In May 1991, a foreign investment law was passed permitting majority holdings by non-residents and guaranteeing the full transfer of profits.

Various tax benefits may be granted to foreign investors depending on the type and size of the investment. When purchasing privatized Lithuanian companies or forming joint ventures, foreign investors are usually expected to provide employment guarantees.

Foreigners from European Union and NATO-member nations may own land, while foreigners from all other nations may not. The provision is aimed primarily at foreigners from former Soviet republics who are the main non-Western investors in Lithuania. Foreigners not eligible to own land may rent it for a period of up to 99 years.

In 1998, foreign direct investment (FDI) inflow into Lithuania reached $925.5 million, up from $354.5 million the year before, due largely to the privatization of Lithuania's telecommunications company. From 1999 to 2001, FDI inflow averaged $437 million a year. In 2002, contrary to worldwide trends of decreasing inward FDI flows, FDI in Lithuania rose 21.9% to $543 million.

In 1990, the Lithuanian government began a comprehensive economic reform program aimed at effecting the transformation to a market-driven economy. Reform measures include price reform, trade reform, and privatization. By mid-1993, 92% of housing and roughly 60% of businesses slated for privatization had been privatized. By 1996, about 36% of state enterprises and about 83% of all state property had been privatized. International aid agencies committed about $765 million of assistance between 1992–95. Most international aid went either to infrastructure construction or loan credits to business. Citing continued progress toward democratic development, in 1999 the United States announced that it was terminating economic assistance to Lithuania. Having established itself as a democratic society with a market economy, Lithuania was invited to join the EU in 2002.

In 2001, Lithuania negotiated a 19-month, $119-million Stand-By Arrangement with the International Monetary Fund (IMF). In 2002, the country's GDP grew at a rapid pace (6–6.7%), unemployment was declining, the inflation rate fell to near zero, and there was a lower-than-expected general government deficit. In 2002, the tax system was aligned with EU requirements, the financial situation of municipalities and the Health Insurance Fund was improved, privatization moved forward and the financial sector was strengthened. The privatization program for 2003 included the sale of a second 34% stake in Lithuania Gas, one or two electricity distribution companies, and four alcohol producers.

Lithuania has one of the most liberal tax regimes in Europe. The corporate income rate was reduced from 24% to 15% as of 1 January 2002. Enterprises which derive at least half of their revenue from agricultural goods and services can qualify for a 0% corporate tax rate. Small enterprises with gross income of less than €144,810 (LTL 500,000) and have no more than 10 employees are taxed, as of 2002, at 13% of profits, down from 15%. Capital gains are considered part of corporate income and are taxed at the corporate rate. Dividends are generally taxed at 15% but if paid to a nonresident company that owns more than 10% of its voting shares (i.e., its parent company), there is no tax. This provision is not applicable to companies operating in Free Economic Zones (FEZs), which offer 80% reduction in the corporate income tax rate for the first five years, and a 50% reduction for an additional five years. The statutory withholding rates are 15% for dividend income and 10% for interest and royalty. Withholding rates on capital income are often reduced to 10% and 5% in bilateral double tax prevention treaties between Lithuania and other countries.

Lithuanian personal income tax law make a distinction between income from one's principal place of employment, which is taxed at a flat rate after extensive deductions, and income from supplemental sources, which is taxed according to a progressive schedule of brackets ranging from 10% to 35%. The flat rate for principal income was 33% in 2002 and reduced to 29% for 2003. Deductions from income for the primary flat tax include a non-taxable minimum which is higher for disabled persons, single parents and other specified groups, plus all social security and social assistance payments, death benefits, court awards, gifts, allowances for insurance payments, charity donations, and most payments to pension accounts. The lowered flat tax rate in 2003 was accompanied by the introduction of a 1.5% real estate tax. Gifts and inheritances are taxed at 0%, 5% and 10% depending on the amount involved.

The main indirect tax is Lithuania's value-added tax (VAT) enacted 22 December 1993 and most lately revised in 1 July 2002 for application in 2003. There is a base rate of 18%, applicable to most goods and services, and three reduced rates; 5% and 9% rates are applied to foodstuffs and "environmentally friendly" products as well as to newspapers, journals, newspaper paper, drugs and medicines that have previously been exempt for VAT. Exports and services for non-residents and pertaining to non-resident property, including tourist, travel agency, international passenger and real estate services, have 0% VAT rates. There are also excise duties on ethyl alcohol and alcoholic beverages, tobacco and fuels. However, by the new Law on Excise Duties of 1 July 2002 excise taxes on jewelry, electrical energy, coffee, chocolate, and other food products have been abolished, and turnover taxes have replaced excises on sugar, luxury cars, liquid cosmetics containing ethyl alcohol, and publications of an erotic and/or violent nature. In 1999, the government introduced a pollution tax on packets to encourage the recycling of packaging material.

