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Lithuania Added a Third Tax Band in 2026
GPM (gyventojų pajamų mokestis) is Lithuania's personal income tax. On 1 January 2026 the system changed from two tiers to three: what used to be a straightforward 20% / 32% split now has a 25% band in the middle.
For most people this changes nothing — if you earn under roughly €6,936 per month, you're still paying 20%. The new band only bites at higher incomes.
What changed in 2026: the old two-tier 20% / 32% structure became a three-tier 20% / 25% / 32% system. Dividends remain separate at a flat 15%.
| Annual income | Monthly equivalent | Rate |
|---|---|---|
| Up to €83,237 | Up to ~€6,936 | 20% |
| €83,237 – €138,729 | ~€6,936 – €11,561 | 25% |
| Above €138,729 | Above ~€11,561 | 32% |
Thresholds are 36× and 60× the 2026 average monthly wage (VDU), €2,312.15 — 36 × €2,312.15 = €83,237.40, 60 × €2,312.15 = €138,729.00.
Two separate deductions — don't confuse them
- GPM is charged on your gross pay minus the NPD allowance
- Sodra (19.5%) is charged on your full gross pay, with no allowance
- Both come out before you're paid — see what Sodra is
The NPD: Lithuania's Tax-Free Allowance
The NPD (neapmokestinamasis pajamų dydis) is the slice of your income that GPM isn't charged on. Unlike a flat personal allowance, it shrinks as you earn more and disappears entirely at higher salaries — which makes the effective tax rate progressive even within the 20% band.
In plain terms: at the minimum monthly wage (MMA) of €1,153 you get the full €747 allowance. Every euro you earn above that reduces the allowance by 49 cents, until it runs out entirely around €2,677.49.
Additional NPD applies for each dependent child, and a higher allowance applies if you have a recognised reduced capacity for work.
Work out your actual take-home pay
Our calculator applies the NPD, GPM bands and Sodra automatically.
Worked Example: €2,000 per Month
Here's how the numbers actually fall for a typical Vilnius salary:
| Step | Amount |
|---|---|
| Gross monthly salary | €2,000.00 |
| NPD: 747 − 0.49 × (2,000 − 1153) | €331.97 |
| Taxable income for GPM | €1,668.03 |
| GPM at 20% | −€333.61 |
| Sodra at 19.5% (on full gross) | −€390.00 |
| Net salary | €1,276.39 |
That's an effective deduction of about 36% — roughly 64% of gross lands in your account. The percentage you keep falls as your salary rises, because the NPD tapers away.
Other Income: Dividends, Capital Gains and Rent
Not everything is taxed under the progressive employment bands. These are handled separately:
| Income type | Rate | Notes |
|---|---|---|
| Dividends | 15% | Flat, separate from employment income |
| Interest | 15% | Treaties may reduce this for non-residents |
| Capital gains | 15% / 20% | 15% up to 120 average monthly wages, 20% above |
| Property sale | Often 0% | Exempt if held 5+ years (reduced from 10) |
The five-year property exemption is worth knowing about if you're buying property in Lithuania — it was shortened from ten years, which materially changes the maths on a medium-term hold.
Are You a Lithuanian Tax Resident?
This determines whether Lithuania taxes your worldwide income or only what you earn here. You're generally a tax resident if you:
- Have your permanent place of residence in Lithuania, or
- Spend more than 183 days in Lithuania during a calendar year, or
- Have your centre of personal, social or economic interests here
Residents are taxed on worldwide income. Non-residents only on Lithuanian-source income. If you moved partway through a year, or you're working remotely for a foreign employer, this is the question that matters most — and the one worth paying an accountant to answer properly.
Filing Your Return
If you're an employee, your employer withholds GPM at source and you may have nothing to do. You'll still need to file an annual declaration if you have multiple income sources, freelance income, or want to claim a refund.
- Deadline: generally 1 May for the previous calendar year
- Where: online through VMI's Electronic Declaration System (EDS)
- Good news: the form is largely pre-filled — often you just review and confirm
See our full guide to filing a Lithuanian tax return.
Deductions Worth Claiming
Lithuania allows a limited set of deductions on your annual return. Commonly claimed:
- Voluntary pension contributions (Pillar III)
- Life insurance premiums
- Certain education and vocational training costs
Caps and conditions apply, and the list changes. Check the current year's rules on VMI before assuming something qualifies.
What Foreigners Usually Get Wrong
Assuming 20% means you keep 80%. You don't — Sodra takes another 19.5%. Together they're roughly 36% of a €2,000 salary. Budget on net, not gross.
Comparing a Lithuanian gross offer to a foreign net one. Employers here quote gross. Run any offer through the calculator before you accept.
Ignoring the 183-day rule. Cross it and Lithuania can tax your worldwide income — including income from your home country. Track your days.
Forgetting to file when owed a refund. If you had multiple employers or an unused NPD entitlement, you may be owed money. No one chases you to claim it.
Assuming a double tax treaty handles it automatically. Lithuania has treaties with many countries, but relief usually has to be claimed, not applied by default.
Frequently Asked Questions
What is the income tax rate in Lithuania in 2026?
Employment income is taxed progressively: 20% up to roughly €83,237 per year, 25% between that and about €138,729, and 32% above. Dividends are taxed separately at a flat 15%.
What does GPM stand for?
GPM is gyventojų pajamų mokestis — literally "residents' income tax". You'll see it on every Lithuanian payslip.
Is Sodra included in the 20%?
No. GPM and Sodra are separate. GPM is charged on gross pay minus the NPD; Sodra's 19.5% is charged on the full gross. Both are deducted before you're paid.
What is NPD and do I have to apply for it?
NPD is the tax-free allowance. Your employer normally applies it automatically once you've submitted a request — but only one employer can apply it, so if you have two jobs, make sure it isn't being applied twice.
Do I pay Lithuanian tax on income from abroad?
If you're a Lithuanian tax resident, yes — residents are taxed on worldwide income. Double tax treaties may prevent you being taxed twice, but relief usually has to be claimed. Get advice if you have foreign income.
When is the tax return deadline?
Generally 1 May for the previous calendar year, filed online through VMI's EDS system.
Disclaimer. This is general information, not tax advice. Rates, thresholds and allowances change — verify against VMI, the State Tax Inspectorate, or consult a qualified Lithuanian tax adviser before making decisions.