Lithuania: Jet to Let Guide to Lithuania

The story so far…

Lithuania was a significant power in the Middle Ages and subsequently part of Poland. By the end of the 18th century the majority of the country came under the Russian Empire until it declared independence in 1918, which it retained until annexed by the Soviet Union in 1940. It later came under German occupation and was reoccupied by the Soviet Union in 1945. The establishment of the independent state of Lithuania in 1990 brought 50 years of Communist rule to an end.

Since then, Lithuania and the other Baltic countries have sought closer political and economic ties with the West. Lithuania has actively pursued privatisation of major industries while keeping inflation and unemployment under control. Estonia, Latvia and Lithuania are now referred to as the Baltic Tigers and since 2001 their economies have consistently averaged seven per cent growth per annum.

Where is it?

The Republic of Lithuania shares borders with Latvia to the north, Belarus to the south-east, Poland to the south and Russia to the south-west, as well as a Baltic coastline to the west. The country has a total territory of 65,303km squared.

What is the weather like?

The weather in Lithuania is similar to that of the other Baltic States with wet moderate summers and winters with regular rainfall and snow.

Language

Lithuania has an estimated population of 3.6 million people, consisting of mainly ethnic Lithuanians (83.4 per cent) and two ethnic minorities – Polish (6.7 per cent) and Russian (6.3 per cent). The official language is Lithuanian, spoken by 82 per cent of the population. English is widely spoken as a second language.

Currency

The Litas (LTL) is the Lithuanian currency and is equal to 100 Centas. Lithuania is forecast to adopt the euro on 1 January 2007, making it one of the first new accession countries to do so. This is dependent on meeting strict economic terms set by the European Union (EU). The Litas is pegged to the euro at LTL 3.4582: € 1.

Politics

The Republic of Lithuania is a parliamentary democracy. The present centre-left government coalition is made of the Social Democratic Party, the New Union, the Farmers and New Democracy Union and the Labour Party. Algirdas Mykolas Brazauskas, a former President of Lithuania, has served as Prime Minister since 2001. Since 1991, political control has swung between the Conservatives and the Democratic Labour Party of Lithuania. The current centre-left coalition, formed in 2001, has actively pursued policies of economic reform and membership of both NATO and the EU. President Rolandas Paksas, formerly Lithuania’s Prime Minister, was impeached by parliament in 2004 on corruption charges. He was replaced by the current President Valdas Adamkus.

Economy

In the 1990s, the majority of Lithuania’s trading partners were former Soviet states, but the Russian economic crisis of 1998 prompted a recession in Lithuania which forced a shift in economic focus towards the West. Firm fiscal policies, large-scale privatisation (especially in the financial sector) and foreign direct investment (FDI) put Lithuania on the way to economic recovery and expansion.

Economic growth levels have been strong since 2001, driven by private sector spending and exports. Services have expanded rapidly since Lithuania’s independence and now account for 60 per cent of its gross domestic product (GDP). Modern Lithuania is growing at a fast pace with low inflation, but unemployment remains a problem, especially in the rural areas.

Lithuania’s economy has performed robustly and it continues to sustain strong economic growth. The country received €1.521 million between 2004 and 2006 for regional development. The Lithuanian government is currently focused on improving the country’s business environment and attracting more FDI, but it’s some way short of the achievements of both Estonia and Latvia.

Vilnius is the economic heart of Lithuania and one of the largest financial centres in the Baltic region. It generates approximately 35 per cent of Lithuanian GDP, even though it has only 15 per cent of the country’s population.

Economic growth

The European Commission reports that Lithuania’s GDP is expected to grow by 6.2 per cent in 2006. Real growth has been robust over the last five years and Lithuania’s GDP per capita was €11,900 in 2005. The per capita GDP in Vilnius was approximately €26,100 in 2005, above the EU average.

Year Real growth of GDP (%)
2000 3.9
2001 6.4
2002 6.8
2003 9.7
2004 6.7
2005 7.4

Source: Eurostat, the Statistical Office of the European Communities

Inflation

According to the European Commission, annual inflation was 2.7 per cent in 2005 due to increased costs of healthcare, energy, transport and food.

Interest rates

The Central Bank short-term rate in March 2006 was 2.81 per cent.

Unemployment

Unemployment has halved in the last five years, mostly due to a growing economy and more employment opportunities. Long-term unemployment has been steadily declining, but it still accounts for more than 50 per cent of all of those without jobs.

Unemployment rate (percentage unemployed)
2000 16.4
2001 16.4
2002 13.5
2003 12.7
2004 10.9
2005 8.2

Source: Eurostat, the Statistical Office of the European Communities

Foreign direct investment (FDI)

Lithuania is an attractive investment country with a large and diversified economy, investment laws that conform to EU standards and low Corporation Tax. It needs to attract more FDI in order to maintain its competitiveness, although large inflows of capital from EU funding should provide a boost to the economy.

Foreign direct investment in Lithuania (€ million)
Year Real growth of GDP (%)
1999 456.6
2000 412.3
2001 602.6
2002 771.7
2003 159.9
2004 623.0
2005 806.9

Source: Bank of Lithuania

The property market

Lithuania is known for its strong economy and low inflation. It has good jet-to-let investment potential as property prices continue rising at over 15–20 per cent annually. This is driven by a continually increasing demand for high-quality apartments and houses.

