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OECD
INVESTMENT GUIDE
FOR
LITHUANIA
OECD Centre for
Co-operation with Non-Members
INVESTMENT GUIDE
FOR LITHUANIA
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into
force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall
promote policies designed:
– to achieve the highest sustainable economic growth and employment and a rising standard of living in
Member countries, while maintaining financial stability, and thus to contribute to the development of
the world economy;
– to contribute to sound economic expansion in Member as well as non-member countries in the
process of economic development; and
– to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance
with international obligations.
The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany,
Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland,
Turkey, the United Kingdom and the United States. The following countries became Members subsequently
through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969),
Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic
(21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996) and Korea
(12th December 1996). The Commission of the European Communities takes part in the work of the OECD
(Article 13 of the OECD Convention).
CENTRE FOR CO-OPERATION WITH NON-MEMBERS
The Centre for Co-operation with Non-Members (CCNM) was established in January 1998 when the
OECD’s Centre for Co-operation with the Economies in Transition (CCET) was merged with the Liaison and
Co-ordination Unit (LCU). The CCNM, in combining the functions of these two entities, serves as the focal
point for the development and pursuit of co-operation between the OECD and non-member economies.
The CCNM manages thematic and country programmes. The thematic programmes, which are multicountry in focus, are linked to the core generic work areas of the Organisation (such as trade and investment,
taxation, labour market and social policies, environment). The Emerging Market Economy Forum (EMEF)
and the Transition Economy Programme (TEP) provide the framework for activities under the thematic
programmes. The EMEF is flexible forum in which non-members are invited to participate depending on the
theme under discussion. The TEP is focused exclusively on transition economies. Country programmes,
providing more focused dialogue and assistance, are now in place for Bulgaria, China, Romania, Russia, the
Slovak Republic (a candidate for accession to the OECD), and Slovenia.
 OECD 1998
Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be
obtained through the Centre français d’exploitation du droit de copie (CFC), 20, rue des Grands-Augustins,
75006 Paris, France, Tel. (33-1) 44 07 47 70, Fax (33-1) 46 34 67 19, for every country except the United
States. In the United States permission should be obtained through the Copyright Clearance Center,
Customer Service, (508)750-8400, 222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online:
http://www.copyright.com/. All other applications for permission to reproduce or translate all or part of this
book should be made to OECD Publications, 2, rue André-Pascal, 75775 Paris Cedex 16, France.
FOREWORD
Immediately after the declaration of independence in 1990, Lithuania started
a reform process aimed at steering the country away from a planned economy and
centralised political system towards democracy and a free market economy. Initially, economic reforms encountered a number of difficulties: soaring inflation,
one of the worst declines in output registered in Central and Eastern European
countries, and other problems common to many economies in transition. Nevertheless, during these trying times, many economic reforms were undertaken
including a voucher privatisation programme with the result that by 1996 the
private sector accounted for 65 per cent of GDP. Currently, the Lithuanian Government is undertaking a second phase of privatisation, during which a number of
large-scale enterprises, mainly from the infrastructure sector, are being offered for
international tender.
Especially since 1995, the Government has focused its attention on attracting
more foreign direct investment. In this connection, the Law on foreign capital investments was passed. It was followed by the adoption of a body of supporting
legislation designed to foster private sector development, enhance competition,
and attract more foreign direct investment.
It is against this background that the OECD decided to support the efforts of
the Lithuanian Government by preparing this Investment Guide for Lithuania in the
framework of the programme of the OECD Centre for Co-operation with NonMembers (CCNM). The Guide not only provides information on the prospective
sectors open to foreign investment, but also outlines the policies of the Government with respect to foreign direct investment, and assesses their
implementation.
Within the OECD Secretariat, the Investment Guide for Lithuania was prepared by
Mr. Jan Schuijer, Principal Economist and Ms. Elizabeth Turkson, Consultant, both
at the Directorate for Financial, Fiscal and Enterprise Affairs of the OECD. In
Lithuania, the project was co-ordinated by Mr. Balys Stankunavicius, DirectorGeneral, Mr. Vytas Gruodis, Chairman of the Board, Ms. Saule Katauskaite, Legal
Adviser and Ms. Jovile Talat-Kelpsaite, Publications Specialist, all at the Lithuanian Development Agency.
3
INVESTMENT GUIDE FOR LITHUANIA
The information contained in this Guide was collected before 15 July 1998,
and, unless specifically stated, is based on data available at that time. The views
expressed in this guide do not necessarily reflect those of the Lithuanian Government, the OECD or its Member countries. It is published on the responsibility of
the Secretary-General of the OECD.
Kumiharu Shigehara
Deputy Secretary-General
4
ACKNOWLEDGEMENTS
The OECD would like to express its appreciation for the following contributions to this publication – Price Waterhouse drafted the chapters on Taxation,
Accounting and Auditing, Economy, Banking and Finance and Labour; Coopers
and Lybrand provided the drafts of the chapters on Customs, Privatisation and
General regulations of business activities. The chapter on investment opportunities was prepared by the Lithuanian Development Agency. The legal chapters
were provided by Foresta Business Law Group. The analysis of the replies to the
OECD questionnaire was made by Ms. Elizabeth Turkson, Consultant to the
OECD. The OECD Secretariat edited these contributions. The Organisation also
thanks the American, Swedish Chambers of Commerce and the French Trade
Mission who participated in the preparation of this Guide.
The Investment Guide for Lithuania was launched with the support of Scandinavian Airlines System (SAS), the Radisson Hotel, and Telia in Lithuania, and
Campanhia Previdente (Portugal).
5
TABLE OF CONTENTS
Preface by H.E. Valdas Adamkus, President of the Republic of Lithuania . . . . . . . . .
11
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
1.
2.
3.
13
14
15
The market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The regulatory framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assessment of Lithuania’s foreign investment climate . . . . . . . . . . . . . . . . . . .
Chapter 1.
1.1.
1.2.
1.3.
1.4.
1.5.
1.6.
Geography and climate . . . . . . . . .
Historical highlights . . . . . . . . . . . .
Political system and future trends .
Population . . . . . . . . . . . . . . . . . . .
Science, technology and education
Basic information . . . . . . . . . . . . . .
Chapter 2.
2.1.
2.2.
2.3.
2.4.
2.5.
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17
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20
21
24
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES . .
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17
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Access to markets . . . . . . . . . . . . . . .
Prospective sectors . . . . . . . . . . . . . .
Free economic zones . . . . . . . . . . . . .
Opportunities in privatisation . . . . . .
The Lithuanian Development Agency
Chapter 3.
3.1.
3.2.
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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27
28
47
50
51
ECONOMY, BANKING AND FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current economic outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
54
Chapter 4.
THE LEGAL SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1. General overview . . . . . . . . . . .
4.2. Body of laws . . . . . . . . . . . . . . .
4.3. The legal profession in Lithunia
4.4. Court reform . . . . . . . . . . . . . . .
4.5. Dispute settlement . . . . . . . . . .
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67
67
68
68
70
72
7
INVESTMENT GUIDE FOR LITHUANIA
Chapter 5.
5.1.
5.2.
5.3.
5.4.
Introduction . . . . . . . . . . . . . . . . . . . . .
The Law on foreign capital investment
Guarantees for foreign investment . . . .
Restricted sectors . . . . . . . . . . . . . . . .
Chapter 6.
6.1.
6.2.
6.3.
6.4.
6.5.
6.6.
6.7.
8
81
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81
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100
101
102
105
REAL ESTATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
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107
108
109
110
111
112
113
TAXATION, ACCOUNTING AND AUDITING . . . . . . . . . . . . . . . . . . . . . . . 115
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxation of individuals and companies without the
Compulsory health insurance . . . . . . . . . . . . . . . . .
Value-added tax (VAT) . . . . . . . . . . . . . . . . . . . . .
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting and auditing . . . . . . . . . . . . . . . . . . . .
Audit regulations . . . . . . . . . . . . . . . . . . . . . . . . . .
Views of foreign investors . . . . . . . . . . . . . . . . . . .
Chapter 9.
9.1.
9.2.
9.3.
9.4.
GENERAL REGULATIONS OF BUSINESS ACTIVITIES . . . . . . . . . . . . . . .
Real estate rights for non-citizens
Leasing of real estate . . . . . . . . .
Securing the rights . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . .
Mortgages . . . . . . . . . . . . . . . . . .
Servitudes . . . . . . . . . . . . . . . . . .
Environmental requirements . . . .
Chapter 8.
8.1.
8.2.
8.3.
8.4.
8.5.
8.6.
8.7.
8.8.
8.9.
75
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Company law . . . . . . . . . .
Competition . . . . . . . . . .
Labour market regulation
Business insolvency . . . . .
Consumer protection . . . .
Customs legislation . . . . .
Illicit payments . . . . . . . .
Chapter 7.
7.1.
7.2.
7.3.
7.4.
7.5.
7.6.
7.7.
FOREIGN DIRECT INVESTMENT LEGISLATION . . . . . . . . . . . . . . . . . . . .
.....
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status
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of a legal person
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115
117
121
123
124
126
127
129
131
PRIVATISATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Opportunities for international investors . . . . . . . . . . .
Developments in privatisation . . . . . . . . . . . . . . . . . . .
The methods of privatisation . . . . . . . . . . . . . . . . . . . .
The legal and institutional framework for privatisation .
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133
133
142
142
TABLE OF CONTENTS
Annexes
A.
Government representatives and agencies .
B.
State authorities and government . . . . . . . .
C.
Relevant treaties . . . . . . . . . . . . . . . . . . . . .
D.
List of laws relevant to the foreign investor .
E.
Registration documents for foreign investors
F.
Useful addresses . . . . . . . . . . . . . . . . . . . . .
G.
Other information . . . . . . . . . . . . . . . . . . . .
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151
154
156
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9
PREFACE
by
H.E. Valdas Adamkus
President of the Republic of Lithuania
The end of the 1990s is an exciting time to be in Lithuania. We are
spearheading one of the most ambitious infrastructure privatisation programmes
in Europe. Cumulative foreign direct investment (FDI) is expected to more than
double in 1998, which is likely to result in one the highest per capita FDI growth
rates in the region. These are not vain hopes, as cumulative FDI nearly doubled in
1997, before infrastructure privatisation had a chance to affect investment flow.
Also, inflation is among the lowest in Central and Eastern Europe (at 8.5 per cent),
growth is already among the highest, the workforce among the best educated and
the country’s major infrastructure is one of the best in the region. Again, the
advantage is Lithuania’s.
Furthermore, in a January 1998 survey, nine out of ten investors said that they
would invest in Lithuania again. With many of our top foreign investors continually
increasing their investments in the country, with more than half of new FDI in 1996
coming from reinvestment, it is clear that investor confidence is very high, and
growing. The foreign investor will be in great company, here in Lithuania.
Lithuania also boasts of enviable ethnic and political stability. Lithuania was
the first former Soviet republic to conclude a border treaty with Russia, now our
largest single trading partner. The 1997 ‘‘Vilnius Conference’’ of twelve Central
and Eastern European Presidents – the first of its kind – is another sign that
Lithuania is taking the lead in the new Europe. Lithuania has reclaimed its
historical role as a mediator between East and West, as a catalyst for excellent
diplomatic and trade relations and as a cosmopolitan centre for cultural, political
and economic exchange. It is a wonderful time to be here, in this new Lithuania.
But there are other realities that speak powerfully about Lithuania’s dynamic
future. After regaining independence in 1990, Lithuania adopted an innovative
strategy to economic development. Rather than shock therapy and a frantic selloff of infrastructure for cash tender, the Lithuanian Government decided to allow
local business to grow and capital to accumulate. The strategy worked. Lithuania
11
INVESTMENT GUIDE FOR LITHUANIA
today is a country of business leaders and entrepreneurs: there are more than
100 000 locally-owned companies. In most of Lithuania ’s largest foreign companies, the majority of their top management positions are held by Lithuanians.
This is perhaps the most encouraging sign of Lithuania’s greatest strength: its
people.
Lithuania’s advantages are clear. As a Lithuanian who has spent many years
working in the United States Government, I can say with confidence that Lithuania
offers unparalleled opportunities for international investors and business people.
I have invested my experience and effort in Lithuania’s future, as have an impressive number of major multinationals. I encourage you to join in our success and to
be part of a new Lithuania.
12
OVERVIEW
1.
THE MARKET
After a difficult economic transformation process, Lithuania has developed
into an attractive venue for foreign investors. Situated on the south-eastern shore
of the Baltic Sea, the country has a favourable strategic position as a gateway to
the large emerging market economies in the region. Its political stability and
relatively good infrastructure are factors to be considered by investors wishing to
take advantage of the economic take-off of the Baltic rim, a market of major
potential comprising some 110 million consumers.
The Republic of Lithuania was the first of the former Soviet republics to
declare the re-establishment of its independence (11 March 1990). It is the largest
and most populated of the three Baltic states. Its 3.7 million inhabitants comprise
about 80 per cent ethnic Lithuanians and important numbers of Russian, Polish
and other minorities. The 1992 Constitution guarantees basic human rights, freedoms and obligations. The President and the Seimas (parliament) are elected by
universal suffrage; two parliamentary and two presidential elections have been
held under the present Constitution.
Lithuania aims at Membership of the European Union and NATO and is
endeavouring to bring its legislation in line with EU standards. As from 1 January 1995 it has enjoyed the benefits of a free-trade agreement with the EU,
succeeded by an Association Agreement effective 1 February 1998. Lithuania’s
accession to the World Trade Organisation is expected soon.
In 1990, the private sector in Lithuania was very small. In 1996, after the
completion of the first stage of privatisation, the sector accounted for 65 per cent
of GDP. Whereas in the early 1990s, the bulk of Lithuania’s trade took place with
the countries of the former Soviet Union (CIS), the latter’s share dropped to
46 per cent (exports) and 29 per cent (imports) in 1997. One-third of Lithuania’s
exports is directed to the EU, where almost one-half of the country’s imports
originates. Historically, its principal export products have been minerals and
heavy engineering products, but it also exports textiles and animal products.
Traditionally, agriculture and forestry have been the most significant economic
sectors, but the country now boasts a diversified industrial base.
13
INVESTMENT GUIDE FOR LITHUANIA
As a recipient of foreign direct investment, Lithuania has lagged behind
Estonia and Latvia, but in most recent years, FDI inflows have grown vigorously.
As of 1 January 1998, cumulative FDI stood at US$1 billion, which equalled US$281
per capita. However, this figure may more than double over 1998 and further
growth is expected in the following year, propelled by the further improvement of
the economic outlook and the progress in privatisation. Investment from the EU
comprised 57 per cent of the total, Sweden being the largest investor.
Initially, privatisation did not generate much foreign investment, since it was
based on a voucher system and addressed principally small and medium-sized
enterprises and residential property. However, the process has contributed very
significantly to the rapid transformation of the economy from a governmentdominated one to one based on private initiative. In 1997, 69 per cent of the
production was in private hands and this figure will rise further, i.a. as a result of
the privatisation of infrastructure, which is gathering momentum. At present, a
total of around 1.7 million persons is employed; two-thirds of the labour force
works in the private sector; 20 per cent of the workers are self-employed. The
unemployment rate was 6.9 per cent as of April 1998, but is expected to drop to
around 6 per cent by 2000. Lithuania’s labour costs are low; the overall average
monthly wage was US$237, as of April 1998.
Lithuania experienced a very severe contraction by perhaps as much as
50 per cent of its real GDP in the first half of the 1990s. The economic upturn
achieved since then owes much to the establishment of a currency board arrangement in 1994. This system requires that the national currency (litas) is fully backed
by gold or foreign exchange and is fully convertible at a fixed rate (4 litas to the
US dollar). This system will be replaced by a peg to a euro/US dollar basket.
The brightening economic outlook, expressed in real GDP growth rates of
7 per cent over 1997 and 1998, coincides with an improvement of the country’s
public finances: the overall fiscal deficit is expected to decline to 2 per cent
in 1998 and a balanced budget is envisaged for the year 2000.
2.
14
THE REGULATORY FRAMEWORK
Since the adoption, by popular vote, of the new Constitution (1992), attempts
have been made to overhaul the legal system inherited from the Soviet Union.
In 1996, the Seimas adopted a Government Programme aimed at a comprehensive
review of Lithuania’s legal system over the period 1997-2000 (see Chapters 4 and
5). One of its chief objectives is to harmonise legislation on enterprises, tax, the
financial system and investment with the relevant EU legislation.
The basic principles governing foreign investment in Lithuania are embodied
in the Law on foreign capital investment, adopted in 1995 and since amended (Chapter 5). The Law is aimed at promoting and protecting foreign investment in
OVERVIEW
accordance with internationally accepted legal standards. Foreign investors have
the right to establish and operate an enterprise in Lithuania, including fully
foreign-owned ones and the principle of national treatment (i.e. the according of
equal treatment in like circumstances to foreign and domestic investors) is
applied with few exceptions (notably those relating to state security, narcotics
and lotteries).
The Law provides guarantees for foreign investment, including the freedom
of transfer of capital and capital proceeds. Expropriation of investment ‘‘for public
needs’’ is possible, but only so if accompanied with the prompt payment of
compensation, corresponding to the market value of the property in a freely
convertible currency. Disputes may be settled via the Lithuanian courts, but
foreign investors are entitled to resort directly to international arbitrage by applying to the International Centre for the Settlement of Investment Disputes (ICSID).
Foreigners are entitled to property rights (see Chapter 7), although, as a
general rule, land use rights can only be acquired by way of a lease agreement.
However, foreign investors from EU, OECD and NATO Member countries may
acquire non-agricultural land needed for legitimate business activities.
Some general tax incentives exist for foreign investments made before
1 April 1997, but not for new investments made thereafter. However, companies
can receive substantial tax reductions (including profit tax exemptions for certain
large foreign investments during the first five years) for investments in one of the
three Free Economic Zones which will become operational soon (see Chapters 2
and 8). Furthermore, certain small enterprises are taxed at half the normal tax
rate, which is currently 29 per cent of taxable profits.
Lithuania’s taxation system is still in the process of reform, part of which is
the promulgation of the new corporate profit tax law, expected as of 1 January 1999. Further reforms are also called for in the accounting and auditing
system; the legislation on accounting still falls short of the International Accounting Standards (see Sections 8.6 and 8.7).
3.
ASSESSMENT OF LITHUANIA’S FOREIGN INVESTMENT CLIMATE
The OECD Secretariat has made assessment of the policies concerning foreign investment in Lithuania. These assessments, based on the replies to a
questionnaire distributed among foreign investors operating in Lithuania, are
given in several chapters.
The replies showed that foreign investors are attracted to Lithuania because
of its geographical location, the quality of its labour force, the political stability,
the comparatively good transport network and the responsiveness of the government to suggestions for improving the business climate.
15
INVESTMENT GUIDE FOR LITHUANIA
On the other hand, it was observed that the infrastructure, particularly the
terrestrial telecommunications system, although in better shape than in some
neighbouring countries, needs further upgrading. Other points of concern were
mentioned regarding the enforcement of laws and regulations, notably in the field
of taxation and competition. The tax regime has undergone frequent changes,
often without sufficient prior notice, but harmony with EU standards is yet to be
achieved. The results of the questionnaire also highlighted that action to fight
crime and corruption needs to be strengthened.
With respect to the rights of and guarantees for foreign investment, a substantial majority of investors polled were satisfied that they were accorded
national treatment and benefited from the statutory guarantees. However, several
of them expressed concern about the administrative procedures, which they saw
as unduly cumbersome, involving too many layers of authorities and requiring the
provision of very detailed and not obviously relevant information.
Chapter 2 identifies opportunities for foreign investors. Indeed, good possibilities for investing exist in a large number of sectors, including electronics,
agriculture, forestry, chemicals, transportation, financial services and tourism. The
privatisation programme for 1997-2000, which covers energy, communications,
transport and other large-scale enterprises, should be mentioned in this context.
For some time, the economic transition from a centrally planned to a freemarket economy in Lithuania was perceived to be lagging behind that in other
Baltic countries. However, Lithuania has made serious efforts in the past few years
to close the gap. The recent surge in foreign investment indicates that these
efforts are effective and well appreciated by the international investors’
community.
16
Chapter 1
GENERAL INFORMATION
1.1.
GEOGRAPHY AND CLIMATE
Lithuania is located on the south-eastern coast of the Baltic Sea. It is the
southernmost of the Baltic states and has borders with Belarus, Poland, Latvia
and the Kaliningrad region of Russia. It covers a land area of 65 300 sq. km,
making it larger than either Belgium, Switzerland, the Netherlands or Denmark.
The Lithuanian coastline, which lies along the Baltic sea, is 99 km long.
The main cities in Lithuania, and their populations, are as follows:
Vilnius
Kaunas
Klaipeda
Siauliai
Panevezys
576
415
203
147
132
000
000
000
000
000
The country’s landscape is characterised by lowland plains and hilly uplands.
Some forty per cent of the countryside is covered by forest, of which 5 million
cubic metres can be cut annually. The highest point, which is just outside of
Vilnius, is only 293 metres above sea level. The countryside has more than
2 800 lakes, which occupy approximately 1.5 per cent of the territory and 722 rivers and streams. 475 km of the Nemunas, the longest river, run through Lithuania.
Lithuania lies in the transition zone between continental and maritime climates. In January, the average temperature is –4.9 oC and it is +17.2 oC in July. The
growing season varies between 169 and 202 days a year. Precipitation averages
632 millimetres annually.
1.2. HISTORICAL HIGHLIGHTS
Lithuanian people have lived on the shores of the Baltic Sea since prehistoric
times. Greek and Roman historians mention the Baltic people as traders in
amber. In the beginning of the 13th century, Grand Duke Mindaugas united the
various feudal factions, formed a new state and was crowned King of Lithuania.
17
INVESTMENT GUIDE FOR LITHUANIA
18
The Kreva Treaty of 1385, by which Lithuanian Grand Duke Jogaila wed the
Polish Princess Jadvyga, ushered in the golden era of Medieval and Renaissance
Lithuania. In 1410, at Tannenberg, the united Lithuanian and Polish armies, led by
Grand Duke Vytautas, defeated forces of the Teutonic order and effectively
stopped their expansion to the East. The Lithuanian Jogaila Dynasty ruled the
united Polish-Lithuanian kingdom until 1572. During this era, Lithuania reached
its height of power, growing into the largest state in Europe. Its borders stretched
from the Baltic Sea to the Black Sea and almost reached Moscow.
Besides military might, it was its skilful diplomacy, its enlightened legal
system and decentralised government that enabled Lithuania to expand so successfully. However, exhausted by inner and outer conflicts, the power and glory of
the Polish-Lithuanian state started to decline. Eventually it was divided among
three powerful neighbours – Russia, Prussia and Austria. After the last division, in
1795, almost all of Lithuania’s territory was occupied by Russia and a strong
russification campaign began. But the country’s aspiration to be free and independent did not vanish. Lithuanians retained their national language and culture.
The year 1905 marks the start of national revival. In that year, the Great Seimas of
Vilnius took place, when representatives from all of Lithuania’s counties declared
their aspirations for independence. This finally culminated in Lithuania’s Act of
Independence, which was proclaimed on 16 February 1918.
Before the Second World War, the independent republic of Lithuania had an
economy and a standard of living that was comparable to that of Norway and
Denmark. The Molotov-Ribbentrop pact of 1939, which resulted in the secret
cessation of Lithuania and her two Baltic neighbours to the Soviet Union, brought
about a very difficult period in Lithuania’s history. During this period of annexation, thousands of the country’s political leadership and intellectuals were either
killed or deported to Siberia. In 1941, the Nazis invaded and systematically killed
hundreds of thousands of Lithuanian citizens, mostly Jews. Before the Nazi invasion, Vilnius was considered to be one of the world’s most important centres of
Talmudic scholarship and Jewish culture and was known as the ‘‘Jerusalem of the
North’’.
In the fifty years of sovietisation, more than 300 000 Lithuanians were
deported. During the Russian occupation, Lithuania fought a protracted,
organised guerrilla war in which tens of thousands of Lithuanian men and women
died fighting the Red Army and the KGB well into the 1950s.
Again, relying on the country’s long tradition of skilful mediation and diplomacy, during the fifty years of Soviet occupation, the Lithuanian communist leaders were able to convince Moscow to develop industry and infrastructure more
extensively than in some of the other Soviet republics. Lithuania and the other
Baltic States remained the most westernised of all the Soviet Republics, not only
geographically, but also culturally and economically. Lithuanian food products
GENERAL INFORMATION
were consumed in Moscow, its electronics were an important part of the Soviet
space programme and its home electronics and appliances were used throughout
the Soviet Union.
When the ‘‘Singing Revolution’’ finally brought about the restoration of independence in 1990/1991, the Lithuanian government opted for market reform and
initiated an extensive privatisation programme, which fostered the development
of local entrepreneurship and the increase of local capital. This strategy has
proven to be successful. Today, in most businesses, (including those owned by
top foreign investors), most of the management positions are held by Lithuanians.
1.3. POLITICAL SYSTEM AND FUTURE TRENDS
The Republic of Lithuania is an independent democratic state. The social
foundations are laid down in the Constitution of the Republic of Lithuania, which was
adopted in 1992 by referendum, and which also establishes the rights, freedoms
and duties of its citizens. Under the Constitution, the sovereign state power is
vested in the people of Lithuania and is exercised by the Seimas (Parliament), the
President of the Republic, the government and the courts. Soon after the restoration of its independence, the government was able to grant full citizenship rights
to all ethnic groups in Lithuania. This initial effort by the government to involve
all Lithuanian citizens in the political process, has contributed to the stable
political environment.
The Seimas is a one-chamber parliament, which, among other functions, considers and enacts amendments to the Constitution, passes laws, adopts resolutions for the organisation of referendums, announces presidential elections,
establishes state institutions provided for by the law, appoints and dismisses
their chief officers and approves or rejects the candidature of the Prime Minister
proposed by the President of the Republic. The Seimas consists of 141 MPs who
are elected for a four-year term. The Seimas elects its Chairperson and Deputy
Chairpersons. Of the 33 political parties that exist in Lithuania, 13 are represented
in the eight factions in the Seimas: that of the Homeland Union (Lithuanian Conservatives), the Christian Democrats, the Centre, the Social Democrats, the Democratic Labour, the Liberal Reforms Faction as well as the Independent and the
Joint factions.
Since the re-establishment of independence in 1990, there have been two
parliamentary and two presidential elections under the new Constitution.
Lithuania has managed to maintain political stability since it regained independence, with major parties or coalitions holding strong majorities in the Seimas and
the government. The Conservative-led government enjoyed almost unchallenged
support in the first years of independence. Party leader, Mr Algirdas Brazauskas,
became the country’s President in 1996, with the victory of the Conservatives in
19
INVESTMENT GUIDE FOR LITHUANIA
the parliamentary elections. The governing coalition formed with the Christian
Democrats retains a majority in the Parliament today.
The President is the head of state and performs all duties with which he or
she is charged by the Constitution and the law of the land. The President is
elected by the citizens of the Republic of Lithuania on the basis of universal
suffrage for a five-year term. In January 1998, Lithuania again made history by
being the first European country to elect an American citizen as its president.
Mr Valdas Adamkus, a Lithuanian-born former high-ranking official of the US
Environmental Protection Agency, who had lived in the United States for almost
40 years and advised two US presidents, won a narrow election victory. He has
stated his support for Lithuania’s two main foreign policy goals: NATO and EU
membership.
The government exercises the highest executive power. It comprises the
Prime Minister and Ministers. The Prime Minister is appointed by the President of
the Republic, with the approval of the Seimas. Ministers are appointed by the
President of the Republic, on the nomination of the Prime Minister. In the new
government, which was formed in April 1998 following the presidential elections,
the ministerial portfolios are shared by the Conservatives, Christian Democrats
and Centrists; there are two Ministers who are independent of the political
parties.
The administrative division of Lithuania includes 12 urban and 44 local government councils, elected by the local population for a period of three years on
the basis of universal, equal and direct suffrage. Municipal governments are
responsible for administering local issues. Still, they do not have the power to
raise tax revenues, which leaves them totally dependent on the national government. Greater decentralisation is an important priority for the new government.
1.4. POPULATION
20
Lithuania is a small country, with a population of 3.7 million. A vast majority
(some 80 per cent) of its citizens are ethnic Lithuanians. There are also significant
communities of ethnic Poles (9 per cent), Russians (8.2 per cent), as well as a
number of smaller ethnic groups. The population density is 56.9 people per
square km. Sixty-eight per cent of the population live in urban areas, 32 per cent
live in the countryside. A law adopted on 31 January 1995 made Lithuanian the
official state language. It is an Indo-European language derived from Sanskrit and
is unrelated to the Slavic languages of most of its neighbours. The Lithuanian
language is a compulsory subject taught in schools, although Polish and Russian
children have their own schools and are mainly taught in their native language.
In general, minority groups have successfully integrated into Lithuanian
society, whilst keeping their identity. Indeed, Lithuania has won praise from many
GENERAL INFORMATION
international organisations for both its tolerant policy towards minorities and for
the fact that the country’s composition is multi-ethnic.
1.5. SCIENCE, TECHNOLOGY AND EDUCATION
1.5.1.
Research and development (R&D) institutions
In Lithuania, R&D institutions are mainly run by the state. In proportion to
the country’s size, there are quite an extensive number of such institutions: 48.
Their research activities focus on matters such as science, hygiene, forestry and
agriculture. Unfortunately, since 1990, funding for such institutions has been meagre. This has caused many specialists to look for employment in other fields.
Nearly 7 per cent of the country’s budget is allocated to education and research,
but this level of funding is well below the resources that were available during the
Soviet era.
Research is also carried out in Lithuania’s universities and colleges, as well as
in other scientific organisations and institutions. There are six universities, seven
academies and two research institutes in the country. Moreover, a number of
private companies conduct their own R&D activity. Vilniaus Vingis, an electronics
company in Vilnius, for example, employs 44 Ph.D.-holders in its R&D
department.
With significant aid from international organisations, such as the EU
and USAID, the situation has been improving. Thousands of researchers, professors and students have been able to study abroad through international programmes, such as the EU’s TEMPUS programme, and have received prestigious
grants and scholarships like the Fulbright, Humboldt and Muskie Fellowships.
The EU’s TEMPUS/PHARE programme has had a major positive impact on the
restructuring of the country’s higher education and research system. At present,
R&D and higher education institutions are being integrated into the EU SOCRATES and LEONARDO programmes and conduct exchanges and co-operate with
analogous institutions across Europe.
1.5.2.
Education in Lithuania
History of education in Lithuania
Formal education in Lithuania dates from the 14th century, when a school
system similar to those in place is Western Europe was introduced. The first
known school, that of Vilnius Cathedral, began its work in 1397. Later, elementary
schools, known as parish schools, were established by parish churches and monasteries. These schools prepared young men for further higher education abroad.
21
INVESTMENT GUIDE FOR LITHUANIA
The first university in Lithuania was established in 1579, in Vilnius. In 1998,
there are 15 institutions of higher education in Lithuania with a total enrolment of
11 591 students.
Educational reform
Reforms of the education system in Lithuania had their origins in 1988, with
the development of a concept of a ‘‘national school’’ intended to consolidate, in
education, democratic, lawful, civil and cultural principles. The reforms are aimed
at fostering the acquisition of knowledge, an understanding of democratic values,
abilities for independent decision-making and professional skills. Progress toward
the realisation of these goals has required changes in the content of the curricula,
the introduction of new teaching methods, new textbooks and structural changes.
A 1991 law authorises the creation of alternative non-state educational institutions; some of these institutions cater to students requiring special attention
(e.g. youth lacking study motivation, adults, specialised training needs and handicapped). Those institutions which conform to the state-approved standards
receive some financial support from the public.
The Ministry of Education and Science and its specialised institutions devise
and implement educational policy. The Institute of Pedagogy of the Ministry
supports the strategic development of the system and most of the important
conceptual documents related to recent reforms have been developed by this
entity.
Structure of the Lithuanian education system
Elementary, primary and secondary education
Compulsory education lasts until the age of 16. The current system of secondary education comprises elementary school (grades 1 to 4), primary school
(grades 5 to 9), general education secondary school (grades 1 to 12), including
four years of Gymnasium which provide more intensive education in humanities or
sciences in grades 9 to 12, special education institutions for children with special
needs, youth schools which provide basic education, adult education institutions
(centres, adult education divisions in schools of general education) and programmes of secondary education in a number of colleges.
