# Investment Climate Statement

# 

[Overview 1](#overview-return-to-top)

[Openness to Foreign Investment
2](#openness-to-foreign-investment-return-to-top)

[Conversion and Transfer Policies
3](#conversion-and-transfer-policies-return-to-top)

[Expropriation and Compensation
4](#expropriation-and-compensation-return-to-top)

[Dispute Settlement 4](#dispute-settlement-return-to-top)

[Performance Requirements and Incentives
5](#performance-requirements-and-incentives-return-to-top)

[Right to Private Ownership and Establishment
6](#right-to-private-ownership-and-establishment-return-to-top)

[Protection of Property Rights
6](#protection-of-property-rights-return-to-top)

[Transparency of Regulatory System
8](#transparency-of-regulatory-system-return-to-top)

[Efficient Capital Markets and Portfolio Investment
9](#efficient-capital-markets-and-portfolio-investment-return-to-top)

[Political Violence 9](#political-violence-return-to-top)

[Corruption 9](#corruption-return-to-top)

[Bilateral Investment Agreements
10](#bilateral-investment-agreements-return-to-top)

[OPIC and Other Investment Insurance Programs
11](#opic-and-other-investment-insurance-programs-return-to-top)

[Labor 11](#labor-return-to-top)

[Foreign-Trade Zones/Free Ports
12](#foreign-trade-zonesfree-ports-return-to-top)

[Foreign Direct Investment Statistics
12](#foreign-direct-investment-statistics-return-to-top)

## Overview [**Return to top**](#ch6)

The government affords foreign investors protection equal to that
provided to domestic investors, and sets few limitations on their
activities. Foreign investors have the right to repatriate or reinvest
profits without restriction, and can bring disputes to the International
Center for the Settlement of Investment Disputes. Lithuania remains on
the Special 301 Watch List because piracy of intellectual property
remains a problem. The government harmonized the national laws governing
businesses with EU requirements, offers special incentives, such as tax
concessions, to strategic investors, and has completed nearly all major
privatizations. U.S. executives report burdensome procedures to obtain
licenses and residence permits as well as corruption, particularly in
the lower and middle ranks of government. Labor shortages, the result of
increased emigration to the EU, affect several sectors. The United
States is the seventh largest investor in Lithuania, with investments
totaling USD 243 million (3.4 percent of total FDI).

## Openness to Foreign Investment [**Return to top**](#ch6)

Lithuania has one of the fastest growing economies in Europe, with GDP
growth of 7 percent in 2004, 7.6 percent in 2005, and approximately 7.7
percent through the first three quarters of 2006. Lithuania offers
investors a diversified economy, investment laws that conform to EU
standards, a low corporate profit tax, a well-educated workforce, the
region\'s best-developed road network, a stable democratic government
and banking system, membership in the European Union, and proximity to
Eastern European markets. EU Structural Funds amounting to more than USD
12.4 billion from 2007 to 2013 should provide a boost to the economy.

Lithuania\'s income levels still lag behind the rest of the EU, with per
capita GDP (at purchasing power parity) of nearly 48 percent of the EU
average. This, combined with the gradual liberalization of the EU\'s
labor market, is encouraging emigration of Lithuania\'s labor force
abroad. Employers report labor shortages in several sectors, including
construction, healthcare, and transportation. Large investments may face
difficulty finding the necessary number of workers for production needs.
Wage inflation, which averaged 15.7 percent in 2006, is an important
factor for potential investors to consider.

The Lithuanian Development Agency (LDA) is the government\'s principal
agency dedicated to attracting foreign investment. In addition to its
office in Vilnius, LDA has representative offices in Germany, Italy, and
Belgium \-- but none in the United States.

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. Foreign investors have free access
to all sectors of economy with some limited exceptions:

\-- The Law on Investment prohibits investment of foreign capital in
sectors related to the security and defense of the State.

\-- The Law also requires government permission and licensing for
commercial activities that may pose risks to human life, health, or the
environment, including the manufacturing of, or trade in, weapons.

\-- Non-Lithuanians are generally not able to buy agricultural or
forestry land. As part of its EU accession agreement, however, the
Lithuania must eliminate this restriction by 2011. The restriction does
not apply to most non-Lithuanian individuals and organizations that have
engaged in agriculture in Lithuania for at least three years. This
restriction also does not apply to organizations that have established
representative or branch offices in Lithuania.

