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Lithuania: Market Profile

Picture: Lithuania factsheet
Picture: Lithuania factsheet

1. Overview

Lithuania is one of the European Union (EU)'s fastest growing economies, partly owing to the improved economic situation in Lithuania's major export partners. The Lithuanian economy is oriented around manufacturing and service industries (particularly shared services centres). The commercial environment is generally friendly to foreign companies, and most of the EU directives are implemented in the Lithuanian legislative system. Lithuania has a developed private-enterprise economy that is actively growing thanks to an advantageous geographic location in Eastern Europe, highly developed transport connections, a modern seaport and IT network, and a highly educated but cheap labour force.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

November 2016
Saulius Skvernelis became the prime minister.

September 2017
Lithuania's government lost its majority in parliament after its junior coalition partner quitted.

May 2019
Lithuania will elect its next president on May 12, 2019; and members of the European Parliament on May 26, 2019.

Sources: BBC country profile – Timeline, Fitch Solutions

3. Major Economic Indicators

Graph: Lithuania real GDP and inflation
Graph: Lithuania real GDP and inflation
Graph: Lithuania GDP by sector (2017)
Graph: Lithuania GDP by sector (2017)
Graph: Lithuania unemployment rate
Graph: Lithuania unemployment rate
Graph: Lithuania current account balance
Graph: Lithuania current account balance

e = estimate, f = forecast
Sources: IMF, World Bank, Fitch Solutions
Date last reviewed: March 16, 2019

4. External Trade

4.1 Merchandise Trade

Graph: Lithuania merchandise trade
Graph: Lithuania merchandise trade

Source: WTO
Date last reviewed: March 16, 2019

Graph: Lithuania major export commodities (2018)
Graph: Lithuania major export commodities (2018)
Graph: Lithuania major export markets (2018)
Graph: Lithuania major export markets (2018)
Graph: Lithuania major import commodities (2018)
Graph: Lithuania major import commodities (2018)
Graph: Lithuania major import markets (2018)
Graph: Lithuania major import markets (2018)

Sources: Trade Map, Fitch Solutions
Date last reviewed: March 16, 2019

4.2 Trade in Services

Graph: Lithuania trade in services
Graph: Lithuania trade in services

e = estimate
Source: WTO
Date last reviewed: March 16, 2019

5. Trade Policies

  • Lithuania joined the World Trade Organisation (WTO) in May 2001. In May 2004, it joined the EU, adopting the euro as legal tender on January 1, 2015.

  • Lithuania applies the EU's Common External Tariff (CET), which means that goods manufactured and imported from within the EU are not subject to customs charges. The average tariff rate for EU states is just 1.5%, which is among the lowest globally. The duties for non-European countries are also relatively low, especially for manufactured goods (4.2% on average); however, textile, clothing items (high duties and quota system) and food-processing industry sectors (average duties of 17.3% and numerous tariff quotas) still see protective measures. The EU updated its trade policy (and, by extension, its import tariffs, customs, duties and procedures) in 2017.

  • The EU is party to some 50 free trade agreements (FTAs) and, consequently, access to other markets of the countries concerned is currently mediated through those agreements. The EU's scheme on generalised system of preferences came into effect on January 1, 2014. Under the scheme, tariff preferences have been removed for imports into the EU from countries where per capita income has exceeded USD4,000 for four years in a row. As a result, the number of countries that enjoy preferential access to EU markets was reduced from 176 to less than 80. While China remains a beneficiary, many of its exports – such as toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks – have already been graduated from preferential treatment.

  • The EU has imposed various anti-dumping measures on a wide range of products, predominantly in the areas of textiles, machine parts, steel, iron and machinery on goods coming from mainland China and a few other Asian nations to protect domestic industries. Currently, there are a number of mainland China-origin products that are subject to the EU's anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards, and solar glass, which are of interest to Hong Kong and regional exporters.

  • On November 13, 2016, the European Commission (EC) imposed a provisional anti-dumping duty on imports of some primary and semi-processed metals from mainland China. The rate of duty is between 43.5%-81.1% of the net free-at-union-frontier price before duty depending on the company. As of the end of December 2018, the EU did not apply any anti-dumping measures on imports from Hong Kong.

  • In 2016 the EC also introduced an import licensing regime for steel products exceeding 2.5 tonnes. The regulation will be active until May 15, 2020.

  • In March 2016, the EC imposed a definitive countervailing duty (8.7% or 9%) on imports consisting largely of textiles products originating in India.

Sources: WTO – Trade Policy Review, Government websites, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

As a EU member, Lithuania benefits from free trade with the other 27 bloc members. The region negotiates and enters into trade agreements as a collective owing to the single market nature of the union. In total, the EU has approximately 70 preferential trade agreements in place. It is expected that membership of the eurozone will lead to further convergence towards EU economic policymaking norms.