Vocational training
22
Vocational development is provided by vocational and trade schools. The
duration of study varies between two and four years. Students who have reached
the age of 14 are admitted.
GENERAL INFORMATION
Study at vocational schools takes place at four levels, which gives students
the opportunity to choose a programme according to their present education and
to acquire a secondary education. Narrow specialisations are gradually being
replaced by more broadly based education and training, intended to prepare
young people for a wider range of employment options in an economy undergoing substantial restructuring. Ties between vocational schools and places of
employment, a feature of earlier years, will need to take new forms as the reforms
progress.
Since 1994, vocational graduates have been evaluated by a commission of
employers, which is approved by the Chamber of Commerce, Industry and Handicrafts. Furthermore, the draft new Law on vocational teaching has been prepared,
which should allow government institutions, employers and trade unions to
organise and ensure the quality of vocational training.
Adult education
Adult education can be either formal or informal. Formal education is provided by state or other licensed institutions which offer a regulated and controlled education curriculum. Diplomas or certificates from these institutions are
recognised by the state. Certificates from informal institutions are recognised by
employers, various organisations and unions. Presently there are 300 informal
education and training institutions in Lithuania. Most of them are private and
accept students of all ages.
There are four adult education information centres in Lithuania, which provide information about education programmes and qualification improvement
courses for adult education instructors.
Higher education
Currently, there are 15 state schools of higher education in Lithuania: seven
universities, six academies and two institutes. There are also three clerical
seminaries.
A higher education can be followed by individuals who have a secondary
school certificate. Approximately 10 000 secondary school graduates, or 40 per
cent, are accepted by institutions of higher education each year.
Research and higher education reform is aimed at international recognition
(especially in the countries of the European Union), for the programmes of Lithuanian schools of higher education and research institutes.
In 1994, Lithuania signed the UNESCO Convention on the recognition of
courses, diplomas and degrees. In reforming higher education and modernising
study programmes, many schools of higher studies are successfully participating
23
INVESTMENT GUIDE FOR LITHUANIA
in the European Commission’s TEMPUS programme. Preparatory work has begun
for joining the European Union’s comprehensive education, higher study and
research programmes LEONARDO and SOCRATES.
✦ Figure 1. University graduates 1997, fields of specialisation
Other
15%
Education
26%
Social science
5%
Agriculture
6%
Arts and
humanities
12%
Engineering
16%
Law
7%
Business
13%
Total number of Graduates: 11 591
1.6. BASIC INFORMATION
24
Country name:
The Republic of Lithuania
Location:
The eastern coast of the Baltic Sea; being the southernmost of the three Baltic States, the country is bordered
by Latvia to the north, Poland and Russia to the south
and Belarus to the east.
Area:
65 300 sq. km., with 99 km of coastline. Longest distance
north to south is 276 km and from east to west, 373 km.
GENERAL INFORMATION
Landscape:
Consists mainly of lowlands, plains and hilly uplands.
Some 40 per cent of the country is covered by forest.
More than 2 800 lakes occupy 1.5 per cent of the country
and 722 rivers and streams cross the region. The highest
point is either Juozapine or Kruopine, both at 293 – 294 m
above sea level.
Population:
3.7 million, multi-ethnic. 68 per cent of the population
live in urban areas, while 32 per cent live in the countryside.
Status:
Established as a Republic on 16 February 1918. Sovereignty regained on 11 March 1990.
Capital:
Vilnius (population of approximately 576 000).
Climate:
Midway between maritime and continental.
Time:
GMT +1 (standard time and summer time).
Currency:
The litas (LTL) is currently pegged to the US dollar by
virtue of a Currency Board system (CBS), at a rate of
4 litas to 1 US dollar. The amount of currency in circulation is tied to the reserves of the Bank of Lithuania. Now
that monetary stability has been achieved, a withdrawal
from the CBS, and the introduction of a peg to a euro/US
dollar basket, is envisaged.
Language:
The official state language is Lithuanian, English is the
common international business language.
Government:
Parliament comprises a unicameral assembly of 141
elected deputies, elected for a four-year term. The Prime
Minister heads the government and leads the Cabinet of
Ministers which is approved by the parliament (Seimas),
after agreement with the President. The office of President is an elected position, which is held for a five-year
term.
President:
Valdas Adamkus.
Prime Minister:
Gediminas Vagnorius.
Country Telephone
Code:
+370.
(See Annex G for international time and business hours, weights and measures.)
25
INVESTMENT GUIDE FOR LITHUANIA
✦ MAP 1. Lithuania in the new Northern Europe
Iceland
Finland
NEW NORTHERN EUROPE
80 million
Norway
Russia
Sweden
Estonia
CIS
300 million
Latvia
Denmark
Lithuania
Ireland
United
Kingdom
Belarus
Poland
Netherlands
Belgium
Germany
Luxembourg
France
Ukraine
Czech
Slovakia
Switzerland
26
EUROPEAN UNION
300 million
Austria
Moldova
Hungary
Romania
Chapter 2
STRUCTURE OF THE ECONOMY
AND INVESTMENT OPPORTUNITIES
2.1. ACCESS TO MARKETS
Lithuania has a strategic location, lying on the eastern coast of the Baltic Sea.
The Baltic rim region, comprising some 110 million inhabitants, is believed to be
one of the fastest growing regions in Europe.
Lithuania offers a number of opportunities for foreign investors, making it a
good location for doing business. The main advantages are listed below.
Its geographical location and proximity to both eastern and western markets.
– The existence of a relatively well-developed transport infrastructure network which links the EU with eastern markets and Scandinavian countries
with Central and Eastern Europe. The European Union has designated
Lithuania as a leading transport centre in the region. Two routes which run
through the country form part of the EU’s list of ten main transport routes in
Europe.
– The fact that there are several ports located on the Baltic Sea also acts as a
powerful incentive for potential foreign investors. The port of Klaipeda, for
instance, is a priority port for Lithuania. It is funded by the European
Investment Bank and the European Bank for Reconstruction and
Development.
– The existence of several airports, including Vilnius International Airport
and the former Soviet air base Siauliai, the latter being the only airport
within the Baltic region capable of handling large cargo planes, enhances
its role as a gateway to foreign markets. The telecommunications system is
improving with the participation of foreign companies.
– The current liberal foreign trade regime, legislative framework and freetrade agreements provide free access to world markets, thus making
Lithuania an attractive venue for foreign investors.
27
INVESTMENT GUIDE FOR LITHUANIA
– As a result of Lithuania’s free-trade agreement with the EU, which came
into effect on 1 January 1995, Lithuanian industrial goods have free access
to the EU market. This agreement was incorporated into Lithuania’s
Association Agreement with the EU, which came into force on 1 February 1998. A two-way free-trade zone between the contracting parties will be
established by the year 2001. Limitations relating to agricultural and textile
goods are still in force. Taking advantage of this, Lithuanian exports to the
EU have doubled, reaching 33 per cent of total exports since 1993.
– Based on the current state of negotiations, accession to the WTO is envisaged either in late 1998, or in early 1999.
– The three Baltic republics have concluded a free-trade agreement and
work to establish a customs union is well underway.
2.2. PROSPECTIVE SECTORS
Lithuania has reorganised its economy over the past eight years. The reorganisation of large-scale production associations and the privatisation of small
and medium-sized enterprises was almost completed during 1992-1996. Of the
6 644 companies which were eligible for privatisation, 5 714 (86 per cent) were
privatised during the first stage. The privatisation of state property started in September 1991, with the coming into force of the Law on the initial privatisation of State
property, which the Parliament adopted on 28 February 1991. The largest state
enterprises, such as Lithuanian Oil (the oil refinery), Klaipeda Sea Transport
Company (machinery and metal processing activities relating to ocean transport),
state banks, the national airline (Lithuanian Airlines) and other companies were
included on the list of state assets due to be privatised during 1997-1998. Several
other companies have already been privatised including the national telecommunications company (Lithuanian Telecom) which was privatised in July 1998,
through the sale of 60 per cent of its shares. The shares were bought by a
Swedish/Finnish consortium Amber Teleholding for US$510 million. Several
others enterprises are still being offered for privatisation (see 2.4).
A new economic system and policy were adopted during the initial privatisation process. The last few years witnessed: 1) the creation and operation of a real
capital market, assuring favourable conditions for foreign investment; 2) the
development of ownership and a private sector.
Lithuania’s main exports in 1997 were:
– mineral products, including electricity (US$0.675 billion or 17.8 per cent of
total exports);
28
– textiles (US$0.6 billion or 16.3 per cent of total exports);
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
– mechanical goods and electrical equipment (US$0.45 billion or 12.2 per
cent of total exports);
– chemical products and related industries (US$0.375 billion or 9.2 per cent).
There are good opportunities for investment in several sectors, including the
following:
– Electronics, machinery and information technologies;
– Agricultural and agro-industrial processing;
– Chemicals and pharmaceuticals;
– Transportation infrastructure and distribution;
– Financial services (including insurance);
– Travel and tourism.
2.2.1.
Wood processing
The Lithuanian wood processing and furniture industry has over 400 years of
deep-routed traditions and still offers good development prospects. The government has focused on the development of this sector.
The Lithuanian woodworking industry processes finished goods (sawwood,
wood panels, plywood, furniture, etc.) and about 3 million m3 of timber. Much of
the production is exported. The industry’s competitiveness is due to the following
advantages it offers:
– the availability of comparatively low production costs;
– access to cheap local raw materials; and
– the existence of a skilled and educated labour force.
These three factors, together with the relatively high quality of wood products and furniture, enhance the attractiveness of Lithuanian exports. Wood and
wooden products account for approximately 5.4 per cent of total exports.
At present, the Lithuanian furniture industry produces a broad range of
furniture sets and their components. Traditionally, the industry marketed its
products mainly in the former USSR. The majority of previously state-owned
furniture enterprises has equipment which is adapted to mass and serial production of chipboard furniture. However, the mass production of such furniture
became unprofitable after the eastern markets shrunk. Hence, companies have
tended to re-direct their production towards solid wood furniture and to orient
their exports towards the EU and other western markets. In recent years, the
Lithuanian furniture industry has been successful in increasing its exports to
western markets. The main importers of Lithuanian furniture are France, Germany
and Denmark.
29
INVESTMENT GUIDE FOR LITHUANIA
The paper production and pulp industries are also among the oldest in
Lithuania. For example, the biggest board and paper producer in Lithuania, the
joint-stock company Klaipedos Kartonas, was founded in 1898. In 1994, the mill
became a 100 per cent private joint-stock company and, at present, it produces
chipboard (from waste paper), wrapping paper, spruce ground wood pulp, offset
and gravure printed boxes, as well as other products.
Major foreign investors include: Ochocco Lumber (United States); Terminal
Forest Products (Canada).
2.2.2.
Textiles
The textile sector, with traditions that originated many centuries ago, has
relatively modern production facilities. The first linen and wool mills, leather
tanneries and footwear factories were established in the 18th century.
In 1997, textiles accounted for 14.6 per cent of GDP. The sector is rather large
and includes about 100 large factories and more than 300 small and mediumsized enterprises, which together employ more than 60 000 people.
In 1992, the Eastern European countries were still the main markets for
Lithuanian textiles, 60 per cent of total exports being destined to the former USSR
and only 5 per cent being exported to the West. In 1995, the share of exports to
the West had increased nearly nine times to 44 per cent, while 19 per cent was
imported by other Baltic States and the CIS. The share of textile exports (in the
country’s total exports), grew from 9.7 per cent in 1993 to 16.2 per cent in 1997.
Sewn and knitted articles occupy the leading shares of total textile exports, at
32 per cent and 18 per cent respectively. Overall, 75 per cent of textiles are
exported.
Most textile enterprises have been privatised in the last few years. A number
of western companies have acquired shares and established joint-ventures with
local companies, with the aim of exporting their products. Two German textile companies have been particularly active in forming partnerships with Lithuanian companies and have invested US$40 million in two of the largest Lithuanian
textile companies. More than 90 per cent of the production arising from these
joint-ventures is exported, either in the form of finished or unfinished goods.
Over the last decade, more than 70 per cent of the production equipment in
industry has been replaced by state-of-the-art equipment. This has been accomplished both by reinvesting profits and by attracting significant investment, with
the result that Lithuanian companies have been able to construct modern production lines.
30
Textiles and textile products are the main export category of the country.
In 1997, they accounted for 16.2 per cent of total exports. The bulk of these
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
products were destined for the EU (65 per cent), the CIS countries (20 per cent)
and 15 per cent were exported to other countries.
Major foreign investors in the textile industry include: Wilhelm Becker and
Tuchfabriken (both Germany), and Richard Hämmerle Färberei und Appretur
(Austria).
2.2.3.
Electronics, machinery and information technologies
Until 1991, the electronics and machinery industry factories were operating
well and employment was high, since factories operated at full capacity in order
to fulfil Soviet Union production plans. Lithuania was a leader in the electronics
industry in the former USSR, particularly in the production and development of
television sets, television equipment, computers, semiconductors and radio-measurement equipment. Lithuanian companies were also among the major suppliers
of electronic products to the Soviet military industry and space programme.
This sector employed approximately 25 000 people and produced an estimated US$200 million in goods and services in 1990. In 1992, the state initiated a
privatisation programme under which most of the large companies in the industry
were privatised. Today, some of the electronics sector plants are operating at only
10-30 per cent of their capacity. In 1997, the sector is estimated to have employed
some 10 000 people and to have produced approximately US$120 million in
goods and services.
Several factories have attracted major foreign investments and foreign partners. A number of companies have attained ISO 9 000 status and market their
products world-wide. Nevertheless, significant foreign investment is still needed
sector-wide in order to upgrade production facilities. Investors can derive the
following benefits from investing in this sector:
– The geographical location of Lithuania and its general business environment are favourable;
– The Lithuanian electronics industry is still undergoing restructuring, but
many companies are already competing well on the world market;
– Markets do exist in the Baltic region, the Commonwealth of Independent
States and in western countries, for products made by Lithuanian
electronics companies;
– The Lithuanian electronics industry’s most valuable resource for western
investors is its qualified and skilled workforce, as well as its management,
which possesses extensive connections in the former Soviet Union.
Furthermore, most Lithuanian electronics companies know the needs of the
local markets and, hence, are easily able to adapt their basic products to meet
these needs. They could act as contributor factories with the purpose of serving
specific national or regional markets.
31
INVESTMENT GUIDE FOR LITHUANIA
Acting as server factories, Lithuanian companies would supply specific
national or regional markets. At present, it is a rather common situation, only in
respect to a limited range of products. Such a business unit could provide a way
of overcoming tariff barriers and of reducing both taxes and logistics costs.
It is difficult for western companies to obtain relevant information about the
situation in the Commonwealth of Independent States and Baltic States markets.
However, the local company, acting as an outpost factory, with the primary role of
developing market intelligence, could help to overcome this difficulty.
Since the re-establishment of independence, Lithuania has been exposed to
modern computer science and information technologies (IT). Computer science
and IT specialists are currently being trained in at least six universities, in several
colleges and professional schools. The University of Vilnius and the Kaunas University of Technology (KTU) have the longest traditions in this respect. Funding
for higher education is obtained through the TEMPUS, PHARE and COPERNICUS
programmes.
Lithuania has accumulated a great deal of experience in developing software.
The most important development areas are:
– the development of computer-aided design systems;
– the adaptation and design of specialised design systems for civil engineering, office design, etc.;
– the creation and development of a database for business and industry;
– the development of signal-processing and pattern-recognition systems;
– the development of a medicine-oriented software-hardware system.
Several important IT projects are in progress or are being planned. These are
aimed at creating the infrastructure needed to meet the demands of an information society. Furthermore:
– Lithuanian specialists are familiar with the market of the Commonwealth of
Independent States market;
– Local professionals have the capacity to work on automated information
system design, maintenance of technological equipment, the manufacturing process and in automation and control; these would require only shortterm training.
– There is scientific research talent both in the universities and in the institutes of the Academy of Science. The existing personnel can be reorganised into new research groups to run long-term projects, since they
already have experience of contractual relations with foreign partners.
32
– Costs of R&D are relatively low.
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
Lithuanian companies, with the help of foreign partners, are acquiring
stronger positions within the Lithuanian market. However, it is clear that the best
prospects are in eastern markets, because the best-known partners are located
there and Lithuanians know the Russian language and are accustomed to operating in these markets.
Major foreign investors in this sector include: IBM (United States), Siemens
(Germany), Samsung (Korea), Farimex (Switzerland), Henley Trading (Ireland),
Philips (Netherlands), and a number of electronics companies from Denmark and
Sweden.
2.2.4.
Food and agriculture
Traditionally, agriculture has played a significant role in the national economy. Indeed, during Lithuania’s first period of independence, exports of dairy
products, beef and pork were among the country’s main foreign-currency earners.
Table 1.
Export and import of agricultural
and food products
US$ million
Export
Import
Source:
1995
1996
1997
495.76
287.58
574.15
597.87
618.02
625.36
Lithuanian Export Department.
Fundamental changes have taken place in the Lithuanian food and agriculture sectors since 1992. Agriculture has been reformed and new forms of agricultural units were established.
This sector has good economic potential in Lithuania, due to its relatively
favourable agro-climatic conditions, its well-established agricultural traditions and
its pool of trained farmers. The conditions are particularly well-suited for the
production of grains, sugar beets, livestock and some fruits and vegetables.
Today, some 1 500 agricultural companies cultivate almost 617 000 hectares
of land. Approximately one-sixth of this land is rented from the state or from
persons whose land ownership rights have been restituted. Many agricultural companies either have gone bankrupt or have seen their members decide to
33
INVESTMENT GUIDE FOR LITHUANIA
terminate operations and to divide the property amongst themselves. The number of agricultural companies is therefore decreasing.
Ecological agriculture is one of the trends in agricultural restructurisation. It is
becoming increasingly popular in Lithuania. In 1997, 56 ecological farms held
certificates which enabled them to carry out this type of agriculture, and 50 farms
were in the process of acquiring such certificates. Certificates are delivered by the
public institution called Ekoagros, which was established by the Ministry of
Health Care and the Ministry of Agriculture. The ecological agriculture community,
called Gaja, works successfully. It unites around 200 farmers and agricultural companies which are interested in ecological agricultural farming.
In 1993, a model programme for the ‘‘protection of underground water against
pollution and development of ecologically clean agriculture in the intensive
zone’’ was created. This programme is implemented by the public institution
Tatulos programa. Currently, research on the market for certified ecological products
is being carried out and the marketing of ecological products is being developed.
Fishery
In Lithuania, 16 companies own 27 ships which operate in the Atlantic Ocean,
36 companies have 65 ships fishing in the Baltic Sea, 103 companies fish at the
shores of the Baltic Sea and 75 companies fish in the Kursiu Marios (Currish
Lagoon) of the Baltic Sea.
v
There are over 20 open joint-stock and closed joint-stock companies
engaged in reservoir pisciculture, in which carp, trout and other fish are bred.
More than 1 500 tons of live carp and other fish were sold in 1997.
Twenty large and about 100 smaller fish processing companies operate in
Lithuania. All but two of these companies are private.
The Lithuanian fish industry is developing rapidly and there are possibilities
of investing in fishery, fish processing and trade. Open-sea fishing in the country’s
economic zone is regulated by Lithuanian law and international treaties.
34
Lithuania is a member of the following international organisations: the Food
and Agricultural Organisation (FAO), Fishery Committee (FC), North-western
Atlantic Fishery Organisation (NAFO), FAO European International Fishery Advisory Commission (EIFAC), International Baltic Sea Fishery Commission (INSFC)
and the newly established FAO subdivision ‘‘Eastfish’’. Lithuania has concluded
bilateral agreements on fishery with the European Community, the United States,
Canada and the Faeroe Islands (Denmark). An analogous agreement with the
Russian Federation is expected to be signed in 1998 and negotiations with Latvia
and Poland will be commenced.
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
Dairy industry
There are 26 large-scale and 20 small-scale milk processing factories in
Lithuania. In 1997, they bought and processed 1 410 thousand tonnes of raw milk.
At the start of 1998, eleven Lithuanian dairies were granted EU certificates,
enabling them to export their products to member states of the European Union.
More than half of the milk production is exported. The main export destinations
of Lithuanian dairy products are in the Commonwealth of Independent States.
On 1 April 1998, a new milk standard – the Milk purchasing, quality assurance and
payment rules went into force. The main difference from the former order is that
milk is calculated not only taking the consistency of the fat into consideration, but
also two other indicators, i.e.: the amount of fat and protein.
The main trends in the milk-processing industry are as follows:
– the improvement of quality and the raw-material base: the country aims at
establishing strong commercial milk-processing farms where the necessary
sanitary and hygienic requirements will be observed;
– the re-organisation and modernisation of production: efficient dairies are
expected to merge, thus reducing costs of production in the future.
Meat industry
In 1997, Lithuania had seven large and 20 medium-sized meat processing
enterprises, and about 200 slaughterhouses, together with meat-processing
shops, approximately 130 small meat-processing shops and about 250 small
slaughterhouses.
In 1997, some 177 000 tons of animals were bought and processed. This
represented 18.9 thousand tons of poultry, 44.7 thousand tons of pork, and
112.8 thousand tons of cattle.
Lithuanian meat products are currently not exported to the EU because they
do not meet the requisite standards. The main aim of this industry therefore is to
improve the quality of production, by conforming to the standards and sanitaryhygienic requirements set by the EU. In order to achieve this goal, the companies
are trying to modernise their production basis, improve the structure of meat
processing, produce higher quality products and achieve greater added value and
reduce production costs.
Foreign trade and investments in the food and agriculture sectors
Exports of agricultural and food products have increased rapidly: by 15.8 per
cent over 1996 and 7.6 per cent over 1997.
35
INVESTMENT GUIDE FOR LITHUANIA
An increase is also evident in the import of agricultural and food products
between 1995 and 1997. Compared with 1995, the volume of imported agricultural
and food products increased by 107.90 per cent in 1996 and, in 1997 (compared
with 1996), import volumes increased by 4.60 per cent.
In 1997, Lithuania exported traditional agricultural and food products: dairy
products (mainly cheese, butter, milk powder), meat and meat products (cattle
meat, canned meat, sausages), confectionery, cacao products, canned fruits and
vegetables, fish and fish products. These products were mainly destined to the
CIS countries (Table 2).
During 1991-1997, major multinational companies invested in the Lithuanian
food-processing industry. These multinational companies are attracted by the
existence of good economic potential and the comparatively cheap labour costs.
Table 2.
36
Main export partners of agricultural
and food products, 1997
Export
(US$ million)
Per cent
of total export
of agricultural
and food products
Russia
Belarus
The Netherlands
Latvia
Germany
Ukraine
Estonia
United States
Japan
United Kingdom
Kazakhstan
Switzerland
Ireland
Italy
Uzbekistan
Poland
Moldova
Sweden
France
Others
222.85
89.80
51.96
43.44
37.05
28.45
20.96
13.26
11.76
10.15
9.99
9.26
5.78
4.91
4.52
4.36
3.51
2.33
2.27
41.34
36.06
14.53
8.41
7.03
5.99
4.60
3.39
2.15
1.90
1.64
1.62
1.50
0.94
0.79
0.73
0.71
0.57
0.38
0.37
6.69
Total
617.95
100.00
Source:
Lithuanian Development Agency, Export Department.
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
Major foreign investors in the food and agriculture sector include: Masterfood/Mars, Kraft Food International, Coca-Cola Export Corporation, McDonald’s
Corporation (all from the United States), Baltic Beverages Holding (Sweden/
Finland), Pilsner Urquell (Czech Republic) and Orkla Group (Norway).
2.2.5.
Chemicals
The largest fertiliser and cement plants in the region are located in Lithuania.
The main production industry in Lithuania produces nitric and phosphoric mineral fertilisers, sulphuric, nitric and phosphoric acids, methanol, chemical fibres,
synthetic resins, synthetic detergents, varnish, dyes and paints, as well as household chemicals.
The amount of foreign interest in the chemicals industry has been increasing
over the past few years. The large Finnish fertiliser company Kemira recently set
up a joint-venture with a Lithuanian counterpart in order to produce fertilisers for
export to the European Union.
The main export products of the chemical industries are nitrogen (urea,
ammonium nitrate) and phosphate (superphosphate, ammophos) fertilisers.
In 1997, they accounted for 41 per cent of chemical exports. In general, the main
Lithuanian chemical export products are: fertilisers, pharmaceutical products,
albuminoidal substances, modified starches, glues, enzymes, essential oils and
resinoids, perfumery, cosmetics or toilet articles, soap and organic surface-active
washing products.
The chemical sector is still one of the largest export sectors. In 1997, it
accounted for 9.7 per cent of all Lithuanian exports. However, these industries
continue to depend heavily on imported raw materials.
Major foreign investors in the chemical sector: Shell Overseas Holdings Ltd
(United Kingdom/Netherlands), Euro Oil Invest SA (Luxembourg), Preussag
Wasser and Rohrtechnik GmbH (Germany), Neste (Finland).
2.2.6.
Pharmaceuticals
In Lithuania, the pharmaceutical industry offers the following advantages for
foreign investors:
– low research, development and production costs for new medicines,
– brand names which are well-known among consumers in the former Soviet
Union. Furthermore, Lithuanian doctors have knowledge of, and access to,
the market. This reduces the marketing costs of foreign investors in this
sector.
37
INVESTMENT GUIDE FOR LITHUANIA
The Lithuanian pharmaceutical industry is small, but there is a basis for a
skilled, strong pharmaceutical industry, since:
– the pharmaceutical industry was among the most advanced within the
former Soviet Union, both in terms of the production of final formulations
and in terms of the production of pharmaceuticals derived from animal
sources; indeed, within the former Soviet Union, Lithuania provided for up
to 30 per cent of the total market for insulin and other endocrine products.
– traditionally, Lithuanian universities maintain high teaching and training
standards in the biological disciplines which are used to develop pharmaceutical and biotechnological production techniques.
The government has emphasised the need to create a fully market-oriented
pharmaceutical supply system in Lithuania. The objective is to provide access to
affordable pharmaceutical products for the Lithuanian population. The government is seeking to attract foreign investment into the pharmaceutical manufacturing sector in order to promote the development of such a system. Laws in
Lithuania are aimed at promoting the local pharmaceutical industry, rather than to
develop import channels for foreign drugs.
In 1997, the pharmaceutical industry made up 18 per cent of the chemical
industry’s export structure. The main exports were destined to the CIS countries
as a result of the Good Manufacturing Practice (GMP).
Major foreign investors in the pharmaceutical sector include: Icelandic Health
Company (Iceland/Sweden) and Kemira (Finland).
2.2.7.
Transportation and distribution
Historically, the geographical location of Lithuania has determined its role as
a transfer point in the economic relations between West and East. This role is now
assuming primary importance as Lithuania, with a view to full EU membership,
aims at becoming an important regional centre on the eastern coast of the Baltic
Sea.
Lithuania’s transport system consists of roads, railways, sea transport, port
facilities, as well as civil aviation and transit services for both goods and passengers (see Map 2). The country’s transportation infrastructure is widely considered
to be among the best in the former Soviet Bloc. It consists of European-standard
four-lane highways linking all major industrial cities, well-maintained two-lane
roads serving smaller cities, one international airport located in each of the four
main industrial centres, an ice-free port and a highly-developed rail network.
38
The European Union’s Transportation Commission has identified ten priority
transport routes in Europe, two of which pass through Lithuania: north-south
linking Scandinavia with Central Europe, and east-west linking Europe with Russia
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
✦ MAP 2. Transport routes in Lithuania
LATVIA
BALTIC SEA
Maziekiai
Palanga
Siauliai
Klaipeda
Panevezys
Utena
Raseiniai
Silute
Kedainiai
Ukmerge
Ignalina
Jurbarkas
Kaunas
Vilnius
Sea ports
Airports
Alytus
Motor roads
Lazdijai
Railways
Oil and oils products
pipelines
POLAND
Druskininkai
BELARUS
Main gas pipelines
and the CIS. Lithuania’s trucking companies have taken advantage of the country’s
geographical position, and Lithuanian truckers haul nearly the same tonnage
between east and west as do Russian companies.
Lithuania takes an active part in the implementation of the balanced TransEuropean network development concept, with a view to gradually approximating
the rest of its own transport infrastructure to western standards. Another objective
is to form a safe and environmentally sound transit transport system.
The extensive rail network includes one of the largest hubs in the region. The
rail gauge does not conform to the European standard, but the first European
standard rail hub in the former Soviet Union is expected to be laid in Kaunas by
the end of 1998.
Transit freight flows in the Lithuanian part of the road and rail lines of the
east-west corridor are already intensive. This is due to the freight flows between
east-west trading partners, through the seaports of Klaipeda and Kaliningrad.
39
INVESTMENT GUIDE FOR LITHUANIA
Hence, one of the most important priorities is to improve the infrastructural and
operational conditions within these international corridors.
Klaipeda’s seaport is the fifth largest in the Baltic Sea region in terms of its
stevedoring volume. In 1997, 16.1 tons were handled at this port; 20 per cent of
the cargo of all eastern Baltic ports are handled by Klaipeda port. It is expected
that the capacity of the port will grow to 30 million tons annually, after the
facilities have been upgraded in the year 2000. At present, approximately 80 per
cent of all freight to and from the port is transported by rail, while the rest is
transported by road.
The transportation of trailers is undergoing relatively rapid development.
Their number increased 2.4 times in the period of 1993-1996. The infrastructure of
Klaipeda seaport is gradually being improved to accommodate passenger
transport.
In view of the potential for port-related rail infrastructure, the development
of new transport (sea-rail) technologies has acquired special importance. To this
effect, under a bilateral Lithuanian-German co-operation programme, a combined
transport implementation project has been prepared. It includes the implementation of a shuttle train concept on the Mukran-Klaipeda-Minsk-Moscow route (with
a branch going to Kyiv).
With the continuing structural changes in trade and business relations, the
Lithuanian air transport sector has managed to adapt its services from the eastern
to the western market in a rather short period of time. In 1997, Lithuanian Airlines
transported 230 000 passengers. A US$30 million renovation of the huge former
military airport in Siauliai has been completed. It features three runways, of which
the longest is 3.5 km, making it one of the largest cargo airports in Europe.
Since 1994, the average road traffic density has increased by 15-20 per cent
each year. The Lithuanian road transport system is being integrated into the
transport services market of Western and Eastern Europe. This is being achieved
by an overall restructuring of the road transport system.
The majority of freight transport companies have been privatised, while
other companies have been transferred under the jurisdiction of the municipalities. Road maintenance and construction enterprises have been restructured and
a less centralised and more efficient management structure has been established.
40
With respect to transport infrastructure (road, rail, air transport and seaport),
some 55 projects are scheduled to be completed by the year 2005. These projects
are being carried out in accordance with the priorities set for the development of
the transport network, defined in Decision No. 1692/96/EC On Community guidelines
for the development of the Trans-European transport network, issued by the European
Parliament and Council.
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
The country’s telecommunications system will be improved as a result of the
Privatisation of Lithuania Telecom in June 1998.
A number of improvements to infrastructure have also been carried out in the
Free Economic Zones of Siauliai and Klaipeda, as indicated in Section 2.3.
The second phase of privatisation, which is already underway, envisages the
privatisation of the state civil aviation and sea transport operators, Klaipeda
seaport stevedoring companies and railway operators.
Major foreign investors in this sector include: Odense Steel Shipyard
(Denmark); Scandinavian Airlines (SAS) (Sweden), Lufthansa (Germany), Austrian
Airlines (Austria).
2.2.8.
Financial services (including insurance)
Banking
The Lithuanian banking system was created at the restoration of independence in 1990. The Bank of Lithuania started operating at the beginning of that
year. It has a network of branches throughout Lithuania.
The Bank of Lithuania (BoL) has the exclusive right to issue currency. Its main
function since independence has been to ensure the stability of the national
currency, the litas. The bank also manages government accounts, issues treasury
bills, implements monetary policy and regulates commercial banks among other
functions that are usual for a central bank. In its role as regulator of the commercial banking sector, the BoL requires that all banks prepare their annual financial
statements in accordance with International Accounting Standards and be audited
by an internationally recognised firm.
The main legislation regulating the Lithuanian banking and finance system
includes the Law on commercial banks, adopted on 21 December 1994, the Law on the
Bank of Lithuania of 1 December 1994, the Law on currency adopted on 1 July 1993,
the Law on foreign currency of 7 July 1993 and a multitude of by-laws adopted by the
government, the Board of the Bank of Lithuania, the Ministry of Finance and other
governmental institutions.
