In Lithuania
REASONS TO DO BUSINESS IN LITHUANIA (new)
Advantage Lithuania 2008 by Lithuanian Development Agency (new)
THE INVESTMENT CLIMATE IN LITHUANIA
Stable political and macroeconomic environment:
- Member of the EU and NATO since 2004;
- Lithuania’s President announced European of the Year 2007;
- Membership in the WTO, Schengen area since 2008;
- EU inner market directives best implemented into the national law among all EU members;
- Currency pegged to the Euro and backed by foreign reserves;
- Pro-business government with a personal income and social security tax reform agenda;
Lithuania is a part of the Baltic Sea Region, which has a population of close to 100 million people. Located in the Region, the home of many world-leading companies, Lithuanian businesses enjoy active economic cooperation with the Scandinavian countries and Germany, which are among the most important business partners of Lithuania as well as among the strongest economies of the world.
British analysts of the “Economist Intelligence Unit” (the research subdivision of “The Economist” magazine) confirmed Lithuania, amemberofthe EU and NATO, to be a country with very low economic and political risks. The research showed a minimal Lithuanian tax policy risk. Security and political stability risks were considered to be also minimal.
According to the latest economic freedom index, announced by the US economic investigation organization Heritage Foundation in 2007, Lithuania is the 22nd freest economy out of 161 countries of the world. Also, Lithuania is ranked 14th out of 41 countries in the European region, and its overall economic freedom score (72%) is higher than the regional average (67.5%).
The Heritage Foundation emphasized that top income and corporate tax rates in Lithuania are low, and business regulation is simple. Investment in Lithuania is welcome, and foreign capital is subject to the same rules as domestic capital. Also, the financial sector is advanced and regionally integrated.
Freedom Rank 26 (70.8%) in US Heritage Foundation „Index of Economic Freedom” 2008:
Lithuania has one of the fastest growing economies in Europe, with GDP growth of 7 percent in 2004, 7.6 percent in 2005 and 7.4 percent in 2006. Among the attractions of Lithuania’s investment climate are a diversified economy, investment laws that conform to EU standards, a low corporate profit tax, a well-educated workforce, the region’s best-developed infrastructure, a stable democratic government and banking system, membership in the European Union, and proximity to Eastern European markets. EU Structural Funds amounting to more than USD 12.4 billion from 2007 to 2013 should provide a boost to the economy.
Lithuania’s income levels still lag behind the rest of the EU, with per capita GDP (at purchasing power parity) of nearly 48 percent of the EU average. This, combined with the gradual liberalization of the EU’s labor market, is encouraging emigration of Lithuania’s labor force abroad. Employers report labor shortages in several sectors, including construction, healthcare, and transportation. Large investments may face difficulty finding the necessary number of workers for production needs. Wage inflation, which averaged 15.7 percent in 2006, is an important factor for potential investors to consider.
Lithuania encourages foreign companies and investors to explore investment opportunities. The Lithuanian Development Agency (LDA) is the government’s principal agency dedicated to attracting foreign investment.
Lithuania’s laws assure equal protection for both foreign and domestic investors. No special permit is required from government authorities to invest foreign capital in Lithuania. Foreign investors have free access to all sectors of economy with some limited exceptions:
1) The Law on Investment prohibits investment of foreign capital in sectors related to the security and defense of the State.
2) The Law also requires government permission and licensing for commercial activities that may pose risks to human life, health, or the environment, including the manufacturing of, or trade in, weapons.
3) Non-Lithuanians are generally not able to buy agricultural or forestry land. As part of its EU accession agreement, however, the Lithuanian government Lithuania must eliminate this restriction by 2011. The restriction does not apply to most non-Lithuanian individuals and organizations that have engaged in agriculture in Lithuania for at least three years. This restriction also does not apply to organizations that have established representative or branch offices in Lithuania.
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.
Foreign investors are treated equitably in privatization programs. The government has privatized most state enterprises and property, and the State Property Fund is responsible for managing and privatizing state assets. Major assets still under government control include the Lithuanian electric power distribution company (Rytu Skirstomieji Tinklai), the railway company (Lietuvos Gelezinkeliai), and Lithuania’s three international airports (Vilnius, Kaunas, and Klaipeda). Foreign investors purchased the majority of state assets privatized since 1990. These included companies in the banking, transportation, and energy sectors. Some foreign companies have complained about lack of transparency or discrimination in certain privatization transactions.
The State Property Fund screens the performance record and size of companies bidding on state or municipal property and has halted privatizations when it determined that the bidders were not suitable. Lithuania’s 2 Free Economic Zones are located in the country’s economically important centres and provide extremely favourable conditions for developing business activities by offering prepared industrial sites with physical and/or legal infrastructure, support services, and tax incentives.
Incentives in Lithuania’s Free Economic Zones include:
- no corporate tax for the first 6 years and a 50% corporate tax reduction for the next 10 years (applicable for investments exceeding EUR 1 million)
- no road and real estate taxes
- extensive application of 0% VAT
Total amount of incentives received by a company may not exceed 65% for small enterprises and 50% for medium and large enterprises of investment to the long term assets.
Info by: 
BusinessmanTime.com / Marcis Skadmanis
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