The Law on Investment specifically permits the following forms of
investment in Lithuania:

\-- Establishment of an enterprise or acquisition of a part or whole of
the authorized capital of an operating enterprise registered in
Lithuania;

\-- Acquisition of securities of any type;

\-- Creation, acquisition, and increase in the value of long-term
assets;

\-- Lending of funds or other assets to business entities in which the
investor owns a stake, allowing control or considerable influence over
the company; and

\-- Performance of concession or leasing agreements.

Foreign entities are allowed to establish branches or representative
offices. There are no limits on foreign ownership or control. Foreign
investors can contribute capital in the form of money, assets, or
intellectual or industrial property.

Lithuanian law protects foreign investments and investors\' rights, and
the judicial system is generally effective at upholding the enforcement
of contracts. Foreign investors are free to enforce their rights by
applying to the courts of Lithuania or directly to the International
Center for Settlement of Investment Disputes under the Washington
Convention of 1965.

Foreign investors have the right to repatriate profits, income, or
dividends, in cash or otherwise, or to reinvest the income without any
limitation, after paying taxes. The law establishes no limits on foreign
ownership or control.

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. The law obligates state
institutions and officials to keep commercial secrets confidential and
requires compensation for any loss or damage caused by illegal
disclosure.

Foreign investors are treated equitably in privatization programs. The
government has privatized most state enterprises and property, and the
State Property Fund is responsible for managing and privatizing state
assets. Major assets still under government control include the
Lithuanian electric power distribution company (Rytu Skirstomieji
Tinklai), the railway company (Lietuvos Gelezinkeliai), and Lithuania\'s
three international airports (Vilnius, Kaunas, and Klaipeda). Foreign
investors purchased the majority of state assets privatized since 1990.
These included companies in the banking, transportation, and energy
sectors. Some foreign companies have complained about lack of
transparency or discrimination in certain privatization transactions.

The State Property Fund screens the performance record and size of
companies bidding on state or municipal property and has halted
privatizations when it determined that the bidders were not suitable.

## Conversion and Transfer Policies [**Return to top**](#ch6)

The national currency is the litas. The Law on Foreign currency also
allows individuals and organizations to use the euro for domestic cash
and non-cash payments and settlements; it allows individuals and
organizations to use other foreign currency for making non-cash payments
and settlements when both parties in the transaction agree to do so.
There are no restrictions on the transfer or conversion of the litas.

Lithuania has maintained a currency board since 1994. On February 1,
2002, the government pegged the litas (LTL) to the euro (EUR) at the
rate of LTL 3.4528 to EUR 1. Prior to that date, the peg was LTL 4 to
USD 1. The government backs the litas with gold and foreign currency
reserves.

Lithuania entered the EU\'s exchange rate mechanism (ERM II) in June
2004. Its plans to adopt the euro in 2007 failed because inflation
slightly exceeded the allowable limit. Lithuania will continue to pursue
membership in the eurozone, but relatively high inflation will probably
prevent entry before 2010.

## Expropriation and Compensation [**Return to top**](#ch6)

Lithuanian law permits expropriation on the basis of public need, but
requires compensation at market value in convertible currency. The law
requires payment of compensation within three months of the date of
expropriation in the currency the foreign investor requests. (If the
government determines compensation in litas, it uses the official
exchange rate on the date of this determination.)  The compensation must
include interest (calculated on the basis of the LIBOR rate of the
relevant currency) from the date of publication of the notice of
expropriation until the payment of compensation. The recipient may
transfer this compensation abroad without any restrictions.

There have been no cases of expropriation of private property by the
Government of Lithuania since 1991. There is an ongoing process to
restitute property expropriated in the World War II and Soviet eras.

## Dispute Settlement [**Return to top**](#ch6)

The Lithuanian legal system stems from the legal traditions of
continental Europe and is in accordance with the EU\'s acquis
communautaire. New laws enter into force upon promulgation by the
President (or in some cases the Chairman of the Parliament (Seimas)) and
publication in the official gazette *Valstybes Zinios* (\"State News\").