The first commercial banks in Lithuania were established in 1989. During 1994-1995, several commercial banks were declared bankrupt. At the end
of 1995, banking regulations were tightened. Two commercial banks – the JointStock Innovation Bank and the Litimpex Bank – have since had their activities
suspended.
Commercial banks in Lithuania provide banking services to small, mediumsized and large-sized enterprises. The main banking services provided by commercial banks are: charge and credit cards, electronic banking, letters of credit,
leasing and securities brokerage services
41
INVESTMENT GUIDE FOR LITHUANIA
Major foreign investors in the banking sector: Société Générale (France),
Svedfund Financial Markets AB (Sweden), DE GmbH (Germany), CIBC Oppenheimer Corp and the European Bank of Reconstruction and Development.
Credit institutions
Consolidation of the banking sector in Lithuania is proceeding apace.
Although there are eleven competing commercial banks in the country, four major
players are emerging as the market leaders. Two privately owned and two statecontrolled banks together control 86 per cent of the country’s US$2.1 billion worth
of banking assets as of 31 March 1998. In contrast to previous years, most commercial banks were profitable in 1997.
The two state banks are the Lithuanian Agricultural Bank and the Lithuanian
Savings Bank. The Agricultural Bank is currently being offered for sale. If this sale
is successful, the Savings Bank will be privatised in 1999. The two privately-owned
banks – Vilniaus Bank and Hermis Bank – are both more than 50 per cent owned
by foreign investors, including the European Bank for Reconstruction and
Development.
Direct foreign competitors are also starting to enter the Lithuanian banking
sector. Kredyt Bank of Poland and Société Générale both have branches in Vilnius
and the Bank of Lithuania has so far displayed a positive attitude to the establishment of foreign competitors to domestic banks.
Government securities
Lithuanian government treasury bills are available to local and foreign investors. They can be purchased directly from auctions organised by the Bank of
Lithuania and the Ministry of Finance and are also traded on the National Stock
Exchange of Lithuania. T-bills with one, three, six and twelve month maturity are
issued, with interest rates in the range of 6-10 per cent per annum.
The stock exchange
42
Securities of private companies in Lithuania are traded on the National Stock
Exchange of Lithuania (NSEL). NSEL operates a centralised, order-driven trading
system, with price fixing at the opening of the market and continuous trading
during the day. The market is dematerialised, with the Central Depository providing custody services for foreign institutions.
Over 600 companies were listed on the NSEL. Issues are divided into groups,
with companies having stock emissions on one or more of the following lists:
Official List (five ‘‘blue chip’’ companies), A-List low risk – 55 companies) and
B-List (riskier – 610 companies, many with limited trading). Total NSEL securities
market capitalisation at the end of May 1998 totalled US$2.49 billion. Monthly
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
turnover for central market trading was US$5.9 million and US$16.9 million for
block trading. Investments by non-residents are unrestricted. There are a number
of brokerage firms and departments of commercial banks providing a full range of
services as intermediaries in the market.
Furthermore, the NSEL is actively used by local companies as a means of
raising additional capital. In 1997, US$220 million was raised by share issues and
US$203 million through the issue of debt securities. Adding US$253 million raised
in long-term bank loans, the market was the intermediary through which
US$676 million was raised during the year. With a capitalisation equal to 26 per
cent of GDP it is clear that the NSEL already plays an important role in the
national economy.
Insurance services
The insurance sector has grown rapidly in recent years. Both life and non-life
premiums increased by almost 40 per cent in 1997 compared to 1996.
The Lithuanian insurance market is characterised by stiff competition,
decreasing premium rates and innovation. There are currently 31 insurance companies operating in Lithuania, plus a number of insurance brokerages. However,
because of the capital requirements set in the newly-adopted Law on insurance
(passed in July 1996), the number of Lithuanian insurers is expected to decline.
Non-life insurance companies must increase the authorised capital to at least
LTL 2 million in stock capital. For life insurers, the minimum authorised capital
requirement is LTL 4 million. The authorised capital of the insurance company
may not be less than LTL 7 million if the company is involved in credit insurance.
Minimum share capital requirements for insurance companies continue to
increase. Many Lithuanian insurance companies are undercapitalised, with the
result that some of them will probably be forced out of the insurance business or
will have to reorganise into insurance brokerage firms.
The local market is highly concentrated, since the top three companies hold
a 62 per cent share in non-life insurance and a 98 per cent share in life insurance
markets. Unmatched leadership with a 58 per cent market share is maintained by
AB Lietuvos Draudimas (a 70 per cent state-owned insurance company) which,
according to statistics of the first quarter of 1998, holds 76 per cent of life insurance and 46 per cent of the non-life insurance market (calculated according to the
insurance incomes collected). DRAUBA, a Lithuanian-German joint-venture is the
second-largest insurer, and the third position is held by PREVENTA.
At present, the following life insurance services are offered:
– a wide range of pension insurance;
– life insurance;
43
INVESTMENT GUIDE FOR LITHUANIA
– life and health insurance for adults;
– marriage insurance;
– endowment insurance.
The economic and political reforms of 1991-1995 had a negative impact on
the life insurance sector of the country. However, the sector was finally stabilised
in 1996.
At present, the following non-life insurance services are rendered:
– cargo insurance;
– customs bond insurance;
– car insurance;
– livestock insurance;
– business interruption insurance;
– civil liability insurance;
– exports credit insurance.
– buildings insurance;
– buildings insurance;
– accident and medical expenses insurance.
Major foreign investors in the insurance services sector include: Alte
Leipziger GmbH (Germany), Eesti Kindulustus (Estonia) Crown Motor Syndicate
(UK) and Pohjola (Finland), Coris (France), Munich RE (Germany),
Kölnische Rück (Germany), Lloyd (United Kingdom).
2.2.9.
44
Travel and tourism
Lithuania’s tourism industry has grown significantly since its borders were
opened just after independence had been regained. There are several major
attractions for tourists (Table 3). The capital city of Vilnius, which has the largest
old town in Eastern Europe, remains the most popular destination for tourists
visiting Lithuania. Just outside of Vilnius, in Trakai, is the medieval castle which
was once the capital of the Grand Duchy of Lithuania. This offers a pleasant
excursion for visitors to Vilnius. Kaunas, the country’s second largest city, also has
a large old town and is popular among tourists. Increasingly, Lithuania’s pristine lakes and forests are being visited by tourists.
However, growing most rapidly are the summer resort towns located on the
Baltic Sea and the port city of Klaipeda. The Baltic coast resorts are very popular
among Scandinavian, German, Russian and Polish holiday makers because of
their large sand dunes and quiet pine forests, which make the Lithuanian coast
unique in Europe. Development has been significant in Nida and Juodkrante,
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
Table 3. Most popular tourist destinations, 1997
In percentage of visiting tourists
Vilnius
Kaunas
Klaipeda
Nida
Palanga
Trakai
Source:
58
30
19
5
19
14
Lithuanian Tourist Board.
Table 4.
Daily expenditure of foreign tourists, 1997
In US$, per person
Estonia
United States
Latvia
Germany
Poland
CIS
Other
Source:
40
53
30
50
24
21
64
Vilnius City Department of Tourism.
which are located on the Neringa sand pit, a 2 km wide and 99 km long sand
peninsula, on which dunes attain heights of more than 70 meters. The resort of
Palanga has seen a wave of new development and now offers more than 100
restaurants and night-clubs and nearly 5 000 hotel rooms in the area, servicing
approximately 10 000 visitors daily during the peak season. The international
airport in Palanga is the destination of many daily flights from a number of
European airports.
Development in the Vilnius restaurant and hotel industry has also been
significant in the last two years. The Radisson SAS has opened a new hotel and
plans are underway for a new Sheraton Hotel. In total, more than 15 new hotels
located in the capital, have opened in the last three years and most of the
existing hotels have undergone major renovations. The number of restaurants and
clubs has more than doubled in the last two years.
Lithuania is discovering its growth potential in the tourism industry. Expenditures by tourists increased by over 50 per cent in 1996, compared with the
previous year, and totalled US$345 million. In 1997, this figure stood at
45
INVESTMENT GUIDE FOR LITHUANIA
US$399 million and 3.7 million visitors came to the country. At present, the sector
accounts for 4.2 per cent of GDP of Lithuania.
2.2.10.
Natural resources
The main natural resource in Lithuania is timber, since forests cover about
40 per cent of the country. Other resources available in substantial quantities are:
gypsum, quartz sand, dolomite, clay, limestone, brick clay, gravel, construction
grade sand, peat and mineral water. In northern Lithuania the resources of dolomite amount to 50 million tons. Clay chalk and chalky marl were discovered in
south-western Lithuania. Commercial peat bogs larger than one square kilometre
are located throughout Lithuania. Amber is found along the Baltic coast. Significant iron ore deposits were recently discovered in southern Lithuania and their
commercial possibilities are being investigated.
Lithuania does not have major fossil fuel reserves. Crude oil, natural gas and
coal are imported. However, modest reserves of oil and gas have been discovered on-shore in western Lithuania and are being commercially exploited. Production of high-grade crude oil is about 250 000 tons annually. Major oil deposits
are known to lie just off Lithuania’s and Latvia’s Baltic coast and there are concrete plans for extensive exploration.
A large petrochemical refinery, Mazeikiu Nafta, is located in northern
Lithuania, with an annual capacity of 16 mill. tons. A major oil terminal is being
built at Butinge near the Baltic Sea, with the aim of having alternative oil supplies
from sources other than Russia, also for the export of petrochemical products. A
30 per cent participation in Lithuania’s petrochemical industry (including the
refinery, fuel station network, oil and gas pipelines and the Butinge terminal) is
being negotiated with major international investors.
2.2.11.
Energy
Electrical energy is an important export product for Lithuania, with most sales
made to Latvia, Belarus and Kaliningrad. In 1997, electrical energy exports were
3.8 billion kWh. The most important single source of electrical energy is the
Ignalina nuclear power generation station, which alone generated almost 12 billion kWh in 1997. Lithuania, in close co-operation with Sweden and other EU
countries, has made upgrading Ignalina one of its major priorities.
46
The energy sector still faces many challenges, particularly with domestic
price levels. Retail electricity prices are regulated by the state and have not yet
reached a true market level, due to the reluctance of successive governments to
allow price hikes. However, in May 1997, the government announced that utility
prices would be liberalised and a major increase in electricity prices became
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
effective in August 1997. The electricity distribution companies have also often
fallen into arrears with payments to the suppliers. For example, in 1996, as much
as US$125 million was owed to the Ignalina power station.
Despite these internal difficulties, the energy sector remains a major foreign
currency earner for Lithuania and this is expected to continue for the foreseeable
future.
2.3. FREE ECONOMIC ZONES
No tax incentives exist for companies in which foreign capital was first
invested after 1 April 1997. However, certain incentives exist in the context of
regional development policy.
In June 1995, the Law on the establishment of Free Economic Zones was adopted.
Under this law, both Lithuanian and foreign companies, corporations and associations are eligible to locate their activities in Free Economic Zones.
As a result of the passing of this law, three Free Economic Zones (FEZs) were
created. Currently, the zones, which are located in the cities of Siauliai, Klaipeda
and Kaunas, are in different phases of development. At the moment of writing, it
is hoped that the FEZ in Klaipeda will commence operations in September 1998
and that those located at Siauliai and Kaunas will start to operate in January 1999
and June 2000 respectively. Each location offers, amongst others, the following
financial incentives:
Investment over US$1 million
– corporate tax holiday for the first five years;
– 50 per cent reduction for the following ten years (effective rate 14.5 per
cent).
Investment under US$1 million
– corporate tax reduction of 80 per cent for the first five years (effective rate
5.8 per cent);
– 50 per cent tax reduction for the following five years (effective rate 14.5 per
cent);
– no customs taxes;
– no VAT;
– land lease at 50 per cent discount;
– special write-offs for investment and other expenses on long-term assets
and new technologies.
FEZ companies receive equal legal guarantees as non-FEZ companies.
47
INVESTMENT GUIDE FOR LITHUANIA
2.3.1.
Siauliai FEZ
Targeted sectors of activity:
– light industry;
– air cargo transport terminal – cargo distribution and warehouse centre;
– aircraft repair and maintenance;
– business centre;
– commercial and service activities.
Territory and location: Located close to the city centre, the FEZ covers a total
area of about 458 hectares and surrounds one of the largest former Soviet air
bases in Europe.
Advantages: The city is among Lithuania’s largest industrial cities and is host to
the country’s first FEZ. It offers a skilled and experienced workforce in sectors
such as microelectronics, television production, aircraft maintenance and repair,
precision engineering and light industry.
The airport at Siauliai is equipped to receive all types of aircraft and is the
only airport in the Baltic region able to handle large cargo planes, without any
weight restrictions. Philips (from the Netherlands) carried out extensive reconstruction of this airport, which was completed in August 1997, at a cost of
US$30 million. Philips plans to start three projects in the zone: technology transfer
to produce mobile radios for the entire former Soviet Union, production of set-top
boxes for cable television, as well as a distribution centre for the Baltic region
and CIS.
2.3.2.
Klaipeda FEZ
Targeted sectors of activity:
– light manufacturing;
– warehousing and transhipment;
– commercial activities.
Territory and location: 205 hectares, located close to the city centre and port
facilities.
48
Advantages: Adjacent to the port of Klaipeda, the zone offers transhipment
facilities, including a modern road and rail network, which are among the highest
in standard in the Eastern Baltic region. Increased transit flows and the upgrading
of the port facilities will continue to improve the investment environment in
Klaipeda. Lithuania’s port city and the surrounding coastal area, have been attractive for foreign investors and rank second to the capital of Vilnius in attracting
inward investment. The Klaipeda sea port itself makes a significant contribution
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
to the growth of the city and is expected to develop hand in hand with the Free
Economic Zone. Reconstruction of the port is in progress, in order to allow the
increasing demand for freight transhipment to be met. Regular cargo and passenger ferries and ro-ro lines connect Lithuania with Germany, Sweden and Denmark.
The construction of a modern cargo terminal is scheduled for completion by the
year 2000. Once this work completed, the port will be able to handle all types of
cargo. In 1997, 16 million tons of cargo were handled and this is expected to
nearly double to 30 million tons by the year 2000.
Siemens has invested more than US$10 million in their plant in Klaipeda
which had a 1996 turnover of more than DM 30 million. Philip Morris was one of
the first major investors in Lithuania in 1993. They chose Klaipeda over other sites
in Lithuania, because of its potential as a production and trading centre. Philip
Morris has confirmed its confidence in Lithuania by deepening its investment on
a yearly basis. The company’s investment is now over US$40 million.
Development and management: The mission of the management companies of
Klaipeda and Siauliai FEZs is to assist investors in establishing their operations in
the zones, in the most effective manner. This is achieved, firstly, by handling most
matters connected with state institutions and thereby reducing bureaucratic
obstacles; secondly, by helping investors to obtain the best site within the FEZ
that suits their needs; thirdly, by providing investors with a broad range of
services ranging from personnel recruitment to construction management; and
finally, by being available to act as the investor’s local information resource
whenever needed.
2.3.3.
Kaunas FEZ
Targeted sectors of activity:
– export production;
– transport terminal-cargo distribution and warehouse centre;
– offshore activities and banking;
– adjacent science and technology park.
Territory and location: The Kaunas FEZ is one of the prime sites within the Baltic
region for large scale green-field investment. The newest of Lithuania’s zones, it is
slated to occupy 1054 hectares of land between the city of Kaunas and the Kaunas
Airport next to highways A1 and A6 and near the intersection of two major
railways.
Advantages: Kaunas, Lithuania’s second largest city, has a well-established
university and research base, a tradition of light industry and the country’s busiest cargo airport. The area’s well-developed infrastructure and communications
network have made it one of the locomotives of economic growth in central
49
INVESTMENT GUIDE FOR LITHUANIA
Lithuania. The zone’s advantages as a transhipment facility will be further
enhanced by the construction of a European-gauge railway from the Polish-Lithuanian border to Kaunas. The Via Baltica highway project linking Helsinki, St. Petersburg and Warsaw will have a major section of it running next to the zone.
Development and management: The Belgian company AOI N.V. has been contracted, by the Lithuanian government, to develop the FEZ located in Kaunas.
This company undertook a strategic alliance with several partners, known worldwide, grouping them under the heading COHESION. Technical assistance will be
dispensed by such logistic partners as the Port of Antwerp, the Belgian railways,
engineering companies belonging to the Dutch Arcadis group and the Belgian
Tractebel group and information technology will be supplied by the Artemis
group. Other companies will also be involved in the management and development process. Institutional contacts and European Union liaison activities, business and marketing support will be provided by the Flemish Association Flanders-Baltikum.
(FEZ managers can be contacted at the addresses given in Annex B.)
2.4. OPPORTUNITIES IN PRIVATISATION
50
As opposed to the first stage, the second stage of privatisation is aimed
specifically at attracting foreign investment. In this connection, infrastructure
enterprises have been offered for privatisation along with controlling stakes in
enterprises considered to be more attractive to foreign investors. A privatisation
programme for 1997-2000, initiated by government resolution No. 109, On privatisation of energy, communications, transport and other large-scale enterprises, is aimed at
accelerating the privatisation of large infrastructure enterprises. A number of
infrastructure enterprises are among those on the current privatisation list. These
are Lithuanian Telecom, the Mazeikiai Oil Refinery, three of the largest regional banks
and Lithuanian Airlines (the national airlines). The 14 infrastructure enterprises
scheduled for privatisation are valued at approximately US$2 billion. The process
began in mid-1997 with the privatisation of the Klaipeda Shipbuilding Factory, which
has been sold to a Danish shipbuilding company. As of 15 July 1998, only three
enterprises had been fully privatised: Lietuvos Telekomas (Lithuanian Telecom),
Viesbutis Lietuva (Lietuva Hotel) and Baltija Shipbuilding Company. Four other
companies – Klasco, Lisco, Western Ship Repair Yard and Klaipedos Smelte
– were close to being privatised. The privatisation of infrastructure enterprises on
the current list is expected to be completed in 1999, a little later than originally
scheduled. Following the first wave of infrastructure privatisation, a second group
of enterprises is under discussion and may include Lithuanian Gas and Lithuanian
Energy among many other state assets.
STRUCTURE OF THE ECONOMY AND INVESTMENT OPPORTUNITIES
Table 5. Energy, communications, transport and other large-scale enterprises
remaining to be privatised in 1998 through international tender (partial list)
Company name
Company Form
Location
Business activities
Lithuanian Radio and Television
State Company
Vilnius
Technical services for the
communications/mass media sector
Geonafta
Public Limited Company
Klaipeda region
Oil exploration
Lithuanian Oil
Public Limited Company
Oil and natural gas supply, refining
Lithuanian Airlines
Public Limited Company
Vilnius
National airlines, passenger
transport
Air Company Lithuania
Public Limited Company
Vilnius
Air transport of passengers
and cargo
Kaunas Aviation Factory
Public Limited Company
Kaunas
Aircraft maintenance
Authorised
capital stock
Share of capital held by state
(municipality)
Number
of employees
LTL (000’s)
Value
LTL (000’s)
Share
of capital (%)
57 318
57 318
100
593
22 289
18 113
81.3
333
756 156
756 156
100
595
76 538
76 538
100
1 068
2 766
2 766
100
205
17 761
17 761
100
54
Source: The Lithuanian Privatisation Agency, 1997.
2.5. THE LITHUANIAN DEVELOPMENT AGENCY
The Lithuanian Development Agency (LDA) came into existence in 1997, as a
result of the merger of the Lithuanian Investment and Lithuanian Export Promotion agencies. It was founded by the former Ministry of European Affairs. The
Agency functions as an autonomous organisation and aims at mediating between
the Lithuanian government and businesses operating in Lithuania. The main
objective of the LDA is to become a main supplier of information, services and
51
INVESTMENT GUIDE FOR LITHUANIA
expertise geared towards the specific needs of foreign investors and Lithuanian
exporting companies.
The LDA comprises three departments: the investment department, the
export department and the information and public relations department. Their
functions are as follows.
– The Investment Department develops and implements investment projects,
organises seminars on investment opportunities in Lithuania, provides
information and gives assistance to those wishing to set up a business in
Lithuania.
– The Export Department supplies local companies with information relating to
foreign markets, trade regulations and customs. It also assists in finding
business partners and provides information concerning participation in
international trade fairs and exhibitions.
– The Information and Public Relations Department provides information relating to
the business and economic environment in Lithuania.
The LDA also has four representative offices abroad, are located in Germany
(Frankfurt, Hahn), Russia (Saint Petersburg) and Argentina (Buenos Aires). The
four offices organise seminars and conferences on investment possibilities in
Lithuania and supply foreign investors with information on the legal requirements
for setting up a business in Lithuania.
The Agency also publishes a series of informational and promotional booklets, fact sheets and pamphlets. The LDA maintains a website at http://www.lda.lt.
The LDA and its representative offices can be contacted at the addresses given in
Annex A.
52
Chapter 3
ECONOMY, BANKING AND FINANCE
3.1. INTRODUCTION
The transformation of the Lithuanian economy since the re-establishment of
its independence in 1990 has been far-reaching. Commitment to reform existed
from the outset and today there are clear indications that the reforms are bearing
fruit.
The economic decline that followed independence and the subsequent
breakdown of economic arrangements within the former Soviet Union was
arrested by 1995, when a 3 per cent real GDP growth was recorded. GDP has been
growing at an increasing rate ever since and the 1997 growth of nearly 6 per cent
was one of the highest figures in Central and Eastern Europe. The results of the
first half of 1998 indicate that a GDP growth of 7 per cent for the year is a realistic
target. Thanks to a tight fiscal policy, inflation has been brought under control; the
consumer price index rose by 9 per cent in 1997 (as compared to 35 per cent
in 1995) and this rate has been declining further.
Lithuania boasts the largest Baltic economy and a diversified industrial base.
The industrial sector includes electronics, chemicals, machine tooling, metal
processing, wood products, construction materials, food processing and light
industry, the latter including the manufacturing of textiles, clothing, furniture and
household appliances. Lithuania’s infrastructure needs to be developed further,
but it already has four international airports, a major ice-free port and the first
satellite-based telecommunications system of the three Baltic republics. Its road
network, which is already among the best in the Baltic region, is being upgraded
further.
The political situation is currently very stable. The Conservative-led coalition
government has a clear and workable majority in the parliament and enjoys the
support of the newly elected president. Furthermore, the present government
intends to push forward with reforms, particularly with the final phase of privatisation of large strategic objects.
53
INVESTMENT GUIDE FOR LITHUANIA
3.2. CURRENT ECONOMIC OUTLOOK
3.2.1.
GDP and inflation
During the early years after the restoration of Lithuanian independence, real
GDP is reported to have declined by about 50 per cent. Whilst such a figure is
probably exaggerated, due to the combined effects of overestimation of production value during the Soviet era and underestimation during the early independence years, the decline was still marked. It was arrested by 1995 when real GDP
rose by 3 per cent, driven primarily by the trade, services and telecommunications sectors. During 1997, Lithuania’s real gross domestic product grew by 5.7 per
cent (4.7 per cent in 1996) and accounted for US$9 550 million.
Table 6.
GDP and inflation
In per cent
Real GDP growth
Inflation (CPI, annual average)
1995
1996
1997
1998*
1999*
3.3
35.7
4.7
13.1
5.7
8.4
7.0
6.1
7.0
5.7
*
Forecast.
Source: Lithuanian Department of Statistics.
✦ Figure 2. Consumer price increase
Annual average, per cent 1993-1998*
200
200
189
150
150
100
100
50
50
45.1
35.6
13.1
8.4
0
1993
54
6
0
1994
* Estimate.
Source: Lithuanian Department of Statistics.
1995
1996
1997
1998*
ECONOMY, BANKING AND FINANCE
✦ Figure 3. Real GDP growth 1994-1998*
In per cent
10
7
6
4.7
5
3
0
-5
-10
-9.8
1994
1995
1996
1997
1998*
* Estimate.
Source: Lithuanian Department of Statistics.
In 1997, the largest proportions of GDP were contributed by the following
sectors: 31.0 per cent manufacturing industry, 21.3 per cent trade and 9.3 per cent
agriculture.
Inflation has been brought under control since the hyperinflation of the early
years of independence. The inflation rate, as represented by the consumer prices
index (CPI), decreased from 13.1 per cent in 1997 to 8.4 per cent in 1998. It is
projected that in 1998, this rate will be 6.1 per cent.
3.2.2.
Foreign trade
The volume of Lithuania’s foreign trade has shown continuous growth
since 1993, although the balance of trade has become increasingly negative. One
of the main reasons for this growing imbalance is the rapid increase in foreign
direct investment, which entails large imports of plant and machinery. It is reasonable to assume that exports will continue to grow as more and more companies
produce products of the appropriate quality for the EU market.
55
INVESTMENT GUIDE FOR LITHUANIA
Table 7.
Export (US$ million)
Import (US$ million)
Balance (US$ million)
Trade deficit/GDP (%)
56
Foreign trade statistics
1995
1996
1997
2 701
3 082
(381)
15.7
3 355
4 559
(1 204)
15.3
3 836
5 595
(1 759)
18.7
In 1990, the Soviet Union accounted for 80 per cent of Lithuania’s exports and
of its imports. After the restoration of independence, trade with the Soviet Union
declined significantly. As a consequence, two years following the restoration of
independence, Lithuania’s exports had decreased by two-thirds: from US$6.4 million in 1991 to US$2.0 million in 1993. Since then, foreign trade has recovered
strongly. In 1994, more than half of the trading was done with Western countries.
A free-trade agreement between Lithuania and the EU came into force as of
1 January 1995; it was incorporated into the Association Agreement that became
effective in early 1998; in accordance with this agreement, a free-trade zone will
be established between the contracting parties over a period of six years. Bilateral free-trade agreements are also in effect with the European Free-Trade
Association and the following countries: the Czech Republic, Estonia, Latvia,
Poland, the Slovak Republic Slovenia, Ukraine.
Historically, the main Lithuanian exports have consisted of minerals and
heavy engineering products. Lithuania’s principal export in 1997 included mineral
products (18 per cent), textiles (16 per cent), machinery (12 per cent), chemical
products (9 per cent), live animals and animals production (7 per cent). The main
imported goods to Lithuania in 1997 were: mineral products including fuel (19 per
cent), machinery (17 per cent), chemical products (9 per cent), textile and textile
products (8 per cent) and metals (6 per cent). The significant changes in trade
patterns during 1997 entailed a decline in imports, but increased the export of
mineral products and the export of textiles, woodworking industry goods, as well
as the production of the chemical industry.
In 1997, 46.4 per cent of Lithuania’s exports went to the countries of the CIS.
Lithuania’s major export partners in 1997 were Russia (24.5 per cent of exports),
Germany (11.3 per cent), Belarus (10.3 per cent), Ukraine (8.8 per cent), Latvia
(8.6 per cent) (Figure 4). The most exported products were mineral products and
textile products (Figure 5).
Of Lithuania’s imports, 44.7 per cent originated in the EU (Figure 6). The main
source countries of Lithuania’s imports in 1997 were Russia (25.2 per cent of
imports), Germany (17.7 per cent), Poland (4.9 per cent), Italy (4.1 per cent)
Denmark (3.8 per cent) and the United Kingdom (3.5 per cent). Mineral products
accounted for 18.3 per cent of imports in 1997 (Figure 7).
ECONOMY, BANKING AND FINANCE
✦ Figure 4. Lithuanian exports by countries, 1997
US$ million and percentage
Russia
939.8
(24.5%)
Other
1 080
(28.2%)
Germany
435.0
(11.3%)
Poland 89.4 (2.3%)
Netherlands 107.7 (2.8%)
United Kingdom 121.4 (3.2 %)
Latvia
329.5
(8.6%)
Ukraine
338.1
(8.8%)
Belarus
394.6
(10.3%)
Source: Lithuanian Department of Statistics, 1998.
✦ Figure 5. Exports by product category, 1997
In per cent
Other
14.2%
Mineral products
17.8%
Base metals and base
metal products 4.1%
Wood and wood
products 5.1%
Textiles and
textile products
16.2%
Prepared foodstuffs
5.6%
Live animals and
animal products
7.4%
Means of transport
and equipment
8%
Source: Lithuanian Department of Statistics, 1998.
Products of chemical
industries 9.2%
Machinery and
equipment
12.2%
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INVESTMENT GUIDE FOR LITHUANIA
✦ Figure 6. Lithuanian imports by countries, 1997
US$ million and percentage
Russia
1 409.6
(25.2%)
Other
1 933.9
(34.6%)
Germany
992.6
(17.7%)
United States 163.1 (2.9%)
Sweden 188 (3.4%)
United Kingdom 194.1 (3.5%)
Denmark Italy Poland
210.1 229.2 274.9
(3.8%) (4.1%) (4.9%)
Source: Lithuanian Department of Statistics, 1998.
✦ Figure 7. Lithuanian imports by product category, 1997
In percentage
Other
15.7%
Mineral products
18.3%
Paper and paper board
products 3.4
Plastics and rubber
products 5.3%
Machinery and
equipment
17.1%
Prepared foodstuffs
5.3%
Base metals and
base metal products
6.3%
Textiles and
textile products
7.9%
58
Source: Lithuanian Department of Statistics, 1998.
Products of chemical
industries 9.4%
Means of transport
and equipment
11.4%
ECONOMY, BANKING AND FINANCE
Tables 8 and 9 analyse imports and exports on a geographical basis and by
principal product type for the years ended 31 December 1995, 1996 and 1997.
The current account deficit amounted to US$950 million, or 10 per cent of
GDP, in 1997. The ratio of the foreign trade deficit to GDP was 18.7 per cent
in 1997, as compared to 15.3 per cent in 1996.
Lithuania is in the final stages of negotiating accession to the World Trade
Organisation; it expects to achieve WTO membership soon.
Table 8.
Imports and exports by origin
LTL million
1995
CIS
European Union
EFTA
Estonia
Latvia
Other
Total
Source:
1996
1997
Exports
Imports
Exports
Imports
Exports
Imports
4 570.8
3 917.1
343.7
241.3
765.3
952.7
4 524.7
5 001.0
349.4
240.7
431.4
1 491.7
5 906.9
4 383.9
208.4
327.1
1 217.2
1 075.3
6 375.5
7 133.7
417.1
224.0
298.6
3 169.2
7 116.5
4 990.4
205.6
386.2
1 317.8
1 325.4
6 524.7
10 494.7
581.0
538.3
753.2
3 490.0
10 790.9
12 038.9
13 118.8
17 618.1
15 342.0
22 382.1
Lithuanian Department of Statistics.
Table 9.
Imports and exports by principal product type
LTL million
1995
Mineral products (including
fuel)
Machinery
Chemical products
Textiles
Food, beverages and tobacco
Metals
Other
Total
1996
1997
Exports
Imports
Exports
Imports
Exports
Imports
1
1
1
1
2
2
1
1
2
1
1
1
3
2
1
1
1
1
5
2
1
1
2
4
3
2
1
1
1
7
289.4
166.2
324.9
592.8
601.9
941.5
3 874.2
993.6
031.6
103.5
149.9
553.9
819.5
3 386.9
064.6
492.0
451.6
995.9
839.2
563.9
4 711.6
10 790.9
12 038.9
13 118.8
549.9
865.4
667.7
375.7
025.2
168.9
965.3
728.6
871.2
415.0
492.4
862.2
629.1
5 343.5
17 618.1
15 342.0
092.6
816.4
108.4
773.8
192.1
400.0
998.8
22 382.1
59
INVESTMENT GUIDE FOR LITHUANIA
3.2.3.
Foreign investment
As of 1 January 1998, cumulative foreign direct investment (FDI) amounted to
US$1.04 billion (Figure 8), which equates to FDI per capita of US$281. Investment
from EU countries comprised 57 per cent of the total, with Sweden being the
leading investor (Figure 9). The manufacturing sector attracted 37.8 per cent of
total cumulative investment as shown in (Figure 10). FDI was directed all over
Lithuania, with Vilnius county having attracted the highest percentage of cumulative FDI (Figure 11).
3.2.4.
The labour market
In accordance with the Constitution, Lithuanian citizens have the right to
choose work or to engage in other activities that are not prohibited by law, or not
to work. Persons of working age who are willing and able to work, but who have
lost their job, can register as job seekers with the local Labour Exchange offices.
