m&a and real estate - baltic legal guide
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Baltic Legal Guide
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Table of contents
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Table of contents
Overview
Credentials
Corporate
Capitalisation and Accounting
Corporate Governance
Shareholders’ agreements
Shares
Minority rights
Takeovers
Employment
Tax
Merger Control
Financial Assistance
IPR
M&A Real Estate
SPA
Key People
Contacts
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Table of Contents
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OVERVIEW
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VARUL’s M&A and Real Estate legal guide is a
practical tool for transaction advisors and entrepre-
neurs engaged in mergers and acquisitions in the
Baltic region.
The comparative legal guide offers a thorough yet
concise overview of the legal matters to keep in
mind when carrying out transactions either in one
or all Baltic States.
M&A Practice
Our Baltic M&A team advises local and international
companies on all aspects of M&A transactions, includ-
ing legal due diligence. We have advised clients from
multiple business sectors and been involved in many
cross-border transactions.
We provide all-inclusive and inventive solutions to
M&A transactions by leveraging the expertise of our
colleagues in other practice areas like corporate,
competition and anti-trust, intellectual property,
labour and tax.
About VARUL
Law Firm VARUL is an independent full service Baltic
law firm with offices in Tallinn, Tartu, Riga and Vilnius
employing a total of 90 attorneys and lawyers. The firm
is focused on advising both domestic and international
clients on all aspects of business law. www.varul.com
Industry Sectors
Overview
Overview
OVERVIEW
Legal audit (LDD)
Transaction structuring
Pre-contractual negotiations
Shareholder agreements
Management buyouts (MBO)
Take-over bids
Joint ventures
Mergers, de-mergers, reorganisations
Post-merger integration and restructuring
Energy & Utilities
Real Estate & Construction
Transport & Infrastructure
Financial Services & Insurance
Retail & Consumer Goods
Pharmaceuticals & Life Sciences
Telecommunications, Media & Technology
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Services
VARUL has ‘very good understanding of business ideas, and excellent understanding of clients’ needs and goals’.
Legal 500
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CrEde ntials
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Credentials
Credentials
CrEde ntials
Advising MSD Estonia on local legal issues
related to the international merger of Merck
Sharp & Dohme and Schering Plough.
Advising world leader in circuit protection
products Littelfuse Inc in cross-border (Sweden,
USA and Germany) acquisition of an automotive
component production factory ACCEL in
Lithuania with a total value of EUR 25 million.
Advising Europcar Baltic master franchise holder
in the Baltics in selling its shares to an Estonian
transportation group Hansa Grupp.
Advising the sale of shares of an Estonian
electric motors manufacturer Konesko to
Konecranes Finance, financing arm of a leading
global lifting equipment manufacturer.
Assisting an Armenian investor in the
acquisition of the real estate and hotel operations
of the exclusive Hotel Riga with a total value of
EUR 30 million.
Advising Estonian Internet voting system
developer Cybernetica on entering into a joint
venture with Smartmatic, leading international
automated election systems developer.
Advising Grindex – a leading listed
pharmaceutical company in the Baltics – in
purchasing a factory in Slovakia with a total
value of EUR 10 million.
Advising on the sale of shares in the Cinamon
Group of companies, owning multiple cinemas in
the Baltics, from GILD Arbitrage Risk Capital Fund
to DLT Capital.
Advising mobile device management leader
Fromdistance in selling its shares to U.S. based
IT company Numara Software.
Advising Trelleborg, a global engineering group,
in selling its protection products business to
Ansell, a global leader in protection solutions.
Conducting LDD of the Estonian subsidiary
of a leading Nordic infrastructure supply
manufacturer in connection with a joint venture
with one of the leading global infrastructure
supply manufactures.
Representing one of the leading alcohol
producers in Europe – Henkell & Co Gruppe – in
the acquisition of an Estonian alcohol importer
and in merger control proceedings.
Advising global IT company Fujitsu Estonia in
the acquiring process (including LDD) of the
data management division of a listed global IT
company.
Advising Port of Tallinn and Estonian Ministry
of Economic Affairs and Communications in
acquiring the shares of Estonian Railways with
a total value of EUR 200 million.
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Credentials
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Credentials
Advising Baltic bakery group Latvijas Maiznieks / Eesti Pagar / Lietuviuu kepejas in acquiring a
major bakery in Lithuania.
Advising GILD Arbitrage Risk Capital Fund in
the sale of Lithuanian refrigeration equipment
distributor ROLVIKA group.
Assisting Mebelain in establishing a furniture
plant in Belarus and acquiring funds from EBRD
(deal value EUR 14 million).
Representing a leading Baltic IT group Blue
Bridge Baltic in an M&A deal in the IT sector.
Advising Baltijas Lase in negotiations with the
buyer, and selling the shares of one of Latvia’s
largest dairy producers Rigas piena kombinats to
a high-net-worth individual.
Representing Kafijas automati.lv, one of the
largest vending machine operators in Latvia,
in selling its shares to Eden Springs, Europe’s
leading provider of water solutions for the
workplace.
Advising a sole shareholder of Vastse-Kuuste
Meat Processing in selling shares to Atria - one
of the leading food companies in the Nordic
countries, Russia and the Baltic region.
Advising a Euroapteek, member of the Baltic
pharmaceuticals chain Euroapotheka, in acquiring
a number of pharmacies in Estonia.
Advising Baltcap – leading dedicated private
equity investor in the Baltic States – on the sale
of an IT consultancy firm to MicroLink Eesti.
Assisting UAB PIGU in connection with the
acquisition of majority shares of DLB Trading,
which runs web stores dlb.ee in Estonia and dlb.
fi in Finland.
In co-operation with Arnold & Porter and Dewey
& LeBoeuf, advising a major international phar-
maceutical company in its EUR 320 million bid
for pharmaceutical group AB Sanitas.
Advising Itero IT in selling its shares to TIA Tech-
nology, a Danish software solutions provider.
Advising shareholders of Bakt Autotehnika in
selling shares to AD Baltic.
Advising Transiidikeskuse, the parent company
of Transiidikeskuse Group, which operates the
largest container terminal in Estonia on the sale
of its majority shareholding in DBT, a dry bulk
terminal operated in partnership with the
Akron Group.
Advising Energate, an investment company of
Baltcap, in acquiring wind parks and gas
distributors.
Advising the Estonian Olympic Committee on
acquiring shares in Sports Betting and on
concluding shareholder agreements.
Advising the buyer, Stichtig Tripod Investment
Management Fund (Netherlands), in acquiring a
major alcohol production factory in Lithuania.
Advising Alro Group Investment Fund (UK) in all
of its acquisitions in Lithuania.
Advising a provider of vehicle tracking and posi-
tioning services Navirec on selling the company
to GSMvalve.
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10 Corporate
‘VARUL has always been our go-to firm. It covers all the practice areas that are of interest to us and is well known on the market for exceptional quality of service.’
Chambers Europe, 2014
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The registration departments of the county courts in Estonia (i.e. registrar) maintain the Commer-cial Register of the enterprises of sole proprietors located in and companies whose seat is in the territorial jurisdiction of the registrar
www.ariregister.rik.ee
All company laws, except for some regulations that concern state-owned assets, specifc legal entities and some aspects of financial institutions, are contained in the Estonian Commercial Code (Äriseadustik). In addition, the General Part of the Civil Code Act (Tsiviilseadustiku üldosa seadus) contains a general provisions regarding company law.
Private limited liability company (osaühing = OÜ)
Public limited liability company (aktsiaselts = AS)
OÜ
Articles of Association (põhikiri) and the Commercial Code (Äriseadustik)
OÜ:
1) Registration via the electronic Company Registration Portal (ettevõtjaportaal; https://ettevotjaportaal.rik.ee/):
The cost (state fee) for the registration of a OÜ is EUR 140.60 (registration within 5 business days) or 185.30 EUR (registration within 1 business day)
2) Registration through notary:The state fee of EUR 140.60 plus notary fees, which depends on the share capital
AS:
3) Registration through notary: The state fee of EUR 140.60 plus notary fees, which depends on the share capital.
Public registration of companies
Are company laws codified in one legal act?
Main types of companies
Most popular type of company
Key corporate documents and the laws that govern share transfers and corporate governance
Company registration costs (excl. legal fees and translation costs)
Estonia Latvia Lithuania
The governmental authority that maintains the register of the com-panies is the Company Register of the Republic of Latvia, and is subordinated to the Ministry of Justice
www.ur.gov.lv
All company laws, except some regulations that concern state-owned assets, company groups and some aspects of the financial institutions, are contained in one Commercial Law (Komerclikums)
Private limited liability company (“SIA” or sabiedrība ar ierobežotu atbildību), Public limited liability company (“AS” or akciju sabiedrība).
