Lithuania

Saladžius & Partners

The principle legal act establishing the legal framework for investment in Lithuania is the Law on Investments. The Law establishes rights and duties of the investors, protection of investments, and types of investments

According to the Law on Investments the investor can invest (1) by setting up an entity, acquiring the capital of an entity registered in the Republic of Lithuania or a share therein; 2) by acquiring securities of all types; 3) by creating, acquiring longterm assets or increasing the value thereof; 4) by lending funds or other assets to economic entities, in which the investor owns a share in the capital enabling it to control the economic entity or to exert a considerable influence over the economic entity; 5) by implementing concession contracts and contracts of financial lease (leasing). It is noteworthy that the Government of the Republic of Lithuania and the Government of the United States of America have concluded bilateral agreement on Investment Incentive and Treaty for the Encouragement and Reciprocal Protection of Investment.

Establishing a Legal Entity

Lithuanian laws provide for a variety of forms of legal entities to be established. Foreign investors may also establish in Lithuania a representative office, a branch or a permanent establishment.

Legal acts provide for these types of legal entities among others:

• Private limited liability company (UAB);
• Public limited liability company (AB);
• Individual enterprise;
• General partnership (TUB);
• Limited partnership (KUB);
• Agricultural company;
• Cooperative company;
• European company (Societas Europeae);
• European cooperative company (Societas Cooperative Europeae);
• European economic interest grouping.

All legal persons are subject to registration with the Register of Legal Entities of the Republic of Lithuania. The company (legal person) is deemed to be established upon its registration with the abovementioned Register. The most common type of company established in Lithuania is private limited liability company (UAB). A private limited liability company is a legal person, the authorised capital of which is divided into shares. The shareholders are liable only for the amount that must be paid for the shares, ie the assets of the shareholders are separated from the assets of the company.

A private limited liability company may be incorporated both by legal or natural persons for either a limited or unlimited period of time. The minimum authorised capital of a private limited liability company is LTL 10,000 (approximately USD 3,773). The minimum authorised capital of a public limited liability company is LTL 150,000 (approximately USD 56, 593). The shares of a public limited liability company can be publicly traded in the stock exchange.

Tax Law

The Law on Tax Administration provides an exclusive list of taxes applied in the Republic of Lithuania. Lithuania is a signatory of numerous bilateral agreements on avoidance of double taxation (including a double taxation avoidance agreement with the United States of America).

Currently tax benefits are provided for foreign investors, who develop their business in free economic zones. Certain incentives are provided for small enterprises or companies which employed handicapped people. The standard corporate tax rate for the companies is 15%. Small enterprises with the annual income not exceeding LTL 500,000 (approximately USD 188,644) and an average number of employees not exceeding 10 enjoy 13% profit tax rate. In addition, companies are subject to a social tax of 3% of their taxable profit. The social tax is a temporary one and shall not be applied from the year 2008.

A 15% tax rate is applied to dividends received by a Lithuanian company from other Lithuanian or foreign companies. Foreign companies are subject to certain withholding taxes on certain source income derived in Lithuania. Application of withholding taxes should always be checked with existing bilateral agreements on avoidance of double taxation.

In general, the VAT regime is fully harmonised with the European Union’s VAT regime. Standard VAT rate is 18%. Tax rates of 5%, 9% or 0% are applied to certain products (services) as established by legal acts. The company shall register as a VAT payer if its income over a period of 12 months exceeds LTL 100,000 (approximately USD 37,729). There are other taxes that shall be paid by an investor depending on the method and form chosen for investments, ie social security tax for employed personnel, individual income tax, excise duty, pollution tax, land and real estate taxes, etc.

Intellectual Property Law

Intellectual property relations are regulated by several legal acts, in particular by the Law on Copyright and Related Rights, Law on Trade Marks, Patent Law, Law on Designs, some other laws and regulations. There are some EU regulations related to intellectual property rights that are directly applicable in Lithuania. Lithuania is also party to numerous international treaties and conventions establishing protection of intellectual property objects. Objects of copyright and related rights do not require registration in the Republic of Lithuania. Protection is also guaranteed to computer programs and databases. Patents, trade marks and designs are subject to registration with the relevant register in order to be protected. The company name is protected in accordance with provisions of the Civil Code. The company name is considered as a part of the intellectual property of the company.

Labor and Employment Law

The principal legal act establishing main principles of labor and employment law is the Labor Code. There are several other legal acts and regulations establishing provisions on health and safety of employees, trade unions and labor councils, state social insurance and other issues. The Labor Code requires a written employment agreement with each employee in the form approved by the Government of the Republic of Lithuania and having all the essential provisions as required by the Labor Code.

The remuneration for work is one of the essential provisions of the employment contract. Employee’s hourly and monthly rates may not be less than established by the Government of the Republic of Lithuania. As of 1 January 2007 the minimum hourly rate is LTL 3.66 (approximately USD 1.38), the minimum monthly rate is LTL 600 (approximately USD 226). An increased salary shall be paid for overtime work, as well as for night, weekend and public holidays work. An alien seeking to work in Lithuania is required to obtain a work permit (this requirement is not applicable to EU citizens or their family members). Also the alien shall obtain a permit for temporary or permanent residence in Lithuania, unless legal acts do not require work or/and resident permits.

Mergers and Acquisitions

The principal laws regulating mergers and acquisitions are the Civil Code, the Law on Stock Companies, the Law on Securities Market, the Law on Competition and certain by-laws. There are several ways of acquiring control of a company in Lithuania, the most popular of which are: (1) acquisition of shares of the target company by concluding a written shares sale-purchase agreement, (2) acquisition of assets as well as rights and obligations of the company as provided by the Civil Code, (3) acquisition of certain assets in the Lithuanian company (assets deal).

The companies could be merged by way of merging two or more companies to form a new one (combination merger), or the merging of one company into another (absorption merger). The competition law regulations shall be considered in each merger and acquisition transaction, since competition clearance might be required in certain cases established by Lithuanian laws or EU regulations.

Disclaimer

The information provided herein is of a general nature and shall not be construed as a legal advice or legal opinion. We strongly recommend the seeking of legal advice on any specific question on investing in the Republic of Lithuania.

 

 

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