At the beginning of 1991, 897 out of 1 000 employable persons were productively occupied, in comparison with 783 persons in mid-1996. Economic reform
and the consequent structural changes have greatly affected the structure of the
demand for labour. The energy and high-technology sectors were the most
affected, light industry and food production less so.
As of the end of April 1998, the unemployment level in Lithuania stood at
6.9 per cent. The Labour Exchange forecasts it will reach 6.6 per cent by the end
of 1998 and 5.9 per cent in 2000. The share of long-term unemployed (twelve
months or more) increased steadily until 1997. By 1 July 1997, their number
equalled 15.3 per cent of all unemployed, or 14 300 persons. Since early 1997, the
share of long-term unemployed has decreased. However, fewer long-term unemployed managed to reintegrate into the labour market.
During 1996, 187 400 job seekers applied to the Lithuanian Labour Exchange.
Over 1997, approximately 15 600 job seekers were registered each month. According to the National Labour Exchange, there were 110 200 unemployed as of
1 June 1998, as compared with 93 300 on 1 July 1997. Some 39.4 per cent of job
seekers benefit from additional employment guarantees.1
Table 10.
State sector
Private sector
60
Source:
Employment by form of ownership
1990
1991
1992
1993
1994
1996
1997
78%
22%
70%
30%
59%
41%
46%
54%
38.5%
61.5%
33.4%
66.6%
32.7%
67.3%
Labour Exchange of Lithuania, Department of Statistics.
ECONOMY, BANKING AND FINANCE
✦ Figure 8. Cumulative Foreign Direct Investment in Lithuania, 1991-1998
US$ million
2 500
2 500
2 200
2 000
2 000
1 500
1 500
1 041
1 000
1 000
700
500
500
310
352
1994
1995
149
0
8
19
1991
1992
0
1993
1996
1997
1998*
* LDA estimate (1998 Q1: US$ 1 127 million).
Source: Lithuanian Department of Statistics, 1998.
✦ Figure 9. Cumulative Foreign Direct Investment by country of origin, 1997
US$ million
300
300
296.2
(26.3%)
196.5
(19%)
200
141.1
(12.5%)
200
123.8
(11%)
88.7
(7.9%)
100
100
63.9
(5.7%)
50.1
(5%)
47.3
(5%)
DNK
IRL
FIN
44.9
(4%)
39.6
(4%)
EST
LUX
0
0
USA
SWE
DEU
GBR
Source: Lithuanian Department of Statistics, 1998.
Other
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INVESTMENT GUIDE FOR LITHUANIA
✦ Figure 10. Cumulative Foreign Direct Investment by economic activities, end of 1997
US$ million
Other activities
245
(24%)
Manufacturing
393.8
(38%)
Post and
telecommunications
77.2
(7%)
Wholesale and retail trade
324.6
(31%)
Source: Lithuanian Department of Statistics, 1998.
✦ Figure 11. Cumulative Foreign Direct Investment in Lithuania by county, end of 1997
In per cent
Alytus
County Other
0.9%
Siauliai County 2.7% 2.6%
Telsiai County 2.9%
Panevezys County
5.4%
Kaunas County
15.0%
Klaipeda County
16.9%
62
Source: Lithuanian Department of Statistics, 1998.
Vilnius County
53.6%
ECONOMY, BANKING AND FINANCE
As of 1 April 1998, the share of unemployed young people (aged 16-24)
comprised 18.2 per cent. As of 1 June 1998, the share of women in total unemployment was 50.3 per cent.
Total employment has declined since 1990, from around 1.9 million to
1.66 million at present. In 1990, some two-thirds of the labour force was employed
in the public sector, whereas at present, two-thirds work in the private sector.
Today, around 20 per cent of workers are self-employed, whereas in 1990, there
were no self-employed. The breakdown of employment by sector is presented in
Table 11.
Lithuania’s labour costs are amongst the lowest in Central and Eastern
Europe. Average monthly wages in June 1998 are given in Table 12.
Table 11.
Breakdown of employment according to sector
Industry sector
Numbers (× 1 000)
Agriculture
Manufacturing industry
Wholesale and retail trade
Education
Construction
** Social and personal services
** Health and social work
Other
Total
Source:
Per cent
363.0
289.3
251.5
149.2
118.7
103.2
106.6
287.7
21.7
17.3
15.1
8.9
7.1
6.4
6.2
17.3
1 669.2
100.0
Lithuanian Department of Statistics.
Table 12.
Gross wages per month
April 1998
Economic sector
Gross monthly
wage (US$)
Agriculture
Manufacturing
Public utilities
Construction
Hotels and restaurants
Transportation
Financial intermediation
Education
Public administration
136
237
368
255
177
294
425
204
351
Overall average
Minimum wage
237
100
Source
Lithuanian Department of Statistics.
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INVESTMENT GUIDE FOR LITHUANIA
3.2.5.
Monetary policy and exchange regime
Monetary policy is determined by the currency board arrangement established in April 1994. The currency board requires that all litas in circulation are
fully backed by gold or foreign exchange and are freely and fully convertible at a
rate of 4 litas to 1 US dollar. The central bank is required to limit the growth of
base money to the growth in official foreign exchange reserves. Consequently,
there is no scope for the central bank to finance a government deficit by creating
money.
The currency board was introduced to provide Lithuania with an anchor that
would stabilise the currency, prevent devaluation, wage increases, expansionary
fiscal policy, monetary growth and cost-push inflation. It has achieved considerable success in doing so. However, inflation in Lithuania has still been higher than
in some of Lithuania’s main trading partners, particularly in the US and in the EU.
The competitiveness of Lithuania’s export to Western Europe has become a
major point of debate in the country, not least in view of the rise of the dollar, and
hence of the litas, vis-à-vis the EU currencies. As a result, the abolition of the
currency board is anticipated. It has served a useful purpose, but the currency
appreciation it has entailed has made it difficult to achieve Lithuania’s goal of
reorienting trade towards Europe. However, no radical change is expected, since
this might undermine confidence in the economy. The most likely outcome is a
currency peg weighted 50 per cent to the dollar and 50 per cent to the euro, to
come into effect by mid-1999. To this end, the Bank of Lithuania envisages the
creation of instruments necessary to implement a monetary policy, such as repurchase auctions and a secondary market for treasury bills. It is also strengthening
its capacity for assessing liquidity conditions in the banking system.
3.2.6.
Fiscal policy and the national budget
The figures in table 13 are testimony to Lithuania’s conservative fiscal policy.
Whilst government revenues as a percentage of GDP have been relatively stable
since 1994, expenditures have been reduced. Thus, the overall fiscal deficit
declined from 6.1 per cent of GDP in 1994 to 2.6 per cent of GDP in 1997.
Early indications are that tax collections in 1998 will again exceed expectations and that the fiscal deficit will drop by another 2 percentage points as the
government aims at a balanced budget by the year 2000. Public debt has grown
since 1994, but is expected to stabilise in 1997. Net public liabilities, including
guaranteed loans to non-government entities, are about 20 per cent of GDP.
64
In July 1997, Lithuania completed a eurobond placement of US$200 million
with a maturity of five years and a 7.218 per cent interest rate. It was the first
public eurobond issue in the Baltic states. As of 1 April 1998, 276 foreign loans
ECONOMY, BANKING AND FINANCE
Table 13.
Fiscal indicators
As a per cent of GDP
General government budget
1994
1995
1996
1997
Revenues
Expenditures
Balance
Proceeds from asset sales
Balance as per cent of revenues
Gross debt
Interest payments
Net external interest payment
(as a percentage of exports)
Net external debt
(as a percentage of exports)
32.5
38.6
–6.1
0.4
18.9
17.0
0.1
32.5
36.6
–4.1
0.2
12.7
19.4
0.4
29.9
33.9
–4.0
0.2
13.2
22.6
0.7
32.2
34.8
–2.6
0.2
8.1
21.7
1.4
0.1
0.4
0.8
1.0
–4.0
–0.3
6.7
12.2
Source
Lithuanian Department of Statistics.
had been granted to Lithuania totalling US$2 546m, of which US$1 748m had been
granted on behalf of the Republic of Lithuania and US$798 million were secured
by the Government guarantee. Foreign loans have been applied as follows:
48.1 per cent to finance investment projects, 23.1 per cent to cover the budget
deficit and to purchase fuel and 16.5 per cent for other energy resources. The
remaining part was allocated for the stabilisation of the national currency, for
agriculture and also for small and medium-sized businesses.
By 1 January 1998, Lithuania had been granted a total of US$2 016 million in
loans from abroad, of which it had repaid a total of US$613.5 million.
3.2.7.
Relations with the European Union
The Lithuanian Government is actively promoting Lithuania’s integration into
the European Union. A Europe (Association) Agreement was signed with the EU
on 12 June 1995 and came into force on 1 February 1998. The Europe Agreements
are key components of the Union’s pre-accession strategy for new members from
Central Europe. Lithuania’s agreement outlines the steps that must be taken
towards membership and determines the rules for relations with the EU.
As part of the overall integration into the EU strategy, a formalised Intensified
Joining Partnership Strategy was approved, which is aimed towards structuring the
process of preparation for a true partnership. Major priorities of the joining
partnership programme include a speeding up of institutional, legal and administrative, as well as economic reform, preparation of an energy sector strategy and
the plan to decommission the Ignalina nuclear power plant.
65
INVESTMENT GUIDE FOR LITHUANIA
NOTE
1. Additional employment guarantees shall apply to: individuals under 18 years old, women
with children under 14 years old and single fathers bringing up children of the same age;
persons who are within five years of becoming eligible to receive a full old-age pension;
persons who have returned from prisons and disabled persons.
66
Chapter 4
THE LEGAL SYSTEM
4.1. GENERAL OVERVIEW
After the restoration of Lithuania’s independence on 11 March 1990, a combination of Lithuanian and Soviet legal systems came into force. At the end of 1993,
the Seimas (Parliament) adopted an outline for the reform of the legal system. This
outline was not comprehensive and failed to reflect all the necessary elements of
an effective legal system. Therefore, on 10 December 1996, the Seimas adopted a
Government Programme covering 1997-2000 (hereinafter referred to as the ‘‘Programme’’). This Programme was initiated after a comprehensive review of the
country’s legal system and aims at introducing reform measures.
The implementation of new laws is expected to help reform tax administration, to increase the reliability of banks, to stimulate business and encourage
investments. Finally, the laws are expected to reform public (state) management,
administration and self-government.
One of the main objectives when creating new and amending present laws, is
to ensure that they are in conformity with the laws of the European Union. Thus,
Lithuanian law is being elaborated with regard to the European tradition and the
Lithuanian experience from 1918 to 1940. A special Law Bureau has been created
to review the legislation and to provide legal assistance during the harmonisation
of Lithuanian laws with those of the European Union. The Government Programme identifies the laws that must be harmonised with European Union law,
including the laws which regulate the activities of non-profit organisations, the
rules relating to commercial contracts and contractual liabilities, financial regulation and consumer protection.
In order to implement this comprehensive programme, the Parliament has
passed a number of significant laws. These laws include the Law on the foundation of
a mortgage register, the Law on the pledge of chattels and the Law on the prevention of money
laundering. The mortgage incorporates a feature of the Norwegian law system and
began operating on 1 April 1998. The system will ensure that creditors have a
priority right to satisfy their claims from mortgaged assets.
67
INVESTMENT GUIDE FOR LITHUANIA
During 1998, the Seimas has been reviewing elements of the legal system,
including the Law on courts, the Code of civil procedure, the Law on the office of notary and
the Law on advocates.
On 13 November 1997, the Seimas passed the Law on legislative acts which were
adopted before 11 March 1990 (No. VIII-510, entered into force on 28 November 1997).
According to this Law, all Lithuanian laws which were adopted before
11 March 1990, no longer had any force as of 1 January 1998 and all other legal acts
adopted before 11 March 1990 by State institutions other than the Seimas (legal
acts passed by Lithuanian Government, Ministries, etc.), shall have no force as of
1 January 1999. However, the Law on temporary prolongation of the validity of laws in
Lithuania, which was adopted by the Seimas on 23 December 1997 (No. VIII-588,
entered into force on 27 December 1997), lists thirteen laws which were passed
before 11 March 1990, which shall continue to be valid until 1 January 2000. This
list of exceptions includes the Civil Code, Code of Civil Procedure and the Marriage and Family Code.
4.2. BODY OF LAWS
The Lithuanian legal system is based on the legal traditions of continental
Europe. The primary source of Lithuanian law is enacted legislation. The following
are the sources of law in order of importance:
– the Constitution;
– international treaties;
– laws passed by the Parliament;
– acts of the Government of the Republic of Lithuania and Governmental
institutions (Ministries, Departments, etc.);
– acts of municipal authorities.
The Constitutional Law of the State of Lithuania (passed on 11 February 1991),
as well as the Constitutional Act on not joining post-Soviet eastern unions by the Republic
of Lithuania (passed on 8 June 1992) form an integral part of the Constitution of
the Republic of Lithuania.
4.3. THE LEGAL PROFESSION IN LITHUANIA
4.3.1.
68
Legal education
Notwithstanding the considerable demand for lawyers, there are just three
state institutions which offer higher legal education in Lithuania. These are: the
Faculty of Law of the University of Vilnius, the Law Academy of Lithuania and the
Law department at Vytautas Magnus University in Kaunas. These institutions have
the mandate to educate certified lawyers in Lithuania.
THE LEGAL SYSTEM
The legal education system is presently undergoing transformations from a
one-level system to a western-like two-level education system, i.e. the programme
of legal studies will be divided into two stages. The first stage will consist of
earning a lawyer’s qualification. Thus, the student will have to obtain a bachelor’s
degree and will have the option to continue pursuing his studies in order to
obtain a master’s degree. Bachelors and masters study programmes are currently
being elaborated. These new systems will be introduced in the Faculty of Law of
the University of Vilnius, which is the main institution which offers legal education
in Lithuania.
Apart from these institutions, there are also colleges which provide higher
legal education. They train paralegals and law specialists, who have a limited area
of practice. The graduates from these colleges will only be permitted to practice
as an advocate, to be appointed as a judge, or to occupy some other positions, as
prescribed by law.
4.3.2.
Specialisation of lawyers
Usually, persons having obtained higher legal education do not have to meet
any specific requirements in order to practice law or to be employed/contracted
to provide legal assistance. However, the law establishes some special requirements, which have to be met by lawyers who have graduated, if they are to render
certain legal services. These special standards apply to such legal professions as
advocates and notaries.
Advocates
The Law on advocacy of 25 June 1998 (No. I-811, will enter into force on 1 October 1998), stipulates that any citizen of the Republic of Lithuania may become an
advocate provided that:
– (s)he has completed higher legal education;
– (s)he has at least five years of experience as a lawyer, at least one year of
which (s)he has worked as an assistant to an advocate;
– (s)he has passed the examinations to become an advocate.
Persons who hold an academic degree in the science of law, or who have
worked as judges or prosecutors for a certain number of years, etc. may only
become advocates after having worked as an assistant to an advocate for a
minimum period of three years. Certain persons may become members of the bar
without either working as an advocate’s assistant or passing the specified
examinations.
The Law on advocacy provides that only the members of the Lithuanian Advocates Association may render legal services in Lithuania. Foreign advocates can
69
INVESTMENT GUIDE FOR LITHUANIA
practise in Lithuania only if they are already advocates in countries with which
Lithuania has concluded treaties on mutual legal assistance. As of the end
of June 1998, legal assistance treaties had been concluded with Belarus, Poland,
Moldova, Russia, Ukraine, Latvia, Estonia.
Notary
According to the Law on notary of 15 September 1992 (No. I-2882, entered into
force on 10 October 1992), a notary ‘‘... is a person authorised by the state, who
executes the functions provided in the law and who ensures that civil legal
relations are free of unlawful transactions or documents.’’
The laws of the Republic of Lithuania contain specific instances in which the
notary must confirm civil transactions. These are transactions relating to the
transfer and the mortgage of real estate, wills, etc. According to the Civil Code, the
transactions that must be confirmed by the notary shall have no legal force.
4.4. COURT REFORM
In accordance with the Constitution of the Republic of Lithuania, justice is
administered by the court. When administering justice, the judge and the courts
shall be independent and, when hearing cases, they shall act exclusively in
accordance with the law.
The Code of civil procedure of the Republic of Lithuania (passed on 7 July 1964,
entered into force on 1 January 1965) stipulates that the following disputes fall
under the jurisdiction of the courts: all disputes concerning rights arising from
civil, family, labour, financial and bankruptcy legal relations, as well as cases on
constitutional and administrative legal relations.
The Constitution of the Republic of Lithuania stipulates that Lithuania’s court
system consists of:
– the Supreme Court of Lithuania;
– the Court of Appeals of the Republic of Lithuania;
– district courts;
– local courts.
4.4.1.
70
Local courts
There are 54 local courts in Lithuania. They are composed of the chairman of
the court, his deputies and judges. Deputy chairmen are appointed only in case
there are more than six judges in the court.
THE LEGAL SYSTEM
Local courts hear all cases which are not under the jurisdiction of higher
courts, meaning that they decide a majority of all cases brought before a court in
Lithuania.
4.4.2.
District courts
There are five district courts in Lithuania, i.e. the district courts of Vilnius,
Kaunas, Klaipeda, Panevezys and Siauliai. Each of these courts has their chairmen, chairmen of their respective chambers and judges. Lithuanian district courts
are divided into civil and criminal chambers.
District courts hear complex civil cases (in which claims exceed more than
100 000 litas; disputes where one of the parties is either a foreign state or a legal
entity thereof; bankruptcy cases, etc.), as well as all felony cases including cases
involving business crimes. The district court acts as an appellate court for the
cases which have been heard by local courts of first instance.
4.4.3.
The Court of Appeals
The Court of Appeals of the Republic of Lithuania has its chairman, chairmen
of its chambers and judges. The Court of Appeals is also divided into civil and
criminal chambers. It acts as an appellate court for the cases which have been
heard by district courts of first instance. It is located in Vilnius
4.4.4.
The Supreme Court
The Supreme Court of the Republic of Lithuania, located in Vilnius, is comprised of its chairmen, chairmen of its respective chambers and judges. It also
includes the Senate of the Supreme Court which carries out the following
functions:
– analysing the practice of the courts,
– considering candidates for the position of chairmen for the divisions of the
Supreme Court;
– proposing candidates for the position of Honour court judges and
approves the statute of the Honour court;
– reviewing the decisions for the Judges examination Commission, as well as
those of the Honour courts;
– deciding on organisational matters.
The Supreme Court is the highest court and the final venue for appealing
decisions which are in effect. It acts as the instance of cassation for the cases
which have been heard by the Court of Appeals and for cases heard by district
courts as courts of first instance. The Supreme Court also promulgates the deci-
71
INVESTMENT GUIDE FOR LITHUANIA
sions of the Senate, analyses the court practice, gets acquainted with the work of
district courts and the Court of Appeals. The Supreme Court plays a significant
role in the elaboration of Lithuanian case law.
4.5. DISPUTE SETTLEMENT
Business-related disputes may be settled by arbitration. Several laws
authorise the creation of special courts and legal institutions, define their jurisdiction and stipulate the procedures for obtaining a settlement or an award.
In some cases, special laws and legal acts nominate the state institution(s)
which has (have) the right to settle a dispute arising from legal relations stipulated in the respective law or legal act. Depending on the provisions of the
relevant law or legal act, such institutions may either be an alternative institution
for the settlement of disputes, or a pre-trial institution (meaning that applications
to court are permitted only after attempts have been made to settle a dispute in
such an institution).
For example, in a tax dispute between a taxpayer and tax administrator, the
disputed matter(s) must first be submitted to a superior tax administrator, before
an appeal on the award(s) may be heard by an arbitral tribunal.
The Laws applicable to arbitration are primarily found in the Constitution,
the Code of civil procedure, the Law on commercial arbitration, the Law on foreign capital
investment, and the New York Convention on the recognition and enforcement of foreign arbitral
awards (ratified by the Seimas on 17 January 1996, effective from 16 May 1996).
The Constitution and the Law on foreign capital investment stipulates that any
natural or legal person, irrespective of nationality, has the right to protect their
constitutional and legal rights and interests and settle disputes in an appropriate
court or legal institution.
Concerning investment-related disputes, The Law on foreign capital investment
stipulates that foreign nationals, either natural or legal persons, are given a choice
of the legal venue for redress. They have the right, not restricted by the law, to
apply either directly to the International Centre for the Settlement of Investment
Disputes (ICSID) or to a Lithuanian court or institution for dispute settlement.
The Code of civil procedure designates and assigns jurisdiction, gives powers and
duties to each court in the judicial system and also provides the option for
recourse to arbitration courts and institutions for commercial and businessrelated matters if all parties to the dispute agree to submit cases to arbitration.
The award of the arbitration tribunal is binding and enforceable against each
party.
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The final award of arbitral courts and institutions is enforced by a state court
of appropriate jurisdiction, in the same manner, as if it were the state court’s own
THE LEGAL SYSTEM
judgement. The state courts and institutions have a close relationship, prescribed
by law, with the arbitral courts and institutions. The state courts and institutions
co-operate with, and provide assistance to, the arbitral courts and institutions in
various areas, for example, in gathering evidence in disputed matters.
However, the regular state courts are superior to the domestic arbitral courts
and institutions. This principle is clear in matters where the law stipulates that a
commercial matter in dispute be heard by a regular court having appropriate
jurisdiction in the first instance:
– where there are several claims involved in a commercial dispute falling
within different jurisdictions;
– where the proper jurisdiction for the resolution of the dispute is in doubt,
or where there is a contradiction in the applicable law.
The Law on commercial arbitration prohibits an arbitral institution from hearing
certain cases:
– disputes arising from constitutional matters, labour relations, family affairs,
administrative legal relations, as well as disputes related to competition
patterns, trademarks and the marks of service, bankruptcy and disputes
arising from consumer agreements;
– disputes where one of the parties is either a state or municipal company,
or a state or municipal institution or organisation, if prior permission of the
founder of such company, institution or organisation has not been granted.
However, the government itself, and the state institution assigned by the
government, may conclude arbitration agreements for the settlement of
disputes arising from commercial and business agreements.
The Law on commercial arbitration provides for the recognition and execution of
international arbitration awards in Lithuania by referring to the New York Convention of 1958, to which Lithuania is a signatory party. It is worthy to note that
Lithuanian law also recognises and executes foreign arbitral awards, which are
obtained in countries which are not signatories of the New York Convention.
The procedure for recognition and execution of a foreign arbitral award is as
follows: the requesting party must submit to the Court of Appeals of Lithuania the
original or certified copy of the award and the certified original or copy of the
arbitration agreement between the parties.
Mediation services (‘‘good auspices’’) are available to parties to a commercial
dispute. To comply with the provisions of the Law on commercial arbitration, the
parties must all agree to avail themselves of mediation services before having
recourse to arbitration of the dispute. Secondly, the decision arrived at via mediation is not legally enforceable. Its implementation is left to good faith compliance by all parties.
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Presently, there are three international arbitration institutions in Lithuania:
these are organised at the Lithuanian Society of Lawyers, Lithuania’s International
Chambers of Commerce Association and the Lithuanian Maritime Society. All
international arbitration institutions must register with the Ministry of Justice.
Only non-governmental organisations may establish permanent arbitration institutions in the country.
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Chapter 5
FOREIGN DIRECT INVESTMENT LEGISLATION
5.1. INTRODUCTION
The Government of Lithuania recognises the need to attract foreign investment. Therefore, the creation of a favourable investment climate has become one
of the government’s primary objectives. Major steps have been taken in this
direction, with the result that the investment climate is improving. Indeed, the
regulatory and legislative framework and standards are progressively being
adjusted to align them with those in existence in the European Union.
The objective of the government’s policy is to liberalise the investment
climate and to ensure that investments are granted adequate protection by both
domestic legislation and international treaties.
The Lithuanian Development Agency has been established by the government to assist foreign investors in analysing investment possibilities and in investigating markets. Furthermore, joint-stock companies for export and import insurance were created. The main functions of these companies include the granting of
loans and guarantees to businesses involved in producing goods and in rendering
services to exporters. (For more details on the LDA, see Section 2.5).
5.2. THE LAW ON FOREIGN CAPITAL INVESTMENT
The basic legal principles governing foreign investment in Lithuania are set
forth in the Law on foreign capital investment (No. I-938, 13 June 1995) and subsequent
amendments to that Law.
The aim of the Law is to promote and protect foreign investment in accordance with international standards and to establish a proper legal framework for
foreign direct investment. The Law provides certain guarantees, such as
unrestricted repatriation of profits, income or dividends after the payment of all
taxes and other charges that may be due.
The Law on foreign capital investment defines the foreign investor as being,
‘‘enterprises of foreign states, or persons (natural or legal) who are not citizens of
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the Republic of Lithuania, or stateless persons permanently residing abroad,
whose capital, at the moment of investment, is of foreign origin.’’ By virtue of the
Law, foreign investors may engage in entrepreneurial activities, by establishing an
enterprise, or by acquiring shares in a going concern or a share in the enterprise’s
authorised (ownership) capital. Foreign investors have the right to sell, transfer as
a gift, pledge or otherwise dispose of the fully-paid shares in accordance with the
procedure established by Law.
For the purposes of the Law, a foreign investment is capital (monetary funds,
movable or immovable and intellectual or industrial property) belonging to the
investor, by the right of ownership and created or otherwise lawfully acquired
outside the territory of the Republic of Lithuania, by non-Lithuanian nationals.
This also includes reinvestment.
Foreign investors also have the right to engage in entrepreneurial activities
by establishing companies which are 100 per cent owned by foreigners. A foreign
legal entity may also be the sole founder of an enterprise.
The principle of national treatment is applied. Thus, foreign investors enjoy
the same rights concerning economic activities and have the same obligations as
Lithuanian nationals. The majority of the respondents to the OECD questionnaire
(see the overview chapter) indicated their satisfaction with the application of the
national treatment principle to them. However, some asserted that the government was excessively preoccupied with the need for foreign investors only to
comply with existing regulations.
5.3. GUARANTEES FOR FOREIGN INVESTMENT
The Law on foreign capital investment protects the rights of foreign investors in
Lithuania. The Law also grants foreign investors the right to import and to export
capital and capital proceeds related to their direct investment.
Property may be expropriated by the government, but only for public needs
and after compensating the investor for the market value of the property taken.
The compensation must be paid within three months of the taking of the property. In addition, the procedure established by the laws of the Republic of
Lithuania must be respected.
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The amount of compensation paid must correspond to the market value of
the property right before expropriation, or before a public announcement has
been made in respect to the expropriation, depending on which occurs first.
Interest that accrues from the day the announcement is made, until the day the
compensation is actually paid, shall be calculated in accordance with the London
Inter-Bank Offered Rate (LIBOR) and shall be included in the amount of the
compensation.
FOREIGN DIRECT INVESTMENT LEGISLATION
Compensation must be paid in freely convertible currency or, with the
investor’s consent, in the national currency of Lithuania, not later than three
months from the date of the announcement. At the request of the investor, the
amount of compensation shall be transferred abroad without any restrictions.
In the event that a dispute arises, foreign investors shall have the right to
apply directly to the International Centre for Settlement of Investment Disputes
(ICSID), in accordance with the norms laid down in the ICSID Convention of
18 March 1965 (see Section 4.5). Profit, income, or dividends received in accordance with the Law, shall belong to the foreign investor(s) by the right of
ownership.
The Law on Free Economic Zones also provides a stability clause, which states
that the conditions prevailing at the time the investment is made are applicable
for five years following the making of the investment.
The foreign investor is free to terminate his investment at any moment he
chooses. In such an event, he can freely repatriate his investment, after the
payment of taxes and other charges that are due in Lithuania.
Lithuania has concluded bilateral investment protection agreements with 25
countries. In addition, a number of international double-taxation treaties are in
force and others are expected in the future. (For more details, please refer to
Annex C.)
A majority of the companies responding to the OECD’s questionnaire confirmed that they had not experienced, in practice, any obstacles to the transfer
abroad of capital and profits. However, a small minority of the respondents
complained of administrative obstacles resulting from lengthy procedures, excessive documentation and the unavailability of sufficiently qualified or specially
designated officials to carry out the transfer operations. Yet, none of the respondents has been denied the right to make any such transfers.
5.4. RESTRICTED SECTORS
Investment of capital of foreign origin is permitted in all fields of economic
activity, but forbidden in those relating to:
– the security and defence of the state;
– the manufacture or sale of narcotic substances and other non-medicinal,
strongly poisonous synthetic substances;
– the growing, processing, and sale of narcotic or poisonous (natural)
substances;
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INVESTMENT GUIDE FOR LITHUANIA
– the organisation of lotteries.
Only state enterprises and special-purpose* enterprises may produce:
– drinks and/or other substances which have an alcoholic content above
22 per cent; and
– securities, bank notes, coins and postage stamps.
However, the Enterprise law names 25 sectors (it used to be 47 sectors
in July 1995) where the investment of private capital is only allowed if a licence is
obtained from the relevant Ministry. Since 25 September 1997, exercising the
following activities has been prohibited unless a license has been obtained from
the government:
1. insurance activities;
2. the establishing and exploiting of a telecommunications network, the
provision of services related to telecommunications and telecommunications networks;
3. pharmaceutical activities;
4. the services relating to a shipping agency;
5. the provision of medical care, unless otherwise provided by the law;
6. importing, exporting and sale of alcoholic beverages;
7. the production of alcoholic beverages with a concentration of ethyl alcohol which is lower than 22 per cent;
8. the production, importation and wholesale of tobacco and its products;
9. tourist services;
10. participation in activities related to oil products (as specified in the list
established by the government), such as their import, export-import and
sale;
11. auditing services;
12. engaging in production, wholesale, transportation, storekeeping of dangerous and poisonous chemical, radioactive and nuclear materials (as
specified by the Environmental Protection Ministry) and the collection,
destruction, safekeeping and burying of dangerous waste;
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* The companies engaged in activities that are considered especially important to society and the
state are called ‘‘enterprises of special purpose’’. These include enterprises operating public
utilities i.e.: water provision and waste collection. The state must own a minimum of 70 per cent
of the shares in such enterprises.
FOREIGN DIRECT INVESTMENT LEGISLATION
13. importation and sale of pyrotechnical products (named on the list established by Ministry of Interior Affairs), civil weapons and its ammunitions
(except for pistols, revolvers which are for self-defence);
14. the production or repair of weapons or their parts, ammunition, explosives and pyrotechnic equipment, unless the Law stipulates otherwise;
15. the transportation of passengers and freight, both within Lithuania and
on international routes, unless the Law stipulates otherwise;
16. the organising of lotteries;
17. the production and purchase of non-ferrous metal scrap;
18. the maintenance of electrical equipment and installations;
19. activities related to the purchase and fabrication of non-ferrous metals,
as well as their alloys and scrap;
20. the cultivation and sale (including export) of crops containing narcotic,
harmful or poisonous substances;
21. geodetic and topographical works, publishing and printing of topographical plans and maps as well as cartographic charts;
22. granting education certificates which are acknowledged by the State;
23. publication of securities, documents and forms;
24. the production of stamps and seals;
25. the establishment and exploitation of shooting galleries.
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Chapter 6
GENERAL REGULATIONS OF BUSINESS
ACTIVITIES
6.1. COMPANY LAW
6.1.1.
Introduction
Several acts contain the legal norms which regulate business activities in
Lithuania. The primary legal act which provides the subjects which are entitled, in
the name of their company, to carry out permanent business activities in
Lithuania, is the Law on enterprises (No. I-196, passed on 8 May 1990; certain
provisions of this Law entered into force on 8 May 1990 and other provisions
entered into force after the adoption of the respective laws on each separate type
of enterprise provided for in the Law on enterprises.)
The Law on enterprises provides the following list of types of commercial entities which may be established in Lithuania:
– sole proprietorship;
– general partnership;
– limited partnership;
– publicly held joint-stock company;
– privately held joint-stock company;
– investment company;
– state enterprise;
– municipal enterprise;
– agricultural company;
– co-operative enterprise.
The Law on enterprises defines the term ‘‘enterprise’’ as an economic unit which
has its own name and which has been established in order to carry out certain
economic activities, in accordance with the procedures established by law. An
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enterprise shall consist of material, financial, intangible assets and the rights and
obligations associated therewith.
Legal and/or natural persons may jointly own an enterprise. The owner
acquires the right of ownership, either once the enterprise is established, or once
it has been bought and sold, or on the basis of any other civil transaction.
All enterprises shall operate under equal legal conditions.