Most foreign imports, including all raw materials, are duty-free. Exceptions include food products (5–10%), fabrics (10%), electronics (10%), cement (25%), and window glass (50%). The average tariff on consumer products is 15%. Alcoholic beverages are subject to duties ranging from 10% for beer to 100% for some liquor. An 18% VAT is also placed on imports. In 1993, Lithuania, Estonia, and Latvia formed a free trade area, which eliminated customs duties and quotas between the three Baltic States. In accordance with Lithuania's desire to join the European Union, some duties on EU goods will be lowered.

Since 1991, Lithuania has reorganized its banking sector numerous times. A myriad of banks emerged after independence, most of them weak. Consequently, consolidations, mergers, and collapses became a regular feature of the country's banking system.

On 3 July 1992 the government adopted a new currency unit, the lita, to replace the ruble. Between 1992 and 1995, six banks lost their licenses and two were merged; as of mid-1996, 16 were either suspended or facing bankruptcy procedures. The first serious crisis centered on Aurasbankas, the eighth largest bank in the country, and the deposit bank for many ministries. The Bank of Lithuania suspended Aurasbankas's operations in mid-1995 because of liquidity problems caused by bad lending and deposit-taking practices. In July 1995, the minimum capital requirement for existing banks was raised from L 5 million to L 10 million, the level already established for new banks. By May 1999, only five commercial banks remained. Moreover, foreign investment by Sweden's Swedbank and SE-Banken, helped keep Hansapank-Hoiupank and Uhispank-Tallinna, respectively.

Operations at Lithuania's largest bank, the Joint-Stock Innovation Bank, were suspended on 20 December 1995, and those of the Litimpeks bank, the country's second largest, two days later. The two were in the process of merging to create the Lithuania United Bank and the fraud was uncovered during premerger audits. Due to rumors of a devaluation of the currency, a shortage of foreign exchange throughout the whole banking sector was created.

The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $1.7 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $3.2 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 3.37%.

The National Stock Exchange, which opened in September 1993, is the most active in the region, with 245 listed companies. Monthly turnover by the end of 1994 had reached L 20.8 million. The market gains continued into 1999 as the index rose 15%.

In 1997, a key feature of the new economic framework in Lithuania was the pegging of the lita to a currency basket composed of the dollar and the D-mark. In 1999, the Bank of Lithuania announced its intention to peg the lita to the euro in 2001.

Lithuania had, of course, a planned economy under the Soviet regime, and the implementation of collective farming ravaged the agricultural sector for over a decade. It was not until the early 1960s and the introduction of chemicals that crop production recovered to pre-WWII levels. The crop boom that followed as a result of the chemical innovations left many ecological problems. Privatization following independence occurred slowly but steadily, and in 1998 it looked like the economy had survived the growing pains of dismantling the socialist system. However, the August 1998 collapse of the Russian ruble reverted Lithuania's economy back to negative growth and refocused the country's trade toward the West. In 1997, exports to former Soviet nations accounted for 45% of total exports. By 2002, that number was only 19%, as 71% of exports went to EU member countries and candidates. Privatization was nearly complete as of 2002, except for the energy sector, where energy company privatization was completely on hold and gas company privatization delayed.

The US Central Intelligence Agency (CIA) estimates that in 2001 Lithuania's central government took in revenues of about $1.6 billion and had expenditures of $1.8 billion. Overall, the government registered a deficit of approximately $180 million. External debt totaled $5.8 billion.

Lithuania depends heavily on trade, particularly with other republics of the former Soviet Union. In 2000, total imports were valued at $5.5 billion, and exports at $3.8 billion. In the mid-to-late 1990s, Lithuania was trading more with Western nations, and reducing its reliance on trade with former Soviet republics. Trade with the West increased from 15% to 60% between 1990 and 1995, while trade with former Soviet republics fell from 78% in 1990 to 40% in 1995. Since Lithuania's independence in 1990, growing disruptions in trade with Russia and the other former Soviet republics have resulted in a steep decline in import volumes and numerous domestic shortages.

Refined petroleum products make up Lithuania's most beneficial export commodity (18%), followed by fertilizers(5.1%) and furniture (3.5%). Other export commodities include wood (2.9%), transistors (3.3%), and automobiles (2.7%).