Sentiments alone are not enough
Investors surveyed this year during the EY Europe Attractiveness Survey stated that geopolitical tensions pose the biggest risk in Lithuania. However, the majority (68%) are of the opinion that it is worth establishing new activities or expanding existing ones in Lithuania in the coming years. Thus, the so-called indicator of investment sentiment in Lithuania is slightly different from the European average, which is 72 percent.
It is sentiments and a satisfying environment in Lithuania that influence the loyalty of a considerable number of businesses, growing unicorns. At the same time, one must recognize the risk that the attachment might diminish when unicorns decide to turn to global stock exchanges to raise even more capital.
Thus, the task of the state is not only to enjoy successfully grown businesses, but also to maintain the giants together with the ecosystems formed around them. How?
Both by purposefully improving the quality of living conditions and investing in infrastructure in big cities, and by forming an effective immigration and tax policy that ensures the attraction of highly qualified talent.
The background of long-term problems can swallow light colors
The demographic situation of our country is deteriorating, and employers’ struggle for talent is intensifying. However, currently investors like Lithuania because of people who have sufficient technical skills and can create higher added value. Even 54 percent The respondents of the “Europe Attractiveness Survey” indicated that the availability of technology specialists, such as various scientists, engineers or data specialists, is better in Lithuania than in other countries, and another 30%. said that it is the same as elsewhere.
It is not surprising that when revealing their future plans, 54 percent of investors indicated that the most attractive projects for business development in Lithuania would be related to research and development (R&D) activities. 61% would choose our country for talent development and training center activities. of those interviewed. Apparently, these results are favorable to Lithuania’s vision of the future – an economy focused on high added value.
What can be done to make the attractiveness sustainable and long-term, as well as resistant to various risks, the dynamics of which are shown every year by the aforementioned EY study and other foreign direct investment (FDI) studies?
First of all, to define and strengthen Lithuania’s advantages, which are identified by investors. For example, the tax environment. Our country operates a classic profit tax system, which provides for various benefits for businesses. The question is simple – are these benefits targeted and effective?
Investors surveyed in the European Attractiveness Study say yes. Every second (52%) of them believe that the tax environment and compensation mechanisms work better in Lithuania than in other regions where their business is developed. Another 42 percent asserts that the system is at least not worse than in other countries.
52% rate the flexibility and rationality of the central tax administrator as better than elsewhere. investors. 26 percent points out that it is very similar to foreign countries.
Discounts in the implementation of research and development projects also do not go unnoticed: their positive effect is named as an advantage by 50 percent. respondents. The corporate tax rate in Lithuania seems attractive to 44 percent compared to other countries, and the same number of research participants noted the clarity and stability of the tax system as an advantage.
Who will follow Rheinmetall’s example?
The “Rheinmetall” project attracted to Lithuania this year can be considered the result of appropriate past decisions. The giant of the defense industry came to Lithuania through the green corridor – from 2021. The initiative for large investment projects that has been introduced makes it much easier and faster to settle down, in addition, the project is given the status of a large and important project for the state and a 0% interest rate is applied for a period of up to 20 years. corporate tax rate and other incentives.
Today, in Lithuania, businesses that invest at least 20 million get the status of a large project and the corresponding incentives. EUR in fixed assets (CAPEX) and creates at least 150 new jobs (30 million and 200 new jobs by investing in Vilnius).
In comparison, Latvia and Estonia have a zero corporate tax rate when profits are reinvested. In other words, the payment of corporate tax in the other Baltic states is simply postponed, because business shareholders always seek to receive and collect returns. Meanwhile, in Lithuania, large investors receive a kind of bonus for investments in long-term assets and created jobs.
A double puzzle for Lithuania and Europe
On the other hand, according to “Invest in Lithuania”, some Eastern and Central European countries provide similar support even more generously: in Lithuania, the average state support is 100 million. EUR value for the project is regarding 14%, in comparison, Romania contributes 48%, Hungary – 24%. project value subsidies.
Therefore, it will not be easy to maintain a high position according to relative FDI indicators (in Lithuania, 1 million inhabitants had more than 605 jobs created by FDI projects last year – 11th place in Europe). Especially knowing that changes are brewing across Europe, driven by the need for more defense funding. The current discussions give the impression that funds for the defense budgets of the EU states will be collected by additional taxation of consumption, for example by increasing VAT, as well as by raising the profit tax for business. For the common market, this will mean even greater challenges for the harmonization of legislation.
At the same time, Europe has to solve the problem of what and how to promote and subsidize, knowing that the USA or China launched mechanisms for the promotion of high-tech industries and digital industries much earlier.
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2024-07-17 04:23:45