SIA
Articles of Association (statūti) and the Commercial Law
For the registration of a SIA, costs are approx. EUR 170 (i.e. state duty, publication in official gazette)
For a SIA with a share capital of less than EUR 2,800, the costs are approx. EUR 36 (i.e. state duty, publication in official gazette)
The registration costs of an AS are approx. EUR 383 (i.e. state duty, publication of official gazette)
In addition to registration costs there are also costs for certifying the signatures of members of the company’s governing bodies (ap-prox. EUR 25 per signature)
The governmental authority that maintains and stores the data of companies is the Register of Legal Entities of the Republic of Lithuania. The Register of Legal Entities registers all legal persons, including private and public legal persons, their branches and subsidiaries, and the branches and subsidiaries of foreign legal persons.
www.registrucentras.lt
Major company laws, except some regulations that concern state-owned assets and some aspects of finance and insurance institutions, are the Lithuanian Civil Code (Lietuvos Respublikos civilinis kodeksas), the Law on Companies (Lietuvos Respublikos akcinių bendrovių įstatymas) and the Law on Securities (Lietuvos Respublikos vertybinių popierių įstatymas). There exists a number of other laws and secondary legislation.
Public limited liability company / public stock company (AB or akcinė bendrovė)
Private limited liability company / closed stock company (UAB or uždaroji akcinė bendrovė)
UAB (private limited liability company / closed stock company)
Articles of Association (Įstatai), the Civil Code (Civilinis kodeksas)and the Lithuanian Law on Companies (Akcinių bendrovių įstatymas)
The UAB or AB registration costs at the Register of Legal Entities are approx. ~ EUR 275. The Notary and other fees would be added to these costs
Corporate
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12Capitalisation and Accounting
‘It has the right formula. It is pragmatic and always practical, and really understands our organisation.’
Chambers Europe, 2014
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OÜ: EUR 2,500; however, provided the founders are private individuals and the share capital does not exceed EUR 25,000 an OÜ may be established without any minimum share capital requirements
AS: EUR 25,000
OÜ: optional
AS: mandatory
The amount of legal reserve capital shall be prescribed in the articles of association and shall not be less than 10% of the share capital
Yes, dividends cannot be paid out if the net assets become negative
N/A
Annual accounts are mandatory and publicly available
No major deviations
Any period of 12 months, usually the calendar year from 1 January to 31 December
OÜ: Mandatory if two of the three criteria are fulfilled:a) the sales revenue or income exceeds EUR 2,000,000b) the total assets as of the balance sheet date exceed EUR 1,000,000c) the average number of employ-ees exceeds 30 people
Mandatory if one of the three criteria is fulfilled:a) the sales revenue or income exceeds EUR 6,000,000b) the total assets as of the balance sheet date exceed EUR 3,000,000c) the average number of employ-ees exceeds 90 people
AS: always mandatory
Minimum share capital (EUR)
Mandatory reserves
Thin capitalisation rules
Minimum dividends
Annual accounts and publicity
Local accounting standards vs IAS
Financial year
Certified auditor
Estonia Latvia Lithuania
SIA: EUR 2,800 (however, under certain circumstances equity capital may be less than the mentioned minimum amount)
AS: EUR 35,000
The mandatory reserve must be formed only by companies (SIA) with the share capital less than EUR 2,800. The amount of reserve is 25% from the yearly profits
Yes, dividends cannot be paid out if the net assets become negative
N/A
Annual accounts are mandatory and they are publicly available
No major deviations
Any period of 12 months, usually the calendar year from 1 January to 31 December
Mandatory if two of the three criteria are fulfilled:
(a) the annual net sales are above EUR 800,000
(b) balance sheet total is EUR 400,000
(c) the company has at least 25 employees
In addition, annual accounts have to be audited by a sworn auditor if transferable securities of a company are admitted to trading on the regulated market.
UAB: EUR 2,900
AB: EUR 43,450
The mandatory reserve must be formed from the profit available for appropriation. It must not be less than 10% of the amount of the share capital and may be used solely to cover the company’s losses
Yes. Dividends cannot be paid out if at least one of the below condi-tions exists:
a) the company has unsettled ob-ligations, the term of settlement whereof has passed before the date of the adoption of the deci-sion to pay out dividends
b) the amount of profit of the reporting financial year is negative
c) the equity capital is smaller or, after the payment of dividends, would become smaller than the sum aggregate of the company’s 1) share capital, 2) mandatory reserve, 3) re-evaluation reserve and reserve for the acquisition of own shares
N/A
Annual accounts are mandatory and they are publicly available
No major deviations
Any period of 12 months, usually the calendar year from 1 January to 31 December
Mandatory where at least two indicators thereof on the last day of the financial year exceed the following limits:
1) net turnover during the report-ing financial year – EUR 3,475,440
2) the value of the assets speci-fied in the balance sheet – EUR 1,737,720
3) the average annual number of pay-roll workers during the report-ing financial year – 50 persons
Capitalisation and Accounting
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14Corporate Governance
‘VARUL offers industry insight and is responsive, diligent and goal-oriented.’
Chambers Europe, 2014
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OÜ: one-tier structure with an option to have a two-tier structure. Mandatory two-tier structure if so prescribed by the articles of association
AS: mandatory two-tier structure
Management board (juhatus)
Supervisory board (nõukogu)
OÜ: meeting of the shareholders (osanike koosolek)
AS: general meeting of the share-holders (aktsionäride üldkoosolek)
OÜ: Generally optional. Manda-tory if so prescribed by the articles of association. Minimum 3 members, maximum term in office is 5 years
AS: Mandatory, minimum 3 mem-bers, the maximum term in office is 5 years
The persons receiving the most votes at the general meeting of the shareholders shall be elected ¹
1
Unlimited
3
Unlimited
Corporate structure
Names of corporate bodies
Highest governing body
Supervisory board (non-executive board)
Election of supervisory board
Minimum number of manage-ment board members
Maximum number of manage-ment board members
Minimum number of supervisory board members’
Maximum number of supervisory board members
Estonia Latvia Lithuania
SIA: one-tier structure with an option to have a two-tier structure
AS: mandatory two-tier structure
Management board (valde)
Supervisory board (padome)
SIA: general meeting of the shareholders (dalībnieku sapulce)
AS: general meeting of the shareholders (akcionāru sapulce)
SIA: Optional, can consist of 3 to 20 members which are elected for an indefinite period unless otherwise specified in the articles of association.
AS: Mandatory, can consist of 3 to 20 members. If the stock of the company publicly traded – the minimum is 5 members. Maxi-mum term in office is 5 (five) years
> 50% of the votes of shareholders present at the shareholder meeting ¹
1
If the stock of AS is publicly traded, the minimum number of members is 3.
Unlimited
3
If the stock of AS is publicly traded – the minimum is 5 members.)
20
UAB: one-tier structure with an option to have a two-tier structure
AB: one-tier structure with an option to have a two-tier structure (note: starting from 1 July 2015 mandatory two-tier structure)
Manager or Head of the Company (bendrovės vadovas), who is usually called Director or General Director
Board (valdyba)
Supervisory board (stebėtojų taryba) UAB / AB: general meeting of the shareholders (visuotinis akcininkų susirinkimas)
UAB: Optional, can consist of 3 to 15 members elected for a period up to 4 years
AB: Optional, can consist from 3 to 15 members elected for a period up to 4 years (note: starting from 1 July 2015 mandatory two-tier structure, so either Supervi-sory Board or the Management Board would be mandatory)
By a majority of the votes of the general meeting of the shareholders.
The Law on Companies provides for a special procedure of the allocation of votes
3
(note: for UAB - an optional body; for AB - starting from 1 July 2015 mandatory two-tier structure, so either Supervisory Board or the Management Board would be mandatory)
Unlimited
3
15
Corporate Governance
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Corporate Governance
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17Corporate Governance
OÜ: The person(s) receiving the most votes at the meeting of the shareholders shall be elected ¹
AS: The person(s) receiving the most votes at the Supervisory Board meeting
Not mandatory
>50% of the votes present at the general meeting of the sharehold-ers (AS) or the meeting of the shareholders (OÜ) ¹
>50% of the votes of the share-holders ¹
OÜ: at least 2/3 of the votes present at the meeting of the shareholders, unless higher requirement derives from the Articles of Association (põhikiri) ¹
AS: at least 2/3 votes present at the general meeting of the share-holders, unless higher require-ment derives from the articles of association (põhikiri) ¹
OÜ: at least 2/3 votes present at the meeting of the shareholders, unless higher requirement derives from the articles of association (põhikiri) ¹
AS: at least 2/3 votes present at the general meeting of the share-holders, unless higher require-ment derives from the articles of association (põhikiri) ¹
>50% of the votes present at the general meeting of the sharehold-ers (AS) or the meeting of the shareholders (OÜ) ¹
Election of the management board
Employee representatives on the executive and non-executive boards
Approval of the annual accounts
Election of the non-executive and executive board
Share capital increase
Amendments to the Articles of Association
Election of the auditor
Estonia Latvia Lithuania
SIA: >50% of the votes by the shareholders present at the share-holder meeting ¹
AS: >50% of the votes by the members of the Supervisory Board present at the meeting.
Not mandatory
>50% of the votes of sharehold-ers present at the shareholder meeting ¹
Non-executive board:
SIA: optional, by >50% of share-holders present at the meeting ¹
AS: obligatory, as elected are con-sidered persons, who have gained the most votes of shareholders present at the meeting, taking into account the maximum num-ber of council members specified in the articles of association.