6.2 Multinational Trade Agreements

Active

  1. The EU Common Market: The transfer of capital, goods, services and labour between member nations enjoy free movement. The common market extends to the 28 member nations of the EU, namely: Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

  2. European Economic Area (EEA)-European Free Trade Association (EFTA) (Iceland, Liechtenstein, Norway and Switzerland): While it enhances trade flows between these countries and the EU, only Switzerland is a fairly major trading partner.

  3. EU-Turkey: The customs union within the EU provides tariff-free access to the European market for Turkey, benefitting both exporters and importers.

  4. EU-Japan Economic Partnership Agreement (EPA): In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1 billion annually. According to the EC, the EU-Japan EPA will create a trade zone covering 600 million people and nearly a third of global GDP. The result of four years of negotiation, the EPA was finalised in late 2017 and came into force on February 1, 2019 after the EU Parliament ratified the agreement in December 2018. The total trade volume of goods and services between the EU and Japan is an estimated EUR86 billion. The key parts of the agreement will cut duties on a wide range of agricultural products and it seeks to open up services markets, particularly financial services, e-commerce, telecommunications and transport. Japan is the EU's second biggest trading partner in Asia after China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery.

  5. EU-SADC EPA (Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland): An agreement between EU and SADC delegations was reached in 2016 and is fully operational for SADC members following the ratification of the agreement by Mozambique. The remaining six member of SADC no included in the deal (the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe) are seeking economic partnership agreements with the EU as part of other trading blocs – such as with East or Central African communities.

Provisionally Active

The Comprehensive Economic and Trade Agreement (CETA): The CETA is an agreement between the EU and Canada. CETA was signed in October 2016 and ratified by the Canadian House of Commons and EU Parliament in February 2017. However, the agreement has not been ratified by every European state and has only provisionally entered into force. CETA is expected to strengthen trade ties between the two regions, having come into effect in 2016. Some 98% of trade between Canada and the EU will be duty free under CETA. The agreement is expected to boost trade between partners by more than 20%. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport.

Ratification Pending

EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize and the Dominican Republic): An agreement between the parties was reached in 2012 and is awaiting ratification (29 of the 34 parties have ratified the agreement as of October 2018). The agreement has been provisionally applied since 2013.

Under Negotiation

  1. EU-Australia: The EU, Australia's second largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017, while bilateral trade in services added an additional EUR27 billion. The negotiations aim at removing trade barriers, streamlining standards and putting European companies exporting to or doing business in Australia on an equal footing with those from countries that have signed up to the Trans-Pacific Partnership or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.

  2. EU-United States (Trans-Atlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but it is unlikely to pass under the Trump administration in the United States against the backdrop of rising global trade tensions.

  3. EU-Vietnam FTA: In July 2018, the EU and Vietnam agreed on final texts for the EU-Vietnam FTA and the EU-Vietnam Investment Protection Agreement (IPA). As of January 2019, the final text of the agreement has been finalised and is awaiting signature and conclusion.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Lithuania FDI stock
Graph: Lithuania FDI stock
Graph: Lithuania FDI flow
Graph: Lithuania FDI flow

Sources: UNCTAD, Fitch Solutions
Date last reviewed: March 16, 2019

7.2 Foreign Direct Investment Policy

  1. InvestLithuania is the government's principal institution dedicated to attracting foreign investment and promoting business development. It serves as a one-stop-shop to provide information on business costs, labour, tax and legal settings and other business areas; facilitate the set up and launch of a company; provide help in accessing government financial support; and advocate on behalf of investors for more business-friendly laws. In addition to its offices in Vilnius and major Lithuanian cities, InvestLithuania has representative offices in Belgium, Kazakhstan and the United States (Chicago).

  2. Lithuania has concluded more than 50 bilateral investment treaties (BITs) concerning the promotion and mutual protection of investments and 54 double taxation agreements (DTAs).

  3. The Lithuanian economy is oriented toward manufacturing and service industries, including food, the petroleum and chemical industry, information technology, financial services and service centres, transportation, construction, biotechnologies, research and development (R&D), and tourism.

  4. The commercial environment is generally friendly to foreign companies, and most EU directives are implemented in the Lithuanian legislative system. Lithuania's laws assure equal protection for both foreign and domestic investors. No special permit is required from government authorities to invest foreign capital in Lithuania. State institutions have no right to interfere with the legal possession of foreign investors' property. In the event of justified expropriation, investors are entitled to compensation equivalent to the market value of the property expropriated.

  5. The Law on Investment establishes no limits on foreign ownership or control. Foreign investors have free access to all sectors of the economy except in sectors related to security and defence.

