Republic of Lithuania. All the above-mentioned taxes are calculated and paid by the person.

On the other hand, in the case of labor relations, the employer is responsible for calculating, deducting, and paying PIT, CHI and SSC. There is the following tax rates applied: standard PIT of 20 % (or progressive 32 %) and social security contributions from 19.50 % to 22.50 % (the employee taxes) as well as from 1.77 % to 2.49 % (employer taxes).

After evaluating the tax burden on a person engaged in an individual activity and working under the employment contract, the person providing services under the individual activity has obviously lower taxes. However, please note that if the tax administrator carries out an audit and finds that the relationship under the service contract is in fact an employment relationship, the company may face negative tax consequences due to the difference in the taxation of the income received. Thus, in such a case, not only would the tax difference be paid, but also late interest and fines would be imposed.

In the light of the above, we recommend that companies assess the existence of the characteristics of an employment relationship and the associated tax risks when concluding a service contract with a natural person engaged in an individual activity (“freelancer”).

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