The Republic of Lithuania is the largest of the three Baltic States with a territory of 65,300 sq. km (around 25,200 sq. miles). The country is situated on the Eastern coast of the Baltic Sea. To the north, the Republic of Lithuania borders Latvia; to the east and the south, Belarus; and to the southwest, it has common borders with Poland and the Kaliningrad Region of the Russian Federation.
The population of the Republic of Lithuania is 2.9 million.1 The official language of the country is Lithuanian. The main religion is Roman Catholicism. Ethnic Lithuanians constitute approximately 83.45% of the total population. The capital is Vilnius, which is also the largest city in the Republic of Lithuania, with a population of 635,812.2 The other major cities are Kaunas, Siauliai, and Klaipeda.
Following a 90% positive vote in a referendum, the Republic of Lithuania joined the European Union on May 1, 2004, and adopted the euro (¬) on January 1, 2015.3
§ 68:2 Preface—State structure
The government system in the Republic of Lithuania is a parliamentary democracy. The state structure is based on the Constitution of the Republic of Lithuania, adopted by referendum held on October 12, 1992, with later numerous amendments. The parliament, the president, the government, and the courts exercise the state's power.
Legislative power lies with the unicameral parliament (Seimas), which consists of 141 members elected for a fouryear period1 Most state competencies and responsibilities are in the hands of the government,2 considered to be the highest executive authority. The state government is divided into 19 ministries, headed by the prime minister.3
The administrative division of the Republic of Lithuania is made up of 10 districts (Apskritys). The districts comprise 17 urban and 43 rural municipalities (Savivaldybes). The representative body of a municipality is the municipality council (Savivaldybes Taryba), elected for a period of four years.4
§ 68:3 Preface—Courts, arbitration courts
Lithuanian courts are organized in a four-level, threeinstance court system, which consists of (1) local courts, district courts and Vilnius District Court, (2) the Court of Appeal and (3) the Lithuanian Supreme Court.1
Non-criminal cases are divided into civil and administrative disputes. The latter are defined in the Code of Administrative offences2 and are dealt with within the administrative courts system, which consists of district administrative courts, regional administrative courts, and the Supreme Administrative Court of the Republic of Lithuania.3
The Constitutional Court of the Republic of Lithuania4 is not a part of the court system, but is an independent judicial body. Its mission is to "ensure the supremacy of the Constitution within the legal system as well as constitutional justice by deciding whether the laws and other legal acts adopted by the Seimas are in conformity with the Constitution, and whether the acts adopted by the President of the Republic or the Government are in compliance with the Constitution and laws."5
Most cases cannot be resolved in a single court hearing. Trying a case in a court of first instance may take several months, starting from the date of the receipt of the application by the court. Receipt of a final judgment on the average may last up to two years.
Proceedings in civil courts of general jurisdiction are currently governed by the Civil Procedure Code of the Republic of Lithuania (the "Code"),6 the role of which is similar to the English Civil Procedure Rules or Civil Procedure Code of France. The Code came into force on January 1, 2003.7 The aim of this substantial revision of Lithuanian civil procedure rules was to eliminate many defects in the existing civil procedure which had been compounding since the previous code was adopted into law in mid 1960s, and to consolidate the various procedural rules. The Code is publicized as constituting a modern set of rules designed to streamline the civil dispute resolution process, save time and costs of the parties to a dispute, and make the judicial system accessible and transparent. At the time of writing, it remains to be seen whether these goals can be achieved. The Supreme Court and the Lithuanian Bar have both issued extensive commentaries and opinions on the practice of implementation of the new Code, with a view to removing or resolving ambiguities and uncertainties discovered during the first 10 years of the previous Code's life.8 Some commentators are of the view that the slow speed at which civil process in the Republic of Lithuania travels is largely caused by the fact that courts of general jurisdiction hear both non commercial and complex commercial disputes.
To circumvent the lengthy proceedings of a legal dispute in the state courts, parties to a commercial agreement may agree to resolve disputes arising from such agreement in a so-called court of arbitration, established pursuant to the Law on Commercial Arbitration (which entered into force on June 30, 2012, and which superseded the previous version of 1996). This Law is heavily based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration.9 In 1996, the Vilnius Commercial Arbitration Court ("VCAC") was set up, pursuant to Article 5 of the Law on Commercial Arbitration, as the permanent body providing administration and case management support to commercial arbitration. In line with the UNCITRAL Model Arbitration Law, the VCAC has no right to hear arbitration cases itself. Its principal functions are to:
- organize and administer dispute resolution by way of arbitration;
- organize and administer resolution of disputes by other alternative means; and
- manage ad hoc arbitration and appoint arbitrators for ad hoc arbitration.
