Investing in Lithuania is getting more attractive by the hour. If you plan to start a business in Lithuania, you are making a savvy, timely decision.
This Baltic country has had one of the fastest-growing economies in Europe for the past few years, and it doesn’t show any signs of slowing down. The main reasons for Lithuania’s success are its highly educated workforce, favorable business environment, and strategic location.
Even after the crisis caused by the pandemic, the Lithuanian economy has boomed back and looks promising. Investment or entrepreneurship in Lithuania also provides all the advantages of doing business in the stable EU block.
Continue reading to discover a complete Lithuanian economy overview and the reasons why foreign direct investment in Lithuania is a wise decision.
GDP in Lithuania
The GDP or Gross Domestic Product measures the total value of all goods and services produced in a country in a given year and bought by users. It is an essential measure of the size and health of that country’s economy.
There are two definitions of GDP – nominal and real. Nominal GDP is the volume of GDP in prices of the period under review. It depends on the market price and can rise even if production remains at the same level (for example, during inflation). Real GDP – reflects the change in production volumes and is calculated in the prices of the previous period.
Lithuania’s Gross Domestic Product has been following a long-term growth trend despite the obstacles presented by the global pandemic.
In 2019, the Lithuanian GDP was 54.7 billion USD, rose to 56.55 billion in 2020, only to grow even more in 2021 and reach a total of 65.5 billion.
The current GDP in Lithuania is expected to grow by 1.9% in 2022.
GDP per capita Lithuania
An important indicator of the economic condition of the country is also GDP per capita. This index measures the total Lithuanian GDP and divides it by the country’s population, indicating the standard of living.
The GDP per capita in Lithuania is USD 18072 (measured at the end of 2021), showing growth from the previous total of USD 17213 in 2020.
Another important linked index is the GDP per capita PPP. It evaluates the purchasing power of the GDP per capita in the country and helps compare living standards between nations.
With a USD 38956 in GDP per capita PPP, Lithuania is in 44th place worldwide, more than doubling the international average.
Additionally, according to the Human Development Index, Lithuania is in the very high development category. Placed 34th globally with 0.882 points, the Baltic country has excellent education and healthcare systems, high income per capita, and high life expectancy.
Inflation rate in Lithuania
The national inflation rate measures how much prices change over time. It is a crucial metric for investors to observe as it indicates how stable the country is, how much purchasing power the currency has, and how the investments will fare in the long run.
Lithuania’s annual inflation rate in 2021 was 4.68%— lower than the US rate at 4.70%. However, 2022 is a year of a global increase in inflation. This means that Lithuania’s inflation rate is rising on par with the other countries belonging to the EU.
The unemployment rate in Lithuania
The unemployment rate indicates the percentage of unemployed individuals in a country. Keep an eye on it: a high unemployment rate might point to few opportunities for investment while low unemployment shows a thriving economy.
After an all-time low of 5.8% in 2018, Lithuania’s unemployment rate rose slightly, reaching 9.6% in 2021 during the pandemic. Today, it is at a lower 7%.
Competitiveness of the Lithuanian economy
The Global Competitiveness Index shows the extent to which a country’s economy can generate goods and services that compete internationally.
The World Economic Forum measures factors such as infrastructure and technology, education, healthcare, the labor market, political stability, ease of doing business, and innovation.
The last global report places Lithuania in 40th place worldwide with a 68.35 competitiveness index. This means Lithuania can produce goods and services at a lower cost than most countries, making it an attractive destination to investors.
According to the OECD (Organisation for Economic Co-operation and Development), Lithuania’s 2017 reforms were beneficial for its competitiveness. The effects encompass more sustainability in public finances and swifter, more inclusive growth.
As an investor, you also need to consider a country’s Sovereign Credit Rating— how worthy of credit and investment a country is. This depends on factors like the government’s and economy’s stability, the nation’s debt burden, and the risk of investing. Lithuania’s credit rating is A (high), with a stable outlook for investment.
Ease of doing business in Lithuania
A country’s rank in the World Bank’s Ease of Doing Business report indicates how favorable the overall business environment is to companies, investors, and entrepreneurs.