Executive board:
SIA: by >50% of the votes by the shareholders present at the meeting ¹
AS: by > 50% of the votes by the members of the Supervisory Board present at the meeting
SIA: at least 2/3 of the votes present at the meeting of the shareholders ¹
AS: at least 3/4 of the votes present at the meeting of the shareholders ¹
SIA: at least 2/3 of the votes present at the meeting of share-holders ¹
AS: at least 3/4 of the votes present at the meeting of share-holders ¹
>50% of the votes of the general meeting of shareholders
UAB / AB: by a majority of the votes by the Supervisory Board; if there is no Supervisory Board, by a majority of the votes of the gen-eral meeting of the shareholders according to a special procedure of the allocation of the votes
Not mandatory
By a majority of the votes present at the general meeting of the shareholders ¹
By a majority of the votes of the general meeting of the sharehold-ers (following a special procedure) or by the supervisory board (if formed)
UAB / AB: at least 2/3 of the votes present at the general meeting of the shareholders ¹
UAB / AB: at least 2/3 of the votes present at the general meeting of the shareholders ¹
By a majority of the votes present at the general meeting of the shareholders ¹
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Corporate Governance
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19Corporate Governance
OÜ: By the submission of the respective application to the court by the OÜ if the shareholder fails, without good reason, to perform the shareholder’s obligations to a material extent or in any other way significantly damages the interests of the OÜ, and the shareholder has failed to fulfil its obligations or cease its damaging activities despite receiving a written warning from the OÜ to that effect.
Respective application on behalf of the OÜ to the court may be submitted by the shareholders holding more than 50% of all the votes.
AS – the exclusion of the share-holder by legal action in court is not available; exclusion of the minority shareholders is possible by a shareholders´ resolution hold-ing 90% or more of the votes by way of a squeeze-out
Applies by law to the manage-ment board and the supervisory board members
No domicile or residence requirements
At least 2/3 of the votes present at the general meeting of the shareholders (AS) or the meeting of the shareholders (OÜ) ¹
OÜ: each management board member is authorised to perform the transactions unless joint representation applies
AS: each management board member is authorised to perform the transactions unless joint representation applies plus prior consent from the supervisory board may be applicable
Unlimited
Exclusion of the shareholders by legal action
Non-competition rules
Domicile or other requirements to executive and non-executive board members
Mergers and Demergers
Sale and purchase of movable and immovable assets
Liability of the non-executive and executive board members
Estonia Latvia Lithuania
SIA: A shareholder, who without justifiable reason, failed to per-form his or her obligations or have otherwise done substantial harm to the interests of the company or have not performed obligations or have not ceased to inflict harm after receiving a written warning from the company, may be ex-pelled by the court on the basis of an action brought by the company. Such action may be brought by the company if shareholders, who represent not less than 50% of the equity capital decide to do so.
AS: the exclusion of the share-holder by legal action in court is not available.
Applies by law to the manage-ment board members
No domicile or residence requirements.
Notarised consent is required to become a member of the management board or supervi-sory board
SIA: at least 2/3 of the votes represented at the meeting of shareholders ¹
AS: at least 3/4vof the votes represented at the meeting of shareholders ¹
SIA: each management board member is authorised to perform the transactions unless joint representation applies. There is no specific regulation regarding decision-making process.
AS: > 50% of the votes of the management board plus prior consent from the supervisory board may be applicable
Unlimited
At least one or some shareholders whose nominal value of shares accounts for no less than 1/3 of the share capital may apply to the court if the shareholder actions contradict the goals of legal per-son’s activities and where there are no grounds to expect any changes in the said actions
A shareholder shall have no right to file an application if the incor-poration documents of a legal person or contracts concluded by its shareholders provide for different rules of the forced sale of shares and the said rules may be applied
No clear non-competition rules are established by law. But general duty of loyalty to the company and the avoidance of interest conflicts to the members of management bodies applies
No domicile or residence requirements
At least 2/3 of the votes present at the meeting of the share-holders ¹
UAB / AB: the majority of the votes present at the meeting of the BoardA (if formed) (Articles of Association might establish that the prior consent from the shareholders must be obtained or that such decisions are within the scope of the head)
Unlimited
¹ unless the articles of association prescribe a greater majority requirement.
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20Shareholders’ agreements
The team is ‘very thorough, attentive, fast and professional’.
Legal 500, 2014
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Vague, general contract law principles and legal requirements of other relevant laws
Very limited, high legal uncertainty
No. The validity of the voting in bodies cannot be challenged un-der the shareholders’ agreements, but this does not automatically exclude the implementation of sanctions and other legal conse-quences under the shareholders’ agreements
Disputes over the sharehold-ers’ agreements are resolved as ordinary contractual disputes and an arbitration clause can be used. This also means that the share-holders’ agreements apply to new shareholders only if all the parties, including the new shareholder, consent to it (except for certain cases of universal succession)
Arbitration cannot be used for challenging decisions of corporate governing bodies, as the articles of association cannot include an arbitration clause
Not public
Not subject to registration in public records
Legal framework
Case law
Whether case law supports that the shareholders’ agreement prevails over the articles of as-sociation
Dispute resolution by arbitration
Publicity of the shareholders’ agreements
Registration of the shareholders’ agreements
Estonia Latvia Lithuania
Vague, general contract law principles and Commercial Law, Civil Law
Very limited, high legal uncertainty
Controversial case law, no clear support for the shareholders’ agreement prevailing over the articles of association
Due to the legal link between the shareholders’ agreement and the articles of association and because the articles of associa-tion cannot include an arbitration clause, it is not unusual for an arbitration clause in the sharehold-ers’ agreement to be challenged
Not public
Not subject to registration in public records
Vague, general contract law principles and legal requirements of other relevant laws
Very limited, high legal uncertainty
Controversial case law, no clear support for the shareholders’ agreement prevailing over the articles of association
Dispute resolution by arbitration becoming more usual and com-mon. However, due to the legal link between the shareholders’ agreement and the articles of as-sociation and because the articles of association cannot include an arbitration clause, it is not unusual for an arbitration clause in the shareholders’ agreement to be challenged
Not public
Not subject to registration in public records
Shareholder’s agreements
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22 Shares
Ants Mailend again leads the team, which provides ‘an in-depth analytical approach and fast response times’.
Legal 500, 2011
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23
OÜ: the list of shareholders (osanike nimekiri)
AS: share register (aktsiaraamat)
AS – the shares are electronically registered in the Estonian Central Register of Securities
OÜ – registration electronically in the Estonian Central The register of Securities is optional; if the shares are not electronically registered, then the shares are immaterial rights and no share certificates may be issued
OÜ: Yes, unless excluded in the articles of association
AS: No, unless the articles of association provide that the shareholders have the right of first refusal
Yes, but it may be barred by a resolution of the meeting of the shareholders (OÜ) or the general meeting of the shareholders (AS) with at least ¾ of the votes rep-resented at the general meeting of the shareholders (AS) or the meeting of the shareholders (OÜ)
OÜ: The management board. Or the registrar, if the shares are registered in the Estonian Central Register of Securities.
AS: the registrar of the Estonian Central Register of Securities
OÜ: Yes
AS: No
For listed companies only
Access is limited to the sharehold-ers’ lists of other companies in the Estonian Central Register of Securities
Share ownership document
Share certificates
Right of first refusal
Pre-emptive rights to acquire new shares
Who maintains and keeps the shareholders’ register?
Are changes in the shareholders’ register required to be reported to the Company Register?
Public register of shares with the Central Registry
Estonia Latvia Lithuania
SIA: the shareholders’ register (dalībnieku reģistrs)
AS: the shareholders’ register (akcionāru reģistrs)
Optional
SIA: Yes, unless otherwise specified in the articles of association.
AS: No, unless the articles of association provide otherwise
SIA: Yes
AS: Yes, but it may be excluded if the new shares are issued with a specific aim
Pre-emptive rights of stockhold-ers of AS companies may not be revoked or restricted by a memo-randum of association, the articles of association or by a decision of a meeting of shareholders
SIA: The management board
AS: The management board or the Latvian Central Depository, if stocks of the company are publicly traded.
SIA: Yes
AS: Optional
For listed companies only
The mandatory disclosure of all shareholders above a 10% shareholding. If a shareholder of a company acquires more than 10% of the shares of the company, the shareholder has a duty to notify the company in writing of the total number of these shares and the voting rights associated with this number within 2 weeks of the date of the acquisition of the shares that exceed 10 per cent of the shares of the company
UAB: share, share certificate or an extract from the shareholder’s se-curity account (vertybinių popierių sąskaita)
AB: an extract from the sharehold-er’s security account (vertybinių popierių sąskaita)
Optional in the case of material shares (only in UAB)
UAB: Yes
AB: No
Yes, unless the general meeting of shareholders decides to exclude this right for all the shareholders according to the procedure specified by the Law on Companies
UAB: The Head of the Company (bendrovės vadovas) or the account manager (share brokers) under the contract
AB: The share brokers and other legally authorised depositories, such as banks
UAB: Yes
AB: Yes
For listed companies only
Access is limited to the sharehold-ers’ lists of UAB in the Register of Legal Entities of the Republic of Lithuania
Shares
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Shares
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25Shares
Pledges are registered in the Es-tonian Central Register of Securi-ties if the shares of the respective company are also electronically registered, but access to this data is somewhat limited
If the shares of the OÜ are not registered in the Estonian Central Register of Securities, then there is no public registry of such share pledges. The shares of the OÜ which have not been registered electronically may only be pledged by way of notarised agreements and notaries are required to for-ward respective information to the Commercial Register, but informa-tion on the share pledges may be obtained from the Commercial Register, although access to such data is somewhat limited
OÜ: Not permitted
AS: Permitted
OÜ: Not permitted
AS: Permitted
Public register of share pledges
Different classes of shares
Non-voting shares
Estonia Latvia Lithuania
Yes. Basic data is available to the public as well (e.g. the amount pledged, the data of the agree-ment, etc.)
