Individuals and businesses have more and more resources and willingness to tackle the most pressing social and environmental challenges. Companies are starting to operate in a responsible and sustainable manner, motivated by increasingly conscious employees, investors, and consumers. As many as 31% of Lithuanians are already willing to pay more for products and services offered by socially responsible brands.
Understanding what stands in the way to a greater social engagement of business and individuals, what barriers do they face, including tax and legal aspects, and what are the potential incentives that could positively impact their engagement and overcoming these barriers is in the best interest of us all.
It is our hope that the barriers and recommendations, prepared in collaboration with organizations that are shaping the Latvian social impact ecosystem, will be helpful in establishing priorities and directing further action.
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Consultations’ Participants
Association of Lithuania Chambers of Commerce, Industry and Crafts
Baltic Family Firm Institute (BFFI)
ISM University of Management and Economics
Lithuanian Private Equity and Venture Capital Association (LT VCA)
Lithuanian Responsible Business Association LAVA
Lithuanian Social Enterprise Association
Lithuanian Social Innovation Cluster
Marius Čiuželis – founder of MC Charity Foundation
Ministry of Social Security and Labour
COUNTRY PROFILE
Lithuania, like other countries in the region, has been building its modern identity since the early 1990s. Since then, it has experienced dynamic economic and social development, leading to the emergence of a civil society. There are currently more than 36,000 nonprofit organizations in the country, but only one in six reports their activities. Many activities and initiatives are undertaken at the level of large cities and large organizations. There is insufficient engagement at the local level, in smaller communities. The recent crises may provide motivation for change. The pandemic, economic crises, and the war in Ukraine increased the willingness to support social goals, and many Lithuanians realized how important it is to be active in this area.
To read more, download the reportLEGAL & TAX
Barriers & Recommendations
Recommendation: Introducing tax breaks for individuals could motivate some potential and current donors, while demonstrating that the public administration appreciates the donation of private funds for social purposes. Regarding the tax benefit for businesses, it seems valuable to be able to offset it over several years.
To read more, download the reportRecommendation: This is an old provision that needs to be changed so that donations made by electronic transfers do not require the services of a notary.
To read more, download the reportRecommendation: Nonprofit organizations owned by the state, municipalities, and other government-controlled entities are recommended to be excluded from this redistribution. Taxes are collected by the government and the budget is used to fund these organizations. There is little justification for redistributing tax revenues by taxpayers to the same organizations through a separate system. It would make more sense that only NGOs could benefit from this, as they are not funded by the government.
To read more, download the reportRecommendation: Both conditions significantly restrict long-term planning in social organizations, which negatively affects the sustainability of the sector. Carry-back of nonprofit activity expenses that NGOs were unable to deduct in the current year would be an option. As for the requirement to use the donations within three years, this may seem to prevent abuse, but at least an exemption for donations of fixed assets to NGOs would be reasonable.
To read more, download the reportRecommendation: In the coming years, it will be necessary to harmonize the nomenclature and terminology. The government could take a more proactive role in providing ready-to-use information regarding the legal forms, their differences, answers to frequent questions, and standard documentation.
To read more, download the reportRecommendation: The model of social enterprise is interesting and attractive, but it requires action on the part of the public administration: to develop a legal definition, officially introduce it into the law, leverage this interest, and translate it into the greatest possible impact as soon as possible. The introduction of the definition will make it possible to build a catalog of benefits that will encourage the establishment of this type of enterprises. The benefits may, for example, include a more favorable status in public procurement or easier access to EU and Lithuanian structural assistance.
To read more, download the reportRecommendation: Public finance agencies can establish dedicated funds that can mitigate risk or serve as separate vehicles for impact. Regarding administrative costs, the 5% is a very burdensome limitation that makes it difficult to recruit talent and build capacity. The solution could be to remove or increase these limits to make this form of funding more effective. Proof points and evidence are needed to show that social objectives are important and can be strongly linked to business performance.
To read more, download the report“SOFT” ACTIONS
Barriers & Recommendations
Recommendation: Transitioning from crisis support to strategic engagement requires broader promotional activities and a stronger focus on highlighting good practices and role models. Systemic measures supporting education and cooperation between different groups are necessary to exchange best practices.
To read more, download the reportRecommendation: It is necessary to introduce and promote a strategy that identifies the key social goals at the national level. A list of actions would help to structure the work of NGOs and make clear what the priorities are. This would also inform businesses and individuals of the areas that require their focus. In turn, the administration would be able to employ various tools (e.g., tax breaks, grants) to direct public and private support to these priority areas.
To read more, download the reportRecommendation: The private sector should be encouraged to finance social causes in order to increase the diversification of resources supporting the social sector. At the same time, more resources need to be allocated for capacity building, both on the part of the public and private sectors. It is also apparent that nonprofits would benefit from training on digital tools and fundraising in general.
To read more, download the reportRecommendation: Communicating the value and benefits of social engagement (tax benefits, reputation, communication, talent acquisition) is essential to demonstrating that it is possible to combine business and social goals. The social sector should prepare and communicate its projects in a way that meets the needs of business when seeking funding from this source. This requires education and experts from relevant fields.
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