Lithuania gives a foreign client a euro-area counterparty, SEPA payments and three contractor set-ups: individual activity registered with the State Tax Inspectorate (VMI), a business licence for listed trades, and a company (MB or UAB). The 2026 tax reform changed how self-employed income is taxed, and VMI’s three-of-seven test decides whether a contractor’s income is really salary.
Individual activity, business licence or company
Individual activity with a certificate (individuali veikla pagal pažymą) is the standard route for a solo developer, since a business licence does not cover software work (below). The contractor registers with VMI, invoices in their own name and declares the income once a year.
A business licence (verslo liudijimas) replaces income tax with a fixed amount on up to €50,000 of annual income; any excess is taxed at 15% up to 12 average wages (€27,745.80) and then on the general scale (vmi.lt, checked 2026-09-29). It is available only for activities in VMI’s classifier. The list used from 1 January 2026 includes translation and photography but no software development (VMI classifier, checked 2026-09-29), so a developer who says they have one needs a second look.
An MB (mažoji bendrija, small partnership) or UAB (private limited company) pays profit tax of 17% from 2026, or 7% if revenue stays within €300,000; newly registered entities meeting the conditions can apply 0% for up to two tax periods (vmi.lt, checked 2026-09-29). An MB member paid for managing their own MB under a civil contract pays 15% income tax up to 12 average wages a year and the general rates above (same source). For you, an MB or UAB is a company counterparty and signs a W-8BEN-E.
Income tax and Sodra in 2026
| Item | Rate | Base in 2026 |
|---|---|---|
| Income tax, individual activity | 20% less a credit | Effectively 5% up to €20,000 of taxable income, rising to 20% at €42,500 |
| Income tax above €42,500 | 20% / 25% / 32% | All annual income summed: 25% from 36 average wages (€83,237.40), 32% from 60 (€138,729) |
| Sodra (pension, sickness, health) | 19.5% (12.52% + 6.98% health) | 90% of taxable income, capped at 43 average wages (€99,422) |
Sources: income tax, the credit formula and the thresholds from VMI (checked 2026-09-29), using the 2026 average wage of €2,312.15; Sodra from PwC Tax Summaries, reviewed 2026-03-10. “Taxable income” is income minus allowable deductions.
The reform applies from 1 January 2026. Individual-activity income now counts towards the same 36 and 60 average-wage thresholds as salary and other income, so a contractor with other earnings reaches the 25% band sooner (VMI, checked 2026-09-29). All of this is the contractor’s to file; a foreign client withholds nothing.
VAT. The standard rate is 21% and registration is required above €45,000 of domestic turnover; services supplied outside Lithuania do not count (VMI, checked 2026-09-29). A contractor who supplies services to a business in another EU state must register whatever their turnover (vmi.lt, checked 2026-09-29) and marks the invoice “Atvirkštinis apmokestinimas” (reverse charge).
When VMI treats a contractor as an employee
VMI’s commentary on the income tax law lists seven circumstances that point to employment rather than individual activity (vmi.lt, checked 2026-09-29):
- Subordination: the client controls the process, gives instructions or sets working hours.
- Work for only one client, or economic dependence on it.
- Work done with the client’s materials or equipment.
- The contractor does not bear the costs of the activity.
- Periodic pay.
- No right to hire others or subcontract.
- Agreed holidays or training.
If at least three apply, the income can be taxed as employment income. VMI’s own example is a programmer who earns 80% of their income from one company that pays monthly and covers travel or training costs: in relation to that company, the programmer is not carrying out individual activity.
Labour law adds a second line. Under the Law on Employment, paid work done under someone’s direction without an employment contract, or without notifying Sodra at least one working day before the start, is illegal work. The State Labour Inspectorate (VDI) looks for a fixed monthly payment, internal rules the contractor must follow, a workplace and tools provided by the client, and an ongoing process instead of defined results (BNS, Leagus, 18 September 2026, checked 2026-09-29). Fines reported by VDI run from €1,000 to €5,000 for the employer or responsible persons, and €868 to €2,896 per worker for a legal-entity employer (LRT, January 2024, checked 2026-09-29). An individual activity certificate does not protect an arrangement that works like a job.
Keep engagements scoped to deliverables, let the contractor use their own equipment and hours, allow other clients and subcontracting, and pay against results rather than a fixed monthly retainer where you can.
Contract and IP
- A written services agreement with the individual or their MB or UAB: deliverables, rate, currency and payment terms. State who carries the VAT consequences if the contractor registers because of EU clients.
- IP assignment in writing. Under the Law on Copyright and Related Rights, economic rights in software written by an employee in the course of their duties belong to the employer unless agreed otherwise (Article 10); other works by employees pass to the employer for five years (Article 9). Neither rule covers contractors, and copyright transfer agreements must be concluded in writing (Article 40; WIPO Lex text as amended to 2022, checked 2026-09-29). Assign economic rights explicitly.
- Independence markers: the contractor’s own equipment and schedule, the right to serve other clients, and freedom to subcontract, which answer signs 1, 2, 3 and 6 above.
On your side, pay gross against invoices; there is no Lithuanian withholding for a foreign client. US payers collect a W-8BEN (W-8BEN-E from an MB or UAB) and file no 1099; services performed in Lithuania are foreign-source income (irs.gov, checked 2026-09-29). EU payers check the contractor’s LT VAT code in VIES.
How to pay contractors in Lithuania
| Method | What the contractor sees | Notes |
|---|---|---|
| SEPA transfer (EUR) | EUR on an IBAN at a bank or e-money institution | Same fee as a domestic euro transfer from an EU bank |
| SEPA Instant (EUR) | EUR within 10 seconds | Banks must accept it; e-money institutions only from 9 April 2027 (ECB, checked 2026-09-29) |
| Wise | EUR from a USD or other balance | Fee quoted upfront per transfer |
Rails, costs, documents and a comparison of platforms are on our page on how to pay contractors in Lithuania.
Contractor of Record in Lithuania
Because VMI’s test turns on how the work is actually done, a Contractor of Record is most useful for full-time contractors working for one client, where two of the seven signs are already present. 4dev acts as Contractor of Record — the contracting party for each contractor — which reduces reclassification risk. Other providers sell Contractor of Record products as well; read the liability clause in the contract, not the product name. Where the relationship is really employment, use an Employer of Record instead. Compare providers in our COR rating.