SIA: Not permitted
AS: Permitted
SIA: Not permitted
AS: Permitted
Yes. Pledges are registered with the Lithuanian Mortgage Register. All registered data in connection to the pledge is available to the public (e.g. the amount pledged, the data and the parties of agree-ment, the subject matter of the pledge, the secured obligations, etc,)
Permitted
Permitted
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26Minority rights
VARUL has ‘very good understanding of business ideas, and excellent understanding of clients’ needs and goals’.
Legal 500, 2014
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27
Articles of Association (põhikiri)
To some extent only
No minimum
None
1-3 months
OÜ: Amendments to the Articles of Association, a resolution on the reduction or increase of the share capital, a resolution on the dissolution of the company or the continuation of the activities of the company, the merger, division and transformation of the company
AS: Amendments to the Articles of Association, the removal of a member of the supervisory board, a resolution on the increase or reduction of share capital, a reso-lution on the dissolution of the company or the continuation of the activities of the company, the merger, division and transforma-tion of the company, issue of convertible bonds
OÜ: the right to receive informa-tion from the management board on the activities of the company and to examine the documents of the company; request the convening of the shareholders’ meeting; demand the inclusion of certain issues on the agenda of the general meeting; request the removal of a member of the man-agement board by court; demand a resolution on the conduct of a special audit on matters regarding the management or financial situation of the company; order the preparation of a new balance sheet or asset distribution plan, or supplementary liquidation by court
What is the main corporate document that protects minority shareholders?
Is the shareholders’ agreement an effective tool for participating in the management?
Minimum dividends from profits
Minimum investment require-ments to start legal action against the management board
Time bar for claims for allegedly illegal decisions by the general meeting of the shareholders
What key decisions can be blocked by the minority share-holders owning less than 50% of the votes, but more than 34%?
What are the main rights of the shareholders holding at least 10% of the votes (in addition to the rights of the shareholder holding 5%, see next section below)?
Estonia Latvia Lithuania
Articles of association (statūti)
No
No minimum
None
3 months
SIA: Amendments to the Articles of Association, the termination or continuation of the operation of the company; the reorganisation of the company; entering into, amending and the termination of a group of companies’ agreement; share capital changes
AS: Amendments to the Articles of Association; share capital changes; issuance of convertible debentures; the reorganisation of the company; entering into a group of companies’ agreement, amending or the termination thereof the inclusion of the com-pany; consent for the inclusion and the termination or continua-tion of operations
SIA: To request the convening of the shareholders’ meeting
AS: To request supervisory board to examine the activities of the management board
To request secret voting at the meeting
Both SIA and AS:
1) To request a postponement of the approval of the annual ac-counts of a company at a meeting of the shareholders
2) To request the company’s controller to examine the activities of the company
3) To agree to waiver a claim or settlement thereof to come into force (according to the Article 20(3) of the Group of Companies Law)
Articles of Association (įstatai)
To some extent only
No minimum
None
3 months
Amendments to the Articles of Association; the determination of the class, number, nominal value and the minimum issue price of the shares issued by the company; the conversion of the company’s shares of one class into shares of another class, the approval of the share conversion procedure; the replacement of a UAB’s share certificate with shares; the appropriation of profit (loss); the building up, drawing on, reduction or liquidation of reserves; issuance of convertible debentures; the increase of the share capital; the reduction of the share capital; the reorganisation or split-off of the company or the approval of the terms of the reorganisation or split-off of the company; the transformation of the company; the restructuring of the company; the liquidation of the company and the cancellation of the company’s liquidation
To request the convening of a general shareholders’ meeting; to receive information on the com-pany (unless these documents contain a commercial (industrial) secret of the company or confi-dential information); to file a claim with the court for compensa-tion of damages resulting from nonfeasance or malfeasance by the manager of the company and board members of their duties prescribed by laws and Articles of Association of the company
Minority rights
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Minority rights
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29Minority rights
AS: the right to receive informa-tion from the management board on the activities of the company; request the convening of the shareholders’ meeting; demand the inclusion of certain issues on the agenda of the general meet-ing; demand that the minutes of the general meeting be notarised; request the removal of a member of the management board by a court; request the convening of the meeting of the supervisory board, request the change of the auditor by court; demand a resolution on the conduct of a special audit on matters regarding the management or financial situation of the company; order the preparation of a new balance sheet or asset distribution plan, or supplementary liquidation by a court
OÜ: the right to receive informa-tion from the management board on the activities of the company and to examine the documents of the company, to demand the adoption of the merger resolution under certain conditions set out by law
AS: the right to receive informa-tion from the management board on the activities of the company, to demand the adoption of a merger resolution under certain conditions set out by law Listed companies: to request the convening of the shareholders’ meeting, to demand the inclusion of certain issues on the agenda of the general meeting
What are the main rights of the shareholders holding at least 10% of the votes (in addition to the rights of the shareholder holding 5%, see next section below)?
What rights does a shareholder with 5% of the votes or at least EUR 50,000 nominal value of the shares have?
Estonia Latvia Lithuania
4) If the company is under liquida-tion, the shareholders have the right to request that the liquidator be appointed by the court
5) during the meeting of share-holders or no later than two months after the meeting of shareholders, raise substantiated objections to the elected auditor
AS:
1) To nominate their candidate for election for the supervisory board
2) To initiate the convening of an extraordinary meeting of the stockholders
3) Within seven days of publica-tion of a public notice or within five days of the receipt of notice, to request the institution conven-ing the meeting of the sharehold-ers to include additional issues on the agenda of the meeting
Both SIA and AS:
1) Within one year from the date of the registration of the company, to request that the Commercial Register approve one or several experts selected by the sharehold-ers to perform an examination of the founding process of the company
2) To request the re-evaluation of the property contribution accord-ing to the Commercial Law
3) To object to the transfer of the founders` liability to the company, if the liability for the obligations has arisen before the registration of the company with the Com-mercial Register
4) To bring a claim against the founders, a management board and supervisory board member or auditor of the company
5) To request an internal audit if there is a substantiated reason for it and elect a certified auditor to conduct such an audit
To receive information on the company (unless these documents contain a commercial (industrial) secret of the company or confidential information), to file a claim in court for compensa-tion for damages resulting from nonfeasance or malfeasance by the manager of the company and Board members of their duties prescribed by law and the Articles of Association of the company
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30 Takeovers
A capable and ‘very professional team’.
Legal 500, 2011
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31
Financial Supervision Authority (Finantsinspektsioon)
www.fi.ee
The mandatory bid obligation is triggered when a person has gained dominant influence over the target company and thus:
1) holds the majority of the votes in the company,
2) has the right to appoint or remove the majority of the mem-bers of the supervisory board or management board, or
3) alone controls the majority of the votes pursuant to the agree-ment entered into with other shareholders
5%, 10%, 15%, 20%, 25%, 50% or 1/3 or 2/3 of the votes
The FSA may impose a fine up to EUR 32,000
As a result of a transaction by which a qualifying holding is acquired or increased, the person shall not acquire the voting rights determined by the shares, and the votes represented by the shares shall not be included in the quorum of the general meeting if the FSA has not been informed of the transaction
Yes
Yes
Name of the national FSA
Mandatory bid threshold
What are the required thresholds of notice to be provided to the FSA ?
What are the consequences of not reporting changes in the shareholding to the FSA?
Are voluntary public bids allowed?
Are competitive bids allowed?
Estonia Latvia Lithuania
Finance and Capital Market Commission (Finanšu un kapitāla tirgus komisija)
www.fktk.lv
= 50% or more by a single entity or persons acting in concert
5%, 10%, 15%, 20%, 25%, 30%, 50%+ of the votes
The buyer is not entitled to use acquired voting rights and voting rights that he had before the acquisition, and the FSA may impose a fine up to ca EUR 14 200
Yes
Yes
The Bank of Lithuania (Lietuvos bankas)
www.lb.lt
More than 1/3 votes in the general meeting of the shareholders by the single entity or persons acting in concert
5%, 10%, 15%, 20%, 25%, 30%, 50%, 75% and 95% of the votes (both when shares are acquired and transferred)
A person is entitled to use only those voting rights that were properly reported to the FSA and to the issuer. Moreover, all the decisions adopted during the period between the acquisition of the holding and the moment of a proper disclosure of the informa-tion may be annulled by a decision of the court, if the decisions had resulted in a replacement of the issuer’s managers or property or non-property rights of the shareholders have been violated. The FSA may impose a fine up to EUR 29,000
Yes
Yes
Takeovers
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Takeovers
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33Takeovers
The highest possible purchase price shall be established, taking into account the following circum-stances taken as a whole:
1) the weighted average price of the share transactions concluded on the market during the preced-ing 6 months or the weighted average price paid for the share in such transactions
2) the highest price paid for the shares during the preceding 6 months by the offerer or a person acting in concert with the offerer
3) the weighted average price paid for the shares during the preceding 6 months by the offerer or a person acting in concert with the offerer
4) the purchase price is not more than 10% lower than the weighted average price of the corresponding shares during the 10 market days immediately preceding the date of the submis-sion of the takeover application to the FSA
5) the purchase price is not lower than the book value of the shares
= 90% or more
= 90% or more
Yes
What are the criteria to determine the mandatory bid price per share?
