International Newsletter

Lithuania: Gross Salaries Increased by Factor of 1.289 Due to Tax Changes

May 17, 2019
Lithuania

The Lithuanian Parliament has adopted changes to tax legislation that transferred employers’ part of social insurance contributions to the employees. As a result, all employers were obligated to increase salaries by a factor of 1.289 and to amend employment contracts accordingly by January 1, 2019.

Detail

With the changes, the Government of the Republic of Lithuania aims to gradually reduce the overall tax burden on employment income and make the social security contribution system more transparent.

Since employers’ part of taxes and contributions related to remuneration were transferred to employees, gross salaries had to be increased by a factor of 1.289. For this purpose, the law required amending employment contracts without the prior consent of employees. This has caused some confusion among lawyers, as the law does not specify how such amendments should be made.

Employers were also obliged to change their remuneration policies, collective agreements, and other documents so that all taxable remuneration would also be increased by a factor of 1.289.

Overall remuneration costs to employers should remain practically the same (the increase is by 0.02 percent), but employees should get slightly more. Here is an example below:

After reform (EUR) Before reform (EUR) Difference (EUR)
Gross salary 1,289 1,000 +289
Employee’s tax contribution 471.17 228 +243.17
Employer’s tax contribution 23.07 311.80 -288.73
Net salary 817.83 772 +45.83
Total employment cost 1,312.07 1,311.80 +0.27

 

Comment

Most employers are taking the view that reissuing existing employment contracts is too burdensome and not warranted by this change. At the very least employers may want to notify employees in writing of their new salaries. That letter then can be kept with the employment contract.

Written by Vytautas Šilinskas of TGS Baltic and Roger James of Ogletree Deakins

© 2019 TGS Baltic and Ogletree, Deakins, Nash, Smoak and Stewart, P.C.