Key Takeaways
- →Prop firm income is classified as individual activity income (individuali veikla) — not capital gains
- →The first €20,000 of individual activity income is taxed at just 5% (2026 rate)
- →A 30% flat expense deduction is available with zero documentation required
- →Sodra social contributions add ~19.5% on 90% of profit (pension + health insurance)
- →Lithuania uses EUR since 2015 — no currency conversion needed for EU prop firm payouts
- →Individual activity is optimal up to ~€80,000; above that, consider a UAB company
- →File GPM311 annual return by May 1 via the VMI EDS portal
- →Effective total tax rate on €60,000 gross income is approximately 17.6%
Overview
Lithuania has quietly emerged as one of the European Union's most attractive jurisdictions for fintech innovation, hosting the largest number of e-money and payment institution licenses in the EU. This forward-thinking regulatory environment extends, at least indirectly, to how the country treats income from modern financial activities like prop firm trading. The Lithuanian tax system, administered by the State Tax Inspectorate (Valstybinė mokesčių inspekcija, or VMI), classifies prop firm payouts as individual activity income (individuali veikla) — a well-established category that provides clarity and, importantly, access to favorable tax rates that most EU member states simply cannot match.
For prop firm traders, Lithuania offers a compelling combination: a reduced 5% income tax rate on the first €20,000 of individual activity income (introduced in 2026), a generous 30% flat expense deduction requiring zero documentation, and social insurance contributions through Sodra that, while not insignificant at ~19.5%, are considerably lower than the 35–45% social burdens found in Western Europe. The country uses the Euro (since 2015), eliminating currency conversion friction when receiving payouts from EU-based prop firms like FTMO, and its fully digital tax administration through the EDS portal makes compliance straightforward even for those without Lithuanian language skills.
The critical distinction in Lithuania is between individual activity income and capital gains. Prop firm payouts — profit shares earned through a contractual relationship with a foreign company — do not constitute capital gains from the sale of financial instruments. They represent compensation for services rendered (your trading skill and decision-making), which places them firmly in the individual activity income category. Understanding this classification is the foundation for everything that follows.
How Prop Firm Income Is Classified
The Individual Activity Framework
Lithuanian tax law defines individual activity (individuali veikla) as any independent, continuous economic activity pursued with the intention of earning income. Prop firm trading fits this definition precisely: you operate independently, you trade continuously (not as a one-off transaction), and your explicit goal is generating profit. The VMI does not maintain a specific category for "prop trading" or "funded trading," but the individual activity framework is broad enough to encompass virtually any form of independent professional service.
To operate as an individual activity practitioner, you must obtain an Individual Activity Certificate (Individualios veiklos pažymėjimas) by filing form FR0457 through the VMI EDS portal. This registration is free and can be completed online in minutes. You select the relevant EVRK (economic activity classification) code — typically 66.19 ("Other activities auxiliary to financial services, except insurance and pension funding") or 64.99 ("Other financial service activities, except insurance and pension funding, n.e.c."). Some traders also use code 62.09 or 74.90 for consulting activities, though the financial services codes are more accurate.
Why It's Not Capital Gains
Lithuania taxes capital gains (turto pardavimo pajamos) on the sale of securities, real estate, and other assets at a flat 15% (or 20% above €120,000 from 2024). While this might seem like an attractive alternative, prop firm payouts do not qualify because:
- You never own the underlying assets. The prop firm owns the trading capital and the positions. You receive a share of profits, not proceeds from selling securities.
- The income is performance-based compensation. Your payout is calculated as a percentage of profits generated — it's functionally identical to a performance bonus or freelance fee.
- There is no acquisition cost. Capital gains require a purchase price to calculate the gain. Challenge fees are not the "acquisition cost" of a financial instrument.
- The contractual relationship is a service agreement. Prop firm contracts explicitly describe the arrangement as an independent contractor relationship, not an investment vehicle.
The VMI has not issued a specific ruling on prop firm income, but the individual activity classification is consistent with how Lithuania treats similar contractor/freelance income from foreign companies.
