Offices | Lithuania

INVESTMENT OPPORTUNITIES IN THE REPUBLIC OF LITHUANIA:

• General Economic Situation
• Legal Framework for Investment
• Incentives
• Protection
• International Agreements

GENERAL ECONOMIC SITUATION

Over the past few years, Lithuania has become a leading location for foreign investors and a competitive center for product sourcing in the region.

Lithuania has one of the fastest growing economies in Europe, with GDP growth of 9.7 percent in 2003, 7 percent in 2004, and 7.3 in 2005. Lithuania is the least expensive country to do business in the new EU states, according to the results of the survey carried out by DHL in 2004. The Pricerunner 2004 report also named Lithuania as the least expensive country in Europe. The World Bank's "Doing Business" survey, which evaluates according to 10 criteria the ease of doing business in 175 countries, gave generally high marks to Lithuania, ranking it 16th in 2006 and the best of the new EU states on the ease of doing business. Lithuania scored especially high in the categories of "registering property“ and "enforcing contracts".

Diversified economy, investment laws that conform to EU standards, a low corporate profit tax, a well-educated workforce, the region's best-developed infrastructure (4 international airports with direct routes to most European cities, best roads in the Baltics, an ice-free sea port and an efficient railway system), a stable banking system, membership in the European Union and proximity to Eastern European markets make Lithuania's investment climate attractive. The amount of annual foreign investments has been regularly increasing from year to year and during the past few years has increased very speedily.

The tax code for businesses changed in 2006. The government raised, as of January 1, 2006, the tax on corporate profits from 15 to 19 %, but will lower this to 18 % in 2007 and to return the tax on corporate profits to 15 % in 2008. In July 2006, the government l decreased personal income tax from 33 to 27 %. The rate will drop in January 2008 to 24 %. The government also introduced in 2006 an annual tax of 1 % of the market price on real estate owned by individuals that is used only for commercial purposes.

The government affords foreign investors protection equal to that provided to domestic investors, and sets few limitations on their activities. Foreign investors have the right to repatriate or reinvest profits without restriction, and can bring disputes to the International Center for the Settlement of Investment Disputes.

LEGAL FRAMEWORK FOR INVESTMENT

Currently the basic legal deed regulating the procedure for foreign investments in the Republic of Lithuania is the Law on Investments as for July 7, 1999.

Foreign investment in the Republic of Lithuania is also regulated by bilateral and multilateral agreements of the Republic of Lithuania on investment promotion and protection as well as other international agreements.

The Law on Investments describes the basic principles defining the treatment of foreign investments in Lithuania. Foreign investors have the same rights and obligations relating to commercial activities as local investors. No special permit is required from Government authorities to invest foreign capital in Lithuania. Foreign investors have free access to all sectors of the economy with some limited exceptions:

• sectors related to the security and defense of the State (except for investments by the economic entities from member-states of EU, NATO, OECD, EFTA, provided this is approved of by the State Defence Council).
• commercial activities that may pose risks to human life, health, or the environment, including the manufacturing of, or trade in, weapons require government permission and licensing.
• Non-Lithuanians are generally not able to buy agricultural or forestry land. The restriction does not apply to individuals and organizations from member-states of EU, NATO, OECD, EFTA, that have engaged in agriculture in Lithuania for at least three years; also to organizations that have established representative or branch offices in Lithuania. This restriction will be eliminated by 2011.

The Law on Investment specifically permits the following forms of investment in Lithuania:

• Establishment of an enterprise or acquisition of a part or whole of the authorized capital of an operating enterprise registered in Lithuania;
• Acquisition of securities of any type;
• Creation, acquisition, and increase in the value of long-term assets;
• Lending of funds or other assets to business entities in which the investor owns a stake, allowing control or considerable influence over the company; and
• Performance of concession or leasing agreements.

Foreign entities are allowed to establish branches or representative offices. There are no limits on foreign ownership or control. Foreign investors can contribute capital in the form of money, assets, or intellectual or industrial property.

INCENTIVES

Lithuania provides special incentives to strategic investors. The criteria by which the national government or a municipality designates a strategic investor varies from project to project. In general, the national government requires that a strategic investor invest USD 50 million or more. Municipalities may tie the designation criteria, such as the number of jobs created and the environmental benefits that accrue. Strategic investors' rewards include special business conditions, such as favorable tax incentives for up to ten years.

Lithuania has two Free Economic Zones (FEZ): one in Klaipeda, the country's largest seaport, and one in Kaunas, an air, road, and rail hub. Lithuania's EU accession agreement permits the indefinite operation of existing FEZs, but precludes the establishment of new ones. Foreign firms operating in the FEZs have the same opportunities and benefits as local companies.

Companies operating within the zones enjoy:

• Six years' exemption from corporate income tax and 50 percent reduction during the following 10 years (if the company invests more than ? 1 million);
• Exemption from real estate tax;
• No taxes on dividends paid to foreign investors;
• A 50 percent discount on land leases.

PROTECTION

Lithuanian law protects foreign investments and investors' rights, and the judicial system is generally effective at upholding the enforcement of contracts.

Foreign investors are free to enforce their rights by applying to the courts of Lithuania or directly to the International Center for Settlement of Investment Disputes under the Washington Convention of 1965.

Lithuania's EU membership has given foreign firms the additional right to appeal adverse governmental rulings to the European Court of Justice. Lithuania's "Law on Public Procurement," which came into effect on March 1, 2003, is in accordance with the EU Acquis Communautaire.

INTERNATIONAL AGREEMENTS

Lithuania has entered into the international agreements with many countries in the world, which stimulates the development of investment processes.

Agreements for the promotion and reciprocal protection of investments with these countries:
Argentina, Australia, Austria, Belarus, Belgium-Luxembourg Economic Union, China, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Israel, Italy, Jordan, Kazakhstan, Kuwait, Latvia, Moldova, Mongolia, the Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia and Montenegro, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, Ukraine, UK, USÀ, Uzbekistan, Venezuela, Vietnam.

Agreements for the avoidance of double taxation with these countries:
Armenia, Austria, Azerbaijan, Belarus, Belgium, Canada, China, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Georgia, Hungary, Iceland, Ireland, Italy, Kazakhstan, Latvia, Luxemburg, Malta, Moldova, the Netherlands, Norway, Poland, Portugal, Romania, Russia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, UK, USA, Uzbekistan.

Agreements on legal assistance and legal relations with these countries:
Armenia, Azerbaijan, Belarus, China, Estonia, Kazakhstan, Latvia, Moldova, Poland, Russia, Ukraine, USA, Uzbekistan.