Demand for modern properties remains high while supply is low and Lithuania has one of the lowest numbers of dwellings per 1,000 inhabitants. Nearly 25 per cent of all properties were built before the 1960s, and around 90 per cent of these are in a bad condition and are in need of some renovation. New-build apartments are especially in high demand.

Lithuania has the highest level of homeownership in Europe, which, combined with a reported shortage of quality new-builds, is great news for the off-plan investor selling on completion into a market with a strong culture of buying rather than renting. For this strategy to work, plenty of research is needed into the needs and wants of the local market.

The rental market is slowing as people are more interested in buying than renting. The supply of rental properties currently exceeds demand, although there is still a demand for town houses and cottages.

Property hotspots

The capital Vilnius is the administrative and economic centre of Lithuania. The medieval old town was listed as a UNESCO World Heritage site in 1994 due to the wealth of historic buildings. A new purpose-built city centre is being created north of the Neris River which will be the main business district.

Property prices are growing at 30 per cent a year and demand for high- quality new-build one- and two-bedroom apartments is very strong. Prices continue to appreciate and many off-plan developments have been selling very quickly.

As the market develops, you might also want to consider Kaunas, the second city, or the seaside resort of Klaipeda.

Transaction costs

There are no restrictions on the purchase of property in Lithuania. EU citizens can buy buildings, land or apartments. Agricultural land can also be purchased, but there are some special requirements. Complex regulations and procedures continue to be obstacles for jet-to-let investors, especially as the right of ownership of buildings is separated from the right of ownership of land. In Lithuania, the State continues to own much of the agricultural land.

Transaction costs are:

• There is no stamp duty or transfer taxes.
• Notary fees are about 0.5–1.0 per cent of the purchase price.
• Legal fees range from €500 to €650.
• Estate agents’ fees are from three to seven per cent.

Overall transaction costs are about three to five per cent of the purchase price (less estate agents fees if they are not paid by the seller).

Annual costs

• Property Tax is one per cent of the building value.
• Land Tax amounts to 1.5 per cent of the value of the land and is paid by the landowner.

Taxes

Income Tax
The standard Income Tax rate is a flat rate of 33 per cent. There is a reduced 15 per cent rate applicable to certain types of income, including income earned from rent or the sale of property.

Please note that the Lithuanian government is considering reducing the current rate of 33 per cent to 30 per cent in 2006, 27 per cent in 2007 and 24 per cent in 2008.

Corporation Tax
The standard rate of Corporation Tax is 15 per cent.

Capital Gains Tax
Resident companies are taxed at a Corporate Tax rate. Non-residents (both individuals and companies) pay a flat rate of ten per cent on capital gains. Capital gained by residents on the sale of property owned for more than three years is exempt from tax.

Facts at a glance

Geography

Population (2005 estimate): 3,596,617
Language: Lithuanian
Ethnic groups: 83.4% of ethnic Lithuanian. Ethnic minority groups include Polish and Russian
Local currency: Litas divided into 100 Centas

Political system

Political structure: Parliamentary democracy
President: Valdas Adamkus
Prime Minister: Algirdas Brazauskas
Main parties: Labour Party, Social Democratic Party

Economy

Unemployment rate in 2005: 8.2%
Unemployment rate, February 2006: 6.6%
Inflation rate in 2005: 2.7%
Inflation rate, February 2006: 3.4%
Interest rate, March 2006: 2.81%
GDP growth in 2005: 7.4%
GDP growth forecast for 2006: 6.2%
GDP per capita: (income €11,900 per person) in 2005

Taxation

Income Tax: 33%
Corporation Tax: 15%
Capital Gains Tax: 10%

Corruption statistics

Corruption rate: 4.8
Corruption rank: 44th

Industry and technology

Major industries: Shipbuilding, Agricultural machinery, Electronic components

The Lithuanian property market

Hotspots: Vilnius, Kaunas, Klaipeda

Property taxes (transactions)

Transfer Tax: n/a
Notary fees: 0.5–1%
Estate agents’ fees: 3–7%
Legal fees: €500–650
Total fees: 3–5%

Property taxes (annual)

Property Tax: 1%
Land Tax: 0.5%

Mortgage

LTV: 70–80%
Term: Up to 30 years
Currency: Euro, US dollars and Litas
Current interest rate: 3–5% in euros

Investor resources

Embassies

British Embassy in Lithuania
Antakalnio 2
Vilnius LT-10308, Lithuania
Tel: +370 5 246 2900
Fax: +370 5 246 2901
Website: www.britishembassy.gov.uk/lithuania

Lithuanian Embassy in the UK
84 Gloucester Place
London W1U 6AU
Tel: +20 7486 6401/2
Fax: +20 7486 6403
Website: lithuania.embassyhomepage.com

Useful websites

Bank of Lithuania
www.lb.lt

Invest in Lithuania
www.lda.lt

Lithuanian Department of Statistics
www.std.lt

Tourism in Lithuania
www.tourism.lt

© Lawpack Publishing 2006

“The Jet–to–Let Bible”, Dominic Farrell
Reproduced with the permission of Lawpack Publishing.

Further information on this topic can be found in “The Jet-to-Let Bible”, by Dominic Farrell, ISBN 1 905261 11 X

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