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Lithuania – Employer of Record

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Country Introduction – Lithuania

Capital – Vilnius
Currency – Euro (EUR)
GDP – 66.45 billion USD (2021)
People/Nationality – Lithuanian
Language – Lithuanian
Major Religion – Christianity
Population – 2,700,274 as of (March 14, 2024)

Lithuania’s economy is considered one of the most developed among the Baltic states and Eastern European countries. It has a diversified economy with strong sectors in manufacturing, services, and agriculture. The key industries include electronics, machinery, food processing, chemicals, and textiles. Lithuania has a highly open economy, heavily reliant on exports. The country’s strategic location on the Baltic Sea provides easy access to European markets.

It has attracted significant foreign direct investment, particularly in the manufacturing and service sectors. The government has implemented various policies to promote foreign investment, including tax incentives and investment-friendly regulations.

Lithuania’s accession to the European Union in 2004 and NATO membership have played a crucial role in its economic development. EU membership has provided access to fund, trade opportunities, and structural funds for infrastructure development. Lithuania adopted the euro as its official currency in 2015, facilitating trade and investment with other Eurozone countries and providing stability to the economy.

Lithuania has emerged as a hub for information technology (IT) and innovation in the Baltic region. The country has a thriving startup ecosystem, particularly in fintech, biotech, and e-commerce. Infrastructure development has been a priority for Lithuania, with investments in transportation, energy, and telecommunications. The country has modernized its ports, roads, and railways to facilitate trade and connectivity.

Living in Lithuania offers a high quality of life at an affordable cost, with modern amenities and a strong sense of community. The country boasts a rich cultural heritage, diverse cuisine, and beautiful natural landscapes. Educational programs are of high quality, with English-taught programs available in universities. Transportation infrastructure is well-developed, and English is widely spoken.

Lithuania experiences a temperate climate with four distinct seasons. Overall, Lithuania is an attractive destination for expatriates, students, and retirees seeking a balanced lifestyle in a welcoming environment.

Contract of Employment

In Lithuania, various types of employment contracts may be used depending on the nature of the job, the employer’s needs, and legal requirements. Here are the common types of employment contracts:

Indefinite-term Contract: This type of contract, also known as a permanent contract, does not have a specified end date. It continues until terminated by either the employer or the employee according to the terms of the contract and applicable labor laws.

Fixed-term Contract: A fixed-term contract specifies a start date and an end date for the employment relationship. It is typically used for temporary or project-based work. The duration of the contract cannot exceed two years, but it may be renewed for a maximum of three times.

Probation Period

For indefinite-term contracts: The maximum duration of the probationary period is three months.

For fixed-term contracts: The probationary period cannot exceed one-sixth of the duration of the fixed-term contract, with a maximum limit of three months.

Termination

In Lithuania, the duration of the notice period for termination of employment is determined by the length of service and the terms specified in the employment contract or collective agreement.

– Less than 1 year of service: The minimum notice period is 14 calendar days.
– 1 to 5 years of service: The minimum notice period is 1 month.
– More than 5 years of service: The minimum notice period is 2 months.

Working Hours

40 hours per week.

Overtime

According to Lithuanian labor law, the maximum amount of overtime that an employee can work is generally limited to 8 hours per week or 180 hours per year.

13^th Month Pay

In Lithuania, there is no legal requirement for employers to provide a 13th month pay or year-end bonus to employees. However, some employers in Lithuania may choose to offer year-end bonuses or additional payments to employees as a form of recognition for their hard work and dedication throughout the year. These bonuses are typically discretionary and are not mandated by law.

Annual Leave

20 working days of paid annual leave per year.

Sick leave

The duration of sick pay may vary depending on the length of the employee’s absence due to illness or injury. In some cases, sick pay may be provided for a limited period, after which the employee may be eligible for other forms of social security benefits.

Maternity and Paternity Leave

Female employees are entitled to a period of maternity leave before and after childbirth. The total duration of maternity leave in Lithuania is typically up to 126 calendar days (18 weeks).

The paternity benefit is granted to the father for a duration of 30 calendar days, with the flexibility to divide it into two segments. This benefit becomes available after the birth of the child, and the father has the option to select the timing of when to receive the benefit until the child reaches one year of age.

