What income tax rate do I pay under the individual activity certificate in 2026?

Progressive PIT applies with a tax credit: up to 20,000 euros of annual taxable income, the effective tax rate is 5 percent. From 20,000 to 42,500 euros, the rate gradually increases from 5 to 20 percent using the tax credit formula. Above 42,500 euros, the tax credit does not apply, and individual activity income along with other relevant annual income is taxed at progressive rates of 20, 25, and 32 percent based on general annual income brackets.

Can I deduct expenses under the individual activity certificate?

Yes, and this is one of the most powerful features of the regime. You must keep an income and expenditure journal, but you can either deduct actual expenses with receipts, or a flat 30 percent of your income without needing any documents at all. The flat deduction is ideal for service professionals whose main cost is their own time. You apply your chosen method when you file your annual income declaration at vmi.lt.

Lithuania 2026: One Flat Tax Covers Everything Including Social Contributions

Q: What is the individual activity certificate (*individualios veiklos pažyma*) in Lithuania?

Individuali veikla — literally "individual activity" — is Lithuania's framework for working for yourself without forming a company. You register the activity, invoice clients, and account for tax on your own income. An individual activity certificate allows for all activities except those that require the establishment of a company. It is the go-to legal form for freelancers, IT professionals, consultants, tutors, and tradespeople across Lithuania.

Q: How are Sodra (social security) contributions calculated for the individual activity certificate in 2026?

Sodra contributions consist of VSD at 12.52 percent and PSD at 6.98 percent, for a combined rate of 19.5 percent. Contributions are charged on 90 percent of your taxable income, not 100 percent, so the effective rate against taxable income is 17.55 percent. Even if you earn nothing in a given month, you must pay a minimum monthly PSD advance of 80.48 euros. VSD is settled annually after you file your declaration.

Q: How does Lithuania's individual activity certificate compare to working as a regular employee in Lithuania in 2026?

Under a standard employment contract, Sodra lists the employee social-insurance contribution rate at 19.5 percent, with a further 3 percent for people participating in the additional second-pillar pension accumulation scheme. On 1 January 2026, Lithuania transformed its personal income tax from a two-tier 20/32 structure to a three-tier 20/25/32 percent progressive system, meaning employees pay 20 percent income tax from the first euro of taxable income above the non-taxable allowance. A certificate holder earning under 20,000 euros in taxable profit pays an effective 5 percent income tax rate — four times lower than the standard employee rate at equivalent income.

You are sitting on one of the most tax-efficient self-employment frameworks in the entire European Union right now, and the chances are nobody has ever explained it to you properly. Lithuania significantly reformed self-employed taxation for 2026, replacing the old flat 15% rate with a progressive structure where the effective rate starts at just 5 percent on income up to 20,000 euros. That is not a typo. Five percent — and it covers your personal income tax liability in full.

The Hidden Regime Most Workers in Vilnius Have Never Heard Of

Here is what most people never find out: if you work as a freelancer, a consultant, a handyperson, a tutor, or almost any kind of independent professional in Lithuania, you do not automatically have to set up a company, hire an accountant, or drown in paperwork. There is a legal framework called the individual activity certificate (individualios veiklos pažyma) that is designed precisely for people like you — and it is almost criminally under-publicised.

You operate as a person rather than a legal entity. There is no share capital, no company registration, no separate accounts to file. You register the activity, invoice clients, and account for tax on your own income. That is the whole structure. And the tax that flows from it is, by European standards, remarkably low.

This is where workers get caught out. They either assume they need a UAB (a full Lithuanian private limited company) and pay for setup and accounting they do not need, or they work informally and lose every social protection they are legally entitled to. Both mistakes cost real money. Keep reading — because the numbers ahead will change how you think about working for yourself in Lithuania.

What the Law Actually Says

In Lithuania, if you want to work for yourself, you have two main paths: the individual activity certificate, which is flexible and taxes you based on profit, and the business licence, which charges a fixed upfront tax and covers limited activities. This article focuses on the individual activity certificate — the route used by the vast majority of freelancers, IT professionals, and independent contractors across Lithuania.

Most freelancers work under an individual activity certificate. You register with the State Tax Inspectorate at least one working day before you start. You can then deduct either your actual, documented costs or a flat 30 percent of your income. That 30 percent flat deduction is huge if you are a service professional with low overheads — it immediately cuts your taxable base without a single receipt required.

Until recently, Sodra contributions for individual activity were calculated on 50 percent of taxable income. That changed dramatically for 2026. The base has now risen to 90 percent — but the trade-off is that your social rights (pension, sickness, maternity, healthcare) are now far more solidly built up than before. You pay more into the system, but you actually get more out of it.

The Real Numbers for 2026

Category	Figure	Source
Minimum monthly wage (gross)	1,153 euros	Government Resolution No 700 of 16 October 2025
Effective date of minimum wage	1 January 2026	Government Resolution No 700 of 16 October 2025 on the minimum monthly and hourly wage
Minimum hourly wage (gross)	7.05 euros	Government Resolution No 700 of 16 October 2025
Individual activity PIT — income up to 20,000 euros/year	5 percent effective	VMI (vmi.lt)
Individual activity PIT — income 20,000–42,500 euros/year	Rises from 5 to 20 percent	VMI (vmi.lt)
Individual activity PIT — income above 42,500 euros/year	20 / 25 / 32 percent	VMI (vmi.lt)
VSD (state social insurance) rate — individual activity	12.52 percent	Sodra (sodra.lt)
PSD (health insurance) rate — individual activity	6.98 percent	Sodra official contribution rates from 1 January 2026
Sodra contribution base	90 percent of taxable income	Sodra (sodra.lt)
Combined VSD + PSD rate	19.5 percent	Sodra (sodra.lt)
Effective Sodra rate against taxable income	17.55 percent	Sodra (sodra.lt)
Minimum monthly PSD advance	80.48 euros	Based on the 2026 minimum wage of 1,153 euros
Annual Sodra contribution ceiling	99,422.45 euros	Sodra official — maximum amount for 2026 VSD contributions
Employee PIT bracket 1 (general payroll)	20 percent up to 83,237 euros/year	VMI (vmi.lt)
Employee PIT bracket 2 (general payroll)	25 percent — 83,237 to 138,729 euros/year	VMI (vmi.lt)
Employee PIT bracket 3 (general payroll)	32 percent above 138,729 euros/year	VMI (vmi.lt)

