Dr Robertas Čiočys and Ieva Krivickaitė (Ellex Circle Law Firms) authored this publication

The Foreign Direct Investment (FDI) regime in Lithuania was introduced in 2018. The FDI regime essentially remains unchanged to this date. Thus, this lays out reasonable expectations for foreign investors.

Under the Law on the Protection of Objects of Importance to Ensuring National Security of the Republic of Lithuania (the "Law"), only specific FDI into entities, infrastructure or sectors deemed of importance to national security are subject to the FDI screening process. Otherwise, investors are not bound to have their FDI reviewed.

The supervision of FDI review is assigned to the Commission for Coordination of Protection of Objects of Importance to Ensuring National Security (the "Commission") formed by the Government of Lithuania. In rare cases, sensitive to national security interests, a special purpose commission is formed where the Commission is supplemented with the Minister for the relevant area/sector and other politicians. In extreme cases, the final decision of FDI review is adopted by the Government of Lithuania or the Parliament.

Recent updates

Despite the changed geopolitical background, the Government of Lithuania continues to welcome FDIs and the Lithuanian FDI authority has maintained a business-friendly approach. The grounds for FDI Screening and its scope remained the same.

However, it is now recommended in case of doubt of whether an FDI is subject to the Screening to notify the Commission and to obtain certainty before the transaction is implemented.

In 2022, no major changes in legislation concerning foreign investors were made.

From March 2022, it is forbidden to enter into a transaction while the FDI screening is ongoing and the execution of an existing transaction must be suspended in case of post-transaction screening.

Who files

An investor (natural person or legal entity) seeking to invest in an entity, infrastructure or sector deemed of importance to national security must disclose and obtain the clearance to proceed with the investment. FDI regulation applies equally to both foreign and national investors if their investment falls under the scope of review.

However, a distinction is made between when the FDI is made by an investor from (a) EU, NATO, EFTA, OECD countries or (b) other countries.

This distinction becomes relevant as, in the case of countries named in (a), an investor is deemed to be conforming to the interest of national security. Thus, FDI screening may be less burdensome in those cases. Otherwise, in the case of countries named in (b), the full scope of FDI screening is conducted. Further, certain laws prohibit investors from countries in (b) from certain types of FDI in Lithuania.

Types of deals reviewed

In Lithuania, only certain FDI are required to be notified for FDI screening (the "Screening"). The Screening procedure is required for the following pillars of national security:

Enterprises important to national security. Investment into a specific company explicitly recognized as strategically important to the national security interests of Lithuania for its intended purpose and/or because of the nature of its activities. Such companies are listed in the Law and assigned into one of the following groups: (i) the enterprises solely controlled by the state; (ii) the enterprises in which at least 2/3 of shares are state-owned; and (iii) entities that are not owned by the state.

Infrastructure or area important to national security. The acquisition of assets or investments into areas essential to national security. The Law provides a list of such assets, e.g., airports, railways, secured national data transmission networks, LGN terminal, etc. The list is provided for territory and land as well. The two categories are usually closely related, meaning that the territories important to national security are most likely the zones around the assets important to the national security.

Five economic sectors important to national security. Investment into the following sectors: (i) energy, (ii) transport, (iii) information technology, telecoms and high-tech, (iv) finance and credit, and (v) military equipment. The government determines and specifies which activities are considered a part of the five economic sectors. The list consists of 54 activities in total, and thus requires individual assessment on a case-by-case basis.

Nonetheless, if the FDI falls into one of the four categories mentioned above, it does not necessarily result in a mandatory Screening procedure. For example, it is mandatory to file for FDI review if an investor seeks to acquire more than 25 percent of securities or votes in state-owned enterprises (or if the state owns at least 2/3 of shares) which are provided in the Law, and more than 33 percent of securities or votes if the enterprise is not owned by the state. The 25 percent threshold is also applied for FDIs in an economic sector of strategic importance to national security.

Scope of the review

The objective of the review is to ensure the investor conforms with and the investment does not adversely impact the national security interest of Lithuania.

During the Screening, the Commission evaluates the identity of the investor itself and its ownership structure, including the ultimate beneficial owners. The source of funds for the FDI is also taken into account. In addition, the scope of review and the list of the required information will be wider for FDI into enterprises important to national security and narrower for FDI into economic sectors.

Further, the Commission will evaluate the findings about the investor from the State Security Department, Ministry of Foreign Affairs, Ministry of Interior, Police Department and the General Prosecutor's Office. The Commission has the discretion to request other institutions to present their findings about the investor as well.

Review process timeline

The process can take up to 40 working days from the day after the Commission receives the initial notice of the FDI together with all necessary information. The Commission shall immediately request the institutions responsible for the findings regarding compliance with national security. In 15 working days (which can be extended by up to five working additional days) after the request, the institutions shall provide findings. If no findings are provided, it is considered that the investor is not contrary to national security.

The Commission has 20 working days (which can be extended by up to an additional three working days) to provide the conclusion of whether the investor is contrary to national security interests. The final decision is adopted by the government in up to 15 working days after the receipt of the negative conclusion of the Commission. If the decision by the government is not adopted, it is considered that the investor is not contrary to national security.

Since Russia's war in Ukraine began in 2022, the Commission started to take a more conservative approach when deciding if FDI needs to undergo Screening. Whereas in the past, FDI would have been uncertain if it required FDI screening (i.e., for FDIs in economic sectors), it is now advised to undergo the Screening.

How foreign investors can protect themselves

Investors should carefully consider if the anticipated FDI falls under the scope of FDI screening, especially when the investment is made into one of the five economic sectors important to national security. Given the current trends, the principle of "when in doubt, undergo FDI Screening" should be applied.

In all cases, the Screening should be initiated before closing. Otherwise, if the Commission or government authority decides to initiate post-investment FDI screening and the investor fails to satisfy the national security interests requirements, the Commission has the discretion to recognize the transaction as null and void.

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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