General jurisdiction courts, dealing with civil and criminal matters,
comprise the core of the Lithuanian court system: the Supreme Court, the
Court of Appeals, district courts, and local courts. In 1999, Lithuania
established a system of administrative courts to adjudicate
administrative cases, which generally involve disputes between
government regulatory agencies and individuals or organizations. The
administrative court system consists of the Highest Administrative Court
and District Administrative Court.

The Constitutional Court of Lithuania is a separate, independent
judicial body that determines whether laws and legal acts adopted by the
Seimas, President, and the Government conform to the Constitution.

Lithuania\'s legal system provides several possibilities for commercial
dispute resolution. Parties can settle disputes in local courts or in
the increasingly popular independent (i.e., non-governmental) Commercial
Court of Arbitration. Lithuania also recognizes arbitration by foreign
courts. Courts generally operate independently of government influence.
There have been no major disputes between foreign investors and the
Government of Lithuania since independence in 1991.

Lithuania passed the current Enterprise Bankruptcy Law in 2001. This law
applies to all enterprises, public establishments, commercial banks, and
other credit institutions registered in Lithuania. The law provides a
mechanism to override the provisions of other laws regulating enterprise
activities, assuring protection of creditors\' rights, recovery of
debts, and payment of taxes and other mandatory contributions to the
State. This law establishes the following order of creditors\' claims:
claims by creditors that are secured by a mortgage/pledge of debtor;
claims related to employment; tax, social insurance, and state medical
insurance claims; claims arising from loans guaranteed or issued on
behalf of the Republic of Lithuania or its Government; and other claims.

Lithuania is a party to the Convention on the Settlement of Investment
Disputes between States and Nationals of Other States (Washington
Convention) and is a member of the International Center for the
Settlement of Investment Disputes. It is also a signatory to the 1958
New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards.

## Performance Requirements and Incentives [**Return to top**](#ch6)

Lithuania provides special incentives to strategic investors. The
criteria by which the national government or a municipality designates a
strategic investor vary from project to project. In general, the
national government requires that a strategic investor invest USD 50
million or more. Municipalities may tie the designation criteria, such
as the number of jobs created and the environmental benefits that
accrue. Strategic investors\' rewards include special business
conditions, such as favorable tax incentives for up to ten years.
Significant tax incentives apply to foreign investments made before
1997. Municipalities may grant special incentives to induce investments
in municipal infrastructure, manufacturing, and services. The government
intends to publish a long-delayed national investment strategy in 2007
which should expand the array of incentives provided to potential
investors.

Government Resolution No. 918 of July 15, 2003 requires offset
agreements as a condition for awarding contracts to procure military
equipment valued at more than LTL 5 million (USD 1.9 million). Offsets
are obligations the government imposes that require companies to provide
services, create jobs, or purchase local goods as a condition for the
contract\'s award. Bidders can negotiate the exact terms of the offset
agreement with the government.

Foreign investors have the same rights as local firms to participate in
government-financed and -subsidized research and development (R&D)
programs.

There are no requirements for local content or purchasing from local
sources as a condition for investment or public purchases.
Municipalities may ask investors to develop roadways or other
infrastructure adjoining their project, but such proposals are subject
to negotiation. Lithuania\'s EU membership has given foreign firms the
additional right to appeal adverse governmental rulings to the European
Court of Justice. Lithuania\'s \"Law on Public Procurement,\" which came
into effect on March 1, 2003, is in accordance with the EU\'s *acquis
communautaire*.

Some foreign investors, including U.S. citizens, report difficulties in
obtaining and renewing residency permits. U.S. citizens can stay in
Lithuania no more than 90 days without a visa (and no more than 90 days
in any six-month period). Those who stay longer face fines and
deportation. In principle, Lithuanian embassies and consulates abroad
are able to assist by reviewing documentation required for a permit.
However, foreigners may actually submit residency permit applications
only after they arrive in Lithuania. By law, the Migration Department is
allowed six months to issue U.S. citizens residence permits, but in
recent years they have done so in less than three months, on average.
This timing does not include processing for work permits or other
documentation, which must be started before applying for a residence
permit. The Embassy is aware of cases where American citizens were asked
to leave Lithuania solely because their application for a residence
permit was not processed within the 90 days for which they were
initially admitted.

