Lithuania

Lithuania

Lithuania: Market Profile

Picture: Lithuania factsheet
Picture: Lithuania factsheet

1. Overview

The Lithuanian economy is oriented around the manufacturing and service industries. The commercial environment is generally friendly to foreign companies, and most of the European Union (EU) directives are implemented into the Lithuanian legislative system. Lithuania has a developed private-enterprise economy that is actively growing due to an advantageous geographic location in Eastern Europe, highly developed transport connections, a modern seaport, IT network, and a highly educated, but cheap, labour force. As a large market for European exports, the UK's break from the single market will have a negative impact on export growth. Growth will be sustained largely due to a positive consumption story, which will be driven on the household sector's increasing disposable income.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

March 2015
NATO reinforced its presence in the Baltic States and its forces conducted major military drills in the region.

November 2016
Saulius Skvernelis became Prime Minister.

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

March-May 2019
Lithuania will elect municipal councils on March 3, 2019, its next president on May 12, 2019 and members of the European Parliament on May 26.

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: International Monetary Fund, World Bank
Date last reviewed: August 21, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Lithuania merchandise trade
Graph: Lithuania merchandise trade

Source: WTO
Date last reviewed: August 21, 2018

Graph: Lithuania major export commodities (2017)
Graph: Lithuania major export commodities (2017)
Graph: Lithuania major export markets (2017)
Graph: Lithuania major export markets (2017)
Graph: Lithuania major import commodities (2017)
Graph: Lithuania major import commodities (2017)
Graph: Lithuania major import markets (2017)
Graph: Lithuania major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: September 20, 2018

4.2 Trade in Services

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

Source: WTO
Date last reviewed: August 21, 2018

5. Trade Policies

  • Lithuania joined the World Trade Organisation (WTO) in May 2001, and in May 2004, it joined the EU.
  • Lithuania applies the EU's Common External Tariff (CET), which means 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 a 17.3% and numerous tariff quotas) still see protective measures. Most of the country's major trade partners are within the EU, hence risks are less pronounced.
  • The EU has imposed various anti-dumping measures on a wide range of products, predominantly in the areas of textiles, parts, steel, iron, and machinery on goods coming from China and a few other Asian nations to protect domestic industries.
  • On November 13, 2016, the European Commission (EC) imposed a provisional anti-dumping duty on imports of some primary and semi-processed metals from China. The rate of duty is between 43.5% and 81.1% of the net free-at-union-frontier price before duty depending on the company. In the same vein, the rate of duty for similar goods from Belarus is 12.5% of the net, free-at-union-frontier price before duty.
  • 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.
  • A multitude of issues persists with regard to the respect for Intellectual Property Rights (IPR) in China, which means many Latvian manufacturing and retail businesses face additional risks when importing finished or intermediate goods from this trading partner.
  • In Q215, the EC issued regulations on trade restrictions on cattle, beef, watermelons and prepared tomatoes with Turkey. This will help to protect domestic agriculture and regional farming businesses.
  • On January 1, 2017, the European Union imposed additional import duties on certain fruit and vegetables if the quantity of the subject goods exceeds the trigger volume level within the specified application period.
  • On November 15, 2017, the European Commission allocated a total value of EUR62 million (USD74.4 million) for funding promotional campaigns of EU agricultural products implemented in the internal market for the year 2018. The budget consists of various promotional topics of EU goods in the internal market with an additional focus on the promotion of fruit, vegetables and sheep/goat meat.

Source: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

As an EU member, Lithuania benefits from free trade with other bloc members. 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: Lithuania is a member of the EU that comprises 28 member states, and it follows EU's common external trade policy and measures. All EU member states adopt common external trade policy and measures. As such, the country’s trade policy is largely identical to that of the wider regional bloc. The EU updated its trade policy (and, by extension, its import tariffs, customs, duties and procedures) in 2017.

