State aid in Lithuania and Estonia during COVID-19 pandemic

The comparison between Lithuanians and Estonians has become a sort of a folklore in our countries. Although Estonians have been generally described as slower than Lithuanians, their government has often acted quicker. Can we already tell which tactic has worked better when it comes to government support during the COVID-19 pandemic?

Subsidies to retain jobs has been one of the hottest topics this spring in both Lithuania and Estonia. Both countries provided support for companies that had to declare downtime for their employees due to the COVID-19 outbreak. There were, however, different criteria for deciding which businesses were entitled to such aid. Monthly amounts paid per person were higher and paid out quicker in Estonia. Lithuania, on the other hand, has had a longer period for paying subsidies. The Lithuanian program has been extended until the end of 2020 and covers all businesses included on a list of companies that have been affected by the COVID-19 outbreak. The list was prepared by the State Tax Inspectorate. In the meantime, Estonia will have its subsidies program until the end of June 2020. However, the discussions about Government support to retain jobs are still ongoing in both countries and businesses must monitor the situation very closely if they want to benefit from these subsidies.

Companies that have received subsidies both in Lithuania and Estonia have similar obligations not to lay off employees – 3 months in Lithuania and until September 2020 in Estonia. Consequences for failure to do so are, however, different. Estonian employers would have to return the subsidies received, while Lithuanians would be deprived of any opportunity to participate in support programs for employment and similar projects for the duration of 12 months.

Possibilities to defer payment of taxes seem to be more favorable for businesses in Lithuania, even though both countries provide quite similar solutions. From the 16th of March 2020 until the end of quarantine (the 16th of June 2020) and up to two months afterwards, Lithuanian companies that are included on the list made by the State Tax Inspectorate mentioned above (almost 51 thousand entities) are exempted from interests and no measures are taken against companies for delayed payment of taxes and social insurance contributions. Afterwards, companies may apply for installment agreements. Businesses that are not on the list may ask the State Tax Inspectorate to be included.

In Estonia, while interests for late payment of taxes were not applied in March and April of 2020, the payment obligation was restored with the end of the emergency situation (the 18th of May 2020). Afterwards, interests were reduced twice until the 31st of December 2020. This is applicable to all companies that applied for this measure.

Estonian businesses are happy about reduced taxes: “the floor” removed for social taxes, VAT reduced for electronic publications and e-books. For two years excise duties were reduced for gas and electricity (the latter to the lowest level permitted by the EU: 4,47 euros/MWh). According to the Estonian National Broadcaster: excise for diesel fuel is reduced from 493 euros to 372 euros on 1000 liters adding “like in Lithuania”. The government hopes it will bring transport companies back to Estonia to fill their tanks instead of doing it in Lithuania.

There have been no changes on taxes in Lithuania yet. After long discussions about the reduction of personal income tax, the non-taxable minimum income amount will most likely be increased.

Loans and guarantees for loans with the goal to ensure liquidity and good financial standing are provided in both countries, via the national promotional institution Invega in Lithuania and via Kredex in Estonia.

Support for industries differ in Lithuania and Estonia. While Estonia initiated subsidies for accommodation providers, restaurants, travel agencies, and tourist attractions with a total amount of 25 million euros in April, Lithuania has been relying on general means of support. Nevertheless, stimulus project in the amount of 45 million euros for tourism sector was approved in mid-May, with the starting date in June. Estonia seems to have initiated more support packages for other industries as well: forestry, transports, culture and sports, construction, telecommunications.

Estonia’s direction for innovations is confirmed by another new stimulus program, with a budget of 17 million euros for the development of new or significantly changed products or services leading to an increase of international sales revenue. 75% of the budget is meant for companies affected by the Covid-19 outbreak. In the beginning of June, Lithuania introduced an ambitious plan for the DNA of the Future Economy. The total sum of long-term investment to be implemented by the end of 2021 will amount to approximately 6.3 billion euros, with the starting date of the project being July 2020. There are 5 priorities identified to focus on: human capital, digital economy and business, innovation and research, economic infrastructure, and climate change and energy.

Let’s see what results will be achieved by the means of these ambitious projects and how our countries are doing in the long run.