How to Pay Yourself from a Lithuanian UAB: Salary vs Dividends

Last updated: July 2026

If you own a Lithuanian UAB, the company’s money does not automatically become your personal money. Even if you are the sole shareholder, every payment from the company to you must have a valid legal and accounting basis.

For most owner-managed UABs, the two main options are a salary and dividends. A salary provides regular income and social insurance but is subject to several payroll taxes. Dividends are more lightly taxed at shareholder level: in Lithuania, an individual normally pays only 15% personal income tax on the dividend itself, with no VSD or PSD contributions.

That does not mean dividends can simply replace a salary in every situation. Salary is payment for work. Dividends are a return on share ownership and may be distributed only when the UAB has legally distributable profit.

This guide explains how salary and dividends are taxed in Lithuania in 2026, when each option can be used, and why many UAB owners choose a combination of both.

Salary vs dividends in a Lithuanian UAB: the short answer

If you perform regular work for your UAB under an employment contract, the company can pay you a salary. The UAB processes payroll, withholds personal income tax and employee social insurance contributions, and pays the applicable employer contributions.

If the UAB has earned and formally distributed profit, it can pay dividends to its shareholders. A dividend paid to an individual is subject to a flat 15% Lithuanian personal income tax. No VSD or PSD contributions apply to the dividend payment, and dividends remain outside the annual income bands taxed at 20%, 25% and 32%.

Option 1: paying yourself a salary from a Lithuanian UAB

A shareholder does not receive a salary merely because they own shares. A salary is paid when the person works for the UAB under an employment relationship - for example, as the company’s director or in another genuine role.

The salary must be documented and processed in the same way as salary paid to any other employee. This includes an employment contract, payroll calculations, tax withholding, social insurance reporting and payment of the net salary to the employee.

Taxes charged on salary in Lithuania in 2026

Salary has several separate tax components.

1. Personal income tax: 20%, 25% or 32%

For 2026, employment income and certain other income are combined when determining the applicable progressive personal income tax rate:

• 20% applies to the annual income portion up to 36 average monthly salaries, or €83,237.40 in 2026;

• 25% applies to the annual income portion between €83,237.40 and €138,729;

• 32% applies to the annual income portion above €138,729.

During normal payroll, the UAB generally withholds the applicable income tax. The final rate may be reconciled through the employee’s annual tax return if the person has income from several sources. The official thresholds are published by the Lithuanian State Tax Inspectorate.

An eligible Lithuanian resident may also benefit from the non-taxable income amount, known as the NPD. In 2026, the maximum monthly NPD is €747. Once monthly employment income exceeds the minimum monthly salary of €1,153, the NPD is reduced according to the statutory formula. It reaches zero at a monthly salary of €2,677.49. The NPD reduces the amount subject to personal income tax, but it does not reduce the base used for social insurance contributions.

2. Employee social insurance and health insurance: 19.5%

In the standard case, 19.5% is withheld from the employee’s gross salary. According to Sodra’s 2026 contribution rates, this consists of:

• 8.72% pension social insurance;

• 1.99% sickness social insurance;

• 1.81% maternity social insurance;

• 6.98% compulsory health insurance, or PSD.

Together, these components equal 19.5% of gross salary.

If the employee participates in Lithuania’s second-pillar pension accumulation, an additional 3% is normally withheld. In that case, total employee contributions rise to 22.5%.

3. Employer social contributions

The UAB also pays employer contributions on top of the gross salary. For a standard indefinite employment contract in the lowest occupational accident-risk group, the combined rate is 1.77%:

• 1.31% unemployment social insurance;

• 0.14% occupational accident and disease insurance;

• 0.16% Guarantee Fund contribution;

• 0.16% Long-Term Employment Benefits Fund contribution.

The employer rate is 2.49% for a standard fixed-term contract. It may also be higher if the UAB falls within a higher occupational accident-risk category. Therefore, 1.77% should be treated as the common starting rate rather than a universal rate for every employee.

Example: €2,000 gross monthly salary

Assume a Lithuanian resident receives a gross monthly salary of €2,000, is entitled to the standard monthly NPD and does not participate in additional pension accumulation.

• Gross salary: €2,000

• Employee VSD and PSD at 19.5%: €390

• Applicable monthly NPD: approximately €331.97

• Personal income tax at 20% after NPD: approximately €333.61

• Net salary: approximately €1,276.39

• Employer contributions at 1.77%: €35.40

• Total monthly cost to the UAB: approximately €2,035.40

If no NPD applies, or if the employee participates in additional pension accumulation, the net amount will be lower. Cross-border employees may also be subject to different social security or tax treatment.

Advantages of paying yourself a salary

A salary gives the owner predictable monthly income. It also creates Lithuanian social insurance coverage, including pension, sickness, maternity and health insurance rights, subject to the applicable rules.