## Right to Private Ownership and Establishment [**Return to top**](#ch6)

Foreign and domestic private entities have the right to establish,
acquire, and dispose of interests in business enterprises. The laws of
the Republic of Lithuania protect rights and legal interests of both
domestic and foreign investors. Lithuania has privatized most
enterprises. Where state-owned companies and private companies compete
for public or private contracts, they do so on legally equal terms.

The Law on Investments describes the basic principles defining the
treatment of foreign investments in Lithuania. Foreign investors have
the same rights and obligations relating to commercial activities as
local investors. They have the right to transfer profit (income) owned
as private property without any restrictions after paying taxes.
Generally, foreign investors have free access to all sectors of the
economy. However, Lithuanian law prohibits investment of capital of
foreign origin in sectors relating to security and defense of the State.

Lithuania introduced a law restricting monopolies in 1993.

## Protection of Property Rights [**Return to top**](#ch6)

Lithuanian law protects foreign investments and the rights of investors
in several ways.

\-- The Constitution and the Law on Foreign Capital Investment protect
all forms of private property against nationalization or requisition.

\-- International agreements offer protections, such as the 1958 New
York Convention on the recognition and enforcement of foreign arbitral
awards.

\-- Bilateral agreements with the United States and other western
countries on the mutual protection and encouragement of investments
reinforce these protections.

\-- The law on capital investment in Lithuania and other acts regulate
customs duties, taxes, and relationships with financial and inspection
authorities. This law also establishes the procedures of dispute
settlements.

\-- In the event of justified expropriation, applicable law entitles
investors to compensation equivalent to the market value of the
expropriated property.

\-- Foreign investors may defend their rights under the Washington
Convention of 1965 by applying to either Lithuanian courts or directly
to the International Center for the Settlement of Investment Disputes.
To date, Lithuania has not been involved in any major investment
disputes with American or other foreign investors.

\-- State institutions and officials are obligated to keep commercial
secrets confidential and must pay compensation for any loss or damage
caused by illegal disclosure. Lithuania legalized the possibility of
hiring private bailiffs to enforce court judgments in 2003.

Lithuania\'s commercial laws conform to EU requirements, and include the
principles of the free establishment of companies, protection of
shareholders\' and creditors\' rights, free access to information, and
registration procedures. These laws include the following: the \"Company
Law\" and \"Law on Partnerships\" (last modified January 1, 2004), the
\"Law on Personal Enterprises\" (January 1, 2004), the \"Law on
Investments\" (1999), the \"Law on Bankruptcy of Enterprises\" (2001),
and the \"Law on Restructuring of Enterprises\" (2001).

The Civil Code of 2000 governs commercial guarantees and security
instruments. It provides for the following types of guarantee and
security instruments to secure fulfillment of contractual obligations:
forfeiture, surety, guarantee, earnest money, pledge, and mortgage.

Lithuania joined the World Intellectual Property Organization (WIPO) in
2002 and the World Trade Organization (WTO) in 2001. It is also a
signatory to the following IPR-related treaties and conventions:

\-- The Paris Convention for the Protection of Industrial Property in
1990 (effective May 22, 1994);

\-- The Berne Convention for the Protection of Literary and Artistic
Works of 1886 (effective December 14, 1994);

\-- The Rome Convention for the Protection of Performers, Producers of
Phonograms and Broadcasting Organizations of 1961 (effective July 22,
1999);

\-- The Nice Agreement Concerning International Classification of Goods
and Services of 1957 (effective February 22, 1997);

\-- The Madrid Protocol of 1989 (effective November 15, 1997);

\-- The Patent Cooperation Treaty of 1970 under the auspices of WIPO
(effective July 5, 1994);

\-- The Conventions on the Grant of European Patents (December 1 2004);

\-- The WIPO Copyright Treaty of 1996 (effective March 6, 2002);

\-- The WIPO Performances and Phonograms Treaty of 1996 (effective May
20, 2002); and

\-- The Trademark Law Treaty of 1994 (effective April 27, 1998).

Lithuania enacted regulations in 2002 to protect confidential test data
that pharmaceutical firms submit for patent and trademark registration.
Following EU accession, Lithuania extended protection to member states\'
trademarks, designs, and applications. Lithuania brought its national
law protecting biological inventions into compliance with EU Directive
98/44 in June 2005.