Threshold for buy out to be demanded by the minority shareholders?
Threshold for the squeeze out of the minority shareholders?
Does the FSA approve the mandatory bid prospectus?
Estonia Latvia Lithuania
The highest of the following three:
1) The net asset value during last financial year
2) The transaction value, or
3) The average stock exchange price for the last 12 months
= 90% or more
= 90% or more
Yes
The just price is established ac-cording to the following principles:
a) The price must be not smaller than the highest price the seller paid for the shares in the last 12 months before reaching 1/3 of the votes in the company and not smaller than the market value weighted average in the regulated market and multilateral trading facility during 6 months before reaching 1/3 of the votes in the company
b) If it is not possible to define the highest price in the last 12 months or the shares were not traded in the regulated market nor in the multilateral trading facility, the price is established following the valuation report of a value appraiser by using at least two valuation aspects. The FSA has to approve the value appraiser selected by the seller
In certain cases the FSA may order to change the price
= 95% or more (shares and votes of the issuer)
= 95% or more (shares and votes of the issuer)
Yes (only circular)
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34 Employment
‘VARUL is trustworthy and an exceptional specialist in its field. The lawyers are client-oriented, understood our business needs and were very proactive.’
Chambers Europe, 2014
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35
No
No
No, unless there is an express agreement with the board member to the contrary
No, unless there is also an em-ployment agreement entered into with the board member (where the employment agreement is not entered into with respect to the performance of board member’s functions, but with respect to some other position)
Not applicable to dismissed board members, unless it is expressly agreed upon
A non-competition agreement with employees applicable after dismissal is only in force if:
1) the term of the non-competi-tion obligation is for a maximum of 1 year from the termination of the employment contract
2) the employer pays reasonable monthly compensation to the employee
3) it has been agreed in writing, it is necessary for protecting the employer’s special economic in-terest and the material, territorial and temporal scope of the obliga-tion has been reasonably defined
No clear guidance on this issue is provided in Estonian law, but in practice, 2-3 years is recommend-ed as a maximum period
With respect to employees the maximum non-competition period is 1 year from the termination of the employment contract
Does the dismissal of the management board members require a notice period?
Does the dismissal of the supervisory board members require a notice period?
Are the dismissed board members entitled to compensation by law?
Can board members invoke employees’ rights set by law to defer dismissal?
Non-competition obligations after dismissal
What are the consequences of not reporting changes in the shareholding to the FSA?
Maximum non-competition period by law after dismissal
Estonia Latvia Lithuania
No
No
No, unless there is an express agreement with the board member on the contrary
No, unless there is also an employment agreement entered into with a board member (where the employment agreement is not entered into with respect to per-formance of the board member’s functions, but with respect to some other position)
Not applicable to the manage-ment board or supervisory board members, unless expressly agreed
A non-competition obligation for other employees is only in force where the employer pays com-pensation to the employee
No clear guidance regarding this issue. According to the Latvian Labour Law, the maximum period is two years. However, if no labour contract was concluded, then, in practice this period may be longer.
No
No
No, unless there is express agreement with the board member to the contrary
However, the Head of the Company (i.e. General Director or Director) is employed by an employment contract and is entitled to a compensation set out by the Labour Code as any other employee
No. However, if the Head of the Company (General Director or Director) is a board member and works under an employment contract, he may try to invoke employees’ rights. Case law does not really uphold such practice
No, unless there is express agree-ment to the contrary
Following court practice, a non-competition obligation for other employees is only in force where the employer pays compensation to the employee
No clear guidance in Lithuanian law. It is possible to argue that a 2 year period may be set as an opti-mum period, however, in practice a period of 3 to 5 years may be set as a maximum period. This is a matter of agreement between the parties that will be reviewed and evaluated by the court in case of a dispute
Employment
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Employment
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37Employment
Yes. The transfer-of-undertaking rules are not applicable to the management or supervisory board members with regard to their po-sition, rights and responsibilities as board members; if an employ-ment agreement has been signed with board members for the per-formance of other responsibilities aside from those of the board, then the transfer-of-undertaking rules apply with regard to such an employment agreement
Employment contracts are deemed to be transferred along with the rest of the undertaking by law; if the consultation require-ment is breached, a fine up to EUR 1,300 may be imposed
Court practice is undeveloped, but trends are in favour of employees
No, unless there is a collective agreement with relevant provi-sions
Yes, employees are required to be made aware of the transfer in a timely manner, but not later than one month before the transfer of the company
Employment contracts are transferred to the acquirer of the assets (the company) without any amendments if the buyer contin-ues the same or similar economic activities (i.e. the transfer of the assets is deemed to amount to the transfer of the undertaking)
Is the transfer-of-undertaking directive applicable?
What are the penalties for a breach of the transfer-of-under-taking rules?
Is there an established case law that protects employees of the seller?
Is the consent of employees required before the asset transfer?
Are employees required to be made aware of the asset transfer before the asset transfer is implemented?
When are employees required to be hired by the Buyer of the assets?
Estonia Latvia Lithuania
Yes. The transfer-of-undertaking rules are not applicable to board members if no employment agreement has been signed
An obligation to hire the dismissed employees and the payment of compensation to the employees for the entire unem-ployment period.
For violation of consultation requirements in EU wide com-mercial companies, EU com-mercial company groups a fine in the amount of EUR 7100 will be imposed on the employer.
Court practice is undeveloped, but trends are in favour of employees
No, unless there is a collective agreement with relevant provi-sions
Yes, Both the transferor of an undertaking and the acquirer of an undertaking have a duty to inform their employee representatives, but if such do not exist, their employees regarding the date of transfer of the undertaking or the expected date of transfer. The transferor has to inform the employees not later than one month before the transfer of the undertaking, while the acquirer of an undertaking, not later than one month before the transfer of the undertaking starts to directly affect the working conditions and employment provisions of his or her employees.
After the transfer or simultane-ously. The terms of employment must remain unchanged
Yes. The transfer-of-undertaking rules are not applicable to board members and supervisory board members if no employment agreement has been signed
No special penalties are applicable. The penalties would be treated as a breach of the law and general penalties from EUR 145 to 1,450 may be imposed depending on the type of breach. Also, liability for both the transfer-ring and taking over entities may attach in a form of payment of compensation.
Court practice is quite developed and in favour of employees
No, unless a) there is a collec-tive agreement with relevant provisions or b) if such a transfer constitutes a transfer of business or a part of a business, in which case the representatives of the employees should be informed and consulted in advance and the transfer of undertakings directive is applicable
Yes. Employees are required to be made aware of the transfer and its economic and legal impact to the employees in writing, not later then within 10 working days before the transfer. Also, before deciding on the transfer of busi-ness or a part of it and before other decisions that may have a substantial impact on the organi-sation of work, the workers and their legal position, the employer must inform the employee rep-resentatives and to consult with them about the reasons for the decision and the legal, economic and social consequences for employees and on the potential effects of measures to avoid or mitigate them
Transfer of the assets (the com-pany) is not a legitimate reason for termination of labour contract, therefore employment contracts are transferred to the acquirer of the assets (the company)
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38 Tax
‘The firm has a proactive style. It offers quick responses and client-guided advice, and it is a good choice for international market players.’
Chambers and Partners, 2014
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39
20/80
The retained profits of corporate entities are not taxed. Corporate tax is applied to the payment of dividends and certain other payments and costs
The capital gains of corporate entities are not taxed if the corpo-ration retains the profits. Private individuals are subject to 21% capital gains tax
Corporate income tax rate
Resident – capital gains taxation
Estonia Latvia Lithuania
15%
The capital gains for corporate entities are tax exempt income, except for capital gains derived from the sale of offshore securi-ties (15%)
Private individuals are subject to 15% capital gains tax
15%
The reduced rate of 5% applies to small companies (the average number of employees does not exceed 10 and whose income during the tax period does not exceed EUR 300,000)
Withholding tax on dividends (0% or 15%), interest (0% or 10%), royalties (0% or 10%) and certain other payments apply
The capital gains on the sale of real estate located in Lithuania for corporate entities are taxed as ordinary income.
The capital gains on the sale of the shares of a company established in the EEA or in a country with which Lithuania has a double tax treaty are tax-exempt if the shares have been held for at least two years and if the holding represents more than 25% of the shares of the company through-out that period.