For the UAB, properly documented salary and employer contributions are generally deductible business expenses. They reduce the company’s taxable profit, provided the costs are connected with its activities and are correctly recorded. VMI confirms that employee-related expenses that constitute taxable benefits are generally treated as allowable deductions for corporate income tax.

A regular salary may also be useful when applying for a personal mortgage, loan, lease or residence permit, because it provides evidence of recurring employment income.

Disadvantages of paying yourself a salary

The main disadvantage is the total tax and contribution burden. Personal income tax, employee social contributions and employer contributions all apply. Payroll also creates recurring administrative duties even when the shareholder and employee are the same person.

Option 2: paying yourself dividends from a Lithuanian UAB

Dividends are not compensation for work. They are a distribution of profit to shareholders. This means a UAB cannot label an ordinary withdrawal as a dividend simply because the shareholder wants to take money out of the company.

The UAB must have distributable profit, prepare the necessary financial information and adopt a valid shareholder resolution on profit distribution. Annual dividends are commonly approved after the financial statements have been prepared and approved. Lithuanian company law also permits dividends for a period shorter than a full financial year, but only if the statutory interim-dividend conditions are met.

The applicable rules are set out in the Lithuanian Law on Companies, particularly the provisions governing profit distribution and dividends.

Dividend tax in Lithuania: only 15% for the individual shareholder

When a Lithuanian UAB pays a dividend to an individual, the dividend is subject to a flat 15% personal income tax in Lithuania. The UAB normally calculates, withholds and pays the tax before transferring the net dividend to the shareholder.

For example:

• Gross dividend: €10,000

• Lithuanian personal income tax at 15%: €1,500

• Net dividend paid to the shareholder: €8,500

No VSD or PSD contributions are charged on dividends. The dividend is also not added to the annual income portion subject to the progressive 20%, 25% and 32% rates. This treatment is confirmed by the Lithuanian State Tax Inspectorate’s dividend guidance.

In other words, at the level of the individual shareholder, dividends are only taxed at 15% in Lithuania under the standard domestic rule.

Important: the UAB may have already paid corporate income tax

The 15% dividend tax applies to the dividend received by the individual. Before a dividend can be distributed, the profit from which it is paid may already have been subject to corporate income tax at company level.

For tax periods beginning in 2026, the standard Lithuanian corporate income tax rate is 17%. Qualifying small companies may apply a reduced 7% corporate income tax, while qualifying newly established companies may apply a 0% rate for their first two tax periods. These reduced rates are not automatic; the UAB must satisfy the conditions in the Corporate Income Tax Law, including the applicable €300,000 revenue test and related-party restrictions. Current rates and conditions are published in VMI’s corporate income tax guidance.

Starting with €10,000 of taxable company profit, the simplified combined result would be:

This is why it is accurate to say that dividends themselves are only taxed at 15% for an individual in Lithuania, while also recognising that the underlying UAB profit may have faced corporate income tax before distribution.

Advantages of dividends

Dividends have a simple and comparatively low shareholder-level tax rate. There are no employee or employer social insurance contributions, and the 15% rate does not increase to 20%, 25% or 32% because the shareholder receives a larger dividend.

They are therefore often the most tax-efficient way to withdraw surplus profit that the owner does not need as regular monthly remuneration.

Disadvantages of dividends

Dividends can be paid only when the company has distributable profit and follows the formal approval procedure. They cannot be treated as an unrestricted monthly withdrawal facility.

Dividends also do not create social insurance coverage. A shareholder receiving only dividends does not build pension, sickness or maternity insurance rights from those payments and does not obtain health insurance merely by receiving dividends.

Finally, dividends are not a deductible company expense. They are a distribution of profit, not a cost incurred to earn revenue.

Final answer: salary, dividends or both?

Salary is regular remuneration for work and comes with the full Lithuanian payroll tax package: progressive personal income tax, 19.5% employee VSD and PSD contributions, a possible additional 3% pension contribution, and employer contributions that commonly start at 1.77%.

Dividends are much simpler at shareholder level. An individual’s dividend is taxed at only 15% in Lithuania, with no VSD or PSD contributions and no increase under the 20%, 25% or 32% progressive income tax bands. The limitation is that dividends can be paid only from legally distributable profit and normally come after the UAB has accounted for corporate income tax.

For an active owner, the most balanced structure is often a regular salary for genuine work and dividends for the distribution of remaining profit. Before choosing exact amounts, ask the company’s accountant to model the result using the UAB’s corporate tax rate, the owner’s NPD eligibility, pension participation and tax residence.

This article provides general information based on Lithuanian rules in force in July 2026. It is not individual tax or legal advice.