Q How would you describe Lithuania’s strategy for attracting FDI?

A Investment promotion policy is oriented towards the creation of a favourable legal climate for business. The key law regulating investment is the Law on Investment of the Republic of Lithuania, adopted on July 7, 1999. Investors may invest in the Republic of Lithuania by setting up an economic entity (there are no restrictions for foreigners); by acquiring the capital of an economic entity registered in the Republic of Lithuania or a share therein (again, no restrictions for foreigners); by acquiring securities of all types; by acquiring movable or immovable property (there is only a provisional restriction for foreign entities to acquire agricultural land); by lending funds or other assets to economic entities; or by executing concession contracts and contracts of lease with option to purchase.

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The Lithuanian legislation that regulates investment does not prescribe the specific sectors of the economy that should attract more foreign or domestic investments. We believe that Lithuania still needs investments into any area of the economy; therefore, the government makes efforts to encourage investments into the means of refurbishing and modernising technologies of prospective industrial enterprises, improving the country’s ecological situation, and developing small and medium-sized businesses.

Q Where is most foreign investment coming from?

 

A Investors from more than 100 countries have registered in Lithuania; however, the EU member states have invested the most (76% of all FDI).

Industry attracted the largest percentage of all FDI: 40.5%. Meanwhile, 17.1% went to trade, 15.4% to financial intermediation companies and 15.3% to transport, storage and communications.

Q How do you intend to make Lithuania more competitive?

 

A Lithuania's competitiveness can be ensured only by the creation of maximum efficiency of all the factors – such as labour resources, the use of production management and technological progress – as well as conditions for their maintenance.

Only those companies that are ready to change and improve, that will be able to take over and develop the international experience of business management, that adapt modern technologies and that attract capital will be able to withstand the competition.

The goal of the state is to ensure the most favourable conditions for the development of technologies and attraction of international capital. The two key elements that form the country’s competitive potential are innovations and a favourable business environment.

A systematic approach towards the innovation policy has been formed. The legal basis of the national innovations system has been created and is being developed; infrastructure for the promotion and implementation of innovations is being formed; co-operation between research institutions and companies is being developed; and new public structures are being established.

Q How would you characterise Lithuania’s investment climate?

 

A There are stable conditions for business development and growth in Lithuania today, which in principle comply with the EU requirements. EU membership has made business opportunities even better in the EU single market.

Foreign investors can broaden their business through Lithuania, both in the EU and by building business bridges between Russia, the CIS and western Europe.

In principle, Lithuania provides equal investment and business conditions for foreign and domestic investors (except for the temporary restrictions for the foreign entities to acquire agricultural land). The investment law of 1999 sets forth the terms and conditions of investment. The rights of investors and investment protection measures for all types of investments guarantees equal conditions for operation for Lithuanian and foreign investors, and protects the rights and lawful interests of investors under the laws of the Republic of Lithuania.

One of the major factors characterising the investment climate in Lithuania is a strong banking sector, which, at present, can offer investors good borrowing conditions.

Q What else can Lithuania offer foreign investors?

 

A Lithuania wins investment projects due to the comparatively low labour costs and relatively low costs for the creation of jobs.

The total tax burden in Lithuania is one of the smallest among the new EU member states. This demonstrates government policy that is favourable towards business (according to data provided by Forbes Magazine, among the 10 new EU member states, the tax burden is lower only in Cyprus).

The corporate income tax tariff, for instance, amounts to 15%, which is one of the lowest tariffs not only in the Baltic region, but also in central and eastern Europe. Corporate losses experienced in Lithuania can be transferred to another tax year within a five-year period. This is especially important for new investors. Especially favourable and easy taxation terms have been created for investors in the Klaipòda free economic zone.

The high educational qualifications of Lithuanian citizens is another essential factor in the country’s success, which determines a balance between the labour force quality and a price that is favourable to business. This exceptional feature of Lithuania is known and promoted too little abroad.

Lithuania is ahead of the EU average and countries of central and eastern Europe by a factor of two in terms of the percentage of the population aged 30-60 who are college and university graduates. According to the number of students studying at the higher education establishments (43 students per 1000 citizens), we are behind only the US, Spain and Finland.

Q How does macroeconomic policy fit into your FDI strategy?

 

A Important achievements of macroeconomic policy include having a stable national currency since 1994 and the lowest inflation in central and eastern Europe since 1999. This ensures stable conditions for investors and all business activities, as well as increasing trust in our country’s economy.

As of 2002, the Lithuanian national currency has been pegged at a fixed rate to the euro. We are now actively preparing to introduce the euro, a single EU currency. The countries that are aspiring to join the eurozone are subjected to strict convergence requirements: the state loan must not exceed 60% of GDP, inflation must not exceed 3% and the fiscal deficit must be in decline. Lithuania, like Slovenia and Estonia, meets the requirements and has the possibility of introducing the euro as early as 2007.

This, undoubtedly, is an important factor in increasing investment attractiveness because it would mean a stable currency, a low interest rate and no exchange rate within the EU.