On 1 January 2020, new tax rules on daily allowances came into force. Does this simply make secondments more expensive?
For business trips, Lithuanian employers must pay their employees ‒ in addition to their salary ‒ a flat-rate daily allowance for each day of the trip, with the amount depending on the destination country.
These daily allowances are tax-exempt – so long as the employee’s salary exceeds a certain threshold. Until the end of last year, daily allowances were tax-free if the employee’s salary exceeded the statutory minimum wage by at least 1.3 times. On 1 January 2020, this coefficient was increased to 1.65.
In addition, 1 January 2020 saw a significant increase in the minimum wage, which from now on will be EUR 607 monthly or EUR 3.72 hourly.
This means that the tax-free thresholds for the daily allowance have risen considerably since the beginning of the year. The employee’s salary must reach at least the following level for the daily allowance to be tax-free:
End of 2019
EUR 1 001.55
Significant additional costs are likely to be incurred, in particular by companies that employ low-skilled workers and often send them on business trips (e.g. construction companies, temporary employment agencies, logistics companies).
However, for companies that send employees abroad, this change brings with it another aspect. If employees are posted e.g. to Germany, the German minimum wage must be paid there. But, under certain circumstances, daily allowances can be offset against this minimum wage. Although the change is likely to initially entail higher costs for most companies, it may, at the same time, also open up new scope for manoeuvre for some.
In any case, companies that regularly post employees should carefully check whether payments to their employees comply with current legislation. Companies that occasionally post employees whose salaries are close to the Lithuanian minimum wage should also calculate from when an increase in employee salaries could bring tax benefits.
Source: Decision of the Government of the Republic of Lithuania No. 99 of 28 January 2003 “On Amendments to the Rules on Deduction of Daily Allowances from Income”