Contractor Status and Permanent Establishment
As an individual activity practitioner working with foreign prop firms, you are treated as an independent contractor for Lithuanian tax purposes. The prop firm does not create a permanent establishment in Lithuania, and you are solely responsible for declaring and paying your taxes. This is straightforward — Lithuania does not apply the complex "disguised employment" tests that some Western European countries use to reclassify contractor relationships.
Tax Rates and Brackets
Lithuania's income tax system underwent significant changes in 2026, introducing a more graduated rate structure for individual activity income that actually benefits lower-earning traders.
Income Tax Rates (2026)
| Income Level | Individual Activity Rate | Employment Rate |
|---|---|---|
| First €20,000 of individual activity income | 5% | N/A |
| €20,001 – €42,500 | 15% | 20% |
| €42,501 – €90,246 | 20% | 20% |
| Above €90,246 | 32% | 32% |
The 5% reduced rate on the first €20,000 is a significant advantage exclusive to individual activity income. This was introduced to encourage formal registration of freelance and gig economy work, and prop traders benefit directly.
For individual activity income, after the reduced rate band, income is aggregated with any employment income for purposes of determining the applicable rate. If you have no employment income (i.e., prop trading is your sole activity), the progression is as shown above.
Social Insurance Contributions (Sodra)
| Contribution | Rate | Base |
|---|---|---|
| Pension insurance (VSD) | 12.52% | 90% of profit |
| Health insurance (PSD) | 6.98% | 90% of profit |
| Total Sodra | ~19.5% | 90% of profit |
Sodra contributions are calculated on 90% of your declared profit (revenue minus deductions). The minimum monthly contribution base is the minimum monthly salary (€924 in 2026), and contributions are capped at a ceiling of approximately €108,000 annually.
Important: Sodra contributions are themselves tax-deductible, reducing your taxable income further.
Worked Example: Trader Earning €60,000
Let's walk through a complete tax calculation for a Lithuanian prop trader earning €60,000 in gross payouts.
| Step | Calculation | Amount |
|---|---|---|
| Gross prop firm income | €60,000 | |
| 30% flat expense deduction | €60,000 × 30% | −€18,000 |
| Taxable base | €60,000 − €18,000 | €42,000 |
| Sodra contributions (on 90% of €42,000 = €37,800) | €37,800 × 19.5% | −€7,371 |
| Adjusted taxable income | €42,000 − €7,371 | €34,629 |
| Income tax on first €20,000 | €20,000 × 5% | €1,000 |
| Income tax on €20,001–€34,629 | €14,629 × 15% | €2,194 |
| Total income tax | €3,194 | |
| Total tax burden (income tax + Sodra) | €3,194 + €7,371 | €10,565 |
| Effective rate on gross income | €10,565 / €60,000 | ~17.6% |
| Net take-home | €60,000 − €10,565 | €49,435 |
An effective rate of ~17.6% on €60,000 is remarkably competitive within the EU, especially compared to Germany (~42%), France (~35%), or Belgium (~50%+).
Est. Tax
€7,875
Take-Home
€52,125
Effective Rate
13.1%
Individual Activity: Lithuania's Key Tax Advantage
The individual activity regime is Lithuania's signature offering for prop traders. Unlike many EU countries that force self-employed individuals into complex company structures, Lithuania allows individuals to operate directly with minimal bureaucracy.
The 30% Flat Expense Deduction
The most powerful feature is the 30% flat-rate expense deduction (30% fiksuoto dydžio leidžiami atskaitymai). This works as follows:
- You deduct 30% of your gross revenue automatically — no receipts, no documentation, no bookkeeping required for this portion.
- The deduction covers all business-related expenses implicitly: equipment, software, internet, home office, etc.
- Alternatively, you can choose to deduct actual documented expenses if they exceed 30%. This requires maintaining full records.
- The choice between flat-rate and actual expenses can be made annually, allowing flexibility.
For most prop traders, the 30% flat deduction is optimal because actual trading expenses (VPS at ~€20/month, platform costs, etc.) rarely approach 30% of income. A trader earning €100,000 gets an automatic €30,000 deduction — far more than their actual expenses of perhaps €3,000–5,000.