VAT / GST

In Lithuania, the standard VAT rate is 21%, but Article 19 of the Lithuanian VAT Law provides for a reduced rate of 9% for certain supplies like home heating and printed materials. Furthermore, products and services related to medicine and health qualify for an even lower VAT rate of 5%. Additionally, there are transactions categorised as either zero-rated or exempt from VAT.

Income Tax

 Income up to EUR 114,162 per calendar year is taxed at a flat rate of 20%.

Income exceeding EUR 114,162 per calendar year is subject to a higher tax rate of 32%. This higher rate applies to the portion of income that exceeds the threshold.

Other income not specified above is taxed at a PIT rate of 15% if income amounts do not exceed EUR 228,324 per calendar year. A 20% PIT rate is applicable to income exceeding this threshold.

Employer / Employee Contributions

In Lithuania, employers and employees contribute to various social security funds:

State Social Insurance Contributions (Sodra):

– Employers contribute to fund pensions, sickness, maternity, and unemployment benefits.
– Employee contributions are withheld from salaries and based on earnings.

Health Insurance Contributions:

– Employers fund healthcare services provided by the state system.
– Employees also contribute through payroll deductions.

Unemployment Insurance Contributions:

– Employers finance unemployment benefits and labor market measures.
– Employees do not directly contribute; the burden falls solely on employers.

Other Contributions:

– Employers may contribute to funds like the Guarantee Fund for Employees’ Claims, offering compensation in case of insolvency.

Public Holidays

Here is a list of the main public holidays observed in Lithuania:

January 1 – New Year’s Day
February 16 – Independence Day
Easter Monday – Date varies (usually in March or April)
May 1 – International Labor Day
Mother’s Day – First Sunday in May
Father’s Day – First Sunday in June
July 6- Statehood Day
August 15 – Assumption Day
November 1 – All Saints’ Day
December 24 – Christmas Eve
December 25 – Christmas Day
December 26 – Second Day of Christmas

Severance Pay

In Lithuania, severance pay is not mandated by law for regular terminations of employment contracts. However, there are specific circumstances in which severance pay or other forms of compensation may be required:

Redundancy: If an employee is terminated due to redundancy or business restructuring, the employer may be required to provide severance pay or other compensation in accordance with collective agreements, employment contracts, or company policies.

Wrongful Termination: If an employee’s contract is terminated unlawfully or without just cause, the employee may be entitled to compensation for unfair dismissal, which may include severance pay or other damages.

Collective Redundancies: In cases of collective redundancies involving a certain number of employees, employers may be required to provide severance pay or other benefits as outlined in collective agreements or negotiated with employee representatives.

Executive and Management Contracts: For executives, directors, or high-level management employees, severance pay provisions may be included in their employment contracts or negotiated separately as part of their compensation package.

Work and Residence Permits (Expatriates)

In Lithuania, expatriates who wish to work and reside in the country typically need to obtain both a work permit and a residence permit.

Work Permit:

– Expatriates from countries outside the EU, EEA, or Switzerland usually require a work permit to work lawfully in Lithuania.

– Typically, the employer initiates the work permit application, demonstrating their inability to find suitable local candidates for the job.

– The application is submitted to the Lithuanian Labour Exchange or another relevant authority, and upon approval, a specific work permit is issued for the job and employer.

Residence Permit:

– Expatriates planning to stay in Lithuania for over three months must obtain a residence permit.

– Various types of residence permits are available, such as for employment, studies, family reunification, or investment.

– Applicants usually submit their residence permit applications to the Lithuanian Migration Department or another relevant authority, providing necessary documents like a valid work contract, financial proof, and health insurance coverage.

– The residence permit is typically issued for a specific duration and may be renewed.

Combination of Permits:

– Sometimes, expatriates may apply for both work and residence permit simultaneously or consecutively.

– A valid work permit is often a prerequisite for obtaining a residence permit for employment purposes.

EU/EEA/Swiss Citizens:

Citizens of EU/EEA countries and Switzerland can work and reside in Lithuania without needing a work permit. However, if staying longer than three months, they may still need to register their residence with the authorities.