Country that learned geopolitical lessons: why is it worth investing in Lithuania?

The Russian war in Ukraine has adjusted the need of potential investors to assess the geopolitical situation in the Baltic countries, which until now had a strong status as a link between East and West. Some investors have suspended plans and decisions, waiting for the further development of possible economic scenarios, but they are not giving up the majority of investments and are determined to implement the planned projects.

Giedrius Valuckas, board member and developer of the free economic zone in Šiauliai.

Among the latter, a year ago in Lithuania, in the Šiauliai Free Economic Zone (FEZ), the factory of Bär Cargolift, one of the largest manufacturers of car cargo lifts in Europe, was opened. The owner of the German company, Tobias Bär, says that the geopolitical situation has not changed the decision to develop investments in Lithuania.

“There are no changes in our decision. We opened the first production branch of our company in a foreign country, in Lithuania, during the pandemic. This did not become an obstacle to investments, so we are positive and optimistic even in the context of the Russian war in Ukraine. Lithuania is part of the NATO Alliance, which is the highest level of security possible that is available to a state in today’s world,” said T. Bär.

Energy independence increases reliability
According to the Šiauliai FEZ board member and developer Giedrius Valuckas, predicting the future is difficult, but it is obvious that the war is redrawing the economic map.

“Our economic relations with Russia and its ally Belarus are basically broken, and it is not clear when and if they will be revived. Having positioned ourselves as a transit connection between East and West for a long time, we can forget about it now, at least for a while. Luckily we have been reducing our dependence on our eastern neighbours for several decades, but there is no doubt that economic relations will look different after the end of the war,” predicted G. Valuckas.

According to Valuckas, businesses that have planned investments in Lithuania are not giving up on them. Confidence in the investment environment is also shown by new requests, especially related to the transfer of production from China to Europe due to significantly increased transportation costs and increased production and delivery terms. Lithuania has a great advantage not only because of the favourable business and tax environment and additional benefits applied at the FEZ, but also because of the dynamics and speed of decision-making.

The fact that Lithuania makes decisions quickly was also shown by the reaction to Russia’s energy blackmail – Lithuania was the first in Europe to abandon dependence on Russian gas. Since the beginning of April, all of Lithuania’s gas needs have been met through the Klaipėda liquefied natural gas terminal.

According to T. Bär, Lithuania’s attractiveness in the eyes of potential foreign investors is positively influenced by the country’s quest for independence from Russia’s energy resources. “In general, this ensures greater reliability and security, which, of course, comes at a higher price. Our company’s operations do not require large amounts of natural gas, so giving up Russian gas is a positive thing for us,” explained the owner of Bär Cargolift.

More projects are being implemented in Lithuania, which are important for ensuring the energy security of the entire Baltic region. The construction of the Lithuanian-Polish gas pipeline GIPL (Gas Interconnection Poland Lithuania) was completed at the beginning of 2022, and it is expected to implement a strategic energy security project, i.e., synchronization of electricity grids with continental Europe, before 2025.

Valuckas points out that Lithuania’s ability to make the right decisions in the recent context is also proven by economic indicators. In January-April 2022, the industrial growth in the country, compared to 2021 in the same period, was 15 per cent higher.

Greenfield investments are encouraged by incentives
At the moment, there are seven FEZ suitable for greenfield investments in Lithuania, where almost 100 companies carry out economic and commercial activities, and their total turnover reaches 1.8 billion euros. According to G. Valuckas, Lithuania is a go to place for manufacturing companies of various sectors: furniture, electronics, automotive, plastics, metal and glass processing and assembly.

“In order to implement investment and production projects, infrastructure, competences, logistics, services, state support and possible supply chains are required, establishment and operational costs and speed are also important, as well as local partners. According to these indicators, we are leaders in Europe. We are constantly working on process optimisation, for example, the speed of implementation of construction or design processes, improving infrastructure and improving the environment”, said the developer of Šiauliai FEZ.