Registration Process
- Register for Individual Activity Certificate via VMI EDS portal (form FR0457). Select appropriate EVRK code.
- Register with Sodra within 10 days of first earning income. This can be done online.
- Open a business bank account (recommended but not mandatory — personal accounts can be used).
- Begin making advance payments on a monthly or quarterly basis (see Filing section).
Comparison: Individual Activity vs. UAB (Company)
| Feature | Individual Activity | UAB (Private Limited Company) |
|---|---|---|
| Income tax rate | 5–32% progressive | 15% CIT + 15% dividend = ~27.75% |
| Expense deduction | 30% flat or actual | All documented expenses |
| Social contributions | ~19.5% on 90% of profit | On salary only (if paying yourself) |
| Accounting requirements | Minimal (self-filing possible) | Full double-entry bookkeeping |
| Registration cost | Free | ~€200–500 |
| Annual compliance cost | €200–500 (accountant optional) | €1,200–3,000 (accountant required) |
| Best for annual income | Under ~€80,000 | Above ~€80,000 |
For traders earning under approximately €80,000, the individual activity structure with the 30% flat deduction and 5% reduced rate is almost always more advantageous. Above this level, the UAB company structure may become beneficial due to the ability to retain profits within the company (taxed at 15% CIT) and control dividend timing.
Social Security and Healthcare
Lithuania's social insurance system, administered by Sodra (Valstybinio socialinio draudimo fondo valdyba), provides comprehensive coverage including pension, healthcare, maternity/paternity benefits, and unemployment insurance.
Contribution Rates for Individual Activity
| Component | Rate | Notes |
|---|---|---|
| Pension insurance (basic + additional) | 12.52% | Mandatory |
| Health insurance | 6.98% | Mandatory |
| Sickness/maternity | Included | Via pension contributions |
| Total | ~19.5% | On 90% of declared profit |
Key Rules
- Minimum contribution base: The minimum monthly salary (€924 in 2026). Even if you earn nothing in a given month, you owe Sodra contributions on this minimum.
- Maximum contribution base: Approximately €108,000 annually. Income above this ceiling does not generate additional Sodra obligations.
- Healthcare coverage: Your Sodra contributions provide access to Lithuania's public healthcare system, which covers essential medical services, prescriptions, and hospital care.
- Pension accrual: Contributions build your Lithuanian state pension entitlement. The pension system operates on a points-based model.
- EU coordination: As an EU member state, Lithuania's social insurance contributions are recognized across the EU under Regulation (EC) 883/2004. If you later move to another EU country, your Lithuanian contribution periods count toward pension eligibility.
Voluntary Additional Coverage
Beyond the mandatory contributions, Lithuania offers voluntary additional pension pillars:
- Second pillar (quasi-mandatory): 3% of gross salary (not applicable to individual activity)
- Third pillar: Voluntary private pension funds with tax incentives (contributions deductible up to €1,500/year or 25% of income)
Annual Sodra Declaration
Submit SD13 annual social insurance declaration for the prior year.
Advance Tax Payments
Monthly advance income tax payments if annual income exceeds €2,000.
Q1 Advance Payment Deadline
Quarterly advance income tax payment alternative to monthly schedule.
Annual Tax Return (GPM311)
File annual income tax return and pay any remaining balance via EDS portal.
Q2 Advance Payment
Second quarterly advance income tax payment deadline.
Q3 Advance Payment
Third quarterly advance income tax payment deadline.
Q4 Advance Payment & Year-End
Final quarterly advance payment and tax year closes.