§ 68:4 Preface—Legal reform programme
The Republic of Lithuania began the reform of its legal framework upon restoration of its independence. The main task was to replace the socialist legal system with legal principles compatible with the market economy, and the proposed accession of the Republic of Lithuania to the EU. In addition, both the Lithuanian tax legislation and taxation system have undergone radical reform. All the main tax laws have been replaced. In fact, tax legislation is the most oftenchanged area of the Lithuanian legal system.
§ 68:5 Preface—International economic treaties
Since breakup of the Soviet Union, the Republic of Lithuania has concluded a number of double tax and bilateral investment protection treaties.
The double tax treaties signed by the Republic of Lithuania follow the Organisation for Economic Co-operation and Development (OECD) and United Nations (UN) model Double Tax Treaties ("DTTs"). Only a few countries have signed such treaties with the Republic of Lithuania, and even fewer have been ratified by the Seimas. As of May 5, 2015, DTTs have been entered into by the Republic of Lithuania (and ratified by its Seimas) with Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Kazakhstan, Korea, Kyrgyzstan, Latvia, Luxembourg, Macedonia, Malta, Mexico, Moldova, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Turkmenistan, Ukraine, the United Arab Emirates, the United Kingdom, the United States of America, and Uzbekistan.1 The DTTs with Morocco and Kuwait have been singed but not ratified yet. DTTs are very advantageous when it comes to withholding taxes on dividends, interest payments, and royalties paid to nonresident persons. For example, the standard rate of withholding tax on dividends paid to nonresidents is 15% while interest and royalty payments are subject to a withholding tax of 10%. These taxes can be reduced by the provisions of these DTTs. Dividends paid to foreign shareholders, holding more than 10% of Lithuanian company's share capital for more than 12 months, are tax exempt.
The standard corporate income tax rate in the Republic of Lithuania is 15%. However, small companies (i.e. those with up to 10 employees and up to ¬ 300,000 in income per year) may be entitled to a reduced rate of 5%.
In order to benefit from the many provisions provided by DTTs, investors must provide evidence of their tax residency status in the partner country. Usually, a certificate of the tax payer's residence issued by the relevant tax authority is sufficient.
The Republic of Lithuania is also a party to (and the Seimas has ratified) 55 Bilateral Investor Protection Treaties ("BITs").2 These BITs follow the EU model. Thus, all Lithuanian BITs contain EU recommended provisions on "most-favored-nation treatment," "national treatment," "fair and equitable treatment," "full security and protection," "umbrella clause," protection against unlawful expropriation, together with provisions on free movement of capital and monetary transfers. The Republic of Lithuania has been a member of the Convention on the Settlement of Investment disputes between States and Nationals of Other States ("ICSID") since August 1992.
§ 68:6 Preface—Investment climate and foreign investor associations
Between 1996 and 2008, the Republic of Lithuania was one of the fastest growing economies in Europe, with GDP growth of 7.8% in 2006, 8.9% in 2007, and 2.9% in 2008. However, due to the global economic crisis, the economy contracted almost 15% in 2009 which is comparable with a 48% in 1991–1992 contraction. Since then, the economy has regained momentum: GDP grew by 1.4% in 2010, 6.2% in 2011, 3.7% in 2012, 3.3% in 2013 and 3 % in 2014. The ongoing eurozone troubles remain a major uncertainty for the Republic of Lithuania's economic growth; nevertheless, barring a major economic upheaval, it is expected to grow 3.3% in 2015.
The Republic of Lithuania offers investors a diversified economy, investment laws that conform to EU standards, a well-educated workforce, the region's best-developed road network inherited from the Soviet period, a stable government and banking system, and proximity to Eastern European markets. EU Structural Funds of $12.4 billion were used between 2007 and 2013 to prop up the Lithuanian economy. The Republic of Lithuania's income levels still lag behind the rest of the EU, with per capita GDP (at purchasing power parity) of approximately 61% of the EU average. A large part of the skilled workforce (approximately 500,000 persons) work outside of the Republic of Lithuania and send their income to support the older generation and children at home. These two elements comprise up to 27% of per capita GDP.1
The "Invest Lithuania" Agency ("IL") is the government's principal agency dedicated to attracting foreign investment. In addition to its offices in Vilnius, and several cities of the Republic of Lithuania, IL has representative offices in Belgium, Kazakhstan and the United States (Chicago and California). To attract more foreign direct investments ("FDI"), the government of the Republic of Lithuania needs to be better at promoting the country. The government also needs to create clustered or geographically concentrated investments in certain sectors. Government initiative is needed to centralize the process of starting a business, such as a "one stop shop" for residency, land use and business registration. More flexible labor regulations would also encourage FDI. Transportation barriers, especially insufficient air links, remain an impediment to investment, as does the lack of open, transparent information on tax collections and government procurement.
