Lithuania

Economic situation

The global economic recession has hit Lithuania hard. In 2009, Lithuanian exports and imports decreased by 26.6 per cent and 38.2 per cent respectively; however, the foreign trade deficit decreased by 74.8 per cent compared to 2008. GDP grew by 2.8 per cent in 2008, but dropped sharply by 15 per cent in 2009. Lithuania's Central Bank forecasts that GDP will increase by 0.5 per cent in 2010 and 3.4 per cent in 2011. At the end of 2009 unemployment rate was 14.5 per cent; its rise has slowed but the European Commission still expects it to reach 18.2 per cent in 2011. Lithuania's Central Bank announced that average inflation in 2009 was 4.2 per cent; it is forecasting that the 2010 and 2011 rates will be 0.4 per cent and 1.6 per cent respectively. Lithuania is expected to adopt the euro in 2014.

2010 is a significant year for Lithuania's energy market. The Ignalina nuclear power plant was completely closed on 31 December 2009 to comply with obligations undertaken on joining the EU. It produced about 80 per cent of all electricity consumed in Lithuania. The closure of the power plant was followed by the creation of an open electricity market, from which it is expected that about two-thirds of all electricity will be obtained. Lithuania is obliged to derive 23 per cent of total energy consumed from renewable sources by 2020. This year it is planned to obtain 17.6 per cent of energy from such sources.

Changes in taxation and other legislation

On 1 January 2010 the rules relating to income tax and fringe benefits were updated. The right to use a company car for personal purposes by an employee is now subject to personal income tax, as well as any other benefit received from an entity related to the recipient by economic ties. Loans received with interest at lower than market rates will be adjusted to reflect economic reality and the difference taxed as ordinary income.

Corporate income tax for financial year starting 1 January 2010 has been reduced to 15 per cent from 20 per cent the previous year. Tax rate has also been reduced to 5 per cent for small companies with an annual income of less than 500,000 litas (approximately 1144,810), fewer than 10 employees and no single shareholder owning more than 50 per cent of stock.

Further to the new VAT Directive 2008/8/EC, rules for the determination of the place of provision of services have been changed. From 2010, the place of sale of services in a business-to-business sale is determined according to the place of residence of the buyer. The sale of part of a business is not subject to VAT if the taxpayer continues business activities. A taxpayer obtaining part of a business is subject to the continuity of VAT-accounting for that business. There are provisos to allow charging VAT for advance payments if goods are to be delivered in less than 12 months. A taxpayer who buys goods from or sells services to another taxable foreign entity and the place of sale is considered a foreign country will have to register as a VAT-payer immediately after the first sale.

The Lithuanian government is continuing public consultation on the law relating to insolvency of private individuals. The government has provided a project concept document for public consideration until the end of 2010. The debate has been going on for some time, with at least one draft law being rejected. Commercial banks are trying to ensure that any law, if enacted, would only cover debts acquired after the law came into force.

The Lithuanian Parliament has been asked to ratify the bilateral investment treaty between Lithuania and Tajikistan. If ratified by both countries, it should ensure security of foreign investments and have a positive influence on international trade between signatories.

Case law

In October 2009 the Constitutional Court of Lithuania ruled that a government decree requiring the revocation of an oil trading licence from a company undergoing bankruptcy proceedings was unconstitutional and infringed provisions of the Bankruptcy Law guaranteeing such a company the right to maintain normal business activities in order to protect creditors' rights.

In December 2009 the Lithuanian Supreme Court decided that parties to the court proceedings have a right to rely on the contract provision stating that a dispute must be decided relying on foreign laws. A party relying on such provision, however, must provide all relevant foreign legal provisions to the court. Lithuanian laws will be applied to the dispute if the party fails to provide such information.

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