Country report Lithuania

Economic overview

Progress in emerging from the effects of the Covid-19 pandemic in 2021 has been cooled by various constraints, aggravated, in the first half of 2022, by the Russian aggression in Ukraine and its consequences, especially in the energy field.

In the second half of 2021, the Lithuanian economy had in fact continued to record consistent GDP growth (+ 4.8% in the third and + 4.4% in the last quarter), mainly due to the increase in disposable income, the lifting of the restrictions linked to the pandemic and a marked increase in private consumption. This trend was mainly driven by the manufacturing, petroleum products and services sectors. The real estate and financial services sectors had easily recovered from the contraction caused by the pandemic, while the agricultural and construction sectors had slowed significantly. The recovery appeared to be below expectations as it was held back by numerous supply chain disruptions, labor shortages and increased inflationary pressure, coupled with greater uncertainty stemming from heightened geopolitical instability.

Another insufficient engine of internal demand was investments, which again in the second half of 2021 recorded a contraction compared to the first half of the year, particularly significant in construction, due to the increase in estimated costs for public and private works. as well as a shortage of manpower and materials. The key transport sector also experienced a decline, mainly caused by a decrease in the volumes of freight transported by rail and road.

In the first half of 2022, however, the factors that had a major impact on Lithuanian economic development were the increase in energy prices and the shortage of raw materials caused by the economic sanctions imposed against Russia and Belarus due to the aggression. to Ukraine. The Chinese “zero Covid policy”, which slowed production, also had an effect on those sectors of the Western economies, including Lithuania, based on imports of raw materials from China.

In the second quarter of 2022, GDP contracted (-0.5%) compared to the previous one, overall not excessively harmful, mainly due to a drop in exports of goods and services (-5%), as a direct consequence of the sanctions imposed on Russia and Belarus. In the near future, the Lithuanian economic and industrial system will have to continue to take into account the indirect consequences of the war and the marked fluctuations in energy prices. Although the increase in geopolitical tensions and the energy crisis make forecasts uncertain, after a first quarter of 2022 in which GDP grew by + 4.4%, followed by a decrease in the second quarter of -0.5%, the Ministry of Finance now estimates growth of + 2.1% in 2022 and + 0.9% in 2023. However, these projections remain subject to a high degree of uncertainty, and it appears highly probable that they can be revised downwards. Should a particularly acute adverse shock scenario materialize, the country’s economy could slow down to -3.8% and inflation could be maintained at + 5.1% compared to the base scenario for 2023.

Main sectors of industry

Industry, which contributes 32.2% to the formation of the gross domestic product, is the leading sector of the economy and is specialized above all in the production of goods aimed at the entire former Soviet bloc. Basic industries include refineries (in Mažeikiai), petrochemical plants (in Klaipėda, Kaunas, Vilnius and Jonava), shipyards and mechanical industries. Rather developed are the electrotechnical and electronic sectors, thanks to the presence of highly qualified workforce. Among the industrial productions are also the processing of agricultural and fish products, the textile, clothing, furniture and woodworking sectors.

Agriculture still occupies almost a quarter of the active population and agricultural lands, which have undergone extensive reclamation work, have been privatized since 1991. The main crops are cereals (barley, wheat and rye), potatoes, beets from sugar, flax and vegetables. Cattle and pig farming provides meat and dairy products. The fishing sector is important (especially herring and cod), which is modernly equipped.

Due to the narrow internal market, Lithuania is highly dependent on trade. For this reason, the dissolution of the USSR, the main reference market for its industrial products, had heavy repercussions on the economic level. The country therefore had to modify its commercial relations by intensifying relations with the Baltic states, the former Soviet republics and the countries of Western Europe. Russia and Germany are the main partners, to which are added, for exports (especially finished goods), Ukraine, the United Kingdom and Belarus, for imports (raw materials and energy resources), Poland, Italy and Sweden.

As for the communication routes, the country has a well-developed network of roads (77,142 km, over 90% asphalted), railways (1,775 km) and inland waterways (477 km). Tourism is also a conspicuous voice of the economy. Among the main places of interest, the capital Vilnius, whose historic center, rich in Gothic, Renaissance and Baroque masterpieces, was declared, in 1994, a UNESCO World Heritage Site, the Curonian Spit, which dominates the Lithuania’s Baltic coast with its fine sand dunes and lush pine forests, and Palanga, the coast’s main seaside resort.

Taxation for businesses in Lithuania

The taxation of legal persons in Lithuania follows the worldwide taxation principle; for Lithuanian companies, income is taxed wherever it is produced, while foreign companies are, on the other hand, subject to taxation only on income produced in the country.