  6. Land acquisition (except for agricultural land and forestry) is restricted to companies or individuals who are established or residing in the EU or in countries that are the members of the Organisation for Economic Co-operation and Development, the North Atlantic Treaty Organization, or the EEA.

  7. Local and foreign businesses in Lithuania can apply for support from the EU Structural Funds. Between 2014 and 2020, Lithuania is expected to receive EUR6.8 billion in structural assistance assigned to the EU Cohesion policy. This will include investment in infrastructure, human capital and public administration. The funds are to be used to upgrade companies and the manufacturing sector, boost exports and create industrial parks.

Sources: WTO – Trade Policy Review, government websites, Fitch Solutions

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Lithuania has six Free Economic Zones (FEZs) located near the cities of Kaunas, Klaipeda, Siauliai, Kedainiai, Panevezys, and Marijampole. The FEZs host approximately 60 investorsBusinesses choosing to locate at these zones enjoy:

- 0% corporate profit tax during their initial 10 years of operation and only 7.5% tax over the next 6 years

- No tax on dividends for foreign investors

- No tax on real estate
Investment project incentiveBusinesses are able to reduce their taxable profits by up to 100% of costs incurred relating to certain investments. This deductible applies to a number of categories of fixed assets, namely:

- Machinery and equipment

- Computer and communication equipment

- Software and acquired intellectual property (IP) rights

- Lorries, trailers, and semi-trailers

- Expenses relating to R&D can be treated as a tax deductible for the year in which activity occurred. The R&D activities also need to relate to the company/entity's daily operations.

- The amount deductible does not include depreciation of assets used in conducting the R&D.

Sources: Fitch Solutions, InvestLithuania

8. Taxation – 2019

  • Value Added Tax: 21%
  • Corporate Income Tax: 15%

Source: Ministry of Finance of the Republic of Lithuania

8.1 Important Updates to Taxation Information

  • Lithuania is introducing a new tax administration system, known as iMAS, which includes e-services for taxpayers.

  • On June 7, 2017, Lithuania signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) Multilateral Instrument (MLI); however, it has not yet been ratified.

  • From 2019, the personal income tax (PIT) rate will increase from 15% to 20% for employment-related income (or 27% for or income amounts exceeding EUR136,344 per calendar year).

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income TaxStandard rate: 15%; small companies and agricultural companies can apply a reduced rate of 0% or 5% if certain conditions are met.
Withholding TaxDividends: 15% to non-residents
Interest: 10%; EEA-resident companies pay 0% on interest
Royalties: 10% to non-residents
Social security contributions (all employers)Ranges from 30.98% to 32.6%
VAT/GST (standard)21%, with reduced rates of 9%, 5% and 0%
Land Lease TaxRanges from 0.01% to 4%
Real Estate TaxRanges from 0.3% to 3%

Source: Ministry of Finance of the Republic of Lithuania
Date last reviewed: March 16, 2019

9. Foreign Worker Requirements

9.1 Visa Requirements

EU nationals, citizens of EEA member states and citizens of Switzerland enjoy the right of free movement within the EU.

9.2 Foreign Worker Permits

Unless a visa-free regime is applied, non-EU citizens require a visa to enter Lithuania. Work permits are required for non-EU citizens.

To employ a non-EU citizen, companies are required to:

  • Register a vacancy with the Lithuanian Labour Exchange Office
  • Obtain a work permit from the Lithuanian Labour Exchange Office before the arrival of the foreign national

Lithuania participates in the EU Blue Card programme, which simplifies the residency and work permit application process for highly-skilled non-EU citizens. Once secured, the Blue Card is valid for up to three years and can be extended for an additional three years. Blue Card holders are also eligible to apply for permanent residency after five years.

Sources: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook) Rating Date
Moody's
A3 (Stable)08/09/2017
Standard & Poor'sA (Stable)02/03/2018
Fitch Ratings
A- (Positive)08/02/2019

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201720182019
Ease of Doing Business Index
21/19016/19014/190
Ease of Paying Taxes Index
27/19018/19018/190
Logistics Performance Index
N/A54/160N/A
Corruption Perception Index
38/18038/180N/A
IMD World Competitiveness33/6332/63N/A

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201720182019
Economic Risk Index RankN/A49/20231/202
Short-Term Economic Risk Score72.3
71.371.3
Long-Term Economic Risk Score66.9
65.572.2
Political Risk Index RankN/A34/20234/202
Short-Term Political Risk Score73.171.570.8
Long-Term Political Risk Score78.478.478.4
Operational Risk Index RankN/A31/20132/201
Operational Risk Score67.568.568.4

Source: Fitch Solutions
Date last reviewed: March 16, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
The Lithuanian economy will be hit by weaker investor sentiment across the eurozone. Furthermore, continued sanctions on Russia from the EU will starve Lithuanian business of another key source of demand, weighing on the latter's economic outlook. Growth will be sustained, largely owing to a positive consumption story which will be driven by the household sector's increasing disposable income.