The factors measured encompass the simplicity of business regulations, permits, and taxation, as well as the protection of property rights. If a country’s ranking is high, investors can be confident that businesses will operate efficiently.
Lithuania’s ranking makes it 11th in the world with a total score of 81.6, above big players like the UAE, Australia, Germany, Canada, Japan, and Saudi Arabia.
The report identifies specific business advantages in Lithuania— ease of getting electricity for plants in Lithuania and legislation that protects minority investors.
Imports and exports of Lithuania
Exports of goods by Lithuanian companies amount to an annual total of $33.3B in 2020. The main products are refined petroleum, furniture, wheat, rolled tobacco, and laboratory reagents. Lithuanian brands export services for $13.7B. The leading industries are transportation, travel, construction services, and government services.
Lithuania’s annual imports of goods encompass mainly crude petroleum, cars, medicaments, and broadcasting equipment and rise to $31.5B. Service imports for $8.5B include transportation, travel, and construction services. Lithuania’s global ranking as an importer is 61st.
In 2020, Lithuania exported goods and services for a total of $47B, making it the 58th largest exporter in the world. Its ranking is increasing, as are the benefits of being part of the EU and of operating in Lithuanian ports on the Baltic.
The most important trading partners for “made in Lithuania” products are Russia, Latvia, Germany, Poland, and the Netherlands. Thanks to a central and coastal location and its membership in the EU block, there are ample opportunities for growth in international trade.
The imports and exports of Lithuania determine that, overall, Lithuania’s trade balance is at a surplus. This means the Lithuanian economy is solid.
The average salary in Lithuania
Average salaries are crucial information for investors because they can predict future demand for a company’s products or services. If average salaries increase, consumer spending will also increase, which can benefit the economy and your business.
Lithuania’s average salary was €1289 in 2019 and, in 2022, it has increased to €1789.9. This steadily rising trend predicts that in Lithuania, average wages will allow consumers to spend more and benefit businesses.
The minimum wage in Lithuania
The minimum wage in a country provides insight into the standard of living and overall prosperity. While higher minimum wages increase your company’s costs, they also mean that consumers have more disposable income to spend on your products.
In the third quarter of 2022, the minimum wage in Lithuania is €4.47 per hour and €730 per month. These numbers have risen significantly from a monthly minimum of €380 in 2018, pointing to the stability and growth of Lithuania’s economic system.
Taxes in Lithuania
Investors and entrepreneurs need to understand the taxation system of a country to make informed decisions. Lithuania’s taxes are famously favorable to business creation.
The relevant taxes in Lithuania include:
- Corporate income tax: This tax is imposed on the net income of a corporation generated within a fiscal year. It is levied from the worldwide income of Lithuanian companies, permanently established companies, and non-resident companies. The corporate income tax in Lithuania is 15% for most companies, but there are reductions to 5% for agricultural and small companies. During their first fiscal year, startups pay 0% corporate income tax up to €300.000. There are other exemptions for closely held companies.
- Personal income tax: this is levied on residents and some non-resident investors (only from the sum acquired from doing business in Lithuania). There is a threshold: the minimum non-taxable income is €300. Over time, the personal income tax is on a downward trend.
- Social insurance contributions: a company must pay a percentage of every employee’s income pre-taxation towards social security. The system mandates a contribution of upwards of 30.7%.
- Excise duty: certain imports to be sold in Lithuania (such as alcoholic beverages, tobacco, and energy products) are subject to additional taxation.
The system of taxes in Lithuania is designed to be beneficial to investors and promote development. It is highly stable and provides accessible tax treaties for foreign investors.
Conclusions on the state of the Lithuanian economy
If you want to invest or start a business in Lithuania, this is the time to act. The economy of Lithuania is stable, growing, and welcoming to new Lithuanian companies. The country is also very business-friendly, with a simple and efficient regulatory environment.
Lithuania is a promising destination for entrepreneurs and investors looking for a European base for their business. This Baltic country offers a great location with access to the EU marketplace, a highly skilled workforce, a supportive business environment, and a good investment outlook.