Foreign direct investment (FDI) in Lithuania

FDI in Figures

FDI flows to Lithuania have been fluctuating over the last fifteen years, firstly due to the global financial crisis and then to the regional crisis involving Russia and Ukraine, following a trend that is observed in other Baltic countries. According to UNCTAD's 2022 World Investment Report, FDI flows decreased from USD 3.5 billion to USD 2 billion between 2020 and 2021, as a result of the global economic crisis triggered by the Covid-19 pandemic. The total stock of FDI stood at USD 29.4 billion at the end of 2021, which is around 44.9% of the country’s GDP. Foreign direct investment stocks are concentrated in financial and insurance services, manufacturing, real estate, wholesale and retail trade, and IT services. By ultimate investing country, the USA (EUR 6.3 billion) is the largest investor in Lithuania followed by Sweden (EUR 4.1 billion), the United Kingdom (EUR 3.1 billion) and Germany (EUR 1.8 billion - BOL). Data from the Bank of Lithuania shows that in the first half of 2022, cumulative FDI inflows stood at EUR 1.1 billion and FDI per capita amounted to an average of EUR 10,013.

Lithuania offers tax exemptions to foreign companies, which can also profit from high-quality infrastructure and a skilled workforce. In recent years, building permits were facilitated, access to electricity was improved, minority investors were better protected and the tax payment system became electronic. Furthermore, national legislation assures equal protection for both foreign and domestic investors. Foreign investors have the right to repatriate profits, income, or dividends, in cash or otherwise, or to reinvest them without any limitation, after paying taxes. However, the country is still dependent on its exports towards Russia, hence vulnerable to external shocks, its domestic market is small and the income is lower than neighbouring countries. Recently, Lithuania strengthened the national security review mechanism to align it with the EU FDI Screening Regulation. Amid other changes, it extended the list of companies and entities considered relevant for national security to include radioactive waste companies, 5G service providers and infrastructure developers, secure public data networks, public safety and emergency services, digital mobile radio communication network operators and selected power generation companies. Growing sectors in terms of investment opportunities include real estate and construction, business process outsourcing (BPO), shared services, financial technologies, biotech and lasers. The country ranks 39th out of 132 in the 2022 Global Innovation Index and 33rd out of 180 in the Corruption Perception Index. Furthermore, Lithuania is at the 35th place out of 82 countries in the Economist Business Environment ranking.

What to consider if you invest in Lithuania

Strong Points

The main strengths of Lithuania are:

• A democratic and stable political system.
• Growth among the highest in the European Union (4.3% in 2019 - Eurostat) based on a diversified economy.
• Quality transport infrastructure with one of the most developed road networks in the region.
• Good international relations (member of the European Union since 2004 and NATO) giving it good access to international markets.
• An investor-friendly business environment as evidenced by its 11th place in the World Bank's Doing Business 2020 ranking. The tax rate for companies is low and Lithuanian legislation offers foreign and Lithuanian investors the same protections.
• Stable and healthy public and external accounts.
• Highly skilled (4th highest in the EU with  55.2% of young people aged 25 to 34 having a higher education diploma - Eurostat, 2019) and motivated labour force.

Weak Points

The country has a number of weaknesses:

• The attractiveness of the domestic market moderated by the level of income of Lithuania which remains below the average of the European states. This implies a readjustment of the selling price of the products.
• The high rate of emigration of Lithuanians to other European countries, making skilled labour more and more difficult to find.
• The bureaucracy is relatively inefficient. The risks of corruption and lack of transparency in some parts of the economy are hindering the development of the country and can discourage potential investors.
• High dependence on exports to Russia and emerging countries making the economy vulnerable to external shocks.
• High external debt.
• A strong income gap between the capital and the other regions, especially in the northeast where poverty is widespread.
• Erosion of competitiveness due to low productivity gains.

Government Measures to Motivate or Restrict FDI

Lithuania's laws ensure equal treatment of foreigners and domestic investors. No special permit from government authorities is necessary to invest foreign capital in Lithuania. Apart from a few exceptions, nearly all sectors of the economy are freely accessible. To encourage investment, the government has also created seven Free Economic Zones (FEZs) with tax benefits and one-stop-shop services.

In recent years, various measures have also been taken to protect minority investors and facilitate administrative procedures (the payment of taxes and social contributions is now done online).

Bilateral investment conventions signed by Lithuania

Lithuania has signed 55 bilateral investment treaties. For more details consult this link.