How to pay yourself: salary or dividends?

Should a UAB (private limited company) owner pay themselves a salary or dividends? The short answer: most of the time the best route is a mix of both, not an extreme. A salary lowers the company's taxable profit — so that amount is not taxed again by corporate income tax (CIT) — but it carries personal income tax (GPM) and "Sodra" (social insurance) contributions, and in return you build social guarantees and pension record. Dividends are taxed at 15% GPM, yet they are paid from profit that has already been taxed by CIT and build no "Sodra". Which route suits you depends on the size of the profit, your salary, the guarantees you want and your company's corporate tax rate.

This article compares both routes, shows how dividends are calculated, when a salary is worth paying, and gives an example that illustrates the logic. All rates and amounts here are indicative (2026) — always verify the current figures at VMI, "Sodra" and the Register of Legal Entities. If you are only setting up the company, get the wider context in the guide on how to start a business in Lithuania 2026.

A salary buys social guarantees and lowers corporate tax; dividends are simpler but taxed in two layers. The optimal answer is almost always a combination.

Salary or dividends: where the money is taxed

The key difference is where the money gets taxed. A salary is a company expense: it is deducted from revenue before corporate tax is calculated, so that amount is not subject to CIT. In exchange, wages carry both employee and employer taxes — GPM and "Sodra". Dividends work differently: first the company pays corporate income tax on its profit, and only from what remains can the owner distribute dividends, which are then taxed again at 15% GPM. That is why dividends are said to be taxed in "two layers" — first at company level, then at the personal level.

A common mistake is to compare only the percentage left "in hand" and forget what each route gives or takes away. With a salary, part of the burden is "bought back" by lower corporate tax and by social guarantees; with dividends the two tax layers look heavy, but there are no "Sodra" contributions and less administration. So the right question is not "which is cheaper overall", but "how much really stays with me and what do I get for it". For the wider picture of company taxes, see what taxes a UAB pays in 2026.

Salary: lowers profit, but carries GPM and "Sodra"

A salary has three big advantages and one "cost":

• It lowers taxable profit. Because salary is an expense, it reduces the base on which corporate tax is charged — so part of the burden "comes back" through lower CIT.
• It builds social guarantees. Salary carries VSD (state social insurance) and PSD (compulsory health insurance) contributions — these build pension record and sickness, maternity and unemployment benefits. For how much goes to "Sodra", read how much "Sodra" to pay in 2026.
• It applies the NPD. Lower salaries benefit from the tax-free amount (NPD), which reduces the taxable part and increases the sum left "in hand".
• The cost — GPM and "Sodra". Salary is subject to progressive GPM (income falls into the so-called income basket) and "Sodra" contributions. The exact rates and basket thresholds change every year, so rather than memorising them, calculate the specific numbers with the salary calculator.

To see how it all looks in practice, read how to read a payslip, and for the individual wage taxes we break them down here — salary taxes 2026: GPM, "Sodra", NPD. An important detail for directors: a company director's pay is often subject to a minimum "Sodra" base tied to the minimum wage (for 2026 "Sodra" calculations a base of 1,153 EUR/month is used), so even a modest salary comes with certain minimum contributions.

Dividends: 15% from already-taxed profit

Dividends are the share of profit the owner distributes after the financial year. The path is:

1. The company pays corporate income tax on its profit: the standard rate is 17%, for small companies 7%, and for new small companies in their first years, under certain conditions, 0% (if fewer than 10 employees, revenue up to EUR 300,000 and the company is not part of a group).
2. From what remains after corporate tax, distributed dividends are taxed at 15% GPM.

Dividends build no "Sodra" — which means a lower tax burden "here and now", but also no social guarantees (no pension record, no sickness or maternity benefits). Dividends can also only be distributed when the company has distributable profit and the shareholders approve the decision, and usually only once a year, after the financial results are approved. So they are not suited to being a steady monthly income — if you need money to live on every month, dividends alone will not cover it. Note that some income may also be subject to additional temporary levies (e.g. a defence levy) — check their application and amount at VMI.

The MB case: member's pay and profit distribution

In a small partnership (MB) the logic is similar but the terms differ. An MB member is usually not a classic employee — they can receive pay for management (under a civil or services contract) and a profit distribution to members. This means an MB member, like a UAB owner, faces the same core choice: take regular, "Sodra"-building pay, or a profit share distributed less often. Each of these routes is taxed differently and has its own nuances — for example, the "Sodra" obligations and the timing of when money can be taken out differ. So an MB member especially needs to plan in advance how to take money out, rather than deciding at year-end. We cover the full mechanics with the options separately in how an MB member can withdraw money.

Example: the path of EUR 10,000 of profit via dividends

Say a small UAB has EUR 10,000 of profit that the owner wants to take as dividends, and the company is charged 7% corporate tax:

• Corporate tax: EUR 10,000 × 7% = EUR 700. That leaves EUR 9,300 of distributable profit.
• Dividend GPM: EUR 9,300 × 15% = EUR 1,395.
• The owner receives: 9,300 − 1,395 = EUR 7,905.
• Total tax: 700 + 1,395 = EUR 2,095 — roughly a fifth of the original profit.

If the company were charged the standard 17% corporate tax, EUR 8,300 would remain, dividend GPM would be EUR 1,245, and the owner would receive EUR 7,055 — you can clearly see how the corporate tax rate changes the final result.

And if you took the same money as salary? Then the amount would not be taxed by corporate tax (salary reduces profit), but GPM and "Sodra" would trim it, while you would build social guarantees. Which option leaves more "in hand" depends on the salary size, the NPD and the current rates — so calculate both routes concretely with the salary calculator, not by intuition.

When to choose salary and when dividends

Practical guidance (but not a rule without exceptions):

• You need social guarantees and record (pension, future maternity/paternity, sickness benefits) → salary plays a major role.
• You need regular, monthly cash flow → salary is paid every month, regardless of annual profit.
• The company is profitable and basic guarantees are enough for you → part of the money as dividends can lower the overall burden.
• You want simplicity → dividends are administratively simpler, but distributed less often and only from profit.

Almost always the most realistic answer is a combination: a reasonable salary for social guarantees plus dividends from the remaining profit. Such a mix lets you keep a stable monthly flow, build pension record, and take the remaining profit once it has actually been earned. It is worth recalculating the exact split every year, because the rates, the income-basket thresholds and your own income all change — what paid off last year may no longer be optimal next year.

Deadlines and formalities: when you can pay dividends

You distribute dividends only after the year's results are approved, so keep the calendar in mind:

• Corporate income tax return to VMI — by 06-15.
• Annual financial statements to the Register of Legal Entities — by 06-30 (for the calendar year).

A salary, by contrast, is paid and declared every month — an ongoing process, not a once-a-year event, so it fits a steady cash flow better.

Check your numbers: the salary calculator and official sources

Before deciding how to pay yourself, run both scenarios with your own numbers. Start with the salary calculator, compare how much is left "in hand" via salary and via dividends, and always verify the current rates at VMI and "Sodra".

Disclaimer: all rates, thresholds and amounts in this article are indicative (2026) and for general understanding only — this is not tax or legal advice. Always check the current figures at the official VMI and "Sodra" sources, or consult an accountant.

web1o helps small businesses not only build a fast website but also organise everyday financial processes so decisions rest on numbers rather than guesses. Run your own options through the salary calculator and, if you want a concrete plan for your situation, book a free consultation.