  2. European Economic Area (EEA)-European Free Trade Association (EFTA) (Iceland, Liechtenstein, Norway and Switzerland): The EEA unites the EU Member States and the three EFTA States (Iceland, Liechtenstein, and Norway) into an Internal Market governed by the same basic rules. These rules aim to enable goods, services, capital, and persons to move freely about the EEA in an open and competitive environment, a concept referred to as the four freedoms. While this agreement enhances trade flows between these countries, only Switzerland is a major trading partner to the EU.

  3. EU-Turkey Customs Union: the EU and Turkey are linked by a Customs Union agreement, which came into force on December 31, 1995. Turkey has been a candidate country to join the EU since 1999, and is a member of the Euro-Mediterranean partnership. The customs union with the EU provides tariff-free access to the European market for Turkey, benefitting both exporters and importers. Turkey is the EU's fourth largest export market and fifth largest provider of imports. The EU is by far Turkey's number one import and export partner. Turkey's exports to the EU are mostly machinery and transport equipment, followed by manufactured goods. At present the Customs Union agreement covers all industrial goods, but does not address agriculture (except processed agricultural products), services or public procurement. Bilateral trade concessions apply to agricultural as well as coal and steel products. In December 2016, the European Commission proposed the modernisation of the Customs Union and to further extend the bilateral trade relations to areas such as services, public procurement and sustainable development.

  4. EU-Canada Comprehensive Economic and Trade Agreement (CETA): CETA is expected to strengthen trade ties between the two regions, having come into effect in September 2017. Some 98% of trade between Canada and the EU is 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

  1. EU-Japan Trade Agreement: 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 European Commission, the EU-Japan Economic Partnership Agreement (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 is expected to come into force by the end of the current mandate of the European Commission in 2019. The total trade volume of goods and services between the EU and Japan is 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, in particular financial services, e-commerce, telecommunications and transport. As of August 2018, the agreement is awaiting ratification by the European Parliament and the Japanese Diet, following which it could enter into force in 2019. At the same time, negotiations with Japan continue on investment protection standards and investment protection dispute resolution. 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. The agreement awaits ratification from all parties concerned.

  2. EU-SADC Economic Partnership Agreement (Botswana, Lesotho, Mozambique, Namibia, South Africa, Swaziland, Angola, Comoros, Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Seychelles, Tanzania, Zambia and Zimbabwe): An agreement between EU and SADC delegations was reached in 2016 and is awaiting ratification, with 13 of the 35 needed states having ratified the agreement as of April 2018.

  3. EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize, and 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 April 2018).

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-US (Trans-Atlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but it is unlikely to pass under a Trump administration in the US.

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

Source: UNCTAD
Date last reviewed: August 21, 2018

7.2 Foreign Direct Investment Policy

  1. “Invest Lithuania” is the government's principal institution dedicated to attracting foreign investment. 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, Invest Lithuania has representative offices in Belgium, Kazakhstan, and the United States (Chicago).

  2. The Lithuanian economy is oriented into 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.

  3. The commercial environment is generally friendly to foreign companies, and most of the EU directives are implemented into 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.

  4. 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 the security and defence.

Sources: WTO - Trade Policy Review, 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 MarijampoleBusinesses 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

- In addition, there are no tax on dividends and real estate

Source: Fitch Solutions, Invest Lithuania

8. Taxation – 2018

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

Source: PwC 2018

8.1 Important Updates to Taxation Information

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 been ratified yet.

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
Dividends15%
Social security contributions (all employers)Ranges from 30.48% to 32.1%
VAT/GST21%
Land TaxRanges from 0.01% to 4%
Real Estate TaxRanges from 0.3% to 3%

Sources: PwC Tax Summaries 2018, Fitch Solutions
Date last reviewed: September 20, 2018

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

Lithuania also participates in the EU Blue Card program, 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)10/08/2018

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

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
21/18921/19016/190
Ease of Paying Taxes Index
49/18927/19018/190
Logistics Performance Index
29/160N/A54/160
Corruption Perception Index
38/17638/180N/A
IMD World Competitiveness30/6133/6332/63

Source: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index Rank49/202
Short-Term Economic Risk Score72.5
72.371.3
Long-Term Economic Risk Score64.5
66.965.5
Political Risk Index Rank34/202
Short-Term Political Risk Score7073.171.5
Long-Term Political Risk Score79.378.4
78.4
Operational Risk Index Rank32/201
Operational Risk Score66.267.567.4