An enterprise is deemed to have been established as from the date of its
registration with the Register of Enterprises of the Republic of Lithuania.
Enterprises may establish branches and representative offices. These
branches and representative offices function under the authorisation of the registered enterprise. Only the enterprises registered with the Register of Enterprises
are entitled to establish their branches in accordance with the law on types of
enterprises. The Lithuanian Government determines the procedures relating to
the establishment, the activities and liquidation of the representative offices of
an enterprise.
An unregistered enterprise is prohibited from carrying out any activities. The
state tax authorities are entitled to bring legal action in order to recover income
which has been received by any person who has carried out activities illegally.
In practice, the most common form in which to conduct business is through
the establishment, or the acquisition of, a private or public joint-stock company.
The responses to the OECD questionnaire (see the overview chapter)
revealed certain problems relating to company registration.
A problem evoked by respondents concerns the bureaucratic excesses relating to the registration process. In many instances, the respondents had experienced delays because the bylaws require detailed and often unnecessary information. Furthermore, the bylaws require that all activities which the company
proposes to undertake, be stated. These are felt to be unnecessary complications
in the registration procedures.
A second problem is the involvement of too many different authorities in the
registration process.
In spite of the bureaucratic obstacles mentioned by some of the respondents, the majority acknowledged that the registration procedures were transparent and that information provided on registration requirements was adequate.
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Effective 1 April 1998, a new set of procedures came into force with respect to
the registration of both movable and immovable pledges. It takes fairly long
(about a week) to register a commercial pledge in Vilnius, mainly because only
one judge has been assigned to carry out this function in this city. Hence, the
process could be further streamlined.
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
6.1.2.
Joint-stock company
The establishment, management and other activities of publicly and privately held joint-stock companies are regulated by the Law on joint-stock companies
(No. I-528, entered into force on 21 July 1994).1 This law also regulates the rights
and obligations of shareholders.
A company is a legal person whose authorised capital is divided into shares
and has a limited liability. The company’s registered office must be situated in
the Republic of Lithuania and may be established for a limited or an unlimited
duration.
A company has the right to engage in commercial and economic activity both
inside and outside the Republic of Lithuania (except in those areas specified by
the law). It may also purchase, rent or otherwise acquire property or dispose of it.
It may also have other civil rights and obligations, provided that these rights and
obligations are in compliance with the laws of the Republic of Lithuania.
6.1.3.
Incorporation
The founders of a company may either be natural or legal persons who have
concluded an incorporation agreement (act), in accordance with the procedure
established by the Law. Natural and legal persons as well as foreign states may
be founders. The number of shareholders in a privately held joint-stock company
must not exceed 50. Founding a company in a closed manner means that its
authorised capital, which is derived from contributions received for issued shares,
has only been acquired by founders. Founding a company in an open manner
means that its authorised capital is partially acquired by the founders, while the
remaining shares are offered for sale to other persons.
A company shall be registered according to the procedure established by the
Law on the register of enterprises (No. I-440, entered into force on 1 August 1990), after
the shares have been subscribed for, initial instalments have been collected and
the general meeting has been held, as required by statute. The initial sum of
instalments collected must be no less than the minimum authorised share capital,
as set forth by the Law on joint-stock companies (US$2 500 for a privately held jointstock company and US$25 000 for a publicly held joint-stock company). Financial
contributions must constitute no less than one quarter of this sum. The shares
issued by a company must be fully paid up within the period specified in the
subscription agreement and no later than within one year after the signing of the
agreement.
Upon executing the incorporation agreement, the incorporates shall draw up
the company’s articles of association and offer shares for sale. The founders of a
publicly held joint-stock company are entitled to offer shares for sale only upon
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registering the company’s articles of association in accordance with the procedure
specified by the Law on the register of enterprises, as well as upon registering the
issuance of shares with the Securities Commission of Lithuania.
The founder of a company, who intend to register a company with foreign
capital in Lithuania, is required to present, to the Ministry of Commerce of
Lithuania, the documents which have been specified by the Order of the Statistics
Department of the Lithuanian Government on the procedure for the registration of enterprises
with foreign capital as well as representative offices of foreign companies, banks and Lithuanian
commercial banks (No. 46, 23 November 1995). These documents differ depending
on whether the founder of the company is a person or an entity and on what type
of company is being established. A founder is required to present, among other
documents, a legal document evidencing the financial position of an investor (in
case the investor is a natural person), or the audited balance sheet (annual
accounts) for the last business year (in case the investor is a foreign entity).
The company shall acquire the rights of a legal person on registration. The
registration procedure normally takes two weeks.
Every company name must either include the words ‘‘publicly held jointstock company’’ (in Lithuanian: akcine bendrove or the acronym – AB) or ‘‘privately
held joint-stock company’’ (in Lithuanian: uzdaroji akcine bendrove or the acronym
– UAB).
6.1.4.
Authorised capital
A minimum authorised share capital of LTL100 000 (US$25 000) is required for
a joint-stock company. These shares may be circulated and traded publicly. The
authorised capital of a privately-held joint-stock company must be a minimum of
LTL10 000 (US$2 500) and its shares may not be publicly circulated or traded.
The authorised capital of a company can be formed in two ways: either by the
shareholders paying the price of the share issue in cash, or by non-pecuniary
(property) contributions made by the shareholders of the company. Only assets
which can be owned, and rated economically, can be used as non-pecuniary
(property) contributions. Works and services may not be used as contributions.
According to the Law on foreign capital investment (No. I-938, entered into force on
1 August 1995), only the following may be invested as foreign capital in Lithuania:
– freely convertible currency cash, or
– Lithuanian national currency (litas), or
– movable and immovable assets or,
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– intellectual and industrial property,
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
– either estimated in freely convertible currency, or in Lithuanian national
currency (litas).
While investing, the founders of a company are required to open an accumulative account, with a bank which is registered in the Republic of Lithuania. This
account is used for collecting initial contributions from the founders. After the
registration of the company, the accumulative account can be changed into a
company’s regular bank account.
The non-pecuniary (property) contributions shall be valued by the
company’s auditor or by an independent external auditor or commission,
appointed by the founder. The shares shall only be deemed to have been fully
paid up after the approval of the valuation of the non-pecuniary (property)
contributions.
6.1.5.
Capital structure
A company is entitled to issue ordinary, preference and employee shares.
Ordinary shares constitute the main portion of a company’s shares. The par
value of the preference shares may not exceed one-third of the authorised capital. Dividends on preference shares may be cumulative or non-cumulative. This
must be established in the articles of association, prior to the sale of the shares.
The holder of cumulative preference shares shall be guaranteed the right to
receive the dividend specified on the shares. If the profit is not sufficient and
does not allow all dividends, the unpaid sum must be transferred to the following
business year. The company’s articles of association may establish that the preference shareholders have no voting rights. If, in two consecutive business years, the
company fails to pay the full amount of the dividend to cumulative preference
shareholders without voting rights, such shareholders shall acquire the right to
vote. The shareholders shall retain this right until the end of the business year in
which they receive the full amount of their dividend.
Publicly-held joint-stock companies are entitled to issue debentures,
whereas privately-held joint-stock companies are prohibited from doing so.
6.1.6.
Management structure
The management bodies of a company shall include the general meeting, the
supervisory board, the board of directors and the administration.
On a resolution issued by the general meeting, a publicly-held joint-stock
company may form either the supervisory board or the board. On a resolution of
the general meeting, a privately-held joint-stock company may refrain from forming either the supervisory board or the board of directors. If one or both of these
managing bodies is not formed, its (their) functions, rights and responsibilities
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shall be delegated to another managing body. Such a delegation shall be provided for in the company’s articles of association.
6.1.7.
General meeting of shareholders
The supreme decision-taking body of a company is the general meeting of
shareholders.
The Law on joint-stock companies states which issues can be decided exceptionally by the general meeting (e.g. amendment of the company’s articles of association, the increase or reduction of the authorised capital of a company, the liquidation or reorganisation of a company, etc.)
All the company shareholders, irrespective of the number and class of shares
they hold, have the right to attend the company’s general meeting. If all the
voting shares of the company have the same par value, each share shall carry one
vote at the shareholders meeting.
6.1.8.
Supervisory board
The company’s articles of association shall determine the number of supervisory board members. It must consist of no less than three and no more than
15 members.
The supervisory board shall be elected by the general meeting for a term not
exceeding four years. The members of the supervisory board shall elect its
chairman.
The supervisory board shall, inter alia, appoint and dismiss members of the
board of directors, analyse the activities of the board and inspect the company’s
financial accounts and documents. It will also represent the company in court, in
disputes between the company and the board or board member, the company’s
managing director or a representative of the company. The supervisory board
shall have no right to delegate or to transfer its functions to other persons, or to
the managing bodies of the company.
There is no requirement for members of the supervisory board to be
residents in Lithuania.
The personal data of the chairman and deputy chairman of the company’s
supervisory board, must be entered into the Enterprise Register.
6.1.9.
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The board of directors
A company’s articles of association establishes the number of board members of the company. The minimum number is three. The board of directors and
its chairman are appointed by the supervisory board for a maximum term of four
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
years. In the absence of the supervisory board, the offices shall be elected by the
general meeting. There is no requirement for the members of the board to be
residents of Lithuania.
The board shall, among other functions, consider and approve the structure
of the company and the titles and duties of the company’s officers, the candidates
for the post of the head of administration and his deputies. The board may
represent the company in court, in arbitral bodies and in other institutions.
The personal data of the company’s board members must be entered into
the Enterprise Register. Changes to this data must also be entered into the
register.
6.1.10.
Administration
The administration shall organise and execute the company’s business activities. The company must have a head of administration (president, general director and director) and a chief financier (accountant). The head of administration
may not occupy the post of the chief financier (accountant) concurrently.
6.1.11.
Statutory audit
At the close of the business year, and prior to the company’s general meeting, the accounting and financial accounts of the company must be audited. The
auditing shall be performed by an inspector or an auditor who is elected by the
general meeting, for the specified term as established in the articles of association, which may not exceed four years. The auditing shall be performed in accordance with the legal acts regulating auditing and the work of auditors and the
terms of the agreement between the company and the auditor.
6.1.12.
Partnerships
According to the Law on partnerships (No. I-676,), a partnership is an enterprise
which is established on the basis of a partnership agreement concluded either by
several natural or legal persons, or by natural and legal persons who have combined their property under a co-ownership plan, with the aim of conducting joint
economic and other activities not prohibited by law. Such an enterprise must
have a common name. A partnership must have at least two and no more than
20 members. It is not a legal person.
According to the Law on partnerships, two types of partnership – general partnerships and limited partnerships – may be created.
A general partnership is an enterprise whose partnership property cannot be
separated from the property of the individual partners. All partners of a general
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partnership are jointly liable for the obligations of the partnership, but only to the
extent of their individual property.
A limited partnership is an association of general and limited partners, functioning under a common name. The property of a limited partnership shall be separated from the property of the individual limited partners, but cannot be separated from the property of the individual general partners.
Each general partner shall have the right to represent the partnership, unless
the contrary is prescribed in the partnership agreement. However, limited partners shall not have the right to represent the partnership.
The partnership shall be divided among the partners in proportion to their
interests. While setting the share of a general partner’s income, the fact that he
has not made his full contribution shall not be taken into account, whereas the
share of income for a limited partner shall be set in proportion to the contribution
actually made by the limited partner.
6.1.13.
Sole proprietorship
A sole proprietorship may be established by a natural person through the
right of ownership, or to several natural persons by the right of common jointownership. This entity shall not have the same rights as a legal person and its
property shall not be separate from the owner’s property. The owner shall be
liable for the obligations of the enterprise by way of all his individual property.
Sole proprietorships shall be registered with the governing bodies of local
authorities, except for sole proprietorships which are owned by foreign natural
persons, who are registered with the Ministry of National Economy.
A foreign resident who intends to register a sole proprietorship in Lithuania,
is required to present a standard application form to the Ministry of National
Economy and to provide the registration data as stipulated by the Law on the
Register of Enterprises.
6.1.14.
Bank branches and representative offices
Bank branches
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A branch is defined as a territorial subdivision of a bank which is registered
in Lithuania, which does not possess the rights of a legal person and which
operates in the name of the bank and performs all or some of the banking
operations on behalf of the bank. The bank is liable for the transactions and
activities of the branch to the extent of its assets.
Foreign banks may establish subsidiaries in Lithuania (after receiving a
licence). They may also acquire shares in local banks or establish branches
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
(permission from the Bank of Lithuania) or representative offices (permission
from the Bank of Lithuania).
The Bank of Lithuania shall register the branch of a foreign bank, provided
that:
– the Republic of Lithuania has concluded an agreement with the foreign
state relative to legal assistance and the security of capital investments, or
if a foreign bank gives sufficient guarantees to the Bank of Lithuania that it
will assume liability for the operations of its branch in Lithuania;
– the bylaws of the bank branch are in compliance with the laws and other
legal acts of Lithuania;
– the foreign bank holds a banking licence issued by the state under whose
jurisdiction it is operating;
– the bank has a stable financial position and, according to the criteria set by
the Bank of Lithuania, it is considered to be a reliable bank, while the
bank’s home supervisors do not oppose the establishment of a branch in
Lithuania;
– an agreement has been signed between the Bank of Lithuania and the
bank supervision institution of that state, relative to the supervision of the
operation of the bank branch and furnishing of information;
– the following documents have submitted to the Bank of Lithuania:
• an application to register the branch;
• the branch founding documentation;
• the bylaws of the bank (founder), the licence, registration certificate or
other documents confirming the right to engage in banking activities;
• financial statements of the three past years of the bank (founder);
• the bylaws of the bank branch;
• documents certifying that the premises which will be used by the bank
branch meet the requirements set forth by the Bank of Lithuania;
• written consent of the bank’s home supervisors to the establishment of
the branch in question (if it required by the laws of the home country in
question);
• a document certifying the payment of stamp duty.
A foreign bank branch shall be prohibited from taking deposits if:
• the bank which is established has no right to take deposits in its own
country;
• laws of foreign states do not provide for the compensation of deposits
of the depositors of the bank branch in a foreign state;
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• the terms and conditions of the compensation of deposits are worse
than those established in the laws of the Republic of Lithuania.
The laws and legal acts of the Republic of Lithuania govern the activities of
foreign bank branches.
Representative offices
Foreign companies and banks may set up representative offices in Lithuania.
The procedure for registering these entities is regulated by the Order of the Statistics
Department at the Lithuanian government on the procedure for the registration of enterprises
with foreign capital, as well as representative offices of foreign companies, banks and Lithuanian
commercial banks (No. 46, 23 November 1995).
A foreign company can register a representative office with the Ministry of
National Economy upon the presentation of the following documents:
– an application,
– copies of its registration certificate and articles of association,
– the decision of the founding company on the establishment of a representative office in Lithuania,
– documents evidencing the powers of the representative.
A representative office must possess premises from which to carry out its
business activities. A foreign resident may be appointed as head of a foreign
company’s representative office in Lithuania. The procedure applied in order to
register a foreign bank’s representative office is similar.
In accordance with the Resolution of the Lithuanian Government on the order of
establishment, activities and liquidation of companies’ representative offices (No. 1281, adopted
on 27 September 1995), representative offices are treated as separate subdivisions of companies and do not have the rights of a legal person. Representative
offices are not entitled to carry out independent business activities, but they are
entitled to represent the interests of foreign companies, to enter into business
relationships and to conclude contracts on behalf of foreign companies. However,
representative offices are prohibited from opening settlement accounts with a
bank and from performing settlement with customers. International transportation
agencies may, however, perform such duties.
Persons employed with foreign companies’ representative offices must pay
income tax and compulsory social insurance payments.
6.1.15.
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Commercial register
According to the Law on the register of enterprises (No. I-440, 31 July 1990, entered
into force on 1 August 1990 ), the Statistics Department of the Lithuanian Government is the chief registrar of the Register of Enterprises. The Ministry of National
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
Economy, the Lithuanian Bank (Lietuvos Bankas) and the governing bodies of local
authorities shall also be responsible for the maintenance of the register.
Companies with foreign participation and representative offices of foreign companies, shall be registered with the Ministry of National Economy.
In order to register an enterprise, the founder of the enterprise is required to
submit an application, containing the necessary data for inclusion in the Enterprise Register and other registration documents specified by the Law on the register
of enterprises:
– incorporation Agreement (Act);
– minutes of Statutory Meeting;
– articles of Association;
– account on incorporation of public company and auditor’s report on that
account, if a publicly held joint-stock company is being registered;
– a permission to engage in business activities issued by the local
authorities;
– document evidencing possession of premises by an enterprise under
foundation;
– permission to carry out activities in a Free Economic Zone issued by a
company managing the Zone, if a Zone’s enterprise is being registered;
– document evidencing registration of the company’s name;
– document evidencing the payment of stamp duty.
The founder of a company with foreign capital, or his representative, is
required to submit the additional documents mentioned in the Order of Statistics
Department of the Lithuanian Government on procedure for registration of enterprises with
foreign capital as well as representative offices of foreign companies, banks and Lithuanian
commercial banks (No. 46, passed on 23 November 1995). These documents are:
– A copy of the parent company’s registration certificate, or a corresponding
document (duly notarised and legalised).
– An audited balance sheet (annual account) for the last business year.
– A decision by the respective managing body of the parent company,
regarding the establishment of the enterprise in Lithuania.
– A copy of the company’s articles of association.
– A statement issued by the bank registered in Lithuania and evidencing
payment of the initial contributions by the foreign investor.
– A notarised copy of the act on registration of securities with the Securities
Commission of the Lithuanian Republic, if a public company is being
founded.
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INVESTMENT GUIDE FOR LITHUANIA
– If the investor is a foreign natural person, a document having legal power,
evidencing his/her financial status, to be submitted to the Enterprise
Register.
The decision to register or to refuse to register an enterprise must be taken
within 15 days of receiving an application and the required registration documents. Refusal to register an enterprise may be appealed in court. The founder of
an enterprise may bring legal action to recover the loss inflicted by the unlawful
refusal to register the enterprise.
6.2. COMPETITION
Competition is regulated by the Law on competition (No. I-2878, entered into
force on 1 November 1992).
The activities of economic entities which have a dominant position in the
market and which restrict, or may restrict, competition are prohibited by this law.
A dominant position shall be the position of an economic entity in the market
which allows for the possibility to influence that market unilaterally and decisively. The economic entity cannot be considered as having a dominant position
if its market share of certain goods is no more than 40 per cent.
Economic entities are prohibited from restricting competition and from
engaging in any activity which:
– hinders competing economic entities from entering the market or from
developing the activities of existing markets; or
– abuses its dominant position, by excluding competing economic entities
from the market; or
– restricts production, decreasing the amount of sales and the purchase of
goods, or suspending trade, with the intention of creating a shortage in the
market and increasing prices, thus harming consumers; or
– provides discriminatory economic conditions in contracts of an identical
nature, concluded between different partners; or
– establishes fixed selling prices to third persons, in contracts with suppliers
or purchasers.
Agreements, or co-ordinated activities between competing economic entities
(or potential competitors), are prohibited if they restrict or impede competition,
meaning that they affect:
– prices (including those established by auctions or tenders), discounts,
mark-ups and other payments;
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– the volume of production;
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
– the division of the market volume of sales and purchase, types of goods,
groups of purchasers and sellers, or otherwise;
– the ability of other economic entities to remain in or enter the market; and
– an economic entity’s ability to conclude a contract with certain sellers or
buyers.
Economic entities are prohibited from carrying out activities which result in
unfair competition (e.g. the provision of misleading, inaccurate or distorted information – including advertisements – which may cause damage to another economic entity, or its reputation; mislead consumers by giving them false information regarding the quality of goods, the characteristics of their usage, the wilful
use of the name, trade name, trademark of another economic entity, etc.).
The State Institution for Competition and Protection of Consumers Rights, which is in
charge of monitoring the economic entities’ compliance with the Law on competition,
has the right, inter alia, to:
– oblige economic entities to stop actions or agreements which contradict
the Law on competition;
– take decisions on the reduction of prices, if it is discovered that the prices
were increased due to actions prohibited by the Law.
The Competition Council has the right to impose fines for infringement of the
provisions of the Law on competition. The fine can amount to 10 per cent of the
company’s total gross annual income. It can also impose fines amounting to 3 per
cent of the annual gross income on companies which submit misleading information. Finally, the Council can also impose fines on company officers who fail or
delay in complying with the directions issued by the State Institution for Competition
and Protection of Consumers Rights or who submit misleading information.
This Institution controls the prices which are proposed by the subjects that
occupy a dominant position in the market. It also co-ordinates the proposals
made by state institutions concerning prices and tariffs of goods and services. In
order to achieve its objectives, the Institution may also request financial and
other documentation, information or explanations from commercial entities, and
state institutions, and impose economic sanctions or other obligations on legal
and natural persons.
Within one month of the date the decision of the Institution has been
received, the company may apply to the court to revoke or alter the said decision
and recover losses.
If, either by virtue of an agreement or the acquisition of a controlling interest,
the maximum concentration of market structures (concentration of capital) established by the Competition Council is exceeded, the party or parties involved in
the concentration must notify the State Institution for Competition and Protection
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INVESTMENT GUIDE FOR LITHUANIA
of Consumers Rights before undertaking any steps which may alter the permanent
market structure and the degree of its concentration. The Institution must be
notified beforehand of the planned concentration, when both companies (the
company whose shares are to be acquired and the company acquiring the shares),
together meet the following criteria:
– the total number of both companies’ employees exceeds 300 and
– the capital of each of the companies (both the companies’ own capital and
that which they have borrowed) exceeds US$500 000 or the turnover of
both companies exceeds US$2 000 000.
6.3. LABOUR MARKET REGULATION
6.3.1.
Labour administration
The government has authorised the Ministry of Social Security and Labour to
formulate and implement social security and labour market policy. The following
institutions have been established under the Ministry’s auspices.
– The Labour Exchange of Lithuania (March 1991) and 47 local offices for the
employment of residents;
– The Institute of Labour and Social Research (October 1991), which undertakes studies on issues relating to employment;
– The Lithuanian Labour Market Training Authority (July 1992), which develops the vocational training system;
– The State Labour Inspection (December 1992), which establishes safety
standards and other working conditions and monitors the implementation
of labour laws and regulations.
6.3.2.
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Employment contracts
All work carried out by an employee requires an employment contract. This
requirement does not exist for work carried out in accordance with authorship
agreements.
The employment contract should be concluded in a written form. Two copies
should be made, one of which is submitted to the employee, while the other copy
is kept by the employer. Every employment contract should be registered in the
journal for registration of employment contracts.
The parties must agree on the following conditions when signing an employment agreement:
– the employee’s place of work;
– professional or special qualifications and duties; and
– the salary.
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
If agreed by both parties, additional clauses (e.g. probation period, reduced
length of the working day, etc.) may be included in the contract, provided that
such provisions do not contradict employment legislation. Additional clauses may
include specific guarantees for employees, as well as other benefits and relief.
The main rule for additional clauses is that they do not prejudice the position of
the employee.
Employment contracts may be concluded with residents of Lithuania who are
16 years or older. Persons from the age of 14 years may be employed in jobs
which have been approved according to the rules laid down in the Law on labour
protection. Persons between the ages of 14 and 16 may be employed if their
employment does not prevent them from attending school and only upon the
presentation of a written consent of the school and one parent or guardian. In
exceptional cases, 13-year olds are allowed to be employed in certain jobs listed
by the Government. The employment of foreign nationals is described infra.
Employment contracts may be concluded for an indefinite or a definite
period. However, the definite term may not exceed five years. It is prohibited to
execute employment agreements for a definite term if the employment is permanent in nature, unless the employee wishes to conclude such an agreement or the
law allows it.
The parties to the employment agreement may agree upon a period of
probation which may not exceed three months, unless the legislation stipulates
otherwise.
The employment contract may be terminated only on the grounds and under
the terms and conditions specified in the Law on employment agreements. In accordance with this Law, the contract can be terminated on the following five grounds:
– the initiative of the employee;
– the agreement between the employer and the employee;
– the initiative of the employer;
– the unilateral decision of the employer;
– the initiative of State institutions or other reasons beyond the control of
the parties.
An employee may terminate his employment contract upon giving 14 days’
written notice to the employer. Under these circumstances, a gratuity is not paid
on discharge; the employee is paid for actual time worked.
Any party to the employment contract may propose, in writing, that the
contract be terminated. The other party must, within five calendar days of receipt
of the proposal, inform the proposer of his acceptance to terminate the contract.
The amount of gratuity payable on discharge is also agreed between the parties.
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The Law on employment agreements establishes an exhaustive list of grounds for
terminating an employment agreement at the initiative of an employer. An
employer may terminate an employment contract giving two months’ prior notice
in writing if there is no fault on the part of the employee. Four months’ prior
notice should be applied when dismissing juveniles, disabled persons, persons
who are less than five years from the retirement age and single parents bringing
up a child who is under 14 years old. Gratuity on discharge should be paid to an
employee who is dismissed without fault in an amount of one average monthly
salary of the employee concerned. In case of dismissal because of liquidation of
the company or because of redundancy, the gratuity on discharge will be at least
two average monthly salaries. The amount of the gratuity on discharge is
increased according to the number of years worked without interruption.
An employer may terminate an indefinite-term agreement without any prior
notice and without paying gratuity on discharge if an employee is dismissed as a
disciplinary measure.
An employee may be dismissed at the employer’s initiative, on grounds
which are not mentioned by the Law on employment agreements, without any prior
notice. However, in that case a rather large amount of compensation should be
paid to the employee being dismissed. The amount of the compensation
depends on the length of time the employee has been with the company and
varies from 6 to 36 times his average monthly salary.
6.3.3.
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Training and retraining
Employers provide training for their employees, either in-house or through
outside consultants and educational programmes which are offered by various
schools and public organisations. Companies are allowed to deduct the education
costs of their employees when determining taxable profit, if the training programme is relevant to the enterprises’ activities.
Employees who are sent either to university or to another higher education
institution by the employer, can request a paid educational leave in order to
prepare and to sit for examinations. Employees studying at their own initiative
have a right to a limited study leave. The payment for such a leave is either
determined in the collective agreement, or by common consent of the employer
and employee.
Statutory study leave should be granted to employees who continue their
studies either at university, or another higher educational institution. In accordance with the Law on vacations, it should also be granted to those who, while
working, pass their exams for enrolment into higher education institutions. Two
categories of statutory study leave must be distinguished: a) those which should
be granted to employees who succeed in their studies; b) those which should be
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
granted to employees passing their entrance exams to higher education
institutions.
The duration of study leave is as follows:
– to prepare for and sit in examinations – 3 days for each exam;
– to prepare and sit for credits – 2 days for every credit;
– to carry out laboratory tests and consultancy work- the number of days is
indicated in the study programmes and timetables;
– to finish and submit a thesis – 30 calendar days;
– to prepare for and pass final examinations – 6 days for every examination.
The Law on vacations also fixes the duration of study leave for employees who
are doing their entrance exams for higher education institutions. In order to
prepare for and to sit in entrance examinations, a period of three days is granted
for each exam.
Regulations adopted in Soviet times establish certain guarantees and benefits for employees who are training or retraining. However, these provisions are
used rarely: they have become obsolete and will soon be declared void, together
with other left-over Soviet legislation.
A professional training and qualification promotion programme for unemployed persons is being sponsored by the Inhabitants Employment Fund. This
Fund receives its resources from compulsory unemployment insurance payments
by employers, charity payments from individuals and corporate entities, additional payments from employers, income from the Labour Exchange, state subsidies and other payments.
6.3.4.
Wages and salaries
Generally, labour costs include salaries, in-kind and cash benefits, bonuses,
social insurance fees and compulsory contributions to the Social Insurance Fund.
The latter contributions comprise:
– the employer’s share, consisting of 27 per cent of the gross salary of each
employee;
– compulsory health insurance contributions of 3 per cent of the gross salary
of the individual employee;
– business trip expenses, etc.
A company registered in Lithuania must withhold and pay income tax for
each employee. Unless income is derived from other employment, a general
income tax rate of 33 per cent is levied on the remaining income, after the tax
exempt minimum (currently LTL 214) has been subtracted. The employee must
also make direct compulsory social insurance contributions. This consists of a
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1 per cent deduction from the employee’s gross salary. This sum is withheld and
paid by the employer.
The wages and salaries are determined by supply and demand in the labour
market and by the profitability of the employing company. However, the gross
monthly salary of the employee concerned may not be less than the minimum
monthly salary. The gross hourly wage may not be less than the minimum hourly
wage. The minimum monthly salary and the minimum hourly wage are adjusted
by the government in proportion to annual inflation. On 1 May 1998, the minimum
monthly gross salary was established at LTL 430. No limitations on the remuneration of juveniles are established (however, certain statutory limitations of working
time for juveniles exist).
If harmful working conditions occur, a supplement equal to 50 or 100 per cent
of the remuneration paid in ordinary circumstances will be added to the
employee’s salary.
Employers may grant certain fringe benefits to their employees at their own
discretion. Normally, fringe benefits are treated as a part of the salary of the
employee concerned.
Average wages and salaries in Lithuania are low in comparison with those
paid in Western Europe. Therefore, payroll costs, including the contribution for
social and health insurance, are not considered to be extraordinarily high. The
average gross monthly salary as of 1 May 1998 was LTL 983.46. However, in some
sectors, gross monthly wages are considerably higher:2
– financial intermediation: LTL 2013
– production and distribution of electricity: LTL 1640;
– public administration: LTL 1064.
As of April 1998, the lowest salaries were in the following sectors:
– fishing: LTL 590;
– hotels and restaurants: LTL 505;
– agriculture, hunting and related services sectors: LTL 462.
6.3.5.
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Hours of work
Labour legislation generally limits the normal hours of work to 40 hours per
week and eight hours per day. In exceptional cases, for certain categories of
employees, the number of working hours can be extended to 60 hours per week.
The maximum length of a workday, including overtime, may not exceed 10 hours a
day and only in exceptional cases can the maximum length of the workday
(together with a break) be extended to 12 hours a day. Shortened working hours
are established for specific categories of employees.
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
Overtime work may not exceed four hours per two consecutive working days;
an employee may not work more than 120 overtime hours per year. An employee
should be paid not less than 150 per cent of his hourly (monthly) salary for
overtime and night work. An employee should be paid at least 200 per cent of his
hourly (monthly) salary for work on weekends and public holidays, unless the
employee concerned agrees to receive an additional day off.
The concept of part-time work is also incorporated into Lithuanian law. The
wages and salaries for part-time work should be calculated by the hour.
6.3.6.
Annual leave
Under the Law on vacation, the minimum length of paid vacation is 28 calendar days. Employees who are under 18 years old, disabled persons and single
persons with a disabled child under 16 are entitled to 35 calendar days’ vacation.
Extended vacation (up to 58 calendar days) is given to certain categories of
employees whose employment conditions are particularly stressful or hazardous,
or those in other specific working conditions. The list of these categories of
employees is established by the government.
An employee may be recalled from his vacation with his consent. Vacation
pay constitutes the average salary of the employee concerned calculated by a
statutory methodology. It is prohibited to pay compensation instead of granting
vacation, except in the case of the termination of the employment contract.
6.3.7.
Health and safety
Health and safety standards are imposed by the Law on labour protection. The
Law names six categories of working conditions, identified by their degree of
hazard and defines the standards of each of them. For all categories, the standards should be such that a breakdown of health and occupational diseases are
prevented.
6.3.8.
Immigration and residency requirements
Foreigners willing to work in Lithuania are obliged to obtain either a special
work visa, or a special work visa plus work permit, depending on their status.
Special labour visas are issued by the Migration Department of the Ministry of
Internal Affairs (if the visa is issued in Lithuania), or by a Lithuanian embassy
(consulate) with the permission of the Migration Department (if the visa is issued
abroad). Work permits are issued by the Labour Exchange under the auspices of
the Ministry of Labour and Social Security.
Companies registered in Lithuania may employ foreigners only after being
licensed to employ expatriates. After the license has been granted, the signed
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labour contract should be submitted to the Labour Exchange of Lithuania which
will grant the work permit within two weeks. Once the work permit is granted, the
expatriate can apply to the Migration Department for a special visa.
Certain categories of persons are not required to obtain a work permit. The
list includes the following persons.
– Directors of foreign enterprises, institutions and organisations which have
economic or trade relations with an appropriate Lithuanian enterprise.
– Directors of Lithuanian companies, with foreign investment (subsidiaries of
foreign companies, joint-ventures).
