Free Economic Zones in Lithuania ALBERTAS ŠEKŠTELO, FCIArb 20 March 2014

Free Economic Zones (FEZ) in Lithuania FEZ - territory designated for the purpose of economic- commercial and financial activities within which companies are provided with preferential economic and legal conditions of operation. 2 Legal services in Estonia / Latvia / Lithuania

FEZ Legal Framework The Law on the Fundamentals of FEZ prescribes the procedure and conditions of establishment, functioning and liquidation of FEZ in Lithuania. Each FEZ is established by a separate law, stipulating the types of activities in the zone, the boundaries of the zone and other specific conditions. In 1996 two FEZs were established in Lithuania: one in Kaunas and the other one in Klaipeda. They were established for a period of 49 years. Now there are 7 FEZs. In order to start activity in FEZ, a company incorporated according to the laws of Lithuania must get a permit from FEZ management company to develop activity. 3 Legal services in Estonia / Latvia / Lithuania

Tax Incentives in the FEZ 4 Legal services in Estonia / Latvia / Lithuania Tax% regular rateTaxes in free (special) economic zones Corporate profit tax15 no tax during the first 6 years and only 50% of corporate tax over the next 10 years (if the investments exceed EUR 1 m) Dividends15no tax on dividends for foreign investors Real estate tax0.3-3no real estate tax

Prohibitions and Restrictions of the Activities Investment of capital of foreign origin into exploitation of natural resources is prohibited without a concession. The following activities are prohibited in the FEZ: organizing lotteries, founding and keeping of gambling houses; manufacturing of spirits and liquors, tobacco, paper money and coins, securities, postage stamps; production, processing, storage of hazardous and radioactive material; as well as narcotics, virulent and poisonous substances; treatment of patients as well as treatment of animals with serious diseases; publishing activities, except for personal needs. 5 Legal services in Estonia / Latvia / Lithuania

The example of Kaunas FEZ Law estbablishing Kaunas FEZ provides: Term of the activities in the zone – 49 years (may be extended only by amending the law); The territory of FEZ – 534 ha; The teritory of the FEZ is leased for the company administrating the FEZ for a 99 year period (maximum lease period under Lithuanian law); Activities to be developed in the FEZ – international carriage of goods, sales, manufacturing and business activities (to be detailed in the FEZ statute) 6 Legal services in Estonia / Latvia / Lithuania

The example of Kaunas FEZ (2) Administrating the Kaunas FEZ: FEZ is administrated by a limited liability company, in this case Belgian Company „Kauno laisvosios ekonominės zonos UAB“ representing an International Consortium; The company administrating FEZ: ○ Sets the rules of operating in the zone; ○ Subleases the land of the FEZ; ○ Issues permits to establish in the FEZ; ○ Setts the fees for the companies operating in the FEZ, etc. ○ May ask the government to change the boundaries and the territory of the FEZ. 7 Legal services in Estonia / Latvia / Lithuania

The example of Kaunas FEZ (3) The company administrating the FEZ cooperates with the state and local government. The company must provide state government with information concerning the activities developed in the FEZ, number of companies operating in the FEZ, total amount of investments, number of workplaces, overall results of the companies‘ business, the assimilation of the FEZ territory; There are at least 3 state and local government representatives in the board of the Company at all times; 8 Legal services in Estonia / Latvia / Lithuania

Kaunas FEZ Current Investments and Plans: Kaunas Free Economic Zone (FEZ) has reported its ambitious plans with largest construction volumes planned in the region. There are plans of establishing airpark, bordering with Kaunas International Airport, which would be convenient for transport, aircraft service and aviation industry companies. Kaunas FEZ has already attracted EUR 350 million of investment from 18 companies, of which 70 per cent are foreign direct investment. There are 7 companies operating at Kaunas FEZ and 3 companies are under construction. 9 Legal services in Estonia / Latvia / Lithuania The example of Kaunas FEZ (4)

Plan of Kaunas FEZ 10 Legal services in Estonia / Latvia / Lithuania

Klaipėda FEZ.The Klaipėda FEZ is a recognised economic project of national significance. The Klaipeda FEZ has signed agreements with 23 foreign and Lithuanian companies, and 17 of these have already commenced their activities. Since the start of their operation companies have invested more than 493 million EUR in this economic zone. 11

Albertas Šekštelo, FCIArb Senior Associate