Private individuals are subject to 15% capital gains tax
The exception is applicable for individuals if the real estate in Lithuania was acquired at least 5 years before the transfer. In this case the incomes of individuals are tax-exempt.
The exception is applicable for individuals if:
1) the income is derived from the sale or other transfer into owner-ship of securities acquired before 1 January 1999; or
2) the income is derived from the sale or other transfer into owner-ship of securities acquired after 1 January 1999 if the securities are sold or otherwise transferred into ownership not earlier than 366 days after the date of their acquisition, and the individual did not hold more than 10% of the shares (interests, member shares) of the entity whose securities are sold or otherwise transferred into ownership for 3 years preceding the end of the tax period in which those securities were sold or oth-erwise transferred into ownership
Tax
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Tax
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41Tax
Gains on the sale of shares derived by non-residents are not subject to taxation. Where the shares are held in an Estonian real estate company, a contractual investment fund or another pool of assets (more than 50 per cent was directly or indirectly made up of immovable property or structures as movables located in Estonia and in which the non-resid ent had a holding of at least 10 % at the time of transfer), the disposal of “real estate” company shares is subject to tax on gains at 21%. Depending on the ap-plicable tax treaty, tax obligation may be more favourable to non-residents
Gains on sale of real estate located in Estonia is taxable at 20%
No capital tax on equity/share premium contributions
Taxable on the level of the resi-dent company if proceeds exceed the monetary and non-monetary contribution to the equity capital of the company. Also taxable on the level of the recipient if the proceeds exceed the acquisition value to the extent that the pro-ceeds were not taxed at company level
Since the profits of corporate enti-ties are not taxable (see for the exceptions above), there are no tax rules on losses carried forward
Sole entrepreneurs may deduct the amount by which business ex-penses exceed business income for up to 7 subsequent periods (years) of taxation
Non-resident capital gains taxation
Capital tax on equity/share premium contributions
Taxation of liquidation proceeds
Loss carry forward
Estonia Latvia Lithuania
Gains on the sale of shares de-rived by corporate non-residents are not subject to taxation.
A notable exception to this rule is where the shares are held in a Latvian “real estate” company (more than 50% of the company’s balance sheet assets consist of real estate located in Latvia). The disposal of “real estate” company shares is subject to a 2% withholding tax on the gross sale price. However, such a with-holding would in practice apply only if the purchaser is a Latvian corporate entity
Private individuals are subject to 15% capital gains tax if they dispose of the real estate located in Latvia or the shares of a Latvian “real estate” company
No capital tax on equity/share premium contributions
Liquidation proceeds transferred to a foreign corporate are not subject to income taxation. Individuals are also not subject to income taxation if the amount is equal or less to the initial contribu-tions in share capital. Otherwise individual should pay 15% of liquidation proceeds.
Losses may be carried forward for an unlimited period of time
Gains on the sale of shares for both corporate and private non-residents are not subject to taxa-tion in Lithuania. Gains on the sale of real estate located in Lithuania are taxable at 15%
The exception is applicable for individuals who are non-residents if the real estate in Lithuania was acquired at least 5 years before the transfer. In this case the incomes of individuals are tax-exempt.
The exception is applicable for individuals non-residents if:
1) income derives from the sale or other transfer into ownership of securities acquired before 1 January 1999; or2) income derives from the sale or other transfer into ownership of securities acquired after 1 January 1999 if the securities are sold or otherwise transferred into owner-ship not earlier than 366 days after the date of their acquisition, and the individual did not hold more than 10% of the shares (interests, member shares) of the entity whose securities are sold or oth-erwise transferred into ownership for 3 years preceding the end of the tax period in which those securities were sold or otherwise transferred into ownership
No capital tax on equity/share premium contributions
On a liquidation, it is assumed that the entity under liquidation sells its assets at fair market value to its shareholder. According to the Lithuanian Law on Corporate Income Tax, the transfer of real es-tate located in Lithuania is subject to withholding tax.
Losses may be carried forward for an unlimited period of time. However, such carry-forward must be terminated if the entity ceases the activities due to which the losses were incurred, except for cases where the entity ceases the activities for reasons beyond its control
Losses incurred as a result of transferring securities and/or de-rivative financial instruments may be carried forward for no longer than 5 consecutive tax periods
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Tax
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43Tax
The arm’s-length principle applies
There are no specific rules on interest deductibility. The general arm’s-length principle applies to related parties
Taxation regulations establish a tax-neutral regime for reorganisa-tions. For example, revaluation of assets and liabilities resulting from mergers are ignored for taxa-tion purposes
Taxation of loan interest between related entities
Interest deductibility (thin-cap rules)
Tax neutrality of reorganizations
Estonia Latvia Lithuania
In a cross-border interest payment situation, a Latvian corporate entity is required to withhold 0% paid to a related EU company and for non-EU companies)
(exception – offshore – 15%)
Transfer pricing rules require that the taxable income of a Latvian corporate entity be increased by interest amounts paid to related entities in excess of market rates
The taxable income of the com-pany shall be increased:
1) either by the interest expenses exceeding the market interest rate which is calculated by applying average credit rate for the credits issued by credit institutions to non-financial institutions within a credit year multiplied 1.57 times; or
2) by the interest expenses in pro-portion to the degree to which the average amount of debt exceeds the 4:1 debt equity ratio.
The limitations mentioned above do not apply in case the loan was granted by the financial institution meeting the following criteria:
1) it is a resident of Latvia or another Member State of the European Union or the state of the European Economic Area or a resident of such state, with which Latvia has entered into the con-vention or agreement regarding the avoidance of double taxation and non-payment of taxes, if the relevant convention or agreement has come into force; or
2) it provides crediting services or financial leasing services and the supervision thereof is performed by the supervisory authority of credit institutions or finance of the relevant state.
Taxation regulations generally establish a tax-neutral regime for reorganizations. For example, revaluation of assets and liabilities resulting from mergers are ignored for taxation purposes
0% or 10% withholding tax applies.
No withholding tax is levied on in-terest paid to a company resident in the EEA country or a country that has concluded a Double tax treaty with Lithuania.
However, the interest is taxable (10%) if interest is paid to the non EU company or to the company which is located in country which does not have double tax treaty with Lithuania.
Thin-cap rule: a debt-to-equity ratio of 4:1 applies
This rule does not apply if a tax-payer proves that the same loan could exist between unrelated parties. Notably, thin capitalisation also applies to variable interest depending on the profits or turno-ver of a company and the costs of currency exchange results
If all conditions set forth in the taxation regulations are met, then the tax consequences of the reorganisations are tax neutral
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44MergerControl
‘The team functions extremely well and the lawyers’ areas of expertise complement each other perfectly.’
Chambers Europe, 2013
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45
Competition Act (Konkurentsiseadus)
Competition Authority (Konkurentsiamet)
www.konkurentsiamet.ee
When the aggregate turnover in Estonia of the concentration parties exceeds ca EUR 6.4 mil-lion and the aggregate turnover in Estonia of each of at least two parties to the concentration exceeds ca EUR 1.9 million during the previous financial year
Share transfers, joint ventures, asset control, the de facto or otherwise contractual acquisition of control
The transaction will not be subject to control by the Competition Authority if the turnover threshold is not met.
The following is not deemed to be concentration:
1) transactions that are carried out as an internal restructuring of a group of undertakings;2) if credit institutions, financial institutions or insurers temporar-ily acquire, for their own account or for the account of others, securities in an undertaking with a view to reselling them, provided that they do not exercise voting rights in respect of those securi-ties with a view to determining the competitive behaviour of the undertaking which issued the securities, and provided that they exercise such voting rights only with a view to preparing the sale of the securities or the undertak-ing or a part thereof and that any such sale takes place within one year of the date of acquisition;3) if control is acquired by a duly authorised person in accordance with the Acts which relate to liquidation, compulsory dissolu-tion, insolvency or other similar proceedings;4) if the actions specified in clauses (1) 2) or 3) are carried out by undertakings whose sole business objective is to acquire and take possession of holdings in other undertakings in order to maintain the value of the invest-ment, provided that the voting rights connected to the holdings are, above all, used in matters related to the appointment of the members of the management and supervisory bodies of such undertakings and not in order to determine, directly or indirectly, the behaviour of the undertakings which influences competition
Name of the relevant law and the competition control authority
When are the merger control rules triggered?
What types of transactions are triggered?
Are there any exceptions to the merger control rules?
Estonia Latvia Lithuania
Competition Law(Konkurences likums)
The Competition Council (Konkurences padome)
www.kp.gov.lv
When the net combined turnover of the concentration parties in Latvia is at least EUR 35 572 000 or their combined market share in any of the relevant markets exceeds 40%
Share transfers, joint ventures, asset control, the de facto or otherwise contractual acquisition of control
The transaction will not be subject to control by the Competition Authority if neither the buyer, nor any of its group companies are active in Latvia
Notifications need not be submit-ted to the Competition Council in the following cases:
1) the turnover in Latvia of one of the concentration participants (target or buyer) did not exceed EUR 2 134 0002) credit institu-tions or insurance companies the activities of which include transac-tions with securities for own or other funds, have time-limited ownership rights to market partici-pant securities, which they have acquired for further sale, if such credit institutions or insurance companies do not utilise voting rights created by the referred to securities in order to influence the competitive activities of the relevant market participant, or utilise the voting rights created by the referred to securities in order to prepare the investment of fixed assets or relevant securities only of the market participant, or a part thereof, and such investments occur within one year after the creation of voting rights. The Competition Council may extend the referred to time period on the basis of a submission from the relevant credit institution or insur-ance company, if it proves that the relevant investment within one year was not possible; and
2) a liquidator or administrator acquires a decisive influence in the case of the insolvency or liquidation of a market participant.