Deductible Expenses
If you opt for actual expense deductions instead of the 30% flat rate, the following are deductible:
| Expense | Typical Annual Cost (EUR) | Notes |
|---|---|---|
| Challenge fees (failed + passed) | €500–5,000 | Fully deductible as business cost |
| VPS / server hosting | €240–600 | For running EAs or maintaining connectivity |
| Trading platform subscriptions | €0–1,200 | TradingView Pro, etc. |
| Computer hardware | €500–2,000 | Amortized over 3 years if >€500 |
| Multiple monitors | €300–1,000 | Amortized or immediate if <€500 each |
| Internet connection | €180–360 | Business portion (50–100%) |
| Mobile data plan | €120–240 | Business portion |
| Home office | Proportional | Based on m² used / total apartment m² |
| Accounting services | €200–600 | If using an accountant |
| Professional courses | €200–2,000 | Trading education, certifications |
| Trading books & journals | €50–200 | Physical or digital |
| Sodra contributions | Actual amount | Fully deductible from taxable income |
Pro tip: For most prop traders, the 30% flat deduction exceeds actual expenses. Only switch to actual expenses if you have a particularly expensive year (new equipment, multiple failed challenges, significant education costs) that exceeds 30% of revenue.
Filing Requirements and Deadlines
Annual Filing
The primary obligation is the GPM311 Annual Income Tax Return, due by May 1 following the tax year (which runs January 1 – December 31). Filing is done electronically through the VMI EDS portal (Elektroninio deklaravimo sistema) at deklaravimas.vmi.lt↗.
Key Deadlines
| Deadline | Obligation | Form |
|---|---|---|
| January 15 | Annual Sodra declaration for prior year | SD13 |
| Monthly (by 15th) | Advance income tax payment (if applicable) | FR0781 |
| Quarterly (by 15th of following month) | Alternative advance payment schedule | FR0781 |
| May 1 | Annual income tax return | GPM311 |
| May 1 | Pay any remaining income tax balance | — |
| Monthly | Sodra contributions payment | Via Sodra portal |
Advance Payments
If your annual individual activity income exceeds €2,000, you must make advance income tax payments. These can be made monthly or quarterly. The advance payment is calculated based on your prior year's income or estimated current-year income. Any overpayment is refunded or credited after filing your annual return.
Record Keeping
Lithuania requires you to maintain records for 10 years. This includes:
- All prop firm payout confirmations and statements
- Bank statements showing received payments
- Expense receipts (if claiming actual deductions)
- Prop firm contracts and agreements
- Correspondence regarding payout calculations
VAT Considerations
The standard Lithuanian VAT rate is 21%, with a registration threshold of €55,000 in annual revenue. However, financial services are generally VAT-exempt under Article 28 of the Lithuanian VAT Law, which implements EU Directive 2006/112/EC. Prop firm payouts — as income from financial service activities — should fall within this exemption. If your individual activity is exclusively prop trading, you likely do not need to register for VAT regardless of income level. Confirm this with your accountant based on your specific EVRK code registration.
Banking and Receiving Payments
Lithuania is a major EU fintech hub, home to companies like Revolut (which obtained its European banking license here), TransferGo, and dozens of e-money institutions. This creates an excellent environment for receiving international payments.
Recommended Banking Setup
| Option | Best For | Monthly Cost | FX Fees |
|---|---|---|---|
| Swedbank / SEB / Luminor | Primary business account, credibility | €5–15 | ECB rate + 1–2% |
| Revolut Business | Multi-currency receiving | €0–25 | Interbank rate |
| Wise Business | USD/GBP receiving + conversion | ~€0 | 0.4–0.6% |
| PayPal | Backup for smaller firms | Free | 2.5–3.5% |
| Payoneer | USD receiving | Free | 1–2% |
Since Lithuania uses the Euro, receiving EUR-denominated payouts from EU-based prop firms is seamless — no conversion needed. For USD payouts, Wise or Revolut typically offer the best conversion rates.
Practical Tips
- Declare all foreign income: The VMI has access to automatic exchange of information under CRS. All foreign bank account balances above €250,000 are reported automatically, and many EU countries report at lower thresholds.
- Keep payout records: Save every payout confirmation email and platform screenshot showing the profit calculation.
- Separate accounts: While not legally required, maintaining a separate bank account for trading income simplifies bookkeeping enormously.
