Christmas bonuses in Lithuania can be either performance-based or provided as a gesture of goodwill during the festive season. While a 13th month bonus is not mandatory, bonuses (particularly performance-based ones) are common in Lithuania.
Providing cash bonuses or non-cash gifts at Christmas can be an effective way to build positive relationships with employees as a foreign-owned business in Lithuania. However, knowing the implications for accounting, payroll, and tax is essential.
In this article, Leinonen explains the basics you need to know when running a foreign-owned business in Lithuania.
How are Christmas Bonuses in Lithuania Classified?
In Lithuania, all bonuses are defined as employment income, and should therefore be recorded as staff costs in the company’s accounting books.
How are Christmas Bonuses Taxed in Lithuania?
Cash Bonuses
Cash bonuses are taxed as salary. This means they are subject to 20-32% personal income tax (PIT), and 19.5% social contributions (+3% if the employee is part of a second pillar pension fund).
Non-cash Gifts
Gifts that cost less than €200 per year per employee are exempt from tax in Lithuania. Non-cash gifts above this amount are taxed as benefits in kind.
Are Christmas Expenses Deductible for Corporate tax Purposes?
Christmas expenses taxed as benefits in kind can be tax-deductible. Other costs (e.g., Christmas party costs) are typically non-deductible, as they are not classed as business-related expenses. To get peace of mind and clarity on which of your Christmas expenses are legally tax-deductible, connect with one of Leinonen Lithuania’s local experts.
Calculating and Disbursing Christmas Bonuses in Lithuania
In Lithuania, Christmas bonuses are usually disbursed in December; not only does this keep reporting simple, but it is also appreciated by employees. To disburse bonuses in a timely manner during the busy holiday season, efficient and correct reporting is vital.
Here is a quick overview of the key steps you will need to take:
- Process Christmas bonuses within the regular monthly payroll run
- Provide the right supporting documentation (payroll records and compliance documents)
- Declare bonuses in your monthly report to Sodra and VMI
What are the Implications of Paying Christmas Bonuses in January?
Non-cash gifts must be taxed on the payroll for the month that the employee received the gift, and accruals can be done if needed.
Are There Penalties for Late Reporting or Incorrect Classification of Christmas Bonuses in Lithuania?
Yes. For example, if non-cash gifts were given to employees but taxes were not paid on time, companies can be hit with fines from VMI and Sodra.
What is the Best way to Approach Christmas Bonuses in Lithuania?
Cash bonuses and non-cash gifts over €200 are fully taxable. There is no one-size-fits-all bonus strategy, but many companies choose to leverage the tax exemption on gifts under €200. For example, this may be done by providing non-cash gifts up to this value alongside a slightly more modest cash bonus.
This can reduce the amount of tax that needs to be paid on bonuses, while keeping the company compliant and employees feeling valued. To find a Christmas bonus strategy that makes sense for your foreign-owned business in Lithuania, speak to a trusted accounting expert at Leinonen.
Leinonen Lithuania: Helping Businesses Handle Christmas Bonuses With Confidence
Leinonen has been a champion for foreign-owned businesses in Lithuania for almost three decades. During this time, we have drawn upon local expertise to reliably support 330+ small and global businesses with accounting, payroll, and tax in Lithuania. Our specialists have helped countless clients develop Christmas bonus strategies that both meet regulations and make sense for their workplace culture.
Contact Leinonen Lithuania today to get the tailor-made tax, accounting, and payroll support your business deserves, so you can feel confident in your approach to Christmas bonuses this year.
