As of 1 January 2025, significant updates to Article 20 of the Law on Personal Income Tax (GPMĮ) in Lithuania will affect the way the non-taxable income amount (NPD) is applied to individuals. These changes reflect an adjustment to the minimum monthly wage (MMA) and introduce a revised NPD formula. The State Tax Inspectorate (VMI) has issued updated commentary to clarify the new calculations and their impact on payroll and employee taxation.
Key Changes to the NPD Calculation
Effective 1 January 2025, the MMA in Lithuania will increase to €1,038. In line with this, both NPD formulas and the income thresholds have been revised. The updated VMI commentary includes new examples to illustrate how the amended legislation will affect monthly payroll calculations.
The NPD is applied in three distinct tiers depending on the employee's monthly gross salary (DU):
1. Fixed NPD for income up to €1,038 (MMA)
If the employee's gross monthly income does not exceed the MMA of €1,038, a fixed NPD of €747 will apply. This ensures that lower-income earners continue to benefit from a larger non-taxable portion of their earnings, resulting in lower tax liability.
2. Graduated NPD for income between €1,038 and €2,387.29
Where monthly income exceeds the MMA but does not surpass €2,387.29, the NPD is determined using the following formula:
NPD1 = 747 – 0.49 × (DU – 1,038)
This sliding scale gradually reduces the non-taxable amount as the employee's income increases, allowing for a more balanced tax burden across income levels.
3. Reduced NPD for income exceeding €2,387.29
For employees earning over €2,387.29 per month (up from the previous threshold of €2,167), a different formula is used:
NPD2 = 400 – 0.18 × (DU – 642)
This formula offers a smaller non-taxable allowance for higher earners, maintaining progressivity in the income tax structure while reflecting the updated salary brackets.
4. No NPD for income over €2,865
Once an employee's gross monthly salary reaches or exceeds €2,865, no NPD is applied. At this level, the full amount is considered taxable income under the current tax legislation.
Why This Matters for Employers and Payroll Professionals
The updated NPD framework significantly impacts payroll planning, salary structuring, and net wage projections for 2025. With the MMA increase and corresponding NPD recalibration, payroll teams must ensure that salary software and tax calculation systems are updated in compliance with the new rules. Failure to apply the correct NPD could result in inaccurate withholdings and employer liabilities.
This shift may also influence discussions on employee remuneration, particularly for companies seeking to optimise take-home pay within lawful tax boundaries.
Eurofast's Take
Eurofast's team in Vilnius is prepared to support employers and payroll departments as they transition to the new NPD structure in 2025. We offer comprehensive assistance with payroll compliance, employee tax planning, and system updates, ensuring seamless alignment with VMI requirements.
With deep local expertise and a regional presence across Southeast Europe and the Baltics, Eurofast ensures your payroll operations are accurate, timely, and fully compliant. Whether you are a local business or an international company with Lithuanian operations, our specialists can guide you through the technical updates and their strategic implications.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