Lithuania remains on the Special 301 Watch List. The country remains a
transshipment point for pirated optical media products from the East,
particularly Russia, to Europe. Lithuania\'s parliament amended the
country\'s Copyright Law in October 2006, bringing it into line with the
EU\'s copyright directive. The rate of optical media and software piracy
in 2005 was estimated by one industry group to be extremely high.

## Transparency of Regulatory System [**Return to top**](#ch6)

The World Bank\'s \"Doing Business\" survey, which evaluates according
to ten criteria the ease of doing business in 175 countries, gave
generally high marks to Lithuania, ranking it 16th in 2006. Lithuania
scored especially high in the categories of \"registering property\"
(third) and \"enforcing contracts\" (fourth). It did less well in the
categories of \"hiring and firing\" (119th) and \"protecting investors\"
(60th). According to this report, registering a company takes
approximately 26 days and requires seven procedures.

The legal system of the Republic of Lithuania recognizes generally
accepted principles of the legal regulation of investments and subjects
both Lithuanian and foreign investors to equal business conditions.

Red tape remains a problem. Local business leaders complain that
bureaucratic procedures often are not user-friendly and that the
interpretation of regulations is too often inconsistent and unclear.

Businesses and private individuals complain of corruption, including in
the process of awarding government contracts and the granting of
licenses and permits.

Businesses also complain that they have little opportunity to influence
new legislation and that new legislation sometimes appears with little
advance notice. Modern technology, however, may alleviate this problem:
the parliament\'s website contains all draft laws currently before it.
Ministries also post many, but not all, draft laws under consideration.

The tax code for businesses was changed in 2006. As of January 1, 2006,
the government raised the tax on corporate profits from 15 to 19
percent. It currently plans to return the tax on corporate profits to 15
percent in 2008. In July 2006, the government decreased personal income
tax from 33 to 27 percent. The rate is scheduled to drop in January 2008
to 24 percent. The Lithuanian government, however, has announced that it
may move this tax cut forward to mid-2007. The government also
introduced in 2006 an annual tax of one percent of the market price on
real estate owned by individuals that is used only for commercial
purposes.

## Efficient Capital Markets and Portfolio Investment [**Return to top**](#ch6)

Government policies do not interfere with the free flow of financial
resources or allocation of credit. In 1994, Lithuania accepted the
requirements of Article VIII of the Articles of Agreement of the
International Monetary Fund to liberalize all current payments and to
establish non-discriminatory currency agreements. Lithuania ensures free
movement of capital and does not plan to impose any restrictions. The
government imposes no restrictions on credits related to commercial
transactions or the provision of services, nor on financial loans and
credits. There are no restrictions on non-residents opening accounts
with commercial banks.

The banking system is stable, well-regulated and conforms to EU
standards. Dozens of banks operate in Lithuania: nine banks under
license of the Bank of Lithuania, branches of two foreign banks, three
foreign bank representative offices, 66 credit unions, and the Central
Credit Union of Lithuania, which acts as a central bank for Lithuania\'s
credit unions. Following the completion of the bank privatization
process in 2002, the share of banking capital held by foreign investors
increased to 87.5 per cent. Nearly all foreign banks are under German or
Scandinavian control. Growth in loans slowed to 54.7 percent by November
2006, down from record-setting growth in 2005.

There is no restriction on portfolio investment. The right of ownership
to shares acquired through automatically matched trades is transferred
on the third working day following the conclusion of the transaction.
The Vilnius Stock Exchange is part of the OMX group of exchanges and
offers access to 80 percent of all securities trading in the Nordic and
Baltic marketplace.

Three authorities supervise financial markets. The Bank of Lithuania
supervises commercial banks and credit unions, the Securities Commission
supervises the securities market, and the Insurance Supervisory
Commission supervises insurance companies. The law requires these
institutions to cooperate with appropriate EU authorities.

## Political Violence [**Return to top**](#ch6)

Lithuania has not witnessed any incidents involving
politically-motivated damage to projects and/or installations. There are
no nascent insurrections, belligerent neighbors, or other
politically-motivated violence.

## Corruption [**Return to top**](#ch6)

There is a general perception in Lithuanian society that corruption is
common. More than 50 governmental institutions regulate commerce in one
way or another, creating plenty of opportunities for corrupt practices.