– Persons authorised by the aforementioned Directors.
– Specialists hired to provide training in using imported equipment and
consultants coming to work for not longer than three months. (This is only
applicable to wholly or partially foreign-owned companies).
– Sailors, professional sportsmen, actors and persons engaged in other creative professions who are coming to work in Lithuania for a period not
exceeding six months.
6.3.9.
Trade unions
The legal status of trade unions is regulated by the Law on trade unions,
adopted on 21 November 1991. Trade unions are defined as voluntary, independent and self-governing organisations which represent and protect the professional, labour, economic and social rights and interests of employees.
Trade unions can conclude collective and other contracts with employers on
behalf of employees and monitor their implementation.
Members of the trade unions and elective trade unions’ institutions may not
be dismissed without prior consent of the elective institutions of trade unions,
except in case of dismissal because of liquidation of the company concerned and
in case of a criminal conviction.
Trade unions are not very active and influential in Lithuania. Most employees
do not belong to a union.
6.4.
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BUSINESS INSOLVENCY
The old Lithuanian bankruptcy legislation was replaced by the Law on enterprise bankruptcy (No. VIII-270, entered into force on 1 October 1997).
The law regulates bankruptcy procedures more efficiently and expeditiously.
It outlines, in more concrete terms, the rights of creditors and increases the
category of persons entitled to initiate bankruptcy proceedings. The Law also
provides better protection for creditors’ interests. First to be satisfied are credi-
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
tors who have a mortgage interest in the company’s property. These creditors’
claims have priority over those of the company’s employees, the State and other
creditors. As an additional measure to protect creditors, the Law establishes
special committees of creditors which will supervise the activities of the company
undergoing bankruptcy proceedings.
If a company is insolvent, the company’s creditors can initiate bankruptcy
proceedings by lodging a claim before the court. A company is considered insolvent if it is unable to pay the salaries of its employees or to pay for purchased
goods or services rendered, or if it cannot fulfil other contractual obligations. The
Law on enterprise bankruptcy also establishes a number of other grounds upon which
a company may be declared bankrupt. Bankruptcy cases shall be initiated in the
district court where the company has its registered office.
After the bankruptcy case has been initiated, the court shall appoint an
administrator for the company, and shall also inform the company, its creditors,
debtors and other persons and institutions concerned.
Bankruptcy proceedings may also be performed in the extra-judicial manner.
A decision to hold an extra-judicial hearing of a bankruptcy case can be made at
the creditors’ meeting. In this event, the creditors’meeting also establishes the
terms for hearing and settling creditors’ claims.
Extra-judicial bankruptcy procedures may also be initiated if the case does
not involve a claim against the company’s assets.
The Law also makes provisions for companies’ restructuring. This entails the
implementation of complex measures aimed at restoring the company’s solvency
(change of company’s business activity, technical and economical measures, sale
of company’s assets, change of company’s production and work organisation, etc.).
Instead of being declared bankrupt, the company can be restructured only if the
court has approved the restructuring plan. Upon the proposal of the creditors’
meeting, the court shall be entitled to terminate the company’s restructuring
project if not all or part of the plan is being fulfilled.
6.5. CONSUMER PROTECTION
The Law on consumer protection (No. I-657) was passed on 10 November 1994.
This law establishes and guarantees the rights of consumers of goods and services, and protects their economic and social interests.
Consumers have the following rights:
– to purchase goods and to use services;
– to acquire safe goods and services;
– to request that infringed rights be restored, and compensation paid for
losses;
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– to obtain information on goods and services as well as on the procedure for
implementing or restoring his/her consumer rights;
– to form consumer organisations; and
– to receive assistance in restoring infringed rights, from state institutions,
government and from consumer organisations.
The quality of goods and of services rendered must either be equal or
superior to that specified in normative documents of standardisation and contracts. The seller (service supplier) shall be responsible for the quality of goods
sold (services rendered).
Goods (services) which may have a negative effect on human life and health,
shall only be sold (rendered) if the appropriate agency issues documents certifying their safety.
The consumer is entitled to obtain comprehensive and true information, in
the state language, as to the contractual terms of the acquisition of goods and
services. He is further entitled to receive information on the quality of the goods
or services purchased, directions as to their use, the warranties and exchange
period, the procedure for terminating the sale contract, as well as other relevant
information that is relevant to the consumer. The seller is responsible for providing the purchaser with truly information on the goods and services.
The name and price of goods sold at retail trade and service supply outlets,
must be publicly displayed.
The Institution of Price and Competition is charged with supervising compliance with the Law on competition. The director of this Institution is appointed by the
Government.
6.6. CUSTOMS LEGISLATION
6.6.1.
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Customs legislation and procedures
Since 1 January 1998, a new Customs Code has regulated the import, export and
transit of goods, the customs procedures and import and export duties in the
territory of Lithuania.
Putting goods into free circulation means that no import restrictions are
imposed and that all import duties and taxes have been paid.
The Customs Code stipulates that no duties and taxes are levied in the following circumstances:
– customs transit;
– customs warehousing;
– temporary importation for processing;
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
– temporary importation for processing under customs control;
– temporary importation;
– temporary exportation for processing;
– temporary exportation;
– exportation.
6.6.2.
Custom duties
The main law regulating customs tariffs is the Law on customs tariffs
(27 April 1993, No. I-138).
The Law stipulates that the tariffs shall be established in accordance with
internationally accepted principles and standards. The nomenclature of customs
tariffs shall be based on the International Convention of the Harmonised Commodity Description and Coding System established in Brussels in 14 June 1983.
If international agreements of Lithuania provide for taxation procedures other
than those in the Law and other executive acts on tariffs of Lithuania, the norms
established in the international agreements shall be applied.
According to Resolution No. 268 of the government on the procedure of export and
import regulation in the Republic of Lithuania, three types of customs duties can be
levied on imported goods.
Conventional duties are applied when documents testifying that the goods
are produced in countries to which Lithuania has accorded most-favoured nation
status.
Preferential duties are levied on goods from countries with which Lithuania
has signed free-trade agreements;
Autonomous duties are levied on goods from all other countries.
For the application of conventional or preferential duties, documents should
confirm the country of origin: in case of MFN regime, non-preferential certificate of
origin, in case of FTA regime, EUR 1 or invoice declaration.
The autonomous rate is the maximum tariff. For instance, on raw materials
the autonomous rate is 1 per cent, but the MFN rate is 0.5 per cent. On consumer
goods the autonomous rate is between 1 per cent and 20 per cent, the MFN rate
is between 0.5 per cent and 15 per cent.
Goods originating or imported from countries with which Lithuania has
signed a free-trade agreement are usually zero-rated.
Import operations can be carried out by companies registered in Lithuania.
Customs clearance and the payment of import duties must be done at the border
crossing points, except when a company has special permission to carry out all
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customs clearance operations in an inland customs point. In addition to import
duties, an importer must also pay value-added tax at the rate applied to domestic
supplies – 18 per cent – and excise tax on several kinds of goods.
Input VAT can be credited against the tax due on the output, provided that
the seller (importer) is a registered VAT payer and is using the imported goods for
business purposes.
Excise tax is payable in a few cases. It is imposed on the manufacturing or
importation of ethyl alcohol, spirits, wine, tobacco, jewellery, fuel, chocolate, etc.
The Customs Code sets out several different methods of calculating the customs value:
– by the contract price of the goods and other items to be imported as
provided by the person declaring the goods (basic method);
– by the customs value of identical goods;
– by the customs value of similar goods;
– by the price by which the identical or similar goods were sold;
– by a computed value based on:
• the value of materials and manufacturing costs;
• an allocation of profit and general expenses; and
• the cost of transportation and insurance to the border.
All methods comply with Chapter VII of GATT. The price is based on the costs
incurred in getting the goods to the border, but not to their final destination in
Lithuania.
6.6.3.
Bonded warehouses.
There are two types of bonded warehouses in Lithuania: public and private
ones.
The main difference is in the type of goods that can be stored there. Any kind
of goods which can be imported into Lithuania can be placed in a public bonded
warehouse by the owner or by a company which has an agreement with the owner.
There are no restrictions on the period of storage and customs authorities
allow both the processing and storage of goods in warehouses, thereby benefiting
from a more favourable tax treatment.
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A license for keeping a bonded warehouse is issued by the customs
authorities.
GENERAL REGULATIONS OF BUSINESS ACTIVITIES
6.7. ILLICIT PAYMENTS
The government has adopted a number of laws and regulations, designed to
diminish the occurrence of corruption. The policy approach has been to incorporate anti-corruption provisions in several legal acts. Hence, there is no consolidated anti-corruption law. Instead, anti-corruption provisions are found, firstly, in
the Criminal Code, which prohibits officials from accepting bribes or illegal payments; secondly, in the Law on principles of national security, which was passed
on 19 December 1996 and which mentions corruption as one of the activities
which can damage national security and thirdly, within the dispositions of the
Resolution (No. 788 of 21 July 1997) which established the Criminality Prevention
Centre of Lithuania.
In their replies to the OECD questionnaire (see the overview chapter), a
sizeable number of the respondents to the OECD questionnaire indicated that
the prevalence of corruption in the civil service had caused them concern. The
Lithuanian Development Agency’s 1998 Survey of foreign investors3 supports this
view, although it underlined that foreign operators indicated that they had been
solicited less frequently for bribes than in other transition economies in Eastern
Europe.
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Chapter 7
REAL ESTATE
7.1. REAL ESTATE RIGHTS FOR NON-CITIZENS
The preconditions for private ownership of land in Lithuania followed from
the restoration of citizens’ ownership rights to nationalised property, the
privatisation of major parts of state property and other similar transformation
processes.
The Constitution states that ownership rights are inviolable and that property
rights are protected by the law. This means that the owner of property has the
right to possess, use and dispose of his property freely and that other persons
must refrain from any actions which could violate the owner’s rights. These provisions of the Constitution apply to Lithuanians, foreign persons and to persons
without citizenship. The provision is also contained in the Civil Code, which states
that foreign citizens and persons without citizenship are allowed to own property
in Lithuania. Moreover, the Civil Code upholds the principle of national treatment,
by granting it both to foreign persons and to persons without citizenship. Accordingly, such persons have the same rights as citizens of the Republic of Lithuania
and can therefore own, possess, dispose of and use any property in accordance
with the provisions of the law.
Foreign citizens are entitled to property rights in respect of both movable
and immovable assets. However, the Constitution provides that the land, internal
waters, forests and parks may only be owned by the state and its citizens. This
means that foreign investors and persons without citizenship, may possess or use
land, interior waters and parks, but only by way of a lease, or any other agreements which confer the use of the land, but not the title.
Notwithstanding the above, the Constitution provides that non-agricultural
land may be acquired and owned by foreigners who conduct business activities in
Lithuania and who comply with the criteria of the European and transatlantic integration, as provided in Art. 4 of the Constitutional Law of 20 June 1996. This law
stipulates that only natural and legal investors who originate from the member
states of the EU, OECD or NATO will be entitled to acquire land in Lithuania.
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The current wording of Art. 47, par. 2, of the Constitution has only been in
force since 1 February 1998 and the rules for purchasing land by foreign subjects
have not yet been established. This means that, in some cases, foreign subjects
have a theoretical right to acquire land for non-agricultural purposes, without, in
practice, being able to make use of this right.
7.2. LEASING OF REAL ESTATE
Real estate, as defined by the Civil Code, consists of land, buildings, factories
and other assets which, due to their nature, are immovable or are defined as such
in relevant laws.
Both domestic and foreign natural and legal persons, as well as natural
persons without citizenship, may be parties to a lease and rent real estate. The
provisions of the Law on land lease of the Republic of Lithuania (No. I-354, entered into
force on 12 January 1994), stipulate that land may be leased by a foreign person
who has a permanent residence status in Lithuania and, in accordance with the
order provided in the Law on foreign capital investment, by a registered company with
foreign investment.
The basic terms and preconditions for leasing land to foreign investors are
provided in the above-mentioned Law on land lease, as well as by a number of
governmental decrees. The term of the land lease shall be fixed by the agreement of the parties, but it must not exceed 99 years. The lessee is granted a
privilege to renew the term of the lease after it expires. The rent for the land
which is owned by the state, is determined by the government. Moreover, in
respect of state land, the law provides that the lease agreement follows a
mandatory model. When private land is being leased, the terms of the lease will
be determined mutually by the private owner and the lessee. A land lease
agreement must be concluded in writing and must be registered with the competent office of the district’s chief within three months. If these formalities are not
completed, the lease is null and void.
In respect of the lease of real estate other than land, there are no specific
requirements or restrictions stipulated by national legislation for foreign investors. In most cases, the general rules set forth in the Civil Code will apply.
All agreements on real estate lease for longer than one year must be concluded in writing. If so required by law, real estate leases must be registered with
state real estate bureaux. When the lease expires, the lessee shall have the
privilege to extend it.
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The income, fruits received and gained from the leased property shall belong
to the lessee, unless the lease agreement provides otherwise.
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The lessee will be entitled to sub-lease the leased assets only if the lessor
agrees.
If the title to the leased assets is transferred from the lessor to any third
person, or the lessor is replaced, the lease agreement shall preserve its validity
and be binding on the new owner or lessor.
Pursuant to the Civil Code, the lease agreement may be prematurely terminated upon the demand of the lessor, for example, if the lessee uses the property
for a purpose other than one agreed by both parties, if the value of the property
decreases due to the fault of the lessee, if the lessee fails to pay rent duly, etc.
The lessee of a land plot shall be entitled to terminate the lease agreement
prematurely with a three-month notice and, if the leased land is used for agricultural purposes, the lessor shall be notified six months in advance. The parties
may agree to terminate the lease prematurely on other grounds.
7.3. SECURING THE RIGHTS
The Civil Code states that the Republic of Lithuania will ensure that every
person’s rights are equally protected and that no one has the right:
– to take property from its owner by force, except for the cases specified in
the laws of the Republic of Lithuania;
– to demand that the owner transfer his property against his will, or merge it
with the property of any other.
The Civil Code also stipulates that property may be taken from the owner
against his will only upon the decision or judgement of the court, or as a result of
a special act of requisition. In such an event, the owner must receive compensation, except when the assets are confiscated as a result of a breach of the law. As
already stated, the property of a foreign investor may be expropriated only ‘‘for
public needs’’ and with the payment of fair compensation of the market value of
the property within three months of the expropriation.
However, pursuant to the Civil Code, ownership rights are not absolute, i.e. the
owner cannot use his property in a way that violates the rights or lawful interests
of others. Moreover, in cases specified by law, the owner will be required to let
third persons use his property.
In Lithuania, the title to real estate is secured once it has been registered.
Pursuant to the Law on the registration of real estate (No. I-1539, entered into force on
1 January 1998), the register is being established in order to enable a greater
protection of ownership rights. All property rights in respect of a particular real
estate, easement, encumbrance, as well as the rights of other persons, will be
included in this register. The Law also provides that the ownership and other
property rights, easements and encumbrances will be valid only if they are duly
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registered. The real estate registers will be administered by the local offices of
the district’s chief.
Furthermore, when the owner has been deprived of ownership rights, or his
rights have been otherwise violated, he may defend them directly before a court.
The Code of civil procedure establishes the right of foreign persons and persons
without citizenship, to defend their violated property rights by applying to the
courts. Pursuant to the above-mentioned provisions contained in the Civil Code,
foreign persons and persons without citizenship have equal procedural rights as
the citizens of Lithuania.
Besides the protection of ownership, the owner enjoys a certain degree of
protection offered by international instruments against illegal acts carried out in
respect of his ownership rights. By ratifying the European Convention on the protection of
human rights and fundamental freedoms, Art. 1 of Protocol 1 provides that all natural
and legal bodies shall have a full and inviolable title to the property they own.
Furthermore, Lithuania has undertaken to respect such a right and to redeem the
owner in case this right has been violated. According to the Convention, the
owner who is not satisfied with local remedies, may lodge a claim before the
European Commission’s Court of Human Rights, whose decisions are final and
binding.
Finally, foreign investors may apply to the International Centre for Settlement of Investment Disputes in Washington (see Chapter 4).
7.4. CONSTRUCTION
The law does not restrict or limit the construction rights of foreign natural and
legal persons in Lithuania. According to the Law on construction (No. I-1240, entered
into force on 1 September 1996), both domestic and foreign natural and legal
persons are entitled to enjoy construction rights to the extent provided by the
Law. In order to implement construction rights, the following conditions must be
met.
– The person invoking his construction rights must have possession of the
land, i.e. he must own, lease or otherwise possess the parcel of land.
– The project documentation on the building must have been duly
approved.
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– The permit to construct must have been obtained. These permits are
granted by the district’s chief as determined by the Lithuanian Government. The construction permit will be valid for a period of five years. The
construction rights can only be implemented completely if the holder of
the rights performs the specific obligations which are prescribed by the
Law. For example, the Law establishes that the holder of the rights, before
REAL ESTATE
starting any construction, must assess all possible adverse effects to the
environment and prepare the construction project in accordance with the
terms of the special permit and monitor and supervise the technical and
ecological situation of the construction.
A person’s construction rights may be limited in areas where a special protection is granted to objects of cultural heritage.
Foreign natural and legal bodies are allowed to implement their construction
rights themselves, except for rights which involve the construction of buildings of
great importance. In these cases, all works for the preparation of the project and
its construction will be carried out by the company registered in Lithuania, or by a
foreign company which has been certified by the Government of Lithuania. Foreign natural and legal bodies may provide services in the preparation and execution of the project to the parties in Lithuania.
7.5. MORTGAGES
The Civil Code of Lithuania, the Law on mortgages (No. I-2936, entered into force
on 10 November, 1992) and the Law on land (No. I-446, entered into force on
1 July 1994), are the main regulatory acts which form the legal framework for the
mortgaging of real estate in Lithuania.
In Lithuania, economic operators are free to mortgage their real property in
order to secure the undertakings and obligations arising either out of their transactions or the law.
In accordance with the Civil Code, in a mortgage, the creditor (the holder of the
mortgage) has the right to deduct his claim from the value of the mortgaged
assets, prior to any other creditors, when the debtor fails to perform the undertakings secured by the mortgage. Real estate in Lithuania may be mortgaged not
only by the owner of the assets, but also by the person who is the trustee of those
assets.
Pursuant to the Civil Code, any property may be mortgaged, except for the
assets which cannot be sold to honour a claim. Such privileged assets exclude
real property. Mortgaged property (except for land) must be kept insured during
the entire period of mortgage.
The legal basis for putting the mortgage into effect could be either the
agreement, or the law, or a unilateral declaration of the owner made in an appropriate form. The mortgage agreements must always be made in writing and must
be confirmed by a notary whenever this is required by the law.
The mortgage will only be valid upon due registration of the mortgage agreement. The mortgages of real estate, as well as other operations with immovable
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property, used to be registered at the local real estate registries. However, since
1 April 1998, these have been registered at mortgage offices.
Pursuant to the laws, the right of mortgage shall cease in the following cases:
– after the obligation secured by mortgage ceases to be effective;
– pursuant to the loss or sale of the mortgaged estate as a result of a
compulsory order;
– after the person in whose favour the property has been mortgaged obtains
the title or trust to the mortgaged estate.
Pursuant to the Civil Code, the mortgage shall preserve its validity in the event
that the title to or trust of the mortgaged property is transferred to any third
person.
The issues relating to the mortgage of land are dealt with by the Law on land.
Besides a few peculiarities, the main principles of and requirements for the
mortgage of land do not differ from those applied in respect of other real property. For example, if part of the land plot is being mortgaged, the Law on land
requires it to be separated and registered as a separate plot of land.
The mortgaging of vessels and aircraft is subject to additional requirements
to those mentioned above.
7.6. SERVITUDES
The current civil legislation does not provide for an exhaustive regulation of
easements. The Civil Code states that, in the cases provided by law, the owner is
required to let third persons or the state use his property.
The Law on land establishes the terms of servitudes in respect to the land.
Pursuant to this law, servitudes are established 1) by law, 2) by decrees of the
government, or by the chief of any district, in accordance with public needs,
and 3) by an agreement between the land owner and natural or legal persons. All
servitudes must be registered at the real estate register, except for those servitudes which are established by law.
The landlord may be indemnified against the losses incurred either as a
result of the establishment of a servitude, or of an order prescribed by the
government, at the expenses of the state or the parties concerned.
The servitude will cease to be effective when: 1) it is so stipulated by law, or
2) it is so decided by the government, or chief of the district or the court, or
3) there is agreement to that effect among the parties concerned.
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Lithuanian law does not provide for other forms of easements or easements
in respect of other real estate. They can be established by mutual agreement of
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the owner of the real estate and the person in whose favour the easement is
created.
The draft Civil Code, which will be considered by the Parliament in the nearest
future, regulates easements in more detail and creates new forms of easements.
The proposed draft legislation sets the terms and conditions for such easements
and servitudes, and usufruct in a very concrete and detailed manner, it regulates
easements which are not covered by the present law.
7.7 ENVIRONMENTAL REQUIREMENTS
The regulatory system for environmental protection in Lithuania is headed
by the provisions of the Constitution. It obliges the state and each resident to
protect the environment. Furthermore, it declares that the state shall commit
itself to protecting the environment, fauna and flora, certain natural objects and
valuable regions (historic sites). The state must also regulate the reasonable use
of natural resources as well as their restoration.
The Law on environmental protection (No. I-2223, entered into force on 20 February 1992) provides the legal framework for environmental protection. This law
supervises social relations in the field of environmental protection, establishes
basic rights and obligations of legal and natural bodies for the protection of
biological diversity, ecological systems and landscape that is characteristic of
Lithuania, with the aim of ensuring a healthy and clean environment and the
rational use of natural resources.
The national policy of environmental protection is based on the following
principles:
– The protection of the environment is carried out by the state, together with
each resident;
– National resources will be used rationally, taking into account the possibilities of restoring them;
– The protection will be based on complete, accurate ecological information;
– The polluter will be held liable for the harm caused.
Pursuant to the Law, foreign citizens and persons without citizenship will be
required to perform the same obligations as Lithuanian citizens, as specified in
the Law on environmental protection and will enjoy all the rights of the citizens provided therein. Any individual residing in Lithuania may, inter alia, demand that he
be provided with accurate information on the state of the environment, the
potential threats, etc. He may also demand the termination of the business activities which unlawfully harm the environment, may take part in the assessment of
the effects on the environment and may organise and participate in a public
monitoring of the environment.
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Permits are issued to regulate the environmental impact of business activities. For example, the Law on enterprises stipulates that the business entity which
intends to commence production, will be required to obtain an ecological permit
(‘‘green pass’’). Moreover, before launching the production, natural and legal
bodies will have to assess the possible impact their business may have on the
environment. Furthermore, before starting certain commercial activities, a natural
or legal person will be required to obtain a permit for the use of natural resources
and the emission of pollutants. The economic operator who exploits the commercial object that adversely affects the environment, will have to monitor permanently the adverse effects and will be obliged to grant the public access to such
information. Furthermore, he will also have to establish proper conditions for
monitoring and controlling these effects.
The Law also provides for strict waste disposal requirements. Waste can be
deposited only on sites which have been designated by the government. No
waste can be imported into Lithuania.
The above-mentioned Law also establishes the mechanism of state control of
environmental protection and legal liability for the damages caused to the environment by unlawful activities. In cases where, due to an unlawful act, any legal or
natural persons do any harm to the environment, health or life of people, their
assets of other legal or natural persons or their interests, the above-mentioned
offenders must compensate the losses caused thereby and, if possible, restore
the environment to its original state. Legal and natural persons whose health,
assets or interests have been adversely affected may recover damages. Criminal
and administrative sanctions can be imposed.
Lithuania has joined the main international agreements on environmental
protection.
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Chapter 8
TAXATION, ACCOUNTING AND AUDITING
8.1. TAXATION
8.1.1.
Introduction
Since the restoration of Lithuania’s independence was proclaimed, on
11 March 1990, significant changes have taken place in the country’s tax system. A
number of laws, decrees and resolutions relating to taxation have been adopted.
Improving tax collection and increasing incentives for investment have been the
most important objectives of the tax reform.
However, the process of reform of the Lithuanian tax system is not yet
completed. Major changes will be necessary in order to render the tax system
consistent with international standards. An important step in this direction was
taken in June 1995, namely the adoption of the Law on tax administration. The main
purposes of this Law are to unify the uncoordinated tax system and to establish a
general framework for the administration of taxes. New legislation on the taxation
of business and personal income will be adopted in the near future.
At present, Lithuanian tax legislation regulates 19 taxes, 16* of which are
governed by the Law on tax administration. This law deals with the following state
taxes:
– Corporate profit tax
– Personal income tax
– Value-added tax
– Excise tax
– Tax on pollution
– Tax on natural resources
– Real estate tax
* This number includes contributions to compulsory health insurance, which are treated as a tax in
Lithuania.
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– Road tax
– Inheritance and gift tax
– Stamp tax
– Consular tax
– Land tax
– Land lease tax
– Tax on counter trade
– Tax on oil and gas extraction
However, social security contributions, customs duties and local dues are not
administered by the Law on tax administration. These three duties are administered
by the Board of the Social Security Fund, the Customs Office and the municipalities respectively.
8.1.2.
Double-taxation treaties
The Republic of Lithuania has initiated active co-operation with other countries in order to promote and protect foreign investment and to conclude doubletaxation avoidance treaties. Double-taxation treaties are currently in force with
the following 13 countries: Belarus, Canada, China, the Czech Republic, Denmark,
Estonia, Finland, Kazakhstan, Latvia, Norway, Poland, Sweden and Ukraine. Four
other tax treaties (with France, Germany, Ireland and Italy) have been signed and
ratified, but have not yet entered into force (see Annex B).
Tax treaties concluded by Lithuania generally follow the pattern of the OECD
Model Tax Convention on income and on capital. They provide that business
profits derived by residents of treaty partners are not taxed in Lithuania, unless
there is a permanent establishment in Lithuania. Withholding taxes at prescribed
levels are permitted in respect of passive income (dividends, interest and royalties), but no such tax is currently imposed on dividends and interest under
Lithuanian domestic law. The provisions of the tax treaties establish a maximum
level of taxation; they do not create a tax liability that does not exist under
Lithuanian domestic law. It is expected that modifications to Lithuanian domestic
law may be made in the near future. The elimination of double-taxation rules in
the treaties provide that Lithuanian residents may take credit for foreign taxes
paid against Lithuanian taxes on foreign income.
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The most important feature of the interaction of Lithuanian tax treaties and
domestic legislation is that tax treaties introduce certain concepts such as permanent establishment, withholding tax on dividends and interest, etc., which are
unknown to domestic tax legislation. Although treaty provisions always take precedence over domestic legal provisions, treaties can neither create a tax nor
TAXATION, ACCOUNTING AND AUDITING
increase the rate of an existing tax. In the near future, Lithuanian tax legislation
will be modified in order to introduce new concepts which are unknown to
domestic legislation. In this connection, some steps have been taken such as the
introduction of withholding tax on certain services provided by foreign companies
to Lithuanian companies and royalties.
The policy and methods for eliminating double taxation vary from one tax
treaty to another. However, the following basic methods for eliminating double
taxation are mentioned in the treaties:
– the deduction of amounts of foreign tax paid from the domestic tax;
– the exemption, taking into consideration the tax rate applied to Lithuanian
taxable income;
– the reduction, taking into consideration the tax rate applied to Lithuanian
taxable income.
8.2. CORPORATE TAX
8.2.1.
Liability for corporate profit tax
All companies established in Lithuania are considered to be residents and
are subject to taxation on their world-wide income. The taxable profit of
these companies is determined in accordance with the rules set forth in the Law
on taxes on profits of legal persons, passed in 1990. This law also makes reference to 56 countries
and territories where taxes are lower than in Lithuania and to the Decree of the Government
No. 888, adopted on 4 August 1997. If a foreign company is established in one of the
56 countries and territories (named in the addendum to government decree No. 888), part of its
income is subject to withholding tax at a rate of 29 per cent, if the income is derived from
Lithuanian companies that posses the status of a legal person. This decree also stipulates that a
24 per cent withholding tax is applied on the income of foreign corporations which has been
derived from Lithuanian companies that do not possess the status of a legal person.
A 15 per cent withholding tax rate is levied on foreign companies’ income
generated from Lithuanian enterprises for market research, consultancy and intermediary services. A 10 per cent withholding tax is levied on income received for a
right to use trade marks, licenses and companies’ names. Under a double-tax
treaty, a lower tax rate or exemption may be available.
A new Law on corporate profit tax is expected to become effective as from
1 January 1999. Its intention is to substitute the Law on taxes on profits of legal persons
with new rules governing corporate profit (income) tax. The draft legislation
introduces concepts such as permanent establishment, withholding tax on dividends, a new system of deductions, new methods for calculating capital investment as well as some other new provisions.
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It should be noted that the Seimas has adopted some amendments to the Law
on taxes on profit of legal persons. However, these amendments are still not effective
since the President has not promulgated them. Therefore, it is unclear when and if
these amendments will come into force.
8.2.2.
Taxable base
The taxable base is calculated by deducting, from gross revenue, the various
items given below. The taxable base consists of profit from the sale of goods and
services and net income from non-trading operations.
The various items that are deductible from gross revenue for the purpose of
calculating taxable profits. These items include:
– material production costs,
– salaries,
– administrative expenses,
– business travel expenses, (up to certain limits),
– depreciation at statutory rates and other expenses established by Lithuanian legislation.
Nevertheless, there are limits on the deductibility of certain types of
expenses such as insurance premiums, charity and sponsorship contributions, as
well as business travel expenses and depreciation.
Non-operating revenues constitute payments generated from economic sanctions and other income which is not related to the production and sale of goods
and services, including revenues received from dividends and interest on bonds,
fines and the share on profit received by shareholders from other enterprises.
8.2.3.
Rates
The general tax rate is 29 per cent of the taxable profit.
As from 1 April 1997, a 0 per cent rate is applied to the portion of the taxable
profit used for internal capital investment projects. The acquisition of intangible
assets is not recognised as capital investment as from 1 April 1997.
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Capital investment is calculated in the following way: the aggregate sum of
acquisition cost of tangible assets in use (construction in progress) at the beginning of the taxable period, plus borrowed funds used for the acquisition of
tangible fixed assets during that taxable period, plus depreciation calculated
during that taxable period and other non-profit sources are all deducted from the
acquisition cost of tangible fixed assets in use (construction in progress) at the
end of the taxable period.
TAXATION, ACCOUNTING AND AUDITING
8.2.4.
Deductions
The basic method of determining taxable profit is generally comparable to
international accounting practice. However, there are some significant differences.
The legislation lists the deductible expenses. As a rule, all other expenses are
considered to be non-deductible.
Moreover, it should be noted that the company’s taxable profit is reduced by
twice the amount of the charitable and sponsorship contributions which are made
in accordance with the provisions of the Law on charity and sponsorship, but this
reduction must not exceed 40 per cent of the taxable profit. Moreover, tax relief is
not applied if charity and sponsorship is provided from foreign legal persons,
unless such charity and sponsorship is made through international charitable
organisations and Lithuanian communities that reside in foreign countries.
In general, there are no territorial limits on the deductibility of expenses.
Profit tax, paid in a foreign country, may be credited against Lithuanian profit tax.
8.2.5.
General tax incentives
Tax incentives are currently being debated in Lithuania. The government
strongly believes that foreign investment plays an important role in the
modernisation and rationalisation of the economy and was, until recently, of the
opinion that tax incentives were one of the most important instruments for
attracting foreign investments to Lithuania. After the parliamentary elections in
autumn 1996, this opinion concerning incentives changed radically. Currently, the
Ministry of Finance implements a policy aimed at minimising corporate tax privileges. According to the Ministry of Finance, current corporate tax legislation
contains many ineffective tax incentives and will necessitate substantial changes
in the near future. Furthermore, the same conditions should apply to both
domestic and foreign investments. Foreign investors consider the stability and
transparency of the tax system more important than the existence of tax
privileges.
Nevertheless, certain tax incentives for foreign investors are in effect.
For companies in which foreign capital had been invested before 1 April 1997, the
following tax incentives are applicable.
– If the foreign investment was made before 31 December 1993, the tax rate
for the share of profit, attributed to the foreign investment (proportionally
to the share of foreign investment in the authorised capital of the company) and not used for employee remuneration, is reduced by 70 per cent
for a period of five years. On the expiration of the period, profit tax for that
share of profit is reduced by 50 per cent for a three-year period.
