Transparency of the Regulatory System
The regulatory system remains a challenge for some investors. Local business leaders report that bureaucratic procedures often are not user-friendly and that the interpretation of regulations is inconsistent and unclear. Businesses and private individuals complain of low-level corruption, including in the process of awarding government contracts and the granting of licenses and permits. Businesses also note that they would like to have more opportunity to consult with lawmakers regarding new legislation and that new legislation sometimes appears with little advance notice.
However, the government is making efforts to improve transparency using technology. For example, the parliament’s (Seimas) website contains all draft legislation, and public tenders must be published electronically in a central database. Ministries also post many, but not all, draft laws under consideration. All government procurement tenders are required to be posted on-line on a centralized database. In March 2014, Transparency International released a report which recommended adopting laws aimed at protecting whistle-blowers, encouraging lobbying transparency, preventing and controlling conflicts of interest, and increasing transparency in political party funding, little of which has the Seimas addressed. The World Bank’s Doing Business Report ranked Lithuania 21st out of 190 in 2017. Lithuania scored especially high in the categories of Registering Property (2nd) and Starting a Business (29th). It did less well in the categories of Getting Electricity (55th) and Resolving Insolvency (66th).
International Regulatory Considerations
In accordance with its European Union membership since 1 May 2004, Lithuania applies the European Union trade policy such as antidumping or anti-subsidy measures. The European Union import regime applies to Lithuania. The country is a member of the WTO and it notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.
Legal System and Judicial Independence
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 Seimas) and publication in the official gazette, Valstybes Zinios (State News). Several possibilities exist 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 judgments by foreign courts. Domestic courts generally operate independently of government influence. Lithuania’s EU membership has given foreign firms the additional right to appeal adverse court rulings to the European Court of Justice.
The Lithuanian court system consists of general jurisdiction courts dealing with civil and criminal matters, and includes 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 High Administrative Court and District Administrative Courts.
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.
Laws and Regulations on Foreign Direct Investment
Lithuanian law provides for foreign entities to establish branches or representatives offices, and there are no limits on foreign ownership or control. A foreign majority holding interest in the capital of a local company is legal in Lithuania. There are no particular regulations or obligations to declare for foreign investment. However, there are some areas of the economy where investment is limited, such as investment in sectors related to the security and defense of the State, and licensing is necessary for activities related to human life, health and which are potentially risky. State investment promotion agency Invest Lithuania provides a detailed overview of the relevant laws regulations on foreign investment. https://investlithuania.com/why-lithuania/business-environment/
Competition and Anti-Trust Laws
There is a domestic Competition Council, which is responsible for the prevention of competition law violations. For more information: http://kt.gov.lt/en/index.php
Expropriation and Compensation
Lithuanian law permits expropriation on the basis of public need, but requires compensation at fair market value in a convertible currency. The law requires payment of compensation within three months of the date of expropriation in the currency the foreign investor requests. The compensation must include interest calculated 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 Lithuanian government since 1991. There is an ongoing process to return property expropriated in the World War II and Soviet periods. While the Lithuanian government has returned most of this property, including Jewish communal property, in 2011, private property restitution remains incomplete.
ICSID Convention and New York Convention
Lithuania is a member state to the International Centre for the Settlement of Investment Disputes (ICSID) Convention. It is also a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Lithuania law recognizes and enforces arbitral body decisions.
Investor-State Dispute Settlement
According to Lithuanian law, SOEs have no privileges in conducting business, competing for supply, and/or in implementing projects, enforcing contracts, and accessing finance. While 2013 Baltic Institute for Corporate Governance (BICG) report suggested that there have been cases of SOE executives extracting benefits for their own personal gain by way of guided tenders, exercising favoritism when selecting providers of goods or services, or giving business to friends and family members, the Embassy has no records of complaints from either foreign or domestic companies regarding the outcome of dispute settlement cases with state companies.
International Commercial Arbitration and Foreign Courts
According to the Lithuanian Arbitration Court, the trial process takes up to six months, but depending on a complexity of a case and with agreement of both parties, it can be extended. Also, before the legal proceedings start, the Arbitration Court has 30 days to decide if it will accept the case and three months to prepare all the needed materials for the trial process. If parties are not satisfied with the decision of Lithuanian Arbitration Court, they can appeal to international institutions.
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. Bankruptcy can be criminalized in cases of intentional bankruptcy.