For his part, T. Bär added that he chose Lithuania for the development of his company because of its convenient geographical location – it is the gateway to the Scandinavian countries, as well as the positive attitude of the institutions and the high level of technology. The fact that many people here speak English, became an important point in our decision, because this language is the main language in business.

In order to attract large foreign investors, Lithuania is trying to create the most favourable legal framework for business. According to Evaldas Rapolas, a partner at Magnusson international Baltic and Nordic business law firm, the laws in Lithuania’s free economic zones provide for attractive tax benefits that reduce the risk of companies in the first year of operation, and these benefits extend even up to 16 years.

“Instead of the standard 15 per cent corporate income tax, a zero corporate income tax rate can be applied for the first 10 years, starting from the tax period when the minimum investment amount was reached, and 7.5 per cent profit tax for an additional 6 years. The size of the minimum investment, which forms the basis for tax benefits, is set at 1 million euros for production companies and 100,000 euros for service companies. In addition, in order to receive tax benefits, at least 75% of income of these companies must come from the FEZ activities,” explained E. Rapolas.

Investors established in the FEZ also do not need to pay real estate tax, foreign investors can be exempted from taxation of dividends, when 15 per cent corporate income tax is applied to dividends as a standard in Lithuania.

E. Rapolas points out that in Europe FEZs are mostly associated with the countries of the post-communist bloc, whose economies needed or still need to be catalysed by attracting foreign investments after the collapse of the communist regimes.

“On the other hand, other countries use different measures to attract investments. For example, Sweden offers certain incentives to companies that are established in more economically sensitive, less populated parts of the country. The Swedish Agency for Economic and Regional Growth provides preferential loans to such companies, as well as regional support programs focused on infrastructure, industrial parks and employment (recruitment) grants,” said the lawyer.

Positive prospects for the future are emerging
According to G. Valuckas, Lithuania’s goal is to become one of the most attractive countries in Europe for business development, and the country is already 11th in the Doing Business rank of the World Bank’s survey of business conditions. Russia’s war in Ukraine forced us to look at the situation and the state of the country with different eyes, and to assess strengths and weaknesses, so in the long term, these lessons learned will only further strengthen Lithuania’s economic and investment positions.

“As the transfer of production projects from China to the European Union increases, all sectors will expand successfully, but Lithuania could become the centre of the “assembly” for the production sector, as we have a logistical advantage in terms of both railway, road, sea and air transport options. Moreover, one of the areas that has currently grown is the defence sector. With one of the strongest NATO bases in Šiauliai, it would be possible to successfully develop logistical production projects for the defence industry,” he added.



Evaldas Rapolas, partner for the international Baltic and Nordic law firm "Magnusson”.

Speaking about the influence of recent geopolitical events, lawyer E. Rapolas singles out the fact that Lithuania can attract companies withdrawing from Russia and Belarus that are opposed to war and authoritarian regimes, as well as companies withdrawing from Ukraine under more favourable conditions.

He pointed out that in order to speed up these processes, the Government of Lithuania approved subsidies for workplaces established by Ukrainian business entities in the Republic of Lithuania and for Ukrainian businesses that decided to start operations in Lithuania opened after 24 February 24 of this year, and will pay subsidies for incorporation and job creation. It is planned to allocate a total of up to 2 million euro for subsidies.

According to G. Valuckas, investors looking at Lithuania sometimes still name the country’s identity as a possible challenge, but the Russian war in Ukraine will change this approach, and the changes are already felt.

“Some investors, who do not yet know and understand Lithuania, usually identify us with Russian or pro-Russian states. I think now is a great time to witness that we are not. The pursuit of energy independence, both political and economic support of Ukraine, orientation towards the West, membership in NATO, improvement of the tax and investment environment are important arguments for positive evaluations,” said the Šiauliai FEZ representative with confidence.

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