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– If the foreign investment was made between 1 January 1994 and
1 August 1995, the tax rate is reduced by 50 per cent for a period of six
years. This tax reduction is applied to the share of the foreign investment
in the authorised capital of the firm.
– If the foreign investment was made between 1 August 1995 and
1 April 1997, the company is exempt from paying profit tax for a period of
three years, but only if the foreign investment amounted to at least
US$2 million. On the expiration of the period, profit tax is reduced by
50 per cent for a period of three years. This tax relief is not applied to
enterprises which are engaged in wholesale or retail sale of oil products, if
their revenue from the sale of these products exceeds 30 per cent of their
total revenues.
8.2.6.
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Other tax privileges
Companies registered in Free Economic Zones are subject to an 80 per cent
reduction of their profit tax, for a period of five years starting on the date of the
company’s registration. On the expiration of this term, profit tax is to be reduced
by 50 per cent for a period of five years. If the foreign investor owns at least 30 per
cent of the authorised capital of the company that is registered in a Free Economic Zone and has invested at least US$1 million in capital of foreign origin, the
company is exempt from profit tax for a period of five years from the date of its
registration. Such a company will pay 50 per cent less profit tax for the subsequent ten years.
Companies that are governed by the Law on small enterprises are taxed at half the
general tax rate of 29 per cent. During the first two years, starting with the date of registration of
the small enterprise, the tax rate may be reduced by 70 per cent (of 29 per cent), if the operating
revenues constitute at least two-thirds of the total production income.
The profit tax rate for legal persons producing agricultural products and for
specialised enterprises providing agricultural services, is 10 per cent of the taxable profit.
Up to 31 December 1997, credit unions were exempt from corporate profit tax
for the first two years of their commercial activity, starting with the date of
registration. As from 1 January 1998, credit unions have been taxable with a tax
relief amounting to a 70 per cent reduction of the general corporate profit tax rate
of 29 per cent. If the credit union had been established for less than two years on
1 January 1998, it became liable to corporate profit tax as from 1 January 1998. As
from 1 January 1998, a 70 per cent reduction in corporate tax has been applicable
to all credit unions irrespective of the date of their registration.
Tax relief is also available for companies which employ handicapped
persons.
TAXATION, ACCOUNTING AND AUDITING
8.3. TAXATION OF INDIVIDUALS AND COMPANIES WITHOUT THE STATUS
OF A LEGAL PERSON
8.3.1.
Income tax
The Lithuanian individual income tax system is constantly being modified.
Currently, a draft Law on income tax of natural persons is under consideration and
should come into force at the same time as the new Law on companies’ profit tax. This
is planned for 1 January 1999.
The following important principles of individual taxation should be
distinguished.
– Differentiation of tax rates and tax bases, depending on the source of
income.
– Special treatment of income derived from employment in a foreign enterprise. Special treatment means that:
a) a reduced tax rate is applicable to income generated from employment in a foreign enterprise (20 per cent), as compared to income
generated from employment in a Lithuanian entity (income tax rate is
33 per cent; 35 per cent if it is a second job);
b) the tax-exempt minimum income is not deducted from gross foreign
employment income;
c) the system of deductions (exemptions) is different from that applicable to employment income generated from a Lithuanian entity. No
deductions are allowed for foreign employment income, except with
respect to charity and sponsorship expenditure.
– Absence of progressive taxation of income: there are only flat income tax
rates.
Since 1 April 1997, if no double-taxation avoidance agreement is applicable
in a particular case, the double taxation of individual income may be abolished
by governmental decision.
8.3.2.
Tax residence and tax liability
At present, domestic legislation does not provide a unified and clear definition of tax domicile, but the attributes of tax domicile are defined in separate
governmental decrees. Tax treaties establish the definition of tax domicile for
treaty purposes.
Generally, tax treaties stipulate that an employee is not taxable in Lithuania
if he is neither a resident of Lithuania, nor present in the country for an aggregate
period of up to 183 days in any twelve-month period (commencing or ending in
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the tax year). This is the case provided that he is paid by a non-resident
employer who receives remuneration which is not derived from activities undertaken from the employer’s permanent establishment.
An individual (whether a Lithuanian or a foreign national) who is domiciled in
Lithuania for tax purposes, is generally subject to personal income tax on worldwide income. Non-residents are subject to tax only on their income derived from
Lithuanian sources.
Under the legislation currently in force, Lithuanian residents shall pay individual income tax on income derived through employment in enterprises, institutions and organisations that are established in Lithuania, as well as from Lithuanian enterprises, institutions and organisations situated in foreign states.
Income derived from employment in a foreign enterprise is treated as a
miscellaneous receipt for tax purposes. No deductions from this income are
allowed except for expenses for charity and sponsorship in accordance with the
Law on charity and sponsorship of 4 June 1993.
8.3.3.
Tax rates
The rate of income tax depends on the source of the income and varies as
follows.
– Income earned from the principal employment shall be subject to taxation
at a rate of 33 per cent, insofar as it is above the tax-exempt minimum. As
of February 1998, the tax-exempt (TEM) minimum was LTL 214 per month.
Income generated from a second job is taxed in the following manner:
• Income which is less than half of TEM is taxed at a rate of 10 per cent;
• Income which is more than half and up to 1 TEM is taxed at a rate
of 20 per cent;
• Income over the TEM is taxed at a rate of 35 per cent.
• Gross income generated from property rental and other receipts, such
as royalties, which may not be attributed to the income categories
mentioned above, are subject to income tax at a rate of 20 per cent.
– Income from the sale of property is taxed at 10 per cent.
8.3.4.
122
Business income
Companies without the status of a legal person (partnerships and sole proprietorships) have been subject to a 24 per cent tax rate.
Taxable income of partnerships and sole proprietorships, that is used for
capital investment, has been subject to income tax at the rate of 0 per cent as
from 1 April 1997.
TAXATION, ACCOUNTING AND AUDITING
Foreign companies are subject to withholding tax on income generated from
Lithuanian companies that do not possess the status of a legal person, for market
research, consultancy and intermediary services. The same is true for royalties for
the use of names, patents and trade signs. The tariffs correspond to those for
corporate tax.
If a foreign company is established in one of the 56 territories thus designated in the addendum to the government decree No. 888, part of its income is
subject to withholding tax at a rate of 29 per cent, if the income is derived from
Lithuanian companies that posses the status of a legal person. This decree also
stipulates that a 24 per cent withholding tax is applied on the income of foreign
corporations which has been derived from Lithuanian companies that do not
possess the status of a legal person.
Companies which do not have the status of a legal person and 95 per cent of
whose income is derived from agricultural production and agricultural services are
not subject to income tax. If this income is 75-95 per cent of the total income, their
income tax rate is 5 per cent. If it is 65-75 per cent of total income, the tax rate is
10 per cent.
8.3.5.
Social security tax
Employees of Lithuanian economic entities are subject to social security
contributions at a rate of 1 per cent of their monthly gross salary. Since 1 July 1997,
their employers have been subject to social security contributions at a rate of
27 per cent of the employee’s gross salary.
Foreign residents who are employed in Lithuanian economic entities may be
exempt from paying social security contributions to the Social Insurance Fund if
they already contribute to the social security system of their home country and
have concluded an appropriate agreement with the Board of the Social Insurance
Fund.
Neither employees of foreign economic entities, nor their employers, are
subject to social security contributions to the Social Insurance Fund.
8.4. COMPULSORY HEALTH INSURANCE
As from 1 January 1997, health insurance has been excluded from the state
social security system. A separate system of compulsory health insurance has
been established. Rates for the contributions to this insurance are as follows:
– For enterprises, 3 per cent of the salary of an employee working in an
elective office;
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INVESTMENT GUIDE FOR LITHUANIA
– For enterprises situated in Lithuania and Lithuanian enterprises situated
abroad, 30 per cent of the amount of income tax calculated on the salary of
an employee;
– For partnerships and private enterprises, not less than 30 per cent of the
amount of income tax of partnership members or owners of private
enterprise;
– For persons working independently, 30 per cent of the amount of income
tax;
– For farmers, 10 per cent of their income (but not less than 10 per cent of
the minimum monthly wage);
– For other persons, 10 per cent of their average monthly salary published
by the Department of Statistics.
8.5. VALUE-ADDED TAX (VAT)
8.5.1.
Taxpayers
All Lithuanian enterprises and individuals operating commercially in
Lithuania with an annual turnover exceeding LTL 10 000 (excluding revenues from
the sale of fixed assets which have been used for more than one year) are subject
to VAT. Entities (persons) whose annual turnover (excluding revenues from sale of
fixed assets used for more than one year) is between LTL 10 000 and LTL 100 000,
can choose whether to register for VAT purpose only. Entities (persons), whose
annual turnover (excluding revenues from sale of fixed assets used for more than
one year) exceeds LTL 100 000, are obliged to register as Lithuanian VAT payers.
Foreign corporations and individuals may not be registered for VAT purposes. According to the Law on VAT, paid VAT may be offset and refunded only by
a Lithuanian company which has the status of a VAT payer. Foreign corporations
may neither offset, nor refund paid Lithuanian VAT.
8.5.2.
Tax base
The taxable base for VAT is revenue from the sale of goods and services.
Basically, with some exceptions, the turnover of all goods is taxable. The term
‘‘goods’’ relates to all material objects, but it also includes gas, heat, cooling and
electrical power. For the importation of goods, the taxable base is the customs
value, including duties and excise tax.
124
Services include services of all types and other activities provided for a
consideration of money, excluding those provided by employers under employment contracts. The importation of services is not subject to VAT.
TAXATION, ACCOUNTING AND AUDITING
8.5.3.
Tax rates
The basic VAT rate is 18 per cent for all goods and services, except for some
kinds of services (medical, education, banking and insurance services), which are
exempt from VAT. Services exemption from VAT in Lithuania is generally comparable to the practice of exemption in European countries, except for services
provided by hotels, which are taxed at a standard rate in Lithuania.
Exported goods and services are taxed at a rate of 0 per cent. The temporary
export of goods for processing is not considered as export for VAT purposes.
Services provided abroad are zero-rated.
8.5.4.
Accounting and payment
VAT payable to the budget generally equals the amount of VAT charged to
customers (output VAT), less the amount of VAT paid on purchases (input VAT).
VAT is normally accounted for on a monthly basis. Each taxpayer must, before
the 15th day of the following month, submit a VAT declaration to the state tax
authorities. VAT payments must be made no later than 10 days from the making of
the declaration and must be received by the authorities before the 25th day of
the month.
8.5.5.
Refund of VAT
If, during the tax period, input VAT exceeds the output VAT, the tax payer
may apply for a refunding of the difference.
VAT paid on imported goods may be deducted only if the customs office has
authenticated the amount of tax paid. The difference may only be refunded if it
occurs due to:
– export of goods and services;
– acquisition of long-term assets to be used for the activities listed in the
classificatory of economic activities (NACE), sections A to I;
– stock-building of agricultural seasonal goods and new materials for the
production of taxable goods;
– use of services and material values for the production of taxable goods, if
the production cycle is longer than six months;
– different VAT rates;
– acquisition of coal, gas, oil, furnace fuel, wood to be used for the activities
listed in the classificatory of economic activities sections A to F.
VAT can be refunded within ten days after the written application for a refund
has been submitted.
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INVESTMENT GUIDE FOR LITHUANIA
8.6. OTHER TAXES
8.6.1.
Excise tax
Excise duty applies to some categories of goods, including fuel (petrol:
LTL 1050 per ton; kerosene and diesel fuel: LTL 400 per ton) and lubricants
(LTL 240 per ton), electricity (1 per cent) spirits, beer, wine, liqueurs, tobacco
products, coffee (10 per cent), chocolate and food preparations containing cocoa
(10 per cent), jewellery, gold and silverware, luxurious cars, as well as certain
publications.
The taxable value of goods is the customs value, including customs duty, if
the goods are imported into Lithuania. The taxable value of goods made in
Lithuania is the selling price of goods, excluding excise and VAT.
Ethyl alcohol is exempt from excise duties if it is supplied to Lithuanian companies for the production of vodka, liqueur, trauktine (a kind of brandy), mead and
vinegar. Pharmaceutical enterprises and medical institutions are also exempt from
excise duty if ethyl alcohol is provided for medical and pharmaceutical purposes,
as well as for use by companies which produce veterinary medicines.
8.6.2.
Inheritance and gift tax
Inheritance and gift tax has been levied since 1 January 1998. For the purpose
of taxation, property is considered to be real estate and movable property requiring statutory registration. Securities are all considered as property for the purposes of this tax, as are precious metals, gemstones and money.
Tax will be levied on donated and inherited property. The tax will be paid by
the heirs and beneficiaries. Foreigners pay this tax in the same manner as citizens
of Lithuania.
No tax is levied on property inherited or donated by relatives.
8.6.3.
Contributions to the Road Fund
Rates for contributions to the Road Fund are as follows:
a) all entities except banks, trade and gas companies – up to 0.5 per cent of
operating revenues;
b) trade companies – up to 0.3 per cent of operating revenues;
c) gas companies – up to 0.1 per cent of operating revenues;
d) banks – up to 1 per cent of income from services.
126
There are plans to abolish the Road Fund in the year 2000.
TAXATION, ACCOUNTING AND AUDITING
8.6.4.
Land tax
Individuals and legal entities are subject to annual land tax on personally
owned land, at a rate of 1.5 per cent of their land’s value. Commonly used roads
and plots of land, owned by diplomatic missions of foreign states, are exempt
from land taxes.
Land taxes are deducted from gross revenues for the purpose of computing
the taxable profit of corporations.
8.6.5.
Land lease tax
State-owned land which is leased, is subject to an annual 6 per cent tax rate
on the value of the land. In 1997, the tax rate was 3 per cent. Tax is paid by the
lessee.
8.6.6.
Tax on real estate
Tax on real estate is levied on the value of the immovable property owned
by legal persons or enterprises without the rights of legal persons who have been
legally registered. The annual tax rate is 1 per cent of the taxable value of the real
estate and is payable quarterly.
Real estate which requires registration by the state, is valued by state institutions established or authorised by the government to carry out valuations.
The taxable value of real estate is the replacement value after deducting
depreciation and applying a special coefficient for the locality. These coefficients
are established by a valuation committee.
8.7. ACCOUNTING AND AUDITING
Since the Law on the principles of accounting came into force (1 January 1993),
several changes have occurred which have brought the Lithuanian accounting
system closer to the International Accounting Standards (IAS). The law establishes
the procedure for financial accounting which binds enterprises, including partnerships and organisations.
In general, any legal entity which is established in Lithuania and that carries
out an economic activity in the country, has to fill in and submit financial statements. The annual financial statements of enterprises consist of a balance sheet,
a profit (loss) account statement, a statement of changes in the financial position
of the enterprise and the cash flow statement. However, some enterprises are
allowed to submit simplified reports. Enterprises have the right to choose, independently, which system to use to manage their accounts. The form of financial
statements required differs according to the company’s form of ownership, its
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INVESTMENT GUIDE FOR LITHUANIA
128
type and size and the nature of its activities. For example, simplified accounting
procedures exist for sole proprietorships and partnerships that do not hire
employees.
Moreover, all legal entities and other business entities are required to maintain adequate accounting records in order to ensure the timely presentation of
accurate information to the tax authorities, the state statistical authorities, as well
as the owners and other users of financial information. The head of administration
is responsible for the organisation of accounting records, the timely presentation
of financial statements and the retention of accounting documents.
The double-entry bookkeeping method is used. Depending on the
company’s size, its total assets, its revenues and total payroll, it will have to
prepare either a short or a full version of the annual statutory financial statements. The forms of these statements, as well as the guidelines for a compulsory
explanatory letter to those statements, are determined by the Ministry of
Finance, which also has to approve the sample chart of accounts, which may be
drawn up individually by each enterprise.
Additional requirements in respect of accounting, and the publication of
statutory financial statements, are issued by the relevant supervisory authorities,
such as the Bank of Lithuania and the State Insurance Supervision Department.
Accounting must be conducted in the official language, i.e. Lithuanian,
although for companies with foreign capital (joint-ventures and wholly foreignowned companies), this can also be done in another language.
The Audit and Accounting Institute at the Ministry of Finance is responsible
for promoting the international accounting system within Lithuania.
Currently, Lithuanian accounting requirements largely satisfy the need for
reporting for tax purposes. The reporting forms have limited use for other purposes since they do not provide adequate information for other readers of financial statements. However, the opening up of Lithuania’s capital market is promoting a harmonisation of Lithuanian accounting standards with international ones.
Moreover, in a number of cases, the stock exchange requires that financial statements be presented in accordance with international standards. As a result,
companies increasingly produce financial statements in conformity with the International Accounting Standards.
However, some differences remain between the IAS and current Lithuanian
legislation. These differences are listed below.
– The IAS require a much more detailed disclosure of the notes to the
balance sheet, profit and loss account and cash-flow statements, than
Lithuanian law. For example, according to the IAS, notes should detail the
accounting policies used and provide a detailed breakdown of the assets
and liabilities in the balance sheet, or segmental information for the turno-
TAXATION, ACCOUNTING AND AUDITING
ver figure shown in the profit and loss account by product and/or geographical location. These disclosures also provide additional information which
is not at all provided by the primary statements, for example, details of
related party transactions, or contingent liabilities.
– It should be noted that the fundamental concept of prudence is not
applied in as strict a manner as it is under IAS. Prudence is the inclusion of
a degree of caution in the exercise of judgements needed in making
estimates under conditions of uncertainty. For example, according to Lithuanian accounting legislation, ‘‘bad’’ or ‘‘doubtful’’ assets can be kept in the
balance sheet for up to three years before a write-off is required. The IAS
require that a provision is established, or a write-off is made, as soon as
the recoverability is in doubt.
8.8. AUDIT REGULATIONS
8.8.1.
Background
The Law on the principles of accounting does not include any rules relating to
auditing. The requirements for a statutory audit are given by other laws, which are
applicable to different forms of business enterprises. The Ministry of Finance has
delegated responsibilities for the development and the specific regulation of
auditing to the Audit and Accounting Institute. Currently, the Institute is drafting a
Law on audit.
8.8.2.
The licensing of auditors
In accordance with the audit licensing rules adopted by the government in
early 1997, a license to perform an audit in Lithuanian companies may be issued
by the Ministry of Finance to companies in which not less than half of the voting
rights are held by owners who have the right to perform an audit. This includes
audit companies from the EU or other states, recognised by the Institute. A
license to perform an audit is issued for an unlimited period of time, unless it is
cancelled in accordance with the established procedures.
In accordance with a decree of the Minister of Finance, permission for an
individual to perform an audit is issued by the Institute. Once the permission has
been granted, an individual may establish, manage or work in an audit company
and perform an audit on behalf of that company. Permission is granted to those
who have passed the qualifying exams and have received an auditor’s certificate
from the Institute.
Individuals can only take the qualification exams after they have the requisite education and work experience (as specified by the decree), or after
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INVESTMENT GUIDE FOR LITHUANIA
obtaining an auditor’s certificate from one of the states recognised by the
Institute.
8.8.3.
Statutory requirements for audit
The current requirements for audit are specified in several laws. However,
their implementation is not always adequate. Existing legislation is as follows.
The Law on joint-stock companies requires that the annual financial statements of
joint-stock companies are audited by an auditor who is elected at a general
shareholders meeting. The company ’s auditor may be an individual who holds
the appropriate certification, or a company providing accounting or audit services.
In accordance with the Law on state and municipal enterprises, an annual audit
must be performed by an individual with a qualification certificate, or by an audit
company with the right to provide audit services.
The Law on investment companies requires that the annual financial statements of
investment companies is audited by an independent auditor who possesses the
right to perform an audit.
In addition to the above-mentioned requirements, as well as the Law on
commercial banks and the Law on insurance, banks and insurance companies are
required to have their financial statements audited by independent auditors and
to publish the audited financial statements, including the independent auditor’s
report, within four months after the financial year (i.e. before 1 May). Following
recommendations of the central bank, all local banks have elected internationally
recognised audit firms to perform this task.
In order to be listed at the Lithuanian Stock Exchange, companies have to be
audited by an international auditor.
8.8.4.
Audit of small companies
The draft Law on audit companies is aimed at making audit compulsory and at
making the audit report a constituent part of the annual financial statement.
It is proposed to exempt only enterprises with less than 12 employees, a
turnover of less than LTL 250 000 and a balance sheet of less than LTL 125 000
from this obligation. Some concern has been expressed about the burden this
would impose on small enterprises.
8.8.5.
130
The audit profession
There are about 100 audit firms, including international audit firms, in
Lithuania. They provide taxation, accounting, management and audit services
normally offered in European countries. Lithuanian audit companies are much
TAXATION, ACCOUNTING AND AUDITING
smaller than the international ones and usually provide consultancy services for
small local clients only.
The Audit and Accounting Institute is a professional body of auditors in
Lithuania. Its main functions are to co-ordinate and to supervise audit companies
and to grant audit permits and certificates to auditors. Auditing is a licensed
commercial activity. Audit licences are issued by the Ministry of Finance. An
auditor may sign audit opinions and audit reports if he is employed by an audit
company or has his enterprise registered. In order to get an audit permit and
audit certificate, an appropriate candidate should pass certain exams at the Audit
and Accounting Institute.
8.9. VIEWS OF FOREIGN INVESTORS
The responses to the OECD questionnaire highlighted some concern among
foreign investors about certain aspects of the tax system and of the accounting
and auditing system.
Regarding the tax system, these concerns were focused on:
– The lack of clear practice on the interpretation of the laws;
– The slow harmonisation of the Lithuanian tax laws with those of the European Union;
– The absence of accountability for tax inspectors;
– Frequent changes in the tax regime, without sufficient notice for the enactment of new tax laws (the survey of foreign investors conducted in 1998 by
the Lithuanian Development Agency also identifies the frequent changes
in the tax regime as a negative feature within the investment climate that
requires attention);
– Rather long delays in VAT refunds often present problems for companies
(on average, refunds take one month, whereas the law stipulates a maximum of ten days for the completion of the VAT refund transactions).
Lithuania has indeed enacted significant tax reforms in recent years, in order
to improve the effectiveness of the tax system and to promote investment.
However, one major factor that may be hindering an increase in foreign direct
investment, is the inability of investors to deduct their business expenses in full.
Another problem, as stated above, is the abrupt enforcement of new tax laws.
Except when new laws are enacted to eliminate truly abusive cases, adequate
time is needed between the passage of the law and its enforcement, in order to
ensure requisite understanding of the new laws by both taxpayers and
administrators.
To address issues of mutual concern, a formal dialogue has been set up
between a Task Force on Tax (consisting of representatives of the Lithuanian
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INVESTMENT GUIDE FOR LITHUANIA
Development Agency, a number of law firms and major foreign investors) and the
government. This dialogue has promoted transparency in tax legislation, administration and enforcement.
Regarding accounting standards and practices, investors feel that harmonisation of these standards and practices with international standards ought to be
pursued, since it would enable all investors to ascertain the true financial state of
a company, lead to transparency and predictability of the accounting and auditing
process in Lithuania, thus promoting investor confidence.
132
Chapter 9
PRIVATISATION
9.1. OPPORTUNITIES FOR INTERNATIONAL INVESTORS
Government policy has been adjusted in order to attract more foreign investment through the privatisation process, particularly in infrastructure. A list of
enterprises being offered for privatisation through international tender in 1998 is
given in Chapter 2.
9.2. DEVELOPMENTS IN PRIVATISATION
9.2.1.
The first stage of privatisation
The first stage of privatisation in Lithuania began in 1991 and lasted until
1 July 1995. This stage was characterised by the sale of small enterprises at
auctions organised by local privatisation agencies and by the sale of mediumsized and large enterprises by public subscription of shares. In general, foreign
participation was limited, as most of the transactions were carried out by voucher
tenders. All sectors of the economy were involved in this programme. Over
2 million Lithuanian citizens participated in this process.
Shares in state-owned enterprises, land, apartments and units in agriculture
entities were offered for vouchers. The Law on initial privatisation of state property
(1991) regulated the mass privatisation process. As a result of the demonopolisation and restructuring process, the number of state-owned enterprises increased
during this phase from 3 500 to 8 044. During the first stage of the programme,
5 666 enterprises (more than 70 per cent) were privatised. This number
represented:
– 2 923 large and medium-sized enterprises which were privatised through
public subscription of shares;
– 2 726 small entities sold by auction; and
– 12 enterprises were sold through tenders for the best business plan.
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INVESTMENT GUIDE FOR LITHUANIA
Vouchers were issued in dematerialised form by opening voucher accounts in
banks. Of all distributed vouchers, 93 per cent were used in the privatisation
process. These were distributed as follows:
– 65 per cent were used for the privatisation of state-owned enterprises,
– 19 per cent for purchasing apartments,
– 9 per cent for the acquisition of units in agriculture entities and land plots.
As of 1 September 1995, 7 per cent of all distributed vouchers had not been
used. These were deposited into private investment accounts set up by the
government. During mass privatisation, the total value of distributed vouchers
amounted to LTL 10.5 billion.
As a result of the mass privatisation programme which ended in 1995, 86 per
cent of the state assets which had been earmarked for privatisation were transferred into private hands (Figure 12). In 1996, approximately 65 per cent of GDP
was produced in the private sector. This represented a book value of privatised
state capital of LTL 3 355 million. Of this amount, a large majority (LTL 2 628 million or 78.3 per cent) was sold through public subscription of shares. The remainder was sold as follows:
– through tenders for the best business plan, LTL 368 million (11 per cent of
all privatised state capital);
– through auctions, LTL 79 million (2.4 per cent);
– for vouchers to the shareholders and employees of privatised enterprises,
the LTL 280 million remaining after the initial privatisation.
By virtue of the Law on the privatisation of housing, only Lithuanian citizens had
the right to purchase living accommodation using vouchers. By this method,
29 323 houses and 503 540 flats were redeemed, representing 94 per cent of the
total living accommodation which had previously been owned by the State.
Vouchers were accepted as payment for 80 per cent of the purchase price, the
remaining 20 per cent of the purchase price had to be paid in cash.
The Law on agricultural enterprises regulated the privatisation of agricultural
enterprises. Under this law, 1160 former collective and soviet farms, which
accounted for 99.7 per cent of the agricultural sector in terms of its book value
(LTL 183.3 million), were privatised. As a result, 97 per cent of the property of
agriculture entities has become private.
134
The voucher privatisation method was also used to purchase land which was
not subject to restitution claims. In the rural areas, priority was given to countrydwellers who were willing to undertake farming activities. Vouchers were also
used as a means of payment in the privatisation of land plots which surrounded
and were beneath houses belonging to Lithuanian citizens in urban and rural
areas.
✦
Figure 12. Privatisation of enterprises during 1991-1995
Number of enterprises as at 1 October 1995
Total number of enterprises 8.044 – 86%
of all enterprises intended to be privatised
were privatised
Industry
88%
Transport
86%
Construction 91%
Trade
82%
Public utilities 77%
Services
94%
Other
83%
6 644
5 706
7 000
6 000
2 120
5 000
902
1 741
656
4 000
799
2 224
821
558
1 257
113
154
2 000
220
846
51
444
s
th
er
ice
rv
ut
ic
Privatised in 1991
Pu
bl
Privatised in 1993
O
Tr
a
ies
de
io
ct
312
Privatised in 1995
Privatised in 1994
Privatised in 1992
43
n
rt
C
on
st
Tr
a
ru
ns
po
st
du
226
217
307
Enterprises still to be privatised
85% of all enterprises intended to be
privatised were privatised
175
28
52
121
348
23
ry
al
5
77
108
92
59
54
To
t
184
261
59
In
103
52 164 927 301
258
0
45
78
ilit
1 000
28
17
Se
3 000
1 051 1 263
465
993 1 054
359
187
161 599
Lithuanian Privatisation Agency, 1996.
135
PRIVATISATION
Source:
INVESTMENT GUIDE FOR LITHUANIA
9.2.2.
The second stage of privatisation
The Law on privatisation of state-owned and municipal property (4 July 1995) came into
force in September 1995. It marked the beginning of the second stage of privatisation, which is still underway. On 1 December 1997, it was replaced by the Law on
privatisation of state and municipal property.
The second stage is specifically aimed at selling state-owned and municipal
property to natural and legal persons for cash at market conditions after the entity
has been evaluated. The legal framework grants all purchasers, be they domestic
or foreign, equal rights in the privatisation of state and municipal property.
In December 1996, the Lithuanian Privatisation Agency identified some
800 enterprises for privatisation, including public utilities and infrastructure companies. A law which had prohibited the sale of shares in state-owned enterprises
which were considered as ‘‘strategic’’ was repealed.
In 1997, the government approved a list of 1 098 smaller entities to be
privatised that year. These had a combined book value of LTL 2 530 million and
corresponded to privatisable property worth LTL 1 231 million. A larger number of
enterprises offered for privatisation was approved by the government in 1998.
The list comprised 1 487 entities with a book value of LTL 5 181 million.
These entities represent privatisable property worth LTL 3 143.4 million.
(Figures 13-17).
The privatisation of state-owned enterprises progressed rather slowly in
1997. Of the 800 state-owned enterprises due for privatisation, only 272 were
actually transferred to private ownership. These companies brought US$20.25 million to the State. 79 per cent came from foreign investors.
The list of 1 487 entities due to be privatised in 1998 includes large enterprises which had hitherto been excluded from privatisation. These are expected
to earn the government US$1.5 million. Many large-sized infrastructure companies
are included in this list. On 19 February 1997, the government adopted Resolution No. 109 ‘‘On privatisation of energy, communication, transport and other large-scale
enterprises’’. Over 1997-1998, 14 large-scale enterprises were offered for privatisation through international tender, including Lithuanian Telecom, Lithuanian Radio
and Television, and the only oil refinery in the region, Mazeikiai Nafta. (For largescale infrastructure enterprises which remain to be privatised as of mid-July 1998,
see section 2.4). There are no plans as yet to privatise the railway network, the
nuclear power station Ignalina or the port of Klaipeda.
136
In January 1998, the government approved Resolution On the policy in the second
stage of privatisation of Lithuanian state-owned and municipal property which outlines the
✦
Figure 13.
Number of privatised objects by sector, 1996-1998*
272
300
250
142
200
150
115
53
82
100
56
13
6
32
47
50
7
2
23
6
5
1998
8
5
s
th
er
ice
rv
ic
bl
Pu
137
PRIVATISATION
* Up to end June 1998.
Source: Lithuanian State Property Fund.
Se
n
Co
1996
ies
on
cti
u
str
ilit
t
ut
or
sp
an
Tr
18
3
de
u
Ind
1997
1
y
str
Tr
a
al
t
To
12
7
O
1
0
6
Figure 14.
Number of privatised objects by privatisation method, 1996-1998*
272
264
142
300
136
250
47
200
46
150
Total
Privatisation of the objects through
public auction
100
7
0
1
Privatisation of the objects through
leasing with an option to purchase
50
6
1
0
0
1998
* Up to end June 1998.
Source: Lithuanian State Property Fund.
1997
1996
Privatisation of the objects through
public tender
INVESTMENT GUIDE FOR LITHUANIA
138
✦
✦
Figure 15.
Privatised capital of privatised objects by sector, 1996-1998*
LTL 1 000
54 599
54 665
60 000
50 000
40 000
22 931
24 477
30 000
19 951
20 000
2 835
7 162
1 321
2 648
10 000
2 754
4 802
4 397
410 10 445
4 692
4 780
1998
461
355
0
246
1997
704
228
1996
er
th
O
rv
Se
ut
ic
Pu
ice
ilit
s
ies
de
Tr
a
bl
C
on
st
ru
Tr
a
ct
ns
io
n
po
du
In
2 407
139
PRIVATISATION
* Up to end June 1998.
Source: Lithuanian State Property Fund.
862
rt
st
ry
To
t
al
0
INVESTMENT GUIDE FOR LITHUANIA
140
✦
Figure 16.
Privatised state and municipal property, 1996-1998*
Thousand litas
167 361
137 199
180 000
135 617
160 000
140 000
113 725
114 066
120 000
100 000
80 996
90 775
80 000
68 991
30 162
83 132
60 000
21 892
40 000
23 291
20 000
0
3 015
2 027
1 206
75 755
46 467
54 665
1 868
4 802
1 264
Total
66 181
56 847
3 233
1 147
65 390
12 005
38 214
51 297
3 538
Selling price
16 451
1996
16 951
54 599
10 380
10 365
Initial price of the privatised objects
1997
3 302
1998
* Up to end June 1998.
