From 16 March 2020, Lithuania entered a state of national quarantine as a result of the coronavirus outbreak. In addition to closing all educational establishments and shops (excepting grocery stores and pharmacies), the government has ordered Lithuanian citizens to self-isolate. The quarantine measures are currently expected to be in place for 2 weeks (16 March to 30 March).
Given the significant business implications of the quarantine period, the Lithuanian government has introduced a state aid package to help employers manage the coronavirus fallout. Key information for employers, and details of the aid package follow…
Managing Work Absences
Employers have the following options, under Lithuanian law, for handling employee absences during the quarantine period:
Remote Work - Article 57 of the Labour Code: Employees can, by mutual agreement with their employer, work remotely from home during the quarantine. This option is obviously not suitable to all categories of employment.
Annual Leave - Article 126-130 of the Labour Code: Employees may choose to use annual leave to cover their absence from work during the quarantine but employers are not able to force employees to do so. Annual leave can be granted with mutual agreement.
Unpaid Leave - Article 137 of the Labour Code: Employees can be granted non-paid leave during the quarantine. Employers may grant unpaid leave only if their employee requests it.
Idle Time - Article 47 of the Labour Code: When the government declares an emergency situation or quarantine, and employers objectively cannot provide their employees with work, and if remote work or annual leave is not viable, it may be possible for employers to grant compensation to employees under idle time rules, at their discretion. If the normal working time set out in an employment contract is 40 hours a week, then idle time pay cannot be less than the minimum monthly salary, currently EUR 607
Partial Work - Article 48 of the Labour Code: Employers can implement partial work payments for employees when their work is reduced by 50% due to economic reasons, and where the State Social Insurance Fund Board (SODRA) has agreed to pay partial work allowances.
Exact implementation measures for partial pay allowances have not yet been implemented. The Lithuanian government is working on legislation to resolve partial pay SODRA applications for introduction in the near future.
Reduction of Working Hours - Article 45 of the Labour Code: With the consent of employees, employers may reduce their work hours, pending a mutually-agreed change in the employment contract.
Termination of Employment contract - Article 57 of the Labour Code: If the reduction in work volume warrants it, and employers cannot implement alternative measures, employees may be dismissed from work and have their employment contracts terminated. In this eventuality, employees need to be given 1-3 months notice and severance pay. Employees raising a child under 3 years of age cannot be dismissed for this reason.
Force Majeure Contract Exemption
In specific circumstances, the Lithuanian Civil Code makes Force Majeure provisions for exemption from contractual liability, but is not absolute right without any limitations. These are necessary conditions in order to apply Force Majeure conditions:
- A contract party has to prove that circumstances due to which contractual obligations cannot be performed could not have been foreseen before the contract;
- A contract party cannot prevent their failure to perform their obligations;
- A contract party that fails to perform their obligations information invokes Force Majeure and informs the other contract party of its failure to fulfil contract terms
When a business is affected by Force Majeure conditions, it must immediately inform other contract parties. Those parties can request an official confirmation of Force Majeure conditions: under Lithuanian Law, Force Majeure certificates are issued by the Chamber of Commerce, Industry, and Crafts.
Force Majeure conditions do not provide automatic grounds to terminate employment contracts. Any disputes over contract obligations will be handled by the Lithuanian courts. If the consequences of the virus outbreak cause a breach of a contract, parties should follow the processes set out by Force Majeure clauses, including informing other parties and collecting evidence.
The coronavirus outbreak has prompted the Lithuanian Tax Authority to take certain tax measures:
- Businesses can push back advance corporate income tax (CIT) reports and payment until 30 March 2020 (from 15 March). Reports can be made based on previous data, or on estimates of future data. Businesses can adjust their advance CIT reports if they have already submitted their forms.
- Businesses can arrange a tax loan agreement with the tax authority, outlining a new repayment schedule if their payments cannot be made on time. It is expected that once the tax loan agreement is finalized, taxes may be deferred until the end of extreme conditions.
- Tax loan agreements are allowed for personal income tax payments (PIT) with deadlines of 16 March 2020.
