• Applicable Legislation
• Regulatory Framework
• Principles of Foreign Investment
• Forms of Investment
• Investment Protection and Guarantees
• Investments Related to Real Estate
• Concession
• Incentives
• Free Economic Zones

The goal of attracting foreign investment was set by Lithuania shortly after it regained its independence. The first law on foreign investment was adopted on 29 December 1990. In mid-1995, the Seimas (Parliament) enacted an updated version - the Law on Foreign Capital Investment in the Republic of Lithuania. The latter was later replaced with the 7 July 1999 Law on Investments.


Applicable Legislation

International Agreements

Foreign investment in Lithuania is regulated and protected by numerous bilateral Agreements on Promotion and Protection of Investments. Currently, there are about 26 agreements in place with most of the Member States of the EU, the USA and many Central and Eastern European countries. Such agreements prevail over the provisions of the laws of the Republic of Lithuania and usually provide for more favourable treatment of reciprocal investments.

National Legislation

1. The 18 July 2000 Civil Code of the Republic of Lithuania;
2. The 7 July 1999 Law No. VIII-1312 of the Republic of Lithuania "On Investments" ("the Investments Law");
3. The 8 May 1990 Law No. I-196 of the Republic of Lithuania "On Enterprises";
4. The 31 July 1990 Law No. I-440 of the Republic of Lithuania "On Enterprise Register";
5. The 16 January 1996 Law No. I-1169 of the Republic of Lithuania "On Securities Market";
6. The 10 September 1996 Law No. I-1510 of the Republic of Lithuania "On Concessions";
7. The 13 July 2000 Law No. VIII-1835 of the Republic of Lithuania "On Companies" ("the Company Law");
8. The 28 June 1995 Law No. I-976 of the Republic of Lithuania "On the Fundamentals of Free Economic Zones".

Investment in Lithuania is widely supported by State institutions and various organisations, both governmental and non-governmental. The most significant organisation promoting investment in Lithuania is the Lithuanian Development Agency (LDA) (www.lda.lt). LDA supplies general information on the business climate and assists foreign investors in the gathering of specific information. LDA also provides a variety of investor services and helps to collectively protect and promote the interests of foreign investors through direct contact with the Government. Other organisations involved in the promotion of foreign investment in Lithuania are the Lithuanian Free Market Institute (www.lrinka.lt), Investors' Forum (www.investorsforum.lt), various trade missions of foreign embassies and other governmental and non-governmental agencies. The Lithuanian International Chamber of Commerce (www.tprl.lt) is also active in promoting bilateral investment opportunities.

Enterprises with foreign capital, branches and representative offices of foreign enterprises are registered by the Ministry of Economy which also consults investors on investment issues. From time to time, foreign investors are also invited to direct consultations with the Government of the Republic of Lithuania.


Principles of Foreign Investment

The Investments Law contains the fundamental principles defining the treatment of foreign investments in Lithuania. Notably, this law also applies to domestic investors.

Principle of Equal Protection

The Investments Law expressly establishes that rights and lawful interests of Lithuanian and foreign investors shall be protected by the laws of the Republic of Lithuania.

Principle of Equal Treatment

The Investments Law establishes the principle of equal treatment, under which foreign investors enjoy the same rights and obligations relating to commercial activities as Lithuanian domestic investors, including the State and municipalities, and the economic conditions are the same for all investors.

Principle of Free Access to All Sectors of Economy

Generally, foreign investors have free access to all sectors of the economy, however, some exceptions are provided for in the Investments Law and other laws. According to Article 8 of the Investments Law, investment of capital of foreign origin is prohibited in the following instances:

1. sectors relating to the security and defence of the State (with some exceptions); and
2. the organisation of lotteries.

The Investments Law provides for the following forms of foreign investment in Lithuania:

1. the establishment of an enterprise or the acquisition of a part or whole authorised (ownership) capital in an operating enterprise registered in Lithuania;
2. the acquisition of securities of all types;
3. the creation, acquisition and increase of the value of long-term assets;
4. the lending of funds or other assets to enterprises in which the investor owns a stake allowing to control such enterprise or influence it considerably;
5. the conclusion of concession or leasing agreements.

Under the Investments Law, investments are considered to be monetary funds and other tangible, intangible and financial assets, appraised under applicable procedures, which are invested for the purposes of generating profit (income), social results (educational, cultural, scientific, health, social security and in other similar spheres) or to ensure the implementation of State functions.


Investment Protection and Guarantees

The Investments Law emphasises protection of investments, rights and lawful interests of the investors. The Investments Law expressly mentions that State institutions or officers have no right to prohibit or restrict the possessing, use and disposal of the investment by the investor. Any damage suffered by the investor due to unlawful practices of the State or municipal institutions or officials are to be compensated under the procedure established in the laws.