Large foreign investors report few problems with corruption. On the
contrary, most large investors report that high-level officials are
often very helpful in solving problems fairly. In general, foreign
investors say that corruption is not a significant obstacle to doing
business in Lithuania and describe most of the bureaucrats they deal
with in Lithuania as reasonable and fair.

Small and medium enterprises (SME) perceive themselves as more
vulnerable to petty bureaucrats and commonly complain about extortion.
SMEs often complain that excessive red tape virtually requires the
payment of \"grease money\" to obtain permits promptly. Business owners
maintain that some government officials, on the other hand, view SMEs as
likely tax-cheats and smugglers, and treat the owners and managers
accordingly.

Paying or accepting a bribe is a criminal act. Lithuania established in
1997 the Special Investigation Service (Specialiuju Tyrimu Tarnyba)
specifically to fight public sector corruption. The agency investigates
approximately 100 cases of alleged corruption every year, but has yet to
bring charges against high-level officials for corrupt practices. Some
business leaders and government officials report that establishing an
institutional framework to fight corruption was high on the
government\'s agenda when Lithuania was seeking membership in the EU and
NATO, but they suggest that combating corruption is less of a priority
now. The government\'s new prime minister, however, has identified
corruption as a priority for his government, and has stated his
intention to resign if the incidence of corruption has not fallen in the
coming year.

Lithuania ratified the UN Convention Against Corruption in December
2006. Lithuania also hosts a representative office of Transparency
International (TI). TI ranked Lithuania 46th in its 2006 Perceptions of
Corruption Index with a score of 4.8. (TI considers countries with a
score below 5.0 to have serious problems with corruption.)  This score,
up from 4.6 in 2004, reflected some improvement but no change in
ranking.

## Bilateral Investment Agreements [**Return to top**](#ch6)

Lithuania joined the European Union on May 1, 2004. In doing so, it
joined all EU trade agreements with third countries and international
organizations. Lithuania also delegated its international trade policy
function to the EU Council and the European Commission. As a
consequence, Lithuania had to revoke all of its bilateral free trade
agreements signed before its accession to the EU.

The United States and Lithuania have signed and ratified the following
agreements and treaties:

\-- A charter of partnership between the United States, Estonia, Latvia,
Lithuania;

\-- A bilateral investment treaty that ensures reciprocal investment
protection and encourages additional investment;

\-- Treaty on avoidance of double taxation;

\-- Treaty on legal assistance in criminal matters;

\-- Extradition treaty;

\-- Agreement on social security; and

\-- Agreement on cooperation in preventing proliferation of weapons of
mass destruction and promotion of defense and military relations.

## OPIC and Other Investment Insurance Programs [**Return to top**](#ch6)

Coverage from the Overseas Private Investment Corporation (OPIC) is
available for U.S. investments in Lithuania. Lithuania is a member of
the Multilateral Investment Guarantee Agency (MIGA). Lithuania\'s fully
convertible currency, the litas, is pegged to the euro and its exchange
rate against the U.S. dollar fluctuates on a daily basis. On January 2,
2007, the exchange rate was USD 1 = LTL 2.62. Lithuania plans to adopt
the EU\'s common currency (euro), but is unlikely to meet the
eurozone\'s entry requirements until 2010, at the earliest.

## Labor [**Return to top**](#ch6)

Lithuanian labor is inexpensive compared with Western Europe, but a
shrinking labor force has pushed the salaries up by more than ten
percent, annually, for three consecutive years, and employers complain
about high personnel-related taxes. Employment regulations are often
stricter than in other EU countries.

By law, white-collar workers have a 40-hour workweek. Blue-collar
workers have a 48-hour workweek with premium pay for overtime. There are
minimum legal health and safety standards for the workplace. However,
worker complaints indicate that employers do not always observe these
standards. Lithuania is a member of International Labor Organization
(ILO) and adheres to its conventions.

The government adjusts the monthly minimum wage regularly. At the end of
2006, Lithuania\'s minimum monthly wage was USD 220; the government
plans to increase this to nearly USD 300 by 2008. The average monthly
wage is approximately USD 600. Average salaries increased by more than
10 percent in 2005 and nearly 16 percent in 2006.