The Law on Competition of the Republic of Lithuania
The Competition Council of the Republic of Lithuania (Lietuvos Respublikos Konkurencijos taryba)
www.kt.gov.lt
Note: this applies for merger control on national level
When the combined aggregate income of the concentration par-ties during the previous business year exceeds EUR 14.48 million and the aggregate income of each of at least two parties concerned preceding concentration is more than EUR 1.45 million in the previous business year
Share transfers, joint ventures, asset control, the de facto or other acquisition of control
Generally, the transaction will not be subject to control by the Com-petition Authority if the aggregate income thresholds are not met.
Also, the transaction is not subject to control if commercial banks, other credit institutions, intermediaries of public trading in securities (brokers), collective investment undertakings or man-agement companies managing them or insurance undertakings acquire 1/3 or more shares of another enterprise with a purpose of further transfer provided voting rights are not exercised and the shares are transferred within one year, and the Competition Authority is provided with informa-tion in one month following the acquisition.
Persons participating in concentra-tion, and persons whose control they are under, shall be entitled (without a permission for separate actions of concentration from the Competition Authority) to place a public offer for the buy-out of shares and to conclude transac-tions in relation to transferable securities, put on trade in the reg-ulated market, provided that the Competition Authority is notified about these actions within seven days from the exercise thereof and the acquirer of the securities does not exercise voting rights embedded in these securities.
It will not be considered a merger if the composition of the share-holders and present control does not change (internal restructur-ings) and if public authorities take over control of the undertakings in case of bankruptcy or a bailout
Merger Control
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Merger Control
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47Merger Control
The turnover of the parties to the concentration is to be taken into account.
The parties to a concentration are:
1) the merging undertaking or the undertaking whose part is merged;2) the undertaking who acquires control of an undertaking or a part thereof;3) the undertakings who jointly acquire control of an undertaking or a part thereof;4) the undertaking which is the subject of the acquisition of con-trol or whose part is the subject of the acquisition of control
Furthermore, the turnover of all companies connected through the control of the buyer and seller should be combined
The net turnover of a market participant is the income from the sales of goods and services to buyers located in Estonia during the previous financial year, less commercial discounts, as well as the value added tax and other taxes directly related to turnover
If a concentration comprises the acquisition of control by the same natural persons or the undertakings of parts of one or several undertakings through two or several transactions conducted within a period of two years, such transactions are deemed to be one and the same concentration, and the date of the last transac-tion is deemed to be the date of such a concentration. The turnover of all the target companies, which were the objects of the transac-tions during the preceding two years is taken into account, but at the same time, such turnover is not taken into account upon the calculation of the turnover of the natural persons or undertakings acquiring control
If, within the preceding two years, the one and the same undertak-ing or an undertaking belonging to the same group has acquired control of parts of an undertaking or undertakings which operate within the one and the same sec-tor of the economy in Estonia, the turnover of the undertaking over which control is acquired (and related undertakings) includes the turnover of the undertakings over which control has been acquired within the two years preceding the concentration. In such a case, the turnover of the undertakings over which control has been acquired within the two years preceding the concentration is excluded from the turnover of the persons acquiring control over the target for avoidance of double calculation
The turnovers / incomes of what companies are to be taken into account?
How is the net turnover / aggregate income calculated?
Estonia Latvia Lithuania
The turnover of the target compa-nies and the turnover of the buyer are taken into account. Further-more, the turnover of all related companies of both the buyer and seller should be combined
The net turnover of a market participant is the income from activities, the sale of goods and the provision of services of the respective market participants in Latvia during the previous financial year, less any applicable sales and other discounts, as well as value added tax and other taxes directly related to turnover
If a concentration comprises the acquisition of control by the same natural persons or undertakings of parts of one or several under-takings through two or several transactions, such transactions are deemed to be one and the same concentration, and the date of the last transaction is deemed to be the date of such concentra-tion. The turnover of all the target companies that were the objects of the preceding transactions is taken into account, but at the same time the turnover of the corresponding companies is not taken into account upon the calculation of the turnover of the natural persons or undertakings acquiring control
The aggregate income (or in certain cases its part) of the merging undertakings, the target undertakings, the undertakings related to the target undertakings, the acquirer undertakings, and in certain cases of the undertakings related to the acquirer undertak-ings, are taken into account
Specific rules apply in cases when the following persons participate in a merger: insurance under-takings, collective investment undertakings or management companies managing them, undertakings which belong to the groups of associated undertak-ings, and foreingn undertakings
The total amount of the aggregate income is the income received from the sale of goods and the rendering of services by the undertakings in merger during the last business year prior to the merger. A key criterion for calculating the total amount of aggregate income is the amount of sales. Income from other activities that are referred to in the undertaking’s financial statements as “Other activities” and “Financ-ing and investment activities” is also included when calculating the undertaking’s aggregate income.
If a participant of concentration is an undertaking that belongs to a group of associated undertakings, its aggregate turnover shall be calculated as the total sum of the aggregate turnovers of all the un-dertakings belonging to the group of associated undertakings.
In cases of difficulty in the calcula-tion of the aggregate income, the Competition Authority shall upon request provide explanations as to proper calculation of the ag-gregate income
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Merger Control
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49Merger Control
Notification has to be submitted to the Competition Authority before the entry into force of the concentration and after:
1) the entry into a merger agree-ment or performance of a transac-tion or other act for acquisition of parts of the undertaking2) the performance of a transac-tion or other act for the acquisition of control (without entering the transaction into force)3) the performance of a transac-tion or other act for the acquisition of joint control (without entering the transaction into force)4) the announcement of a public bid for securities
Yes, provided that the parties to the concentration prove their intention to perform the act or transaction that is the basis for a merger or the acquisition of con-trol, or if, in the case of a public bid, the parties to the concentra-tion have publicly notified their intention to organise such a bid
The transaction deed may be signed prior to the receipt of the approval of the transaction by the Competition Authority. However, a transaction may not enter into force before clearance, and the concentration participants bear all the risks related to the possible prohibition of the transaction, including the obligation to restore the status existing prior to the violation
In applying merger control rules it is important whether the ultimate aim or result thereof is the acqui-sition of control of whole or a part of another undertaking
There is no clear case law, but it could be claimed that where the transaction for acquiring control is structured so that there are numerous simultaneous or near-simultaneous transactions, the notification has to be submitted before the first of those transac-tions is put into effect
When should notification be submitted?
Can the notification be submit-ted prior to the signing of the purchase agreement?
Can the transaction be closed be-fore clearance by the competition authority?
Numerous transactions
Estonia Latvia Lithuania
The notification should be submit-ted to the Competition Authorities before the completion (closing) of the transaction
Yes, provided that the main terms of the transaction have been agreed upon between the parties
The transaction can be signed prior to the receipt of the approval of the transaction by the Competi-tion Council. However, the trans-action may not be closed before the submission of the notification, and the concentration participants bear all the risks related to the possible prohibition (or clearance with conditions) of the transaction
The concentration shall be noti-fied, irrespective of the number, type, legal nature and time sched-ule of the numerous transactions, but provided that the ultimate aim or result thereof is the acquisition of control in a market participant
Where the transaction is struc-tured so that there are numerous simultaneous or near-simulta-neous transactions, then the notification has to be submitted before the first of the transactions is closed
The notification should be submit-ted to the Competition Authority before the implementation of the concentration and after:
1) submission of a proposal to conclude the agreement and acquire the shares or assets2) an instruction (a commission-ing) to conclude the agreement is placed3) the conclusion of the agree-ment, and the acquisition of the right of ownership or the right to dispose of certain assets4) in the case of a good faith intention to conclude the agree-ment or to make a public offer to buy-out shares
Yes, the notification may be made after the submission of the proposal (to the seller or buyer) to conclude the agreement or acquire the shares or assets, of the submission of an instruction to conclude the agreement (i.e. commissioning to conclude the agreement), and in the case of a good faith intention to conclude the agreement or to make a public offer to buy-out shares
No, generally the undertakings participating in the concentration and persons under whom they control have no right to implement the concentration until the resolu-tion of the Competition Authority is passed. The exceptions are as follows:
1) the Competition Authority may allow certain actions before its resolution is passed (certain conditions and requirements may be imposed as well);
2) a public offer for a buy-out of shares may be placed and the transactions in relation to transfer-able securities, put on trade in the regulated market, may be concluded, provided that the Competition Authority is notified about these actions within seven days from the exercise thereof and the acquirer of the securities does not exercise voting rights embedded in these securities
The concentration shall be notified when the ultimate aim or result thereof is the acquisition of con-trol in a target undertaking
Where the transaction is structured so that there are numerous simultaneous or near-simultaneous transactions, it is strongly recommended to notify The Competition Authority on the concentration before the first of a number of transactions is concluded.
