From 1 January 2021 amendments to the laws on Investment, the Legal Status of Foreigners, Zoning & Planning, Land, and Employment will enter into force in Lithuania. These amendments are incentives to local and foreign investments in large projects developed in the fields of processing manufacturing, data processing or hosting services.
A large project is considered to be an investment project requiring a large project investment agreement with the state, with the investor undertaking to create at least 150 new jobs (200 when investing in Vilnius) and invests at least EUR 20 million in Lithuania (at least EUR 30 million when investing in Vilnius) in terms of private equity investments.
The incentives for large investment projects will also take the form of:
- corporate income tax reduction;
- a “green corridor” package for faster procedures in the areas of zoning and planning, construction, land management, migration and others.
Corporate income tax reduction
New large investment projects to be exempt from corporate income tax from 2021
In order to compete with other countries that can offer a much wider range of tax reductions for investment projects, Lithuania is introducing a new tax relief for large investors. Foreign and Lithuanian investment projects will be exempt from corporate income tax if they invest at least EUR 20 million (at least EUR 30 million when investing in Vilnius) and create at least 150 new jobs (at least 200 new jobs when investing in Vilnius).
The main conditions and restrictions for applying the corporate income tax reduction:
- the reduction will be applied only to new foreign and Lithuanian capital investment projects for which an investment agreement is concluded with the state;
- the reduction will not apply to investments already accumulated – existing projects that increase investment to the EUR 20/30 million threshold will not be qualify as new investors;
- the reduction will apply to organizations whose revenue from manufacturing, data processing or hosting services will account for at least 75% of revenue during the relevant tax period ‒ importantly, relief will only apply to income that the organization receives from implementing a large project;
- relief applies only to those tax periods when the organization meets both requirements for the tax reduction, i.e. investment in a large project amounts to EUR 20 million (30 million in Vilnius, and the average number of employees is at least 150 (200 in Vilnius). This reduction will apply for a maximum of 20 years from the date of entry into force of the large project investment agreement.
Corporate income tax reduction to encourage regional development
The new corporate income tax relief is very similar to the FEZ (free economic zone) reduction that has been applied in Lithuania for some time already. However, the reduction in the Law on Corporate Income Tax for large investors will not be limited to specific areas and will apply to organizations located in any part of Lithuania. This reflects another goal of the relief – to promote regional development in Lithuania.
Relief for employment of foreigners
Eased conditions for temporary residence permits for third-country citizens:
- The procedure for issuing temporary residence permits has been greatly simplified. Foreigners coming to work for a large investor are exempt from the need for a work permit, and need not satisfy qualification or work experience requirements for the job. These conditions allow investors to freely choose third-country citizens to work for them, and greatly simplify and speed up the procedure for issuing temporary residence permits, as there is no additionally need to apply to the Employment Service. It should be noted that the number of employees who can obtain a residence permit under such conditions is set in the investment agreement for a large project.
- Shortened term for issuing temporary residence permits. Temporary residence permits for a manager, shareholders or employees of a large investor are issued within 1 month. As a general rule, temporary residence permits are issued no earlier than within 2 months, with certain exceptions (e.g. highly qualified workers).
- Long validity of temporary residence permits. Permits for a manager, shareholders or employees of a large investor may be issued and changed for a term of 3 years or for a term of work/legitimate activity if it lasts for less than 3 years. As a general rule, temporary residence permits of such long validity are issued only to highly qualified workers and citizens of economically strong countries. In other cases, temporary residence permits are issued for a period of 2 years,
- Possibility to work as soon as documents for a temporary residence permit are submitted. Employees of a large investor can start working immediately after submitting documents for issuance of a temporary residence permit. By comparison, those receiving temporary residence permits on other grounds can often only start work after obtaining a temporary residence permit. This will allow the investor to operate smoothly and plan work capacity accordingly.
- Possibility to come with family members. A manager, shareholder or employees of a large investor can come to Lithuania together with their family members and obtain temporary residence permits accordingly. Currently, unskilled workers with temporary residence permits that were issued on the basis of work can bring family members only after 2 years of living in Lithuania.
Land lease and zoning & planning relief
An amendment to the Land Law from 1 January 2021:
- establishes the possibility to lease land for large projects not by auction and at a lower than market price;
- allows establishment of easements required for implementing large projects by an administrative act, applying the same compensation procedure that is laid down for compensation of easements established for public needs.
Amendments to the Law on Zoning & Planning open up the possibility of rapid planning of large projects even in those places where master plans and other spatial planning documents do not allow. The Ministry of Economy and Innovation will be able to allow planning of the place where a large investment project is to be carried out by applying the planning procedure established for projects of national importance. This procedure allows for immediate preparation of a priority spatial planning document for a project of national importance, with limited possibilities for appeal and incompatibility, and short deadlines for planning procedures, enabling planning to be completed in less than 6 months and moving on to design and obtaining a construction permit. This amendment should address situations where investors have declined to invest in areas that are potentially suitable for them because the change of master and special plans would take too long and be difficult to predict.
These reliefs are expected to attract new large foreign investment projects, promote the development of Lithuanian business and create more new jobs throughout Lithuania, especially in the regions. Additionally, during critical situations (as we have just seen during the COVID-19 pandemic) an opportunity to have manufacturing capacity in local markets significantly reduces the negative impact on business in critical situations when countries close their borders and supply chains are unstable.
Our industrial sector lawyers are ready to help and advise on all relevant legal and tax issues.