Tax reform 2026: key changes in Lithuania for businesses and individuals

As of 1 January 2026, the tax reform has significantly changed the taxation in Lithuania. Lithuania’s tax reform is relevant to employment income, freelance income, corporate taxation, real estate tax, VAT, as well as the newly introduced security contribution and sugar tax.

Fairness gets a boost under this change, while defence funding gains more support. The move also pushes back on hidden cash transactions. Still, some people face heavier tax loads because of it. Executives at companies might rethink how they manage earnings and spending. So will individuals live there, adjusting choices around money, saving, and spending.

What does the Lithuanian tax reform change?

The Lithuanian tax reform introduces structural rather than incremental adjustments:

• A unified income aggregation model under personal income tax (PIT tax).
• Higher and progressive PIT rates.
• A higher corporate income tax
• A revised real estate tax system in Lithuania.
• Updated VAT changes and reduced-rate structure.
• New taxes, including the security contribution and taxation of sugar-sweetened beverages.

Part of the additional revenue is allocated to national defence through the State Defence Fund. Planning taxes based on pre-2026 rules now carry clear financial risk. The official tax law amendments adopted by the Seimas and their overview are published by the Ministry of Finance: Tax Law Amendments Adopted by the Seimas.

Personal income tax (PIT): progressive rates and income aggregation

The personal income tax system has shifted from a largely flat structure to a progressive one. The PIT now applies three brackets:

• 20% PIT – income up to 36 average monthly salaries (approx. EUR 83,000/year).
• 25% PIT – income between 36 and 60 average monthly salaries.
• 32% PIT – income exceeding 60 average monthly salaries.

Income aggregation is a critical change. The progressive PIT base includes:

• employment income;
• income from individual activity;
• rental income;
• royalties and authors’ fees;
• bonuses and board member income;
• part of capital gains.

Dividends and other types of income derived from financial assets are taxed at 15%. Recently, additional health insurance for employees, which is charged above an annual threshold of 350 euros, was also classified as income. And from next December, employees may suddenly see their tax liabilities rise if they earn income from several sources. More on the personal income tax (PIT) framework and potential business risks: PIT rate increases and changes to the non-taxable income threshold (NPD) – how might this impact businesses?

For official information on personal income tax changes effective from 2026, see the State Tax Inspectorate (VMI): Personal Income Tax Changes from 2026.

Individual activity (freelancing): when does flexibility become costly?

Self-employed individuals must pay particular attention to the tax reform:

• Up to EUR 20,000 profit – 5% PIT.
• EUR 20,000–42,500 – effective rate increases gradually.
• Above EUR 42,500 – income enters the general progressive personal income tax

Small businesses scheme (with the small, fixed income tax payable) now can reach up to EUR 50,000 in turnover before regular self-employed activity taxation becomes applicable. Choosing between a business licence, an individual activity certificate, an MB, or a UAB is now a strategic decision. It is not just about which form fits best, but also about making smart tax choices.

Corporate income taxation: higher rates, broader planning tools

The corporate income tax regime has been tightened:

• The standard corporate tax rate increased from 16% to 17%.
• Reduced rate for small entities increased from 6% to 7%.

Key changes in corporate income taxation:

• Newly established small companies may apply 0% corporate income tax for the first two tax periods (subject to conditions).
• Immediate depreciation is allowed for certain asset classes.
• Loss carry-forward is limited to 70% of taxable profit per year.

Sending out dividend payments at the right moment shapes corporation tax outcomes differently now. Read more about dividend taxation here: Dividend Taxation – What Should Businesses Consider in 2026?

Detailed information on corporate income tax changes effective from 2026 is available in the guidance prepared by the State Tax Inspectorate (VMI): Corporate Income Tax Changes from 2026.

Real estate tax in Lithuania: primary residence vs other property

The revised Lithuanian real estate tax system differentiates between a primary residence and other property. For a primary residence, real estate tax applies only when the value exceeds:

• EUR 450,000 (single owner)
• EUR 900,000 (co-owners)

The excess is taxed at a municipal rate between 0.1% and 1%. Other non-commercial property is taxed at a progressive scale based on total value. Commercial property is taxed at municipal rates plus an additional defence component. Even though declarations come ready-made, it’s up to property owners to keep track of how values are calculated, along with what fees apply.

VAT Lithuania: VAT changes and new reduced rates

The VAT Lithuania framework has been updated. The VAT rate structure now includes:

• 21% VAT rate – standard.
• 12% VAT rate – accommodation, passenger transport, cultural events.
• 5% VAT rate – books and non-periodical publications.

These VAT changes directly affect pricing strategies, margins, and consumer demand, especially in tourism and service sectors. More detailed information on the VAT reform is provided by the State Tax Inspectorate (VMI): Value Added Tax (VAT) Changes from 2026.

Security contribution and sugar-sweetened beverage tax

Two important additions under the Lithuanian tax reform:

Security contribution

A 10% security contribution applies to non-life insurance premiums (with defined exceptions). Insurance companies administer the levy, and funds are directed to defence financing.

Sugar tax/sugar-sweetened beverage tax

The new sugar-sweetened beverage tax (excise duty) applies to drinks exceeding defined sugar thresholds. Taxing sugar-sweetened beverages will cause costs to rise for manufacturers, traders, and retailers. A new study suggests that the policy and its aftermath could be part of a broader strategy aimed at linking expenditures and health goals.

How to prepare for the tax reform?

The tax reform Lithuania requires proactive reassessment:

• Individuals – estimate total annual income under personal income tax (PIT).
• Self-employed – review operating model and profit projections.
• Businesses – model investment, depreciation, and corporate income tax
• Property owners – evaluate real estate tax
• VAT-registered entities – reassess pricing under the new VAT rate

For businesses seeking clarity under the new corporate income taxation and regulatory framework, tax law experts at “Motieka ir Audzevičius” can assist with legal and financial scenario modelling.

Change runs through Lithuania’s taxes, still unfolding. Instead of asking if reform helps, the real issue becomes handling what might go wrong while making the most of the chances ahead.

A shortened summary of the principal VAT changes, corporate tax rate, real estate tax, and security contribution adjustments is provided below for convenience.