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 World Investment Report 2024, FDI inflows totalled USD 1.86 billion in 2023, 15.6% less than the level recorded the previous year but still above the pre-pandemic level. At the end of the same period, the total stock of FDI stood at USD 31.56 billion. The most significant contributions to total FDI come from investors in Germany (18.9%), Sweden (10.8%), Estonia (10.5%), the Netherlands (8.4%), the United Kingdom (6.9%), and Latvia (5.6%). The distribution of investment by sector is as follows: financial and insurance activities (34.6%), manufacturing (16.5%), wholesale and retail trade, repair of motor vehicles and motorcycles (10.2%), and real estate activities (8.1%) of the total FDI. Within manufacturing, the largest share of investment went into the manufacture of petroleum, chemical, and pharmaceutical products, constituting 33.8% of the total investment in manufacturing (data Official Statistics Portal). According to the latest data from the Bank of Lithuania, FDI flows to the country as of September 2024 increased by 8.6% over the year, reaching EUR 37.6 billion, or 48.9% of GDP, as of 30 September 2024. FDI per capita stood at an average of EUR 12,973, up from EUR 12,017 in 2023. The largest investors were Germany (EUR 5.9 billion), the Netherlands (EUR 5.2 billion), Estonia (EUR 3.8 billion), Sweden (EUR 3.5 billion), and Latvia (EUR 2.3 billion). The financial and insurance sector attracted the largest share of FDI (EUR 13.6 billion), marking a 7.4% increase in investment.

The government of Lithuania extends equal treatment to both foreign and domestic investors and imposes minimal limitations on their operations. Foreign investors enjoy the freedom to repatriate or reinvest profits without constraints and can seek investor-State dispute settlement according to pertinent treaty provisions. Lithuania provides special benefits, including tax concessions, to both small enterprises and strategic investors. Additionally, incentives are accessible within seven Special Economic Zones situated nationwide. 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. The Law on Investment prohibits foreign capital investment in sectors related to state security and defence. It also requires government approval and licensing for commercial activities that could pose risks to human life, health, or the environment, such as the manufacturing or trade of weapons. 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’s positive business climate is also assessed in international investment indexes: it ranks 35th among the 133 economies on the Global Innovation Index 2024 and 16th out of 184 countries on the latest Index of Economic Freedom.

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.