Software engineers' B2B taxes explained on fingers

If you work under B2B then I suggest you to refresh you knowledge with my calculations in order to escape the tunnel vision.

Regular Senior React engineering contractor in Vilnius makes roughly EUR 70,000 per year (brutto) + PVM (VAT).

*** Disclaimer: I concluded the coming bellow from paid consultations with finance professionals, but this is how I understood it. Please don't rely on it and only use as point of view. ***

Individualu veikla

All funds coming to the bank account are your own funds.

Taxable income is (by default) 70% of the revenue: EUR 70,000 x 0.7 = EUR 49,000

• GPM (income tax) is 15%: EUR 49,000 x 0.15 = EUR 7,350

Contributions body is 90% of the taxable income: EUR 49,000 x 0.9 = EUR 44,100

• PSD (health insurance) is 6.98%: EUR 44,100 x 0.698 = EUR 3,078.18
• Social is 12,52%: EUR 44,100 x 0.1252 = EUR 5,521.32

Total tax load under individualu veikla: EUR 7,350 + 3,078.18 + 5,521.32 = EUR 15,949.5 (22,7% of revenue). And PVM on the side.

Benefit: VMI has a tool for invoicing (iAPS), so you do not need to pay for accounting (reports) and invoicing software. The cost of maintenance: EUR 0.

Mazoji Bendrija

All funds coming to your bank account is not your funds, it's businesses funds.

Taxable income is 5% of the profit (revenue - expenses). The most common expenses: own salary, business tools (G suite, LinkedIn subscription, ...), car fuel, car lease, airline tickets, ... , - everything used for business purposes AND coming with invoice on company name.

Salary. You can pay yourself salary under Civiline sutortis (Civil contract) or Labour contract.

The difference is that Civil contract is not subject to Social contributions charge, but is subject to a minimum PSD charge of minimal fixed EUR 65.61 (2024) (some exceptions apply) and personal income tax of 15%.

Labour contract is subject to both Social contributions charge and PSD depending on amount of the salary. Plus personal income tax of 15%.

In case of a minimal salary I can see only one difference. If you decide to go with labour contract between you and your company, you have social security, for example, if you once become unemployed. In both cases the minimum retirement pension awaits you once retired.

Also, under civil contract you can pay any amount, for example EUR 500 per month. Under labour contract you can pay no less than minimum wage which is EUR 940 since 2024.

Furthermore, labour contract requires consistent reporting ...

As a result, you will need an accountant: roughly EUR 100 per month + PVM.

Furthermore, funds are not yours. Are only able to cover business expenses, and withdraw salary during the year. The rest can only be withdrawn by the end of the year as dividend (15% for Lithuania's tax residents).

Obviously, applying labour contract you can limit PSD and Social contributions to fixed minimum amounts, while under Ind. veikla it's taken from 2/3 of annual revenue.

So in the end it's quite difficult to perform clear tax load and for those who are Lithuania's tax residents I suggest to think twice before switching from individual activity to business entity as the headache will increase significally.

Hello, world!

Things change when you (personally) become tax resident in another country.

And I don't mean UAE's friendly tax residence here.

Your personal incomes become subject to local tax rates, which might be tremendously sharp in the most of EU mediterranean coast countries.

Here MB might save your ... day as funds become not yours, but businesses ??.

Good accountant is quite expensive, but it's possible to apply the "VDS server" principle here. Should you be interested in good local accountant (Vilnius), please ping me so that I can share a brief idea.