Expropriation of the investment may take place only for the public need and only in cases and under the procedures established in the laws of the Republic of Lithuania, provided the investor is adequately compensated pursuant to the rules established by the Government of the Republic of Lithuania. The investor must be compensated at the market value of the assets deprived that existed immediately prior to expropriation or upon the notice of expropriation, whichever is earlier. The value of the expropriated assets and amount of compensation must be appraised according to the Law on Principles of Appraisal of Assets and Business and other legal acts. The compensation must be paid within three months after the day of expropriation in the currency requested by the foreign investor (if the appraisal is in Litas, the conversion is performed to applicable foreign currency according to the official exchange rate applicable on the date of appraisal). The compensation must include interest from the moment of publication of the notice of expropriation until the payment of compensation (the interest rate is determined on the basis of the LIBOR rate of the relevant currency). The compensation may be transferred abroad without any restrictions.

Investors have the right, after having paid taxes, to transfer abroad their profit (income) without restrictions.

Disputes concerning the rights and lawful interests of a foreign investor are settled according to the agreement between the parties, by the courts of Lithuania, international arbitration or by other institutions. In case of investment disputes, foreign investors also have the right to apply to the International Centre for Settlement of Investment Disputes because Lithuania is a member of the 18 March 1965 Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. The disputes shall be resolved under the provisions of Lithuanian legislation and applicable international treaties.


Investments Related to Real Estate

Enterprises with foreign capital are entitled to own, lease or use real property according to the laws of Lithuania. Generally, there are no material limitations on the ownership or use of buildings, however, special buildings with cultural or historical value may have particular requirements or regulations concerning their use or renovation.

Based on the Civil Code, enterprises are allowed to lease land plots owned by the State for a maximum period of 99 years. Privately owned land may be leased for any term mutually agreed by the parties.

In contrast, limitations are placed on the ownership of land. Following the amendments of the Constitution of the Republic of Lithuania, municipalities, foreign citizens and foreign entities engaged in commercial activity in Lithuania and complying with certain criteria determined by the law are allowed to purchase non-agricultural land plots.

In conjunction with the adoption of the amendment to the Constitution, the Constitutional Law defining the procedures, conditions and limitations of acquisition of the land was adopted on 20 June 1996 and came into effect as of 2 February 1998.

Under the provisions of the said Constitutional Law: (1) foreign citizens performing registered commercial activities in Lithuania; (2) entities owned or controlled by foreign enterprises or foreign citizens; (3) foreign legal entities having established, for business purposes, affiliates or subdivisions without the status of a legal person in Lithuania; and (4) Lithuanian enterprises with the rights of a legal person are entitled to acquire land plots necessary for usage of the existing buildings and manufacturing facilities or for the construction and operation of such buildings and manufacturing facilities, provided the following conditions are met:

1. foreign natural person is a citizen of, or the foreign enterprise is registered in, a Member State of the EU, or in a State that has concluded a European Agreement with the EU and the Member States thereof, or in a State which at the moment of the adoption of the Constitutional Law is a member of the Organisation for Economic Cooperation and Development (OECD) or a member of the North Atlantic Treaty Organisation (NATO);
2. respective foreign State provides equal rights to Lithuanian citizens or enterprises i.e. the rights are applied on a mutual basis;
3. respective foreign enterprise has had its main business location in the State of registration for at least the last five years; and
4. the Government of the Republic of Lithuania or an institution authorised thereby gives a permission for the acquisition (in accordance with the procedure established in the 10 December 1998 Resolution No. 1423 of the Government of the Republic of Lithuania).

National and foreign entities are entitled to acquire State-owned land plots only in proximity to the buildings or new construction they already own.

Entities or citizens involved in commercial activities in Lithuania may also lease the land plots necessary for their activities and use or construct the buildings or manufacturing facilities related to their business activities on such leased land plots. Land lease may be the only option to use it in cases when either the entities willing to use the land plots or the land plots themselves do not conform to the requirements of the Constitutional Law allowing for the acquisition of the specified land plots.

Payment for the purchase of State-owned land for non-agricultural purposes may be made in instalments. Payment by instalment, however, is only allowed for Lithuanian and foreign citizens. Legal entities, either national or foreign, must purchase the land plot with a single payment made at the moment of purchase (with the exception of entities that meet the requirements of the Constitutional Law when the price of the land plot exceeds LTL 2 million (approximately EUR 0.58 million)).

Point of Interest
The procedure for calculation of the value of land is different for lease and sale purposes. Thus, lease value, which is used for calculation of the land rent, should not be compared with the sale value.