Source: Fitch Solutions
Date last reviewed: August 21, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Economic momentum carried over into the second quarter of 2018, despite weaker external demand dynamics. Looking ahead, growth will be sustained largely due to a positive consumption story, which will be driven on the household sector's increasing disposable income. Unemployment fell to a near 10-year low in Q2 2018 and, coupled with easing inflationary pressures, likely bolstered household consumption growth. Elevated retail sales in the second quarter likely reflected higher private spending and were supported by a double-digit rise in wages throughout the quarter. On the external front, however, the dynamics were less upbeat. Exports continued to decelerate in Q2 amid the slowdown across the EU and growing geopolitical and trade tensions.

OPERATIONAL RISK
Lithuania has a developed private-enterprise economy that is actively growing due to an advantageous geographic location in Eastern Europe, highly developed transport connections, a modern seaport, IT network, and a highly educated, but cheap, labour force. Lithuania's trade with its Central and Eastern European neighbours, Russia in particular, accounts for a growing percentage of total trade. The government of Lithuania continues a high-profile campaign to attract foreign investment and to develop export markets.

Source: Fitch Solutions
Date last reviewed: September 25, 2018

10.5 Fitch Solutions Political & 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: August 21, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Lithuania Score67.455.271.871.371.5
Central and Eastern Europe Average61.155.063.463.662.5
Central and Eastern Europe Position (out of 11)48225
Emerging Europe Average56.754.158.457.456.8
Emerging Europe Position (out of 31)416227
Global Average49.749.850.049.349.9
Global Position (out of 201)3262232736

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 Secruity Risk Index
Estonia71.059.177.270.577.0
Czech Republic70.657.7
70.070.284.5
Poland
68.955.6
69.272.378.4
Lithuania67.455.2
71.871.371.5
Latvia65.157.5
68.467.966.6
Hungary63.255.663.462.471.3
Slovakia62.949.767.760.773.5
Belarus57.156.559.262.749.9
Russia56.063.656.263.440.9
Moldova
45.339.849.248.743.4
Ukraine45.154.945.649.530.5
Regional Averages61.155.063.463.662.5
Emerging Markets Averages46.8
48.0
47.545.846.0
Global Markets Averages49.749.8
50.049.349.9

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 21, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Lithuania

Graph: Major export commodities to Lithuania (2017)
Graph: Major export commodities to Lithuania (2017)
Graph: Major import commodities from Lithuania (2017)
Graph: Major import commodities from Lithuania (2017)
Graph: Merchandise exports to Lithuania
Graph: Merchandise exports to Lithuania
Graph: Merchandise imports from Lithuania
Graph: Merchandise imports from Lithuania

Exchange Rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: September 20, 2018


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

Source: Hong Kong Tourism Board, Fitch Solutions


2017
Growth rate (%)
Number of European residents visiting Hong Kong1,929,824-0.2

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: September 12, 2018

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of EU companies in Hong Kong2,053
5
- Regional headquarters4592.5
- Regional offices685-2
- Local offices9094.1

Source: Hong Kong Census and Statistics Department

11.3 Treaties and agreements between Hong Kong and Lithuania

  • 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.

  • The Agreement between the Government of the Republic of Lithuania and the Government of the People's Republic of China concerning the Encouragement and Reciprocal Protection of Investments entered into force in June 1994 and intends to create favorable investment conditions for investors from both countries.

Sources: UNCTAD, Government Sources, Fitch Solutions

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 Consulate in Hong Kong
Address: 2/F, 79 Wyndham Street, Central, Hong Kong
Email: rajsital@netvigator.com
Tel: (852) 2522 2908
Fax: (852) 2810 5771

Source: Protocol Division Governmnet Secretariat

11.5 Visa Requirements for Hong Kong Residents

HKSAR passport holders do not need a visa for Lithuania for a period of up to 90 days.

Source: Travel Visa Services
Date last reviewed: September 20, 2018