Free Movement of Services

Freedom of establishment and freedom to provide services are fundamental principles of the European Union (EU) that ensure the mobility of businesses and professionals within the single market. The freedom to provide services is crucial for creating the internal market.

Freedom of establishment includes the right of an individual to engage in and conduct self-employed activities, as well as to establish and manage companies. Such activities can be long-term, continuous, and uninterrupted, under the same conditions as those set by the laws of the relevant Member State for the establishment of its own citizens.
The freedom to provide services applies to all services typically provided for remuneration and not regulated by provisions on the free movement of goods, capital, and persons. For this purpose, a person providing a "service" may temporarily carry out activities in the Member State where the services are offered, under the same conditions that the Member State has established for its own citizens.

The legal basis for freedom of establishment and freedom to provide services is established in the following European Union legal acts:
1.    Treaty on the Functioning of the European Union (TFEU), article 26 (Internal market), 49-55 (Establishment), 56-62 (Services). 
2.    Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (Services Directive).

The provisions of the Services Directive aim to simplify administrative procedures, remove obstacles to providing services, and strengthen mutual trust between Member States as well as the confidence of providers and consumers in the internal market. The Services Directive applies to all services that are not classified as services that clearly fall outside the scope of the Services Directive. In many cases, its provisions are based on the practice of the Court of Justice of the European Union (CJEU) relating to freedom of establishment and freedom to provide services.

The Services Directive sets out requirements that are prohibited from being imposed by laws regarding the right to provide services or conduct service activities within a territory.

Prohibited establishment requirements include:

1.  Discriminatory requirements directly or indirectly related to nationality or the location of a company's registered office, such as:
   a)    Nationality requirements for the provider, employees, shareholders, or members of management or supervisory bodies.
   b)    A requirement that the provider, its employees, shareholders, or members of the provider's management or supervisory bodies reside permanently in the territory of the Member State.
2. A prohibition on being established in more than one Member State or being registered in the registers of more than one Member State or being a member of professional bodies or associations of more than one Member State.
3. Restrictions on the provider's freedom to choose the location of its principal or secondary establishment, especially the provider's obligation to have its principal establishment in the territory of the respective Member State, or restrictions on the freedom to choose the form of establishment of a branch, subsidiary, or affiliated company.
4. Reciprocity conditions with the Member State in which the provider is already established, except where reciprocity conditions are provided for in Community acts on energy.
5.  An assessment of economic need in each individual case to determine market demand, to assess the potential or actual impact of activities on the economy, or the appropriateness of activities in relation to the economic development objectives set by the competent authority; this prohibition does not apply to planning requirements that are not imposed for economic reasons but for important public interests.
6. Direct or indirect participation of competing entities, including their participation in the activities of advisory bodies, except for professional bodies and associations or other organizations acting as the competent authority in issuing permits or making other decisions by competent authorities; this prohibition does not apply to consultations by organizations such as chambers of commerce or social partners that are not related to individual permit applications, and consultations with the general public.
7. A requirement to provide a financial guarantee or to hold a share in a financial guarantee or to conclude an insurance contract with a provider or institution established in the Member State’s territory. This does not affect the possibility for Member States to require insurance or financial guarantees in general, or requirements relating to participation in a collective compensation fund, for example, for members of professional bodies or organizations.
8. An obligation to be pre-registered in the Member State’s register for a certain period of time or to have carried out activities in the territory of that Member State for a certain period of time.

The provisions of the Services Directive were transposed into the Law on Services of the Republic of Lithuania, adopted by the Seimas of the Republic of Lithuania on December 15, 2009, and entered into force on December 28, 2009.

Relevant Lithuanian legal acts for the freedom of establishment and the freedom to provide services:

• Law on Services of the Republic of Lithuania
• Description of the Procedure for Submitting Notifications and Information on Establishment Requirements or Requirements for the Freedom to Provide Services, approved by the Government of the Republic of Lithuania on November 30, 2011, by Resolution No. 1389 ("Notification Submission Description").
• Description of the Procedure for the Operation and Cooperation of the Services and Products Contact Center with Competent Authorities of the Republic of Lithuania, approved by the Government of the Republic of Lithuania on December 1, 2010, by Resolution No. 1702 ("Description of the operation and cooperation of the Contact Point for Services and Products").
• Regulations of the Information System of the Services and Products Contact Center, approved by the Ministry of Economy and Innovation of the Republic of Lithuania on November 8, 2011, by Order No. 4-799 ("Regulations of the Information System of the Contact Point for Services and Products").

Application of the Law on Services
The Law on Services is a horizontal law that must be followed when drafting other Lithuanian legislation regulating the provision of services in a particular area. It does not apply to services specified in Article 1, Part 3 of the Law on Services.

The Law on Services and Freedom of Establishment
To ensure freedom of establishment, the legal requirements for obtaining the right to provide services or conducting service activities in Lithuania must comply with the principles of non-discrimination, necessity, and proportionality.
In order to ensure freedom of establishment, when establishing requirements in Lithuanian legislation for the acquisition of the right to provide services or the exercise of service activities, it must be ensured that the following requirements comply with the aforementioned principles:

1. Quantitative or territorial restrictions, primarily restrictions related to the number of inhabitants or to the minimum geographical distance between providers;
2. An obligation for the provider to be of a certain legal form;
3. Requirements for the provider regarding minimum capital, participant qualifications, or other requirements that affect the right to be a participant of the provider;
4. A restriction that certain services can only be provided by specific providers (except in cases provided for in the Law on the Recognition of Regulated Professional Qualifications of the Republic of Lithuania or legal acts of the EU);
5. A prohibition for the provider to be a participant of more than one legal entity with a registered office in the territory of Lithuania;
6. Requirements for the provider regarding the minimum number of employees;
7. Requirements for the provider regarding the minimum and (or) maximum prices of the services provided;
8. An obligation for the provider to offer additional services alongside the primary service.

IMPORTANT: The listed requirements can hinder the freedom of establishment and may often be replaced with less restrictive measures. The European Court of Justice has frequently ruled that such requirements are incompatible with the freedom of establishment. However, under certain circumstances and in specific sectors, these requirements may be justified. Consequently, there is no complete abolition of these requirements, but their imposition is highly restricted.

The Law on Services and the Freedom to Provide Services
The Law on Services generally stipulates that service providers from other EU member states, who are not established in Lithuania but provide services there, are not restricted in their temporary provision of services in Lithuania, except for a few exceptions outlined in the Law on Services. Specific criteria for assessing the temporariness of certain services are established in the laws regulating those service activities. While Lithuanian laws may impose requirements on these temporarily operating service providers, such requirements must not violate the principles of non-discrimination, necessity, and proportionality.

IMPORTANT: Establishment involves a provider engaging in economic activity for an indefinite period by establishing a permanent entity. In contrast, according to the European Court of Justice, the freedom to provide services is characterized by a non-constant and non-continuous involvement in the economic life of the host member state. The European Court of Justice has repeatedly stated that in each specific case it is necessary to distinguish establishment from the provision of services, considering not only the duration of the provision of services, but also their regularity, frequency, and continuity.

Notification Requirement
If the legal acts establish requirements for freedom of establishment or freedom to provide services, the establishment of such requirements must be notified to the European Commission through the Internal Market Information System (IMI).