- starting a business
- 2026
A broad tax reform took effect in Lithuania in 2026, and the four changes that matter most to business are these: corporate income tax (CIT) rose from 16% to 17% (from 6% to 7% for small companies), new reduced value-added tax (VAT) rates of 12% and 5% were introduced, the "Sodra" contribution base for the self-employed increases from 50% to 90%, and individual-activity personal income tax (GPM) is now calculated on a graduated scale. If you are only planning to start a business, these changes directly shape how much tax you will pay and which legal form is worth choosing.
In this article we go through each part of the reform one by one — CIT, dividends, the new VAT rates, the self-employed "Sodra" base and individual-activity GPM — and explain what they mean for a new business. All the figures here are indicative (2026), so before making decisions verify the current rules with the State Tax Inspectorate (VMI), "Sodra" and the Register of Legal Entities.
The reform does not change the essentials — you still choose your business form by income and risk; it merely adjusts the numbers worth recalculating.
Corporate income tax (CIT): 16 → 17%, and 0% for new small companies
The most visible change for legal entities is the increase in corporate income tax (CIT):
- The standard CIT rate rose from 16% to 17%.
- The reduced rate for small companies increases from 6% to 7%.
- Newly established small companies may apply a 0% rate for their first two years of operation — but only if the company has fewer than 10 employees, annual income below EUR 300,000, and is not part of a group.
In practice this means a UAB now has its profit taxed slightly more, yet a small new company can pay no profit tax at all in its first years. This relief matters especially to startups, which often reinvest in growth rather than distribute profit in the early years. Remember that the annual CIT return must be filed with VMI by 15 June. Which taxes a company faces overall — from CIT to dividends and "Sodra" — is covered in detail in what taxes does a UAB pay in 2026.
Dividends: 15% GPM unchanged
When a company has paid its profit tax and decides to distribute profit to its owners, dividends are taxed with a 15% personal income tax (GPM). This rate did not change in the 2026 reform, but it is worth remembering that profit is effectively taxed twice — first with CIT at the company level, and then a further 15% GPM when the money moves to a personal account. It is precisely this "double" taxation that makes individual activity or a small partnership (MB) look simpler than a UAB for many beginners — but the final answer depends on the size of profit and the cost structure, not on a single rate. In practice, before choosing a form it is worth calculating both scenarios with your real numbers, rather than assuming that "a UAB sounds more serious".
The new reduced VAT rates: 12% and 5%
The standard VAT rate remains 21%, but from 2026 new reduced value-added tax rates were introduced:
- 12% — for accommodation services, passenger transport, catering and cultural events.
- 5% — for books and medicines.
If your activity falls into one of these areas, the correct rate directly affects your prices and margin, so it is worth checking straight away which rate applies to your service. What VAT is and how it works in general is explained in VAT: what it is and how it works, and you can quickly convert an amount with or without VAT using the VAT calculator.
The reform did not change the VAT registration threshold — a Lithuanian business must register as a VAT payer once its income over the last 12 months exceeds EUR 45,000. For a business established abroad there is no such threshold — the obligation arises from the very first transaction. When and how to register is covered in when to register for VAT: the EUR 45,000 threshold.
The self-employed "Sodra" base: from 50% to 90%
One of the most sensitive changes for people running an individual activity and other self-employed workers is the increase in the "Sodra" contribution base. From July 2026, contributions are calculated not on 50% but on 90% of taxable income. Because the VSD (state social insurance) and PSD (compulsory health insurance) contributions are calculated on a larger base, the actual amount going to "Sodra" will rise for a portion of the self-employed.
It is also important to know that the minimum PSD contribution remains around 80.48 EUR per month — it must be paid even in a month with no income. How much "Sodra" you will actually owe based on your income is calculated step by step in how much "Sodra" to pay in 2026.
The individual-activity GPM scale in 2026
Individual-activity income is taxed with personal income tax (GPM) on a graduated scale that depends on annual profit:
- up to EUR 20,000 of profit — an effective rate of about 5% (due to the tax credit applied);
- from EUR 20,000 to EUR 42,500 — the effective rate rises gradually from 5% to 20%;
- above EUR 42,500 — a progressive 20% / 25% regime applies.
When calculating taxable profit, you may deduct expenses from income — either a 30% "norm" of income, or actual documented expenses. Which option is better depends on your real costs: a service provider with low expenses often benefits from the 30% norm, while trade with large purchases favours actual expenses. It is precisely because of this scale that individual activity often stays attractive at low income levels, but as profit grows the effective rate rises, so it is worth recalculating every year.
Progressive GPM and the "defence levy": general context
Beyond individual activity, progressive taxation also applies to employment-related income — the so-called "income basket". The higher the annual income, the higher the rate applied to the portion above each threshold, but the specific thresholds and higher brackets are adjusted every year, so exact figures should always be verified with VMI. How a salary splits into GPM, "Sodra" and the tax-exempt amount (NPD) is explained in detail in salary taxes 2026: GPM, "Sodra", NPD.
In the context of the reform, a so-called "defence levy" is also mentioned publicly — an additional source of budget financing linked to increased defence needs. Because the details and amounts of how it applies may still be adjusted, we deliberately do not state any specific figures or percentages here — check the current rules, and whether they affect your activity, with VMI.
Example: how the "Sodra" base changed for individual activity
Suppose you earn EUR 12,000 of taxable income from individual activity in a year. Before the reform, "Sodra" contributions were calculated on 50% of this amount, i.e. on EUR 6,000. From July 2026 the base rises to 90%, i.e. to EUR 10,800.
In other words, the amount on which VSD and PSD contributions are calculated grew from EUR 6,000 to EUR 10,800 — almost double. The specific amount payable to "Sodra" depends on the applicable rates, so calculate the exact figure against your own income and verify it with "Sodra". Bear in mind that even with no income the minimum PSD of around 80.48 EUR per month still applies.
Why this matters if you are just starting out
If you are only setting up a business, the reform matters for several reasons:
- Choice of form. The changes to CIT, dividends and individual-activity GPM shift which form — individual activity, MB or UAB — pays off for you. The whole setup process and a comparison of forms is in the guide how to start a business in Lithuania in 2026.
- The "Sodra" burden. For the self-employed, the higher base means larger contributions — worth building into your prices from the start, rather than discovering them only in your first return.
- VAT planning. If you are approaching the EUR 45,000 threshold or work in a reduced-VAT area, the rate changes directly affect your pricing.
Because there are many rules, beginners often slip up. We have gathered the most common mistakes and how to avoid them in tax reform 2026: common mistakes.
Check your numbers with calculators and official sources
Before you decide, recalculate your own numbers under the new rates — prices with VAT, profit tax and the amount left "in hand". Start with the free VAT calculator and always verify the current thresholds at VMI and "Sodra" — it is the official sources, not internet forums, that have the last word.
Disclaimer: all rates, thresholds and amounts in this article are indicative (2026) and for general understanding only — this is not tax or legal advice. Reform details may be adjusted, so always check the current figures at the official VMI and "Sodra" sources, or consult an accountant.
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