Sodra contributions are charged on 90 percent of your taxable income, not 100 percent. So the effective rate against taxable income is 17.55 percent, not 19.5 percent. That distinction matters when you are budgeting. On a taxable profit of 20,000 euros after the 30 percent flat deduction, your total Sodra bill for the year is roughly 3,510 euros — and your income tax is just 1,000 euros. That is a total tax burden of around 4,510 euros on 20,000 euros of gross profit. No salary-employee in Lithuania comes anywhere close to that rate.

Use the EuroDuty salary calculator to run your own exact numbers and see precisely what you would take home under the individual activity certificate versus a standard employment contract.

What Your Employer Will Never Tell You

If you currently work under a standard Lithuanian employment contract, your employer is carrying a payroll contribution of 1.77 percent of your gross salary. In Lithuania, the employer pays Sodra at only 1.77 percent on a permanent contract, while the worker carries 19.5 percent. That asymmetry is by design — and it means that when you switch to individual activity, you take full ownership of your social contributions. That is not automatically bad. In fact, it can be very good.

Here is what most workers leave on the table. Three things you can do right now:

First, you are entitled to deduct 30 percent of your gross income without producing a single receipt. You can deduct either your actual, documented costs or a flat 30 percent of your income. Most new certificate holders do not realise this exists and unnecessarily spend hours trying to track expenses they never needed to track in the first place.

Second, VSD (social insurance) is calculated at 12.52 percent of the Sodra base, and there are no mandatory monthly minimum VSD contributions — you pay VSD at the end of the year on your actual earned income. This gives you enormous cash-flow flexibility compared to being an employee, where contributions are deducted from every single payslip automatically.

Third, registration is done entirely online via the Mano VMI portal — the State Tax Inspectorate's online platform — and you can start your activity the very moment you submit the application. There is zero waiting period. You register today, you invoice tomorrow. Go to vmi.lt right now and look up "Mano VMI" to start the process. It takes under 20 minutes.

Lithuania vs The Rest of Europe

Let us put Lithuania's individual activity tax burden in real context. As of 1 January 2026, the minimum wage in Lithuania is set at 7.05 euros per hour and 1,153 euros per month. Latvia's minimum monthly wage from 1 January 2026 is 780 euros per month, while Estonia's minimum wage, effective 1 April 2026, is 946 euros per month. Lithuania leads all three Baltic states in minimum wage — and its self-employment regime is the most tax-efficient of the three.

For a freelancer earning 30,000 euros a year in Lithuania under an individual activity certificate, the effective combined tax rate (PIT plus Sodra) stays well below 25 percent thanks to the progressive credit mechanism and the 90 percent contribution base. An equivalent self-employed professional in Germany or France would face combined rates of 40 percent or higher on the same income level. Lithuania implemented major tax reform in January 2026, transforming its personal income tax from a two-tier 20/32 structure to a three-tier 20/25/32 percent progressive system — and the new middle 25 percent bracket reduces the tax burden on middle-income earners who previously jumped straight from 20 to 32 percent. For certificate holders earning under 42,500 euros, none of those upper brackets apply at all. The certificate regime operates in its own, far friendlier, tax lane.

Want to see how your take-home pay compares across all 27 EU member states? Use the EuroDuty salary comparator and find out where Lithuania actually ranks for people in your income bracket.

How to Claim What You Are Owed

Register your individual activity certificate online at vmi.lt. Log in to the Mano VMI portal, go to Individual Activity → Register/Change Activity, select your activity type, and submit. You can begin invoicing from the same day.
Choose your expense deduction method. Decide upfront whether you will use the 30 percent flat deduction (simplest, no receipts needed) or document actual expenses. Notify VMI of your choice in your first annual income declaration filed via the Electronic Declaration System (EDS) at vmi.lt.
Set up your Sodra contributions at sodra.lt. Even if you earn nothing in a given month, you must pay a minimum monthly health insurance (PSD) advance of 80.48 euros by the end of each calendar month. VSD contributions are settled annually. Use payment code 444 for both VSD and PSD payments.
File your annual income declaration by 2 May. Freelancers report individual activity in the same annual return and can pay Sodra contributions once a year after declaring, or monthly in advance. The deadline for the prior-year declaration is 2 May — miss it and you face automatic penalties.
Track your income against the 42,500 euro threshold. The effective tax rate is 5 percent up to 20,000 euros of annual taxable income, then gradually rises from 5 to 20 percent between 20,000 and 42,500 euros, and above 42,500 euros individual activity income is taxed at the full progressive rates of 20, 25, and 32 percent. Knowing exactly where you stand on this scale is the single most important number to monitor during the year.
Check whether VAT registration applies to you. If your turnover crosses 45,000 euros in a rolling 12-month period, VAT registration at 21 percent becomes mandatory. Contact VMI directly at vmi.lt or call the VMI hotline on +370 5 255 3190 before you cross the threshold — not after.

Calculate your exact net salary and compare your rights across all 27 EU countries at EuroDuty — completely free.