Concessions

Concessions are regulated by the Law on Concessions which defines the concession as the right to use the existing or future State-owned or municipal property (such as the continental shelf, the economic zone in the Baltic Sea; the underground or its resources, internal waters, roads; buildings, structures, installations, transport not to be privatised within the term of the concession etc.) which can be granted under a concession contract for the performance of certain business activities. Concession may be granted to any of the following enterprises:

1. Lithuanian enterprises i.e. those established and functioning in accordance with the laws of the Republic of Lithuania; and
2. foreign enterprises i.e. entities or organisations whether with or without the rights of a legal person, established and functioning in accordance with the laws of a foreign State and domiciled therein (however, such foreign enterprises have to establish subsidiaries in Lithuania for the performance of the concession contract).

Income received pursuant to a concession contract belongs to the concessionaire.

Point of Interest
The Law on Concessions has not been applied in practice yet due to its limited scope and other shortcomings. Other legal forms of transactions necessary to ensure the provision of public services were used by the State and the municipalities instead. Currently, the Law on Concessions is under revision with a view to making concessions a more attractive and practicable form of investment.


Incentives

Currently, there are no laws establishing special incentives for foreign investments, although significant tax incentives may still apply to foreign investments that were made during 1993-1997. The Investments Law provides that tax incentives for investments are to be provided by respective tax laws. The Investments Law also establishes other possible incentives for investments, such as compensation of the portion of interest payments for the loans taken for financing of the investment, the issuance of State (municipal) guarantees, the insurance of loans at the expense of the State, and others. The application of such incentives is, however, subject to discretion of respective State or municipal institutions.

Some specific incentives are provided to strategic investors i.e. investors with whom the Government of the Republic of Lithuania or any institution authorised by it may execute investment agreements. The investment agreements may be entered into by the Government of the Republic of Lithuania or institutions authorised thereby for investments of more than LTL 200 million (approximately EUR 57.9 million) and complying with certain other criteria. Such agreements may establish special investment and business conditions. Tax incentives in such agreements may only be established according to the provisions of the Law on Tax Administration of the Republic of Lithuania. Presently, the Law on Tax Administration does not provide for any new tax incentives available to the strategic investors. With respect to incentives established previously, the Law on Tax Administration provides that if the Government of the Republic of Lithuania prior to 1 January 2000 concluded an investment agreement with an investor who subsequently invested at least LTL 200 million (approximately EUR 57.9 million) in a Lithuanian enterprise, and the agreement provides for no increase in direct taxes for 5 years from the moment the investment reaches LTL 200 million and the Government undertook to extend the term up to 10 years, the respective tax rates valid on the day of conclusion of the agreement will not be increased during such specified term.

With respect to investments into municipal infrastructure, manufacturing and services, the municipality is also entitled to enter into investment agreements that meet the criteria established by the Council of the Municipality. Special investment, business and land plot selection conditions may be established in accordance with the competence of the municipality.


Free Economic Zones

Lithuania is continuing to enhance its appeal to foreign investors through the development of a network of free economic zones ("FEZs"). The Law on the Fundamentals of Free Economic Zones provides for the establishment of FEZs in Lithuania. Lithuanian and foreign enterprises, corporations and associations are eligible to participate in FEZs. FEZs offer considerable benefits only for the companies registered and operating within their boundaries. These benefits include:

1. 80% corporate profit tax reduction for the first 5 years, 50% - for the next 5 years. If a foreign investor has established an enterprise in the FEZ or has acquired at least 30% of the shares of an enterprise registered and operating in the FEZ and has invested more than USD 1 million into such enterprise, it is subject to no corporate profit tax during the first 5 years of operation and enjoys a 50% tax reduction for the subsequent 10 years;
2. no customs taxes. Customs duties and taxes do not apply to the goods imported from a foreign country into free areas (parts of FEZ territory separated from it and from customs territory of Lithuania which does not belong to FEZ) and exported from the free areas into foreign countries. Customs also do not apply to the goods stored, destroyed in or used for functioning of free areas;
3. no VAT and excise tax on goods which are placed in the FEZ enterprises operating in the free areas;
4. no taxes on dividends for foreign investors;
5. 50% discount on land lease taxes for FEZ management enterprise;
6. the portion of the income of a FEZ enterprise that is re-invested (i.e. used for the acquisition of material assets, scientific research and acquisition of new technologies) is not included into its taxable income; and
7. FEZ companies receive the same legal guarantees as those operating outside the FEZ.

Point of Interest
FEZs are still in the process of formation in Lithuania. Klaipėda FEZ is in the most advanced stage of commencement of actual activities.