Cost of Living
Lithuania offers one of the best cost-of-living ratios in the EU, particularly in relation to its digital infrastructure and quality of life.
| Monthly Expense | Vilnius | Kaunas | Klaipėda |
|---|---|---|---|
| Rent (1-bed, city center) | €650–900 | €400–600 | €400–550 |
| Rent (1-bed, outside center) | €450–650 | €300–450 | €300–400 |
| Utilities (electricity, heating, water) | €150–250 | €120–200 | €130–210 |
| Internet (fiber, 100+ Mbps) | €15–25 | €15–25 | €15–25 |
| Groceries | €250–400 | €220–350 | €220–350 |
| Dining out | €150–300 | €100–250 | €100–250 |
| Transportation | €40–80 | €30–60 | €30–60 |
| Health insurance (private supplement) | €30–60 | €30–60 | €30–60 |
| Total monthly | €1,735–2,665 | €1,215–1,995 | €1,225–1,905 |
Lithuania boasts some of the fastest internet speeds in Europe, with fiber-optic connections reaching even small towns. Vilnius regularly ranks among the top EU cities for digital infrastructure — an important consideration for traders who need reliable, low-latency connections.
Common Mistakes to Avoid
-
Not registering for individual activity before earning income. Some traders start receiving payouts and only register later. The VMI can impose penalties for operating without registration. Register before your first payout.
-
Confusing the 30% flat deduction with a 30% tax rate. The 30% is an expense deduction, not a tax rate. Your taxable income is 70% of gross revenue (if using the flat deduction), which is then taxed at the progressive rates.
-
Forgetting Sodra minimums. Even months with zero income require minimum Sodra contributions (~€180/month). Budget for this fixed cost.
-
Not making advance payments. If your annual individual activity income exceeds €2,000, you must make monthly or quarterly advance payments. Failure to do so triggers interest charges.
-
Treating payouts as capital gains. Some traders attempt to declare prop firm income as capital gains (taxed at 15%) rather than individual activity income. This misclassification risk penalties and back-taxes if audited.
-
Ignoring the UAB threshold. Traders earning above ~€80,000 should model the UAB company structure, which may reduce the combined tax and social insurance burden compared to individual activity at higher income levels.
Professional Advice
In Lithuania, tax professionals are called mokesčių konsultantas (tax consultant) or buhalteris (accountant). There is no specific "chartered accountant" designation like in the UK, but the Lithuanian Chamber of Auditors (Auditorių rūmai) oversees qualified auditors.
For prop trader tax matters, expect to pay:
| Service | Annual Cost (EUR) |
|---|---|
| Basic annual filing (GPM311 + Sodra) | €200–400 |
| Monthly bookkeeping + filing | €50–150/month |
| Initial consultation and structuring advice | €100–200 |
| UAB company administration | €100–250/month |
Many Lithuanian accountants speak English, particularly in Vilnius. Online accounting firms like Verovita, Audita, and Fintra serve international clients and offer English-language services.
Official Resources
- VMI (State Tax Inspectorate): www.vmi.lt↗ — Main tax authority
- EDS Portal (Electronic Filing): deklaravimas.vmi.lt↗ — Online filing system
- Sodra (Social Insurance): www.sodra.lt↗ — Social insurance administration
- Bank of Lithuania: www.lb.lt↗ — Central bank and financial regulator
- Registrų centras: www.registrucentras.lt↗ — Business registration
- Migration Department: www.migracija.lt↗ — Visa and residency information
This guide provides general tax information about Lithuanian taxation of prop firm trading profits for educational purposes only. It does not constitute tax advice. Lithuania's individual activity regime, Sodra contribution rules, and the 5% reduced rate have specific eligibility requirements that may change. Consult a qualified mokesčių konsultantas or buhalteris before making any decisions based on this information.
Common Deductible Expenses
Official Resources
VMI (State Tax Inspectorate) — Official Website ↗Tax Guides for Nearby Countries
Frequently Asked Questions
Important Disclaimer
PropFirmScan does not provide tax, legal, or accounting advice. The information on this page is for general informational purposes only and should not be relied upon as tax advice. Tax laws vary by jurisdiction and change frequently. Always consult a qualified tax professional or accountant for advice specific to your situation.
This content was last reviewed in March 2026. Tax regulations may have changed since this date.