Cooperating with the private sector, the present Lithuanian government is making efforts to address these barriers to investment, and has already begun to offer limited financial incentives to attract key investment in the Republic of Lithuania.
There are no notable foreign investor associations in the Republic of Lithuania, and those which do exist do not have any substantial lobbying power with the exception of the American Chamber of Commerce in the Republic of Lithuania.2
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1 Sorainen Law Offices authored the prior version of this Chapter. As of January 1, 2015. Cited from Population, sex and age group, 2015 provisional data, Statistics the Republic of Lithuania: http://osp.stat.gov.lt/e n/statistiniu-rodikliu-analize?portletFormName=visualization&hash=40af85 b4-6ef4-4b31-b852-a619c4b99714.
2 As of January 1, 2015. Cited from Population, sex and age group, 2015 provisional data, Statistics the Republic of Lithuania: http://osp.stat.gov.lt/en/statistiniu-rodikliu-analize?portletFormName=visualization&hash=40af85 b4-6ef4-4b31-b852-a619c4b99714.
1 Constitution of the Republic of the Republic of Lithuania, Chapter 5, hereinafter cited from: http://www3.lrs.lt/home/Konstitucija/Konstitucija. htm.
2 Constitution of the Republic of the Republic of Lithuania, Chapter 7.
3 Law on the Government, dated May 19, 1994, as amended, Art.1, cited here from: http://www.litlex.lt/litlex/Eng/Frames/Laws/Documents/172.HTM.
4 Constitution of the Republic of the Republic of Lithuania, Chapter 10.
1 Law on Courts, dated May 31, 1994, as amended, hereinafter cited from: http://www.teismai.lt/en/courts/legal-acts/655.
2 The Code of the Republic of Lithuania of Administrative Offences dated September 19, 2006, as amended, cited from: http://www.infolex.lt/port al/The Code of the Republic of Lithuania of Administrative Offences dated September 19, 2006, as amended, cited from: http://www.infolex.lt/portal/start_ta.asp?act=doc&fr=pop&doc=103787&title=LR%20administracini% F8%20teis%EBs%20pa%FEeidim%F8%20kodeksas.
3 Law on Courts, dated May 31, 1994, as amended, Chapter 4.
4 Law on the Constitutional Court of the Republic of Lithuania, dated February 3, 1993, as amended, hereinafter cited from: http://www.lrkt.lt/en/a bout-the-court/legal-information/the-law-on-the-constitutional-court/193.
5 Official website of the Constitutional Court of the Republic of the Republic of Lithuania: http://www.lrkt.lt/en/about-the-court/activity/competenc e/182.
6 Civil Procedure Code of the Republic of Lithuania, dated February 28, 2002, as amended: http://www.infolex.lt/portal/start_ta.asp?act=doc&fr=po p&doc=77554&title=LRcivilinioprocesokodeksas.
7 Civil Procedure Code of the Republic of Lithuania, dated February 28, 2002, as amended: http://www.infolex.lt/portal/start_ta.asp?act=doc&fr=po p&doc=77554&title=LRcivilinioprocesokodeksas.
8 In 2012-14 the Supreme Court has issued 16 interpretative opinions on various aspects of the Code. See: http://www.lat.lt/lt/biuletenis-teismu-pra ktika_112.html; the Lithuanian Bar publishes an annual collection of articles on the implementation of the Code, see e.g. Sˇiuolaikines civilinio proceso teises paskirtis. Vilnius: Registru centras, 2012.
9 UNCITRAL Model Law on International Commercial Arbitration, 1985 with amendments as adopted in 2006 http://www.uncitral.org/pdf/english/tex ts/arbitration/ml-arb/al Arbitration, 1985 with amendments as adopted in 2006 http://www.uncitral.org/pdf/english/tex ts/arbitration/ml-arb/07-86998_Ebook.pdf.
1 Information from the official website of the Ministry of Foreign Affairs of the Republic of the Republic of Lithuania: http://www.urm.lt/default/en/foreign-policy/treaties/bilateral.
2 UNCTAD, International Investment Agreements Navigator: http://inv estmentpolicyhub.unctad.org/IIA/CountryBits/121.
1 All data in this section is obtained from the IMF World Economic Outlook Database, October 2014.
2 O_cial website of the American Chamber of Commerce in the Republic of Lithuania: http://www.amcham.lt/.
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