OPERATIONAL RISK
Despite its small size, Lithuania has some of Europe's best business infrastructure. Lithuania's trade with its Central and Eastern European neighbours, particularly Russia, accounts for a growing percentage of total trade. The government of Lithuania is continuing with a high-profile campaign to attract foreign investment and develop export markets.

Source: Fitch Solutions
Date last reviewed: March 15, 2019

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Lithuania short term political risk index
Graph: Lithuania short term political risk index
Graph: Lithuania long term political risk index
Graph: Lithuania long term political risk index
Graph: Lithuania short term economic risk index
Graph: Lithuania short term economic risk index
Graph: Lithuania long term economic risk index
Graph: Lithuania long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: March 16, 2019

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Lithuania Score68.455.271.575.671.5
Central and Eastern Europe Average61.855.063.566.362.5
Central and Eastern Europe Position (out of 11)48215
Emerging Europe Average57.154.159.158.656.8
Emerging Europe Position (out of 31)51621
7
Global Average49.649.749.949.049.8
Global Position (out of 201)3262262136

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Lithuania vs global and regional averages
Graph: Lithuania vs global and regional averages
Country
Operational Risk IndexLabour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
Estonia71.1
59.1
76.4
72.1
77.0
Czech Republic70.9
57.7
67.9
73.7
84.5
Poland
69.6
55.6
69.4
75.0
78.4
Lithuania68.4
55.2
71.5
75.6
71.5
Latvia65.8
57.5
67.5
71.5
66.6
Hungary64.0
55.6
62.0
66.9
71.3
Slovakia63.3
49.7
66.5
63.4
73.5
Belarus57.1
56.5
58.5
63.4
49.9
Russia56.5
63.6
58.6
63.0
40.9
Moldova46.6
39.8
51.1
52.2
43.4
Ukraine46.554.9
48.8
52.0
30.5
Regional Averages61.8
55.0
63.5
66.3
62.5
Emerging Markets Averages46.7
48.1
45.5
47.4
46.0
Global Markets Averages49.6
49.7
49.9
49.0
49.8

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: March 16, 2019

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Lithuania

Graph: Major export commodities to Lithuania (2018)
Graph: Major export commodities to Lithuania (2018)
Graph: Major import commodities from Lithuania (2018)
Graph: Major import commodities from Lithuania (2018)

Note: Graph shows the main Hong Kong exports to/imports from Lithuania (by consignment)
Date last reviewed: March 16, 2019

Graph: Merchandise exports to Lithuania
Graph: Merchandise exports to Lithuania
Graph: Merchandise imports from Lithuania
Graph: Merchandise imports from Lithuania

Note: Graph shows Hong Kong exports to/imports from Lithuania (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: March 16, 2019


2017
Growth rate (%)
Number of Lithuanian residents visiting Hong Kong4,5316.0

Sources: Hong Kong Tourism Board, Fitch Solutions


2017
Growth rate (%)
Number of European residents visiting Hong Kong1,929,824-0.2
Number of emerging Europe citizens residing in Hong Kong891.13

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: March 16, 2019

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of EU companies in Hong KongN/A
N/A
- Regional headquarters
- Regional offices
- Local offices


11.3 Treaties and agreements between Hong Kong and Lithuania

  • An agreement between China and Lithuania for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital entered into force in October 1996.

  • An agreement between China and Lithuania concerning the Encouragement and Reciprocal Protection of Investments entered into force in June 1994 and intends to create favourable investment conditions for investors from both countries.

Sources: UNCTAD, China State Administration of Taxation

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Lithuanian Chamber of Commerce in Hong Kong
Address: Suite 1106-08, 11/F, Tai Yau Building, No.181 Johnston Road, Wanchai, Hong Kong
Email: info@litchamber.hk
Tel: (852) 3179 5320
Fax: (852) 3179 5321

Source: Lithuanian Chamber of Commerce in Hong Kong

Lithuanian Honorary Consul in SAR of Hong Kong and Macao
Address: 2/F, 79 Wyndham Street, Central, Hong Kong
Email: rajsital@netvigator.com
Tel: (852) 2522 2908
Fax: (852) 2810 5771

Source: Embassy of the Republic of Lithuania to the People's Republic of China

11.5 Visa Requirements for Hong Kong Residents

Hong Kong residents do not need a visa for Lithuania for a period of up to 90 days.

Source: Embassy of the Republic of Lithuania to the People's Republic of China
Date last reviewed: March 16, 2019

Content provided by Picture: Fitch Solutions – BMI Research
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