- Personal income tax reporting deadlines are extended from May 2020 to 1 July 2020.
The Tax Authority also announced tax measures under consideration:
· In the near future, the State Tax Inspectorate (STI) will provide a list with economic activities which possibly got direct negative impact of COVID-19. The STI will not force any aggressive tax collection measures and will not calculate interests or fines (with deadlines of 16 March 2020) for these economic activities. Furthermore, similar measures will be applied for the payments to State Social Insurance Fund Board.
State Aid Package
The state aid package prepared by the Lithuanian government is intended to provide economic stimulation and corrective measures as the country’s employers and employees deal with the effects of the virus outbreak.
The aid measures announced by the government are not yet in legal effect but legislation is being prepared which will see them implemented in the near future.
The state aid package is intended to fulfil the following objectives:
Protecting Jobs and Income
Idle time assistance: Businesses will receive assistance in the form of a subsidy, for up to 3 months, to pay employees’ idle time allowances. In order to access the assistance, employers must commit to continuing an employee’s employment for at least 3 months after the assistance ends. The subsidy will be paid by the Lithuanian Employment authority at;
- 60% of employee remuneration up to EUR 607 per month
- 90% of employee remuneration up to EUR 607 per month in sectors currently subject to emergency restriction as a result of quarantine.
Sickness benefits: Parents and guardians of children (up to primary school age) and children with disabilities (up to 21 years of age) will receive sick pay and benefits when their children’s educational institutions are closed - as long as they obtain a certificate confirming their temporary incapacity to attend work.
Self-employment allowance: If self-employed workers are unable to work as a result of coronavirus measures, the state will provide a flat rate allowance of EUR 257 per month for up to 3 months.
Mortgage installments: The grace period for residential mortgage installments will be extended to 6 months for employees who lose their jobs as a result of coronavirus measures.
Utility payments: The government will recommend that municipal authorities permit a delay or postponement of utility bill payments.
Tax loans: The government will provide tax loans to Lithuanian businesses or help them agree a repayment schedule. The tax loan process remains the same but if a business is not able to provide the required documentation, the Lithuanian Tax Authority will use its discretion in deciding whether an agreement can be made.
Similarly, the Tax Authority will expand tax loan agreement support measures to Personal Income Tax arrears due on 16 March 2020, either postponing the payment or agreeing a new repayment schedule. PIT loan agreements can be made by the ManoVMI electronic system.
UAB client payments: Clients of UAB Ignitis with electricity or natural gas bills will have the possibility to postpone payments or agree a repayment schedule.
Agricultural Credit Guarantee Fund: The government will add EUR 500 million to the Agricultural Credit Guarantee Fund and Invega guarantee fund. It will also extend warranty conditions and compensate SMEs’ interest payments from 50% to 100%.
Treasury Liquidity: The government will give the state the power to borrow an additional EUR 5 billion.
The government will take the following economic stimulus measures:
- Acceleration of investment programs and payments, and increased funding intensity.
- Redistribution of EU investment funds to the business, health, and employment sectors.
- Establishment of a COVID-19 fund to directly address the consequences of the outbreak, and to provide financial donations to citizens.
- An additional guarantee limit to help create new financial instruments or supplement existing instruments.
- Recommendation that the Lithuanian Bank increases lending potential by EUR 2.5 billion.
Personal Income Tax
The deadline for the reporting of personal income tax will be pushed to 1 July 2020 (from 4 May). 2% of PIT can be dedicated as financial support: taxpayers can access their financial support via their Electronic Declaration system.
The Lithuanian government will take several measures to ensure that the healthcare system and other public protection systems function effectively. Those measures are:
- Additional social guarantees for healthcare professionals and officials who work in disease outbreak areas.
- Emergency management funding for healthcare costs and for public authorities. The funding includes bonuses for healthcare professionals and other public staff.
- Special urgency considerations for public procurement that remove the need for published contract notices in the event of a public health emergency.
- Government purchase of personal protection equipment including reagements, medical supplies and other special equipment.
For more information on the Lithuanian tax and business landscape, browse our Global Insight Guide to Lithuania.