How does your redirects look like? According to Chrome Dev Tools, you are entering a infinite redirect loop.

I've tested two sites running CMS 12 with the URL /ačiū/ and they both show their regular 404 page, as expected.

The infinite loop has been resolved by adding this to the rewrite.xml

Problem resolved then? Or still any issues?

I do not really understand why you need to redirect to the lowercase URL if someone enters with an URL with one or more uppercase characters...?

Ok so this is the latest.

Without the lowerCase rule in the .xml we do not have any issues with the unicode or the upper case characteres, but the url looks ugly (e.g. https://localhost:44353/bEEr).

Adding the lower case rule to the .xml solves this issue but creates a new one with the encoding (the infinite loop). 

Adding the url encode solves the infinite loop but starts encoding characters that should not be encoded, like "/".

This is the outcome after adding this rule: https://localhost:44353/bEEr-in-LITHuania/report => https://localhost:44353/beer-in-lithuania%2freport

Any ideas how to write the rule so that both - lowercase and unicode - would work?

I tested locally with one single rule:

    <rewrite>
      <rules>
        <clear />
        <rule name="LowerCase" stopProcessing="true">
          <match url=".*[A-Z].*" ignoreCase="false" />
          <conditions>
            <add input="{REQUEST_METHOD}" matchType="Pattern" pattern="GET" ignoreCase="false" />
          </conditions>
          <action type="Redirect" url="{ToLower:{R:0}}" />
        </rule>
      </rules>
    </rewrite>

This works as expected and   /bEEr-in-LITHuania/report    is redirected to    /beer-in-lithuania/report 
Also no problem with URLs like ačiū

It looks like your infinite loop is alternating between the same URL with and without a trailing slash (/).

I think you can safely remove the UrlEncode part from your lowercase-redirect, and focus on your other redirects instead. I think you will see that this works if you remove your other redirect rules...

Trying to resolve this starts to feel as an infinite loop :D

Removed .xml with the rules, encoding works, not the lower cases (issue - ugly looking url). Adding .xml with only the lower case rule => infinite loop.

Used this guide but added my changes that are mentioned in my comment there.