Membership in the EU, and the consequent ability of Lithuanians to work
legally in several EU countries, has generated a sizable outflow of
labor. The national labor exchange reports a shortage of skilled
construction workers, truck drivers, shop assistants, medical nurses,
and medical specialists. Press reports and anecdotal information from
business leaders suggest that some companies are facing serious problems
finding both skilled and unskilled workers. Business leaders claim that
government regulations make it difficult to hire foreigners, especially
citizens of the former Soviet Union, to compensate for the lack of local
labor. The outflow of labor has led to extremely low unemployment
compared with other EU members; Lithuania\'s registered unemployment
rate was 3.7 percent as of January 2007.

Lithuania\'s management-labor relations are good and labor unions are
weak. There have been no major strikes or labor disruptions since the
country\'s independence in 1991.

Some business leaders claim that the 2002 Labor Law lacks flexibility
and increases the cost of production by making it harder to hire and
fire labor. This is a particular complaint of businesses that experience
seasonal fluctuations in labor needs.

## Foreign-Trade Zones/Free Ports [**Return to top**](#ch6)

Lithuania has two Free Economic Zones (FEZ): one in Klaipeda, the
country\'s largest seaport, and one in Kaunas, an air, road, and rail
hub. There are currently eight businesses either operating or about to
start operation in the Klaipeda FEZ, with an estimated USD 410 million
in total foreign investment. The Klaipeda FEZ management company
reported that in 2006 it was negotiating with ten new potential
investors interested in doing business in the zone. Established in 1996,
the Kaunas FEZ announced its first investment only in late 2005 and
signed agreements with three more investors in 2006.

Lithuania\'s EU accession agreement permits the indefinite operation of
existing FEZs, but precludes the establishment of new ones. Foreign
firms operating in the FEZs have the same opportunities and benefits as
local companies.

Companies operating within the zones enjoy:

\-- Six years\' exemption from corporate income tax and 50 percent
reduction during the following 10 years (if the company invests more
than USD 1.2 million;

\-- Exemption from real estate tax; and

\-- A 50 percent discount on land leases.

## Foreign Direct Investment Statistics [**Return to top**](#ch6)

The United States is the seventh largest investor in Lithuania. American
investments (stock) totaled USD 257 million (July 1, 2006,), accounting
for approximately 3 percent of total FDI in Lithuania. There are 190
U.S. companies registered in Lithuania, and more than 590 U.S. companies
have representatives in the country.

Total accumulated FDI was USD 8.7 billion as of July 2006, representing
approximately 30 percent of GDP.

Although Russia is now the single largest investor in Lithuania, more
than 69 percent of FDI stock in Lithuania comes from EU countries. FDI
(stock) from EU countries reached slightly more than LTL 16 billion (USD
5.9 billion) in 2006. More than 36 percent of the FDI stock is invested
in the manufacturing sector, 13.6 percent in financial intermediation,
13.3 percent in trade, and 12.3 percent in transport, storage and
communication.

The countries with the most foreign investment (stock) in Lithuania as
of July 2006 are:

\-- Russia: USD 1791.9 million, 21.1 percent of FDI;

\-- Denmark: USD 1294.9 million, 15.2 percent;

\-- Sweden: USD 1020.6 million, 12.0 percent;

\-- Germany: USD 896.5 million, 10.5 percent;

\-- Estonia: USD 655.2 million, 7.7 percent;

\-- Finland: USD 599.4 million, 7.0 percent; and

\-- United States: USD 257.8 million, 3 percent.

Lithuanian businesses are expanding abroad, with investments totaling
USD 955 million. Investments into traded goods make up 46.9 percent of
Lithuanian investments abroad, followed by manufacturing (22.7 percent),
financial intermediation (9.6 percent), and transport, storage, and
communication enterprises (9.6 percent) of total Lithuania's FDI abroad.

The top destinations for Lithuania\'s investments abroad are:

\-- Latvia: USD 380.8 million, 34.8 percent of FDI abroad;

\-- Russia: USD 144.3 million, 13.2 percent; (investment in Russia\'s
Kaliningrad region accounts for USD 88.9 million, 8.1 percent);

\-- Ukraine: USD 286.6 million, 9.7 percent;

\-- Estonia: USD 72.7 million, 6.7 percent;