Source: Lithuanian State Property Fund.
Nominal value of state-owned
(municipal) shares (property)
in privatised objects
✦
Figure 17.
Selling price of privatised objects by privatisation method, 1996-1998*
LTL 1 000
83 132
80 996
79 439
90 000
80 000
33 214
70 000
60 000
3 233
49 918
Total
50 000
3 204
40 000
30 000
0
705
29
20 000
10 000
852
0
0
1998
Privatisation of the objects through
leasing with an option to purchase
Privatisation of the objects through
public tender
1996
141
PRIVATISATION
* Up to end June 1998.
Source: State Property Fund.
1997
Privatisation of the objects through
public auction
INVESTMENT GUIDE FOR LITHUANIA
government’s strategy in this second stage of privatisation. The objectives of the
strategy are as follows:
– to attract foreign and Lithuanian investors;
– to create new jobs and the improvement of the work force;
– to improve the production structure;
– to maximise income from property being privatised;
– to increase the private sector in the Lithuanian economy.
9.3. THE METHODS OF PRIVATISATION
Article 13 of the Law stipulates 6 methods of privatisation, namely:
– public subscription to shares,
– public auction,
– public tender,
– sale through direct negotiations,
– transfer of control in state (municipality)-controlled enterprises, and
– lease with an option to purchase.
The law also permits, in certain circumstances, the use of a combination of
the above-mentioned privatisation methods. Detailed procedures for the application of each method were approved by government decrees passed between May
and October 1996. Figure 17 shows the selling price of privatised enterprises by
privatisation method from 1996-1998.
9.4. THE LEGAL AND INSTITUTIONAL FRAMEWORK FOR PRIVATISATION
9.4.1.
142
The legal framework
The main legislation regulating the second stage of privatisation is as follows:
– The Law on privatisation of state-owned and municipal property No. VIII-480 of
4 November 1997;
– Regulations on privatisation of state-owned and municipal property by
public subscription of shares, approved by government resolution No. 636
of 30 May 1996;
– Regulations on privatisation of state-owned and municipal property by
public auction, approved by government resolution No. 1503 issued on
31 December 1997;
– Regulations on privatisation of state-owned and municipal property by
public tender, approved by government resolution No. 1502, of 31 December 1997;
PRIVATISATION
– Regulations on privatisation of state-owned and municipal property by
direct negotiations, approved by government resolution No. 113, dated
30 January 1998.
– Regulations on privatisation of state-owned and municipal property by
lease with the right to purchase, approved by government resolution
No. 501, of 24 April 1998;
– Resolution No. 555 of 5 May 1998 on the procedure of transfer of control in
state (municipality) controlled enterprises and regulations on transfer of
control in state (municipality) controlled private companies, approved by
that resolution;
– Regulations on privatisation of shares of enterprises that are important
infrastructural entities or entities holding dominant position in certain
branches of economy, approved by government resolution No. 443 of
14 April 1998;
– Government resolution No. 109 of 11 February 1997 on privatisation of
energy, communications, transportation and other larger enterprises;
– Regulations on preparation of the entities subject to privatisation,
approved by government resolution No. 1427 of 18 December 1997.
9.4.2.
The institutional framework
Privatisation Commission
The Privatisation Commission consists of 13 members. It is the state institution charged with supervising the privatisation process and is accountable to the
Parliament.
In particular, the Privatisation Commission has the right to:
– approve or disapprove draft privatisation programmes, privatisation transactions, and lists of strategic investors;
– suspend the implementation of privatisation programmes, and (or) consider them completed.
State Property Fund
By virtue of Article 24 of the Law, the Lithuanian State Privatisation Agency,
which operated under the Law on Privatisation of 4 July 1995, has been re-organised
into a subdivision of a new institution. A state enterprise, named the State Property
Fund, performs its functions according to the new Law on privatisation and the Law on
property fund. It acts as the owner of privatisation objects. Pursuant to separate
arrangements with municipalities, the Fund may also act as a representative of an
individual municipality which is privatising municipal property.
143
INVESTMENT GUIDE FOR LITHUANIA
The responsibilities of the State Property Fund include:
– drafting the list of privatisation objects and submitting it to the government for approval;
– determining methods of privatisation and privatisation conditions;
– organising the valuation of the object;
– restructuring state controlled enterprises if that would increase their
selling price;
– searching for investors;
– signing of privatisation transactions on behalf of the government and
supervising their performance.
Both the Privatisation Commission and the State Property Fund are assisted
by municipal property privatisation commissions and municipal property funds.
If the Council of a municipality creates municipal privatisation institutions,
the latter shall carry out all the rights and obligations of the Privatisation Commission and the State Property Fund.
(The State Property Fund can be contacted at the address given in Annex B.)
144
ANNEXES
Annex A
Government representatives and agencies
LITHUANIAN DEVELOPMENT
AGENCY AND ITS
REPRESENTATIVES ABROAD
Lithuania
Sv. Jono 3, Vilnius 2600, Lithuania
Tel: 370 2 26 40 00
Fax: 370 2 22 01 60
E-mail: [email protected]
Homepage: http://www.lda.lt
Germany
Frankfurt
Contact: Mr Liutauras Labanauskas
LDA Representative Office
Brosstrasse 6, 60487 Frankfurt am
Main, Germany
Tel: 49 69 979 61153
Fax: 49 69 979 61152
E-mail: [email protected]
Hahn
Contact: Mr Darius Kremensas
Russia
St. Petersburg
Contact: Mr Kastytis Kazukauskas
LDA Representative Office
Gorochovaja ul. 4,
190000 St. Petersburg, Russia
Tel: 7 812 314 58 57
Fax: 7 812 315 89 91
Argentina
Buenos Aires
Contact: Mr Alejandro Arturo Miciudas
Saladillo 5585 CAP. (1439)
Tel: 541 605 6737
Fax: 541 605 0298
LITHUANIAN MISSIONS ABROAD
The updated list of the diplomatic and
consular corps of the Republic of
Lithuania abroad can be obtained at
the website address of the Ministry of
Foreign Affairs of Lithuania:
http://www.urm.lt/inform/litamb.htm
LDA Representative Office
Flugplatz Hahn Gebäude 323,
55483 Lautzenhausen,
Germany
Tel: 49 654 350 9444
Fax: 49 654 350 9445
E-mail: [email protected]
Lithuanian Embassies abroad
United States of America
2622 16th Str., N.W. 20009 Washington
United States of America
Tel: 1 202 328 0466
Fax: 1 202 328 0466
147
INVESTMENT GUIDE FOR LITHUANIA
People’s Republic of China
3-1-11 San Li tun, 100600 China
Estonia, Uus tn. 15, Tallinn 0100,
Estonia
Tel: 86 10 653 24421
Tel: 372 631 4030
Fax: 86 10 653 24421
Fax: 372 641 2013
Czech Republic
Italy and Malta
Pod Klikovkou 1916/2 Smichov, Czech
Republic
Viale di Villa Grazioli 9, Rome 00198,
Italy
Tel: 42 02 57210122
Tel: 39 6 855 90 53
Fax: 42 02 572 10124
Fax: 39 6 855 90 53
Denmark and Iceland
Israel
Berndtorffsvej 214, Copenhagen 2920,
Denmark
Top Tower 14th Floor
Tel: 45 39 636 207
Tel: 972 3 525 72 65
Fax: 45 39 636 532
Fax: 972 3 525 72 65
France
Canada
14 Boulevard Montmartre, 75009 Paris,
France
130 Albert Str., Suite 204,
Ottawa K1P 5G4, Canada
Tel: 33 1 48 01 03 31
Tel: 1 613 567 53 15
Fax: 33 1 48 01 03 31
Fax: 1 613 567 53 15
Germany
Russian Federation
Argelander Strasse 108a, 53115 Bonn,
Germany
Borisoglebskij per.10, Moskva 121069,
Russia
Tel: 49 228 914 9115
Tel: 095 203 91 55
Fax: 49 228 914 9115
Fax: 095 203 91 55
(Berlin Division)
United Kingdom, Ireland
and Portugal
Katharinenstrasse 9, 10711 Berlin,
Germany
148
6432 Tel Aviv, Israel
Tel: 49 30 89 11164
84 Gloucester Place, London W1H
3HN, United Kingdom
Fax: 49 30 89 11164
Tel: 44 171 486 6403
Greece
Fax: 44 171 486 6403
40, Dimosthenous str., 15234 Athens,
Greece
Latvia
Tel: 301 684 8204
Tel: 371 7 321 589
Fax: 301 684 8204
Fax: 371 7 321 589
Elizabetes iela 2a, Riga 1340, Latvia
ANNEXES
Norway
Gimle Terrasse 6, Oslo 0244, Norway
Tel: 47 225 567 30
Fax: 47 225 567 30
Poland, Bulgaria and Romania
Al. Jana Chrystiana, Warszawa 00-580,
Poland
Tel: 48 22 625 34 40
Fax: 48 22 625 34 40
Finland
Rauhankatu 13A, Helsinki 00170,
Finland
Tel: 358 9 608 20
Fax: 358 9 608 20
Spain
C. Fortuny 19, Madrid 28010, Spain
Tel: 34 1 310 40 18
Fax: 34 1 310 40 18
Turkey
Mahatma Gandhi Cad., G.O.P. 06700,
Turkey
Tel: 90 312 447 0663
Fax: 90 312 447 0663
Ukraine and Moldova
22 Gorkoho str., Kyiv 252005, Ukraine
Tel: 380 44 227 4585
Fax: 380 44 227 4372
Sweden
Strandvagen 53, 11523 Stockholm,
Sweden
Tel: 46 8 104 244
Fax: 46 8 103 565
Venezuela, Colombia, Brazil,
Argentina and Uruguay
Centro Plaza, Torre A, nivel 9
1062 Caracas, Venezuela
Tel: 58 2 286 1268
Fax: 58 2 286 1268
Kazakhstan
Gornij Gigant
Iskenderovo 15, Almaty 480099,
Kazakhstan
Tel: 32 72 65 14 60
Fax: 32 72 65 14 60
Holy See and Maltese Order
Piazza Farnese 44, Rome 00186, Italy
Tel: 39 6 686 57 86
Fax: 39 6 686 57 86
Consulates
Consulate General in St. Petersburg
Gorochovaja ul. 4,
St. Petersburg 190000
Tel: 812 315 89 91
Fax: 812 315 89 91
Consulate General in New York
420 Fifth Avenue, 3rd Floor,
New York 10018, United States of
America
Tel: 1 212 354 7911
Fax: 1 212 354 7911
Consulate General in Warsaw
Al. J. Ch. Szucha 5, Warszawa 00-580,
Poland
Tel: 48 22 622 13 53
Fax: 48 22 622 13 53
Consulate General in Daugavpils
(Latvia)
Teatra iela 8, Daugavpils 5401, Latvia
Tel: 371 54 228 04
Fax: 371 54 228 04
149
INVESTMENT GUIDE FOR LITHUANIA
Consulate General in Dubai
P.O. Box 53859, Dubai, United Arab
Emirates
Tel: 971 4 440 509
Fax: 971 4 440 509
Consulate General in Kaliningrad
(Russian Federation)
Proletarskaja 133, Kaliningrad, Russia
Tel: 0112 216 651
Fax: 0112 216 651
Consulate General in Sejny (Poland)
Pilsudskiego 28, SP-22 Sejny 16-500,
Poland
Tel: 48 87 162 214
Fax: 48 87 162 273
Consulate General in Geneva
18 Avenue du Bouchet, Geneva 1209,
Switzerland
Tel: 41 22 194 5070
Fax: 41 22 194 5070
150
Consulate General in Chicago
6500 S. Pulaski Road, Chicago
60629-5136, United States
Tel: 1 773 582 0961
Fax: 1 773 582 0961
Consulate General in The Hague
(the Netherlands)
Laan van Nieuw Oost-Indië
2593 BJ The Hague, The Netherlands
Tel: 31 70 385 3940
Fax 31 70 385 3940
FOREIGN MISSIONS TO LITHUANIA
The updated list of the foreign diplomatic and consular corps accredited to
the Republic of Lithuania can be
obtained at the website address of the
Ministry of Foreign Affairs of Lithuania:
http://www.urm.lt/inform/foramb.htm
ANNEXES
Annex B
State authorities and government
Seimas (Parliament)
Gedimino pr. 53, Vilnius 2002,
Lithuania
Tel: 37 2 61 58 81
Fax: 370 2 22 66 29
President’s Office
S. Daukanto a. 3/8, Vilnius 2001,
Lithuania
Tel: 370 2 22 6791
Fax: 370 2 22 6791
European Committee under the Government of the Republic of Lithuania
Gedimino pr. 56, Vilnius 2600,
Lithuania
Tel: 370 2 62 68 64
Fax: 370 2 61 21 78
Ministry of Public Administration
Reforms and Local Authorities
Gedimino pr. 11, Vilnius 2600,
Lithuania
Tel: 370 2 62 85 18
Fax: 370 2 22 69 35
Ministry of Agriculture
Gedimino pr. 19, Vilnius 2600,
Lithuania
Tel: 370 2 22 54 38
Fax: 370 2 22 44 40
Ministry of Culture
J. Basanavi èiuas 5, Vilnius 2600,
Lithuania
Tel: 370 2 61 94 86
Fax: 370 2 62 31 20
Ministry of National Defence
Totori, Vilnius 2600, Lithuania
Tel: 370 2 62 48 21
Fax: 370 2 22 60 82
Ministry of Education and Science
A. Volano 2/7, Vilnius 2600, Lithuania
Tel: 370 2 62 24 83
Fax: 370 2 61 20 77
Ministry of Environment
A. Juozapavi èiuas 9, Vilnius 2600,
Lithuania
Tel: 370 2 72 68 68
Fax: 370 2 72 81 79
Ministry of Finance
Sermuksni Serm, Vilnius 2600,
Lithuania
Tel: 370 2 22 52 22
Fax: 370 2 22 63 87
Ministry of Foreign Affairs
J. Tumo-Vai ganto 2, 2600 Vilnius,
Lithuania
Tel: 370 2 61 85 37
Fax: 370 2 62 07 52
151
INVESTMENT GUIDE FOR LITHUANIA
Ministry of Health Care
Gedimino pr. 27, Vilnius 2001,
Lithuania
Gedimino pr. 6, 2001 Vilnius, Lithuania
Tel: 370 2 62 16 25
Tel: 370 2 22 72 09
Fax: 370 2 22 46 01
Fax: 370 2 22 08 56
Interior Ministry
Customs Department
Sventaragio 2, Vilnius 2600, Lithuania
A. Jaksto 1/25, 2600 Vilnius, Lithuania
Tel: 370 2 62 67 52
Tel: 370 2 22 64 15
Fax: 370 2 61 50 30
Fax: 370 2 62 49 48
Ministry of Justice
Forestry Department
Gedimino pr. 30/1, Vilnius 2600,
Lithuania
contact: Deputy Minister Algirdas
Brukas
Tel: 370 2 62 46 70
Fax: 370 2 62 59 40
Tel: 370 2 62 15 14
Ministry of Economy
Gedimino pr. 38/2, Vilnius 2600,
Lithuania
Tel: 370 2 62 24 16
Fax: 370 2 62 39 74
Gedimino pr. 29, 2746 Vilnius,
Lithuania
Ministry of Social Security
and Labour
A. Vivulskio 11, Vilnius 2600, Lithuania
Tel: 370 2 65 12 36
Fax: 370 2 65 24 63
152
Bank of Lithuania’s Department
of Information and Statistics
Department of Statistics
Tel: 370 2 61 95 56
Fax: 370 2 22 35 45
Home page: http://www.std.lt
FREE ECONOMIC ZONE
AUTHORITIES
Siauliu Skrydis
Arvydas Salda, Director
Ministry of Transport
Gedimino pr. 17, Vilnius 2600,
Lithuania
Tel: 370 2 62 14 45
Fax: 370 2 22 43 35
Tel. (370 1) 542200
Lithuanian State Property Fund
Vilniaus 16, 2600 Vilnius, Lithuania
Tel: 370 2 22 24 48
Fax: 370 2 22 00 69
E-mail: [email protected]
Povilas Vasiliauskas, Director
Fax. (370 1) 542006;
E-mail: [email protected]
Home Page: http://www.sfez.com
Klaipeda Development Group
Tel. (370 6) 312164
Fax. (370 6) 257 118;
E-mail: [email protected]
Home Page: http://www.fez.lt
ANNEXES
Kaunas County Governors Admin.
Valdas Pukas, Economic Development
& Investment Department, Director
Tel. (370 7) 201 032
Fax. (370 7) 201 371;
E-mail: [email protected]
Kaunas – AOI N.V.
Mr Freddy Opsomer, General Manager
Tel. (32 3) 2275885
Fax. (32 3) 2349325;
E-mail: [email protected]
153
INVESTMENT GUIDE FOR LITHUANIA
Annex C
Relevant treaties
Bilateral investment promotion and protection treaties
List of countries with which the Republic of Lithuania has concluded investment
promotion and protection agreements (as of 3 July 1998):
154
Argentina
Austria
China
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Israel
Italy
Kazakhstan
Korea
Latvia
Norway
Netherlands
Poland
Romania
Spain
Sweden
Switzerland
Turkey
Ukraine
United Kingdom
Venezuela
Vietnam
MIGA (Multilateral Investment Guarantee Agency): Agreement
on use of Local Currency between the Multilateral
Investment Guarantee Agency and the Government
of the Republic of Lithuania.
MIGA: Agreement on Legal Protection for Guaranteed Foreign
Investments between the Multilateral Investment Guarantee
Agency and the Government of the Republic of Lithuania.
Date of signature
Date of entry into
force
14
28
08
27
30
07
12
19
28
19
02
01
15
24
07
16
26
28
08
06
17
23
11
08
17
24
27
19
Not yet in force
01 07 1997
01 06 1994
12 07 1995
09 12 1992
20 06 1996
08 01 1993
11 01 1995
27 06 1997
10 07 1997
11 07 1996
15 04 1997
25 05 1995
09 11 1993
23 07 1996
20 12 1992
01 04 1995
06 08 1993
15 12 1994
22 12 1995
02 09 1992
14 05 1993
07 07 1997
06 03 1995
21 09 1993
01 08 1996
Not yet in force
22 09 1993
03
06
11
10
03
09
06
03
02
07
10
12
09
09
02
06
01
09
03
07
03
12
07
02
05
04
09
11
1996
1996
1993
1994
1992
1995
1992
1993
1992
1996
1994
1994
1994
1993
1996
1992
1994
1992
1993
1994
1992
1992
1994
1994
1993
1995
1995
1992
22 09 1993
ANNEXES
Free-trade agreements of the republic of Lithuania
(as of 1 January 1998)
*Free trade agreements with Belarus and Kazakhstan have been concluded but
not yet in force.
Date of entry
into force
Signed
Czech Republic
EFTA countries
Estonia
European Union countries
Latvia
Poland
Slovak Republic
Slovenia
Turkey
Ukraine
14
07
13
18
13
27
27
04
02
04
10
12
09
07
09
06
11
10
06
08
1996
1995
1993
1994
1993
1996
1996
1996
1997
1993
01
01
01
01
01
01
01
01
21
21
07
01
04
01
04
01
07
03
10
11
1997
1997
1994
1995
1994
1997
1997
1997
1997
1995
Double-taxation avoidance treaties (as of 1 January 1998)
Date of entry
into force
Signed
Belarus
Canada
China
Czech Republic
Denmark
Estonia
Finland
France
Germany
Ireland
Italy
Kazakhstan
Latvia
Norway
Poland
Sweden
Ukraine
18
29
03
27
13
13
30
07
22
18
04
07
17
27
20
27
23
07
08
06
10
10
09
04
07
07
11
04
03
12
04
01
09
09
1995
1996
1996
1994
1993
1993
1993
1997
1997
1997
1996
1997
1993
1993
1994
1993
1996
06 26 1996
26 06 1996
10 18 1996
08 08 1995
01 01 1994
01 01 1994
01 01 1994
Not yet in force
Not yet in force
Not yet in force
Not yet in force
Not yet in force
30 12 1994
01 01 1994
07 19 1994
01 01 1994
12 25 1997
155
INVESTMENT GUIDE FOR LITHUANIA
Annex D
List of laws relevant to the foreign investor
Name in Lithuanian
Passed
Civilinis kodeksas
07 07 1964
Civil Code
15 07 1971
Labour Code
Juridiniu˛ asmenu˛ pelno mokescio
i˛statymas
31 07 1990
Law on profit taxes of legal persons
Imoniu˛ rejestro i˛statymas
17 08 1990
Law on enterprise register
12 10 1990
Law on personal income tax
05 04 1991
Law on state natural resources tax
02 08 1991
Law on land reform
Dėl uzsienieciu˛ teisinės padėties Lietuvos
Respublikoje
19 09 1991
Law on legal status of foreigners
in the Republic of Lithuania
Darbo sutarties i˛statymas
10 12 1991
Law on employment contract
Darbo i˛statymu˛ kodeksas
v
v
Fiziniu˛ asmenu˛ pajamu˛ mokescio
i˛statymas
v
v
v
Mokesciu˛ uz valstybinius gamtos isteklius
i˛statymas
v
Zemės reformos i˛statymas
v
v
v
v
Zemės mokescio i˛statymas
02 07 1992
Law on land tax
Buhalterinės apskaitos pagrindu˛ i˛statymas
20 07 1992
Law on the principles of accounting
Konkurencijos i˛statymas
15 09 1992
Law on competition
06 10 1992
Law on mortgage
21 10 1992
Law on oil and gas resources tax
11 06 1993
Law on trademarks and services marks
22 10 1993
Law on the safety at work
22 12 1993
Law on value added tax
Zemės nuomos i˛statymas
23 12 1993
Law on land lease
Patentu˛ i˛statymas
28 01 1994
Law on patent
Hipotekos i˛statymas
v
v
Naftos ir duju˛ istekliu˛ mokescio i˛statymas
v
Prekiu˛ ir paslaugu˛ zenklu˛ i˛statymas
v
Zmoniu˛ saugos darbe i˛statymas
v
Pridėtinės vertės mokescio i˛statymas
v
156
Name in English
ANNEXES
List of relevant laws to the foreign investor (cont.)
Name in Lithuanian
Passed
Name in English
Akcizu˛ i˛statymas
12 04 1994
Law on excise tax
Akciniu˛ bendroviu˛ i˛statymas
20 07 1994
Company law
moniu˛ ir organizaciju˛ nekilnojamojo turto
mokescio i˛statymas
03 08 1994
Law on real estate of companies
and organisations tax
Vartotoju˛ teisiu˛ gynimo i˛statymas
07 12 1994
Law on the protection of consumers rights
Komerciniu˛ banku˛ i˛statymas
05 01 1995
Law on commercial banks
Kredito Uniju˛ i˛statymas
24 03 1995
Law on credit unions
28 06 1995
Law on the tax administration
05 07 1995
19 07 1995
Law on foreign capital investment
in the Republic of Lithuania
Law on free economic zones
v
v
Mokesciu˛ administravimo i˛statymas
v
Uzsienio kapitalo investiciju˛ Lietuvos
Respublikoje i˛statymas
Laisvu˛ju˛ ekonominiu˛ zonu˛ pagrindu˛
i˛statymas
Pramoninio dizaino i˛statymas
26 07 1995
Law on industrial design
Zemės gelmiu˛ i˛statymas
02 08 1995
Law on entrails of the earth
Klaipėdos valstybinio jūru˛ uosto i˛statymas
05 06 1996
Law on state Klaipėda sea port
Lietuvos Respublikos Konstitucijos 47
straipsnio antrojoje dalyje numatyto
zemės sklypu˛ i˛sigijimo nuosavybėn
subjektu˛, tvarkos, sa˛lygu˛ ir apribojimu˛
konstitucinio i˛statymo i˛rasymo i˛
Konstituciniu˛ i˛statymu˛ sa˛rasa˛ i˛statymas
20 06 1996
Constitutional law on the subjects,
procedure, terms and conditions
and restrictions of the acquisition
into ownership of land plots provided
for in paragraph 2, article 47, of the
Constitution of the Republic of Lithuania
Siauliu˛ laisvosios ekonominės zonos
i˛statymas
17 07 1996
Law on Siauliai free economic zone
Draudimo i˛statymas
31 07 1996
Law on insurance
Viesojo pirkimo i˛statymas
06 09 1996
Law on public procurement
Koncesiju˛ i˛statymas
02 10 1996
Law on concessions
Klaipėdos laisvosios ekonominės zonos
i˛statymas
02 10 1996
Law on Klaipėda free economic zone
Nekilnojamojo turto registro i˛statymas
16 10 1996
Law on real estate register
Kauno laisvosios ekonominės zonos
i˛statymas
13 11 1996
Law on Kaunas free economic zone
Kilnojamo turto i˛keitimo i˛statymas
10 06 1997
Law on pledge of chattels
Bankroto i˛statymas
04 07 1997
Law on bankruptcy
Valstybės ir savivaldybiu˛ turto
privatizacijos i˛statymas
04 11 1997
Law on privatisation of state
and municipal property
Muitu˛ tarifu˛ i˛statymas
25 03 1998
Law on customs duties
v
v
v
v
v
v
v
157
INVESTMENT GUIDE FOR LITHUANIA
Annex E
Documents required from foreign investors
If the investor is a legal person
1.
2.
3.
4.
If the investor is a natural person
One of these documents should be
submitted:
1. A declaration of income that confirms
the financial status of the investment
subject.
2. A statement from a foreign bank
confirming the amount of funds
necessary for the investment.
3. A customs declaration confirming
a transfer of funds to Lithuania
4. A receipt from an employer certifying
last year’s salary payment.
A copy of registration document**
The document that may prove the
decision of the company’s managing
body to invest*
An internally audited balance sheet
for the last year*
A copy of company statutes*
* All these documents must be translated into Lithuanian.
** Should ne notarised, legalised and translated into Lithuanian.
Source: Lithuanian Development Agency.
Preparation of incorporation documents
A.
•
•
•
158
Closed-stock
company
A copy of the company’s
articles of association
Incorporation agreement
or incorporation statement
Minutes of the founding
meeting or founder’s
decision to establish
the enterprise
B.
•
Open-stocked
company
C. General or limited
partnership
A copy of the company’s
• A partnership agreement
articles of association
concerning the establishment
• Incorporation agreement
of a partnership
or incorporation statement
or
• Minutes of the founding
D. Individual enterprise
meeting or founder’s decision
• An application to register the
to establish the enterprise
individual enterprise
• A report on the establishment
of a public stock company
and the conclusion from
the auditor’s report
ANNEXES
Other documents that must be filed with the Ministry of National Economy
•
•
•
•
•
•
•
•
Receipt from the State Patent Office concerning the company’s registration name
Bank receipts certifying the initial deposit in the accumulation account
A letter of indemnity from appropriate property owner
In category B, a certificate from a brokerage firm, stating that the investor has acquired shares in
a Lithuanian company
In category B, a notarised copy of the securities registration certificate
Municipal authorisation
A registration fee (depending on enterprise form)
A standard registration form
159
INVESTMENT GUIDE FOR LITHUANIA
Annex F
Other useful information
LITHUANIAN BUSINESS
ORGANISATIONS
Association of Lithuanian Chambers
of Commerce and Industry
V. Kudirkos 18, 2600 Vilnius, Lithuania
Tel: 370 22 26 17
Fax: 370 22 26 21
Confederation of Lithuanian
Industrialists
Saltoniskiu 19, 2034 Vilnius, Lithuania
Tel: 370 2 75 12 78
Fax: 370 2 72 33 20
Lithuanian Association of
Entrepreneurs
A. Jaksto 9, 2001 Vilnius, Lithuania
Tel: 370 2 61 49 63
Fax: 370 2 22 04 48
Lithuanian Commercial Bankers
Association
Vilniaus 4/35, 2600 Vilnius, Lithuania
Tel: 370 2 22 70 63
Fax: 370 2 22 70 65
160
FOREIGN CONSULTING COMPANIES
PricewaterhouseCoopers
Sevcenkos 21, 2009 Vilnius, Lithuania
Tel: 370 2 79 17 71
Fax: 370 2 79 17 72
Arthur Andersen
Aludariu 2, 2000 Vilnius, Lithuania
Tel: 370 2 61 75 75
Fax: 370 2 62 07 43
Deloitte & Touche
Latako 2, 2001 Vilnius, Lithuania
Tel: 370 2 61 31 31
Fax: 370 2 62 08 38
Douglas Abrahams & Partners
(Architects)
Lukiskiu 3, 2006 Vilnius, Lithuania
Tel: 370 2 22 69 00
Fax: 370 2 22 69 00
KPMG Lietuva
A. Mickevi èiaus 2, 2600 Vilnius,
Lithuania
Tel: 370 2 73 39 30
Fax: 370 2 73 39 28
Tebodin Consultants & Engineers
Putvinskio 51, 3000 Kaunas, Lithuania
Tel: 370 7 20 78 38
Fax: 370 7 20 74 06
AIRLINES AND TRAVEL AGENCIES
Scandinavian Airlines Systems
Vilnius Airport Departure Hall
Tel: 370 2 23 60 00
Fax: 370 2 23 31 39
ANNEXES
Koti
Domaseviciaus 3, Vilnius
Tel: 370 2 31 31 48
Fax: 370 2 22 37 82
Aviaturas
Ukmerges 12, Vilnius
Tel: 370 2 7 00 82
Fax: 370 2 75 64 98
v
v
LAW FIRMS
Foresta, Business Law Group
V. Kudirkos 22, 2001 Vilnius
Tel: 370 2 22 45 64
Fax: 370 2 22 37 49
Lideika, Petrauskas, Valiunas
& Partners
Labdariu 5, 2001 Vilnius
Tel: 370 2 22 66 81
Fax: 370 2 22 55 91
Glimstead Law Firm
Gedimino pr. 26, 2001 Vilnius
Tel: 370 2 31 28 28
Fax: 370 2 22 56 49
HOTELS
Astoria Radisson SAS
Didı̈oji 35/2, Vilnius
Tel.: 370 2 220 110; Fax: 370 2 221 762
City Park Hotel
L. Stuokos Gucevièiaus 3, Vilnius
Tel.: 370 2 223 515; Fax; 370
Mabre Residence Hotel
Maironio 13, Vilnius
Tel.: 370 2 222 087; Fax: 370
Centrum
Vytenio 9/25, Vilnius
Tel.: 370 2 232 770; Fax: 370
Neringa
Gedimino pr. 23, Vilnius
Tel.: 370 2 610 516; Fax: 370
Narutis
Pilies 24, Vilnius
Tel.: 370 2 222 894; Fax: 370
2 617 745
2 222 240
2 232 760
2 614 460
2 622 882
CAR HIRE:
Hertz
Ukmergès 2
2600 Vilnius
Tel.: 370 9 83 90 48
Fax: 370 9 73 42 14
Europcar
Stuokos-Gucevièiaus 9-1, Vilnius
Tel.: 370 2 263 442; Fax: 370 2 220 439
Litinterpas
Bernardinu, 7, 2 kab
2600 Vilnius
Tel.: 370 2 223 850; Fax: 370 2 223 559
Kabrioletas
Kauno 21/1, Vilnius
Tel.: 370 2 232 332; Fax: 370 2 630 307
161
INVESTMENT GUIDE FOR LITHUANIA
Annex G
Other information
The Lithuanian standard time is one hour ahead of Greenwich Mean Time
(GMT). The Lithuanian summertime is also one hour ahead of GMT.
Offices are usually open from 8 a.m. to 5 p.m., Monday to Thursday. On
Friday, offices are opened from 8 a.m. to 4.45 p.m. Lunch time is generally from
12 noon to 12.45 p.m. Most shops are open from 9 a.m. or 10 a.m. to 7 p.m. or
8 p.m., from Monday to Saturday. Many shops are open on Sunday. The post
office working hours are from 7 a.m. to 7 p.m. form Monday to Friday and from
9 a.m. to 4 p.m. on Saturday.
New Year’s Day
Independence Day
Restoration of the Lithuanian
State
Easter
Coronation of King Mindaugas
All Saints’ Day
Christmas
1 January
16 February
11 March
Sunday and Monday-variable
6 July
1 November
25-26 December
The metric system of measures is used. The voltage is 220 AC Hertz European
Plugs are used.
162
OECD PUBLICATIONS, 2, rue André-Pascal, 75775 PARIS CEDEX 16
PRINTED IN FRANCE
(14 98 12 1 P) ISBN 92-64-16123-6 – No. 50255 1998
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