Companies, companies whose management or administration is carried out on the national territory, considered to be resident in the territory of the State, including partnerships registered under Lithuanian law, are subject to the tax.

From 1 January 2010, the ordinary rate is 15%.

Starting from January 1, 2020 and until the end of 2022, the revenues of financial institutions that exceed the threshold of 2 million euros are subject to a higher rate, equal to 20%.

Dividends distributed by one resident company to another are subject to the ordinary rate of 15%.

With the implementation of the Council Directive (EU) 2016/1164 of 12 July 2016 (Atad 1), Lithuania has also introduced, among other things, specific provisions on the exit tax, tax applicable on capital gains deriving from the transfer of assets. of a company from Lithuania to another country. Facilitations are provided for the payment of this tax (it can be paid in installments) when the assets are transferred to a member of the EU / EEA.

The Lithuanian tax laws provide for specific concessions, including the regime for micro-enterprises (maximum 10 employees and annual gross income of up to € 300,000 per tax period) which provides for a rate of 0% for the first year and subsequently a ‘rate a rate of 5% (Article 5, paragraph 2, of the Law on the taxation of corporate income).

The 0% tax rate applies to the newly established unit for the first tax period if during the first tax period, the average number of employees on the lists does not exceed 10 persons and the income for the first tax period. tax does not exceed EUR 300,000 and the participant is a natural person and only if during three consecutive tax periods, including the first tax period:

  • the activities of the unit are not suspended,
  • the unit is not liquidated,
  • reorganized e
  • the shares (quotas, shares) of the share are not transferred to new participants.

The 5% tax rate does not apply when the total number of employees and the total annual income exceed the established limits, i.e. 10 employees and an annual income of EUR 300,000, for the following units:

  • sole proprietorships, whose owners or shareholders are also owners of other sole proprietorships;
  • sole proprietorships, the owner and / or his family members who hold more than 50%, or 50.01%, in another unit on the last day of the tax period and again, shares (shares, shares).
  • shares in which the same participant (partner, partner or partner) holds more than 50% on the last day of the tax period, ie 50.01%. and again, actions (actions, actions).
  • units in which the same participants (shareholders, partners or shareholders) jointly control more than 50% on the last day of the tax period, ie 50.01%. and again, actions (actions, actions).

Investing in Lithuania

Lithuania’s Free Economic Zones are located in various locations across the country and offer unbeatable conditions for business development by offering ready-to-build industrial sites with physical and / or legal infrastructure, support services and tax incentives.

The Lithuanian authorities currently operate seven free trade areas.

Companies that choose to settle in these areas enjoy:

  • a 0% corporate profit tax during the first 10 years of activity;
  • only 7.5% in the following 6 years;
  • no dividend tax and real estate tax.

The most developed Free economic zone in Lithuania – Kaunas FEZ – also offers:

  • 100% tax exemption on dividends;
  • comfortable leases of land for 99 years.

To conduct operations in a free economic zone, a company must comply with the Lithuanian law on free economic zones.

To take advantage of this benefit, companies must meet the following requirements:

  • the investment in the company is equal to at least 1 million euros;
  • at least 75% of the company’s income derives from carrying out activities in the free economic zones, excluding commercial activities.

In the case of companies that carry out service activities, the requirements for accessing the facility are as follows:

  • the investment in the company must not be less than 100,000 euros;
  • at least 75% of the income must come from the provision of services in the aforementioned areas;
  • the average number of employees is not less than 20.
  • Investment expenses

For companies that invest in specific assets such as machinery or trucks, new or used electronic materials for no more than two years and used by the taxpayer for at least 3 years, there is a deduction from taxable income equal to up to 100% of the expenses incurred for investments in these assets.

For certain fixed assets, it is also possible to benefit from accelerated depreciation.

Tonnage Tax

Starting from 2017, maritime companies that carry out freight transport, passenger transport, rescue, towing activities, with a tonnage exceeding 100 net tonnage, can take advantage, on an optional basis, of a particular lump-sum taxation regime called “tonnage tax ”Applied according to the tonnage of each individual vessel used.

Other benefits

Further concessions are provided for companies that carry out agricultural activities (rate equal to 10%), for non-profit companies that reinvest their funds for activities of public interest and for film production companies if 80% of the costs, for an amount not exceeding 43,000 euros, has been spent in the territory of the State. Finally, the Lithuanian tax system provides that research and development costs incurred for experimental or scientific purposes cannot be capitalized but can be deducted up to a maximum of three times in the calculation of corporate income tax.