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51Merger Control
The notification is reviewed by the Competition Authority within 30 calendar days of submission.
Within 30 calendar days, the Competition Authority may decide to proceed with an in-depth ex-amination of the case, which may take as long as 4 months
Yes, where one of the following conditions exists:
1) the parties to the concentration are not active on the same market or vertically related market
2) the combined post-merger mar-ket share does not exceed 15% (horizontal overlap) or individual or combined post-merger market share does not exceed 25% (verti-cal overlap)
3) the parties to the concentration jointly establish a new undertak-ing that does not operate and has no intention to operate in Estonia
4) a party to the concentration acquires control over an undertak-ing over which the participant, to-gether with another undertaking, is already exercising joint control
Time schedule
Do simplified filing rules exist?
Estonia Latvia Lithuania
The notification is reviewed within one month of submission.
After one month the Competition Authority may, however, decide to proceed with an in-depth ex-amination of the case. In this case the total review of the notification may take as long as 4 months
Yes, where the merger partici-pants are not active on the same relevant market or any relevant market that is vertically related thereto or where the combined market share of all the merger participants does not exceed 15% in any relevant market
Within one month (and in cases specified in Item 3 within four months) of the receipt of a notifi-cation on the concentration that meets the established require-ments, the Competition Authority must adopt a resolution to:
1) permit the implementation of the concentration
2) permit the implementation of the concentration in accord-ance with the conditions and obligations established by the Competition Authority for the participating undertakings or con-trolling persons in order to prevent the creation or strengthening of a dominant position or a substantial restriction of competition in a relevant market; or
3) refuse the implementation of the concentration and to impose obligations on the undertakings participating in the concentration and persons under whom they control are to take actions, in order that he previous situation is reinstated, or to eliminate the results of the concentration and to impose time frames and condi-tions in relation to that, in case a dominant position or a substantial restriction of competition in a rel-evant market will be created due to the concentration. In this case the total review of the notification may take as long as four months.
No
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53Merger Control
The objective of the provisions on merger control under the Estonian Competition Law is to prevent significant restrictions to competi-tion in the relevant market above all by creating or strengthening a dominant position
The Competition Authority will in each case investigate whether or not the concentration would create or strengthen the dominant position and will then proceed to the analysis of the potential foreclosure of upstream and downstream markets, as well as the analysis of the possible coordinated and non-coordinated effects of the concentration
For failure to give notice of the concentration to the Competition Authority, the enforcement of the concentration without permis-sion to concentrate, as well as a violation of a prohibition on the concentration or the terms of the permission to concentrate, a fine of up to a EUR 1,200, or up to 30 days detention for a natural person and up to a EUR 400,000 fine for a legal person is possible in the misdemeanour procedure.
Criminal proceedings may be initiated for the failure to give notice of the concentration, the implementation of the concentra-tion, proceeding without permis-sion to concentrate, as well as a violation of a prohibition on the concentration or the terms of the permission to concentrate, if the offender has been punished for similar violations in the past
Misdemeanour: 2 years has passed from committing the misdemeanour and the entry into force of the corresponding judg-ment or decision
Criminal offence: 5 years has passed from committing the of-fence until the entry into force of the corresponding court judgment
Yes
Substantive test
Penalties
Is there a time bar for penalties?
Does the Competition Authority have the right to impose obliga-tions?
Estonia Latvia Lithuania
The objective of the provisions on merger control under the Latvian Competition Law is to prevent the creation or strengthening of a dominant position, or a significant impediment to competition in any relevant market
The Competition Council will in each case investigate whether or not the concentration would create or strengthen the dominant position and will then proceed to the analysis of the potential foreclosure of upstream and downstream markets, as well as analyse the possible coordinated and non-coordinated effects of the concentration
If the concentration is not noti-fied to the Competition Council, the possible fine may be up to EUR 1400 per day for the period starting from the date when the notification was due to be submit-ted (i.e., prior to the closing of the transaction).
Failure to notify the Competition Council cannot lead to the applica-tion of any criminal sanctions
No
Yes
The objective of the provisions on merger control under the Lithuanian Competition Law is to prevent the creation or strength-ening of a dominant position, or a substantial restriction of competi-tion in a relevant market
The Competition Authority in each case investigates whether the concentration would create and strengthen the position or not and then will proceed to the analysis of the potential foreclosure of upstream and downstream markets, as well as will analyse the possible coordinated and non-coordinated effects of this concentration
A fine of up to 10% of the ag-gregate annual income of the preceding business year may be imposed on undertakings for:
1) an implementation of a notifi-able concentration without the permission of the Competition Authority;
2) a continuation of the concentra-tion during its stopping; and (or)
3) a breach of the conditions or the mandatory obligations of the concentration established by the Competition Authority.
No criminal proceedings have been established for the imple-mentation without permission of the concentration subject to notification.
Undertakings may incur liability for the infringement of the Law on Competition not later than within 5 years from the date of the infringement, and in case of a continuous infringement, from the date of the performance of the last actions.
Yes
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54Financial assistance
Sources say: ‘The team can handle complicated and time-consuming requests, and always helps us. It really motivates us!’
Chambers Europe, 2014
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55
OÜ and AS are prohibited from providing financial assistance to third parties for the acquisition of the shares of the same OÜ or AS
No
No
No
Yes, the Commercial Code estab-lishes such rules
Allowed in exceptional circumstances
No
Are there restrictions on financial assistance?
Is there a governmental entity supervising the compliance with the rules?
Does the law prohibit themer-ger of the buyer (SPV) with the target?
Does the law prohibit the merger of the target’s subsidiary with the target and the buyer (SPV)?
Are there rules that protect the minority shareholders and the creditors?
The acquisition by the company of its own shares
Does the law provide for penal-ties for the breach of the financial assistance restrictions?
Estonia Latvia Lithuania
SIA: Companies are not restricted from providing acquisition financ-ing to the buyer
AS: Companies are prohibited from financing the acquisition of their own shares
No
No
No
Yes, particular attention should be paid to the Group Law (Koncernu likums)
Allowed in exceptional circumstances
No
UAB and AB may not make direct or indirect advance payments, issue loans or offer security (guarantee) for the discharge of obligations to third parties if such actions aim at enabling other persons to acquire shares in that Lithuanian company
No
No
No
Yes
Allowed, but limitations and requirements apply. The total nominal (par) value of own shares being acquired by a company together with the nominal value of other own shares already held by the company may not exceed 1/10 of the share capital. Acquisi-tion may be financed only from the company’s reserve formed for this purpose. Having acquired own shares, a company may not exercise the property and non-property rights attached to the shares
No
Financial assistance
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56 IPR
‘The team’s lawyers know their business and the service provided is effective and client-friendly.’
Chambers Europe, 2013
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57
Patent Office (Patendiamet)
www.epa.ee
Yes
Yes
1-2 weeks registration. Please note that ownership is transferred from the signing of the transfer deed; entry in the register is informative only
EUR 32
In practice, between 1.5 – 2 years from the submission of the application
For submission of the registration:
1) EUR 140 for one grade
2) EUR 45 for each additional grade
For the registration of the trademark: EUR 45
Name of the public register of trademarks
Public registration of trademarks
Is the pledge of trademarks allowed?
Time required to transfer trademark ownership in the public register
Costs of the trademark transfer
Time required to register the new trademark
Costs of the trademark registration (ca. EUR)
Estonia Latvia Lithuania
Patent Office (Patentu valde)
www.lrpv.lv
Yes
Yes, it can be arranged by a commercial pledge (komercķīla) followed by notice to the Patent Board and both are public
A trade mark transfer agreement with respect to third persons shall take effect on the date of publica-tion of the notice in the official gazette of the Patent Office.
EUR 42,69
A minimum of 1 – 2 years, unless the third parties or the Patent Office disputes the eligibility of the trademark to be registered
For the submission of the application: EUR 85,37
For the registration, publishing and issuance of the registration certificate: EUR 92,49
State Patent Bureau (Valstybinis Patentų Biuras)
The Register of Trademarks(Lietuvos Respublikos prekių ženklų registras)
www.vpb.lt
Yes
Yes, it can be arranged by the State Patent Bureau of the Re-public of Lithuania and the Central Mortgage Office of the Republic of Lithuania. Both are public
One month
EUR 115
A minimum of 1 – 2 years from submitting the application, unless the third parties or the Patent board disputes the eligibility of the trademark to be registered
For the submission of the application to register a national trademark:
1) EUR 69 for one grade
2) EUR 34 for each additional grade
For the registration, publishing and issuance of the registration certificate: EUR 69
Additional fees are applicable for other services of the State Patent Bureau of the Republic of Lithuania (issuing duplicates, the extension of validity term, appeals, protests, etc.)
IPR
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58M&A Real Estate
‘VARUL is most definitely one of the market leaders in the field of real estate and construction law. The firm’s lawyers are widely known experts on the market.’ It is a joy to collaborate with the team.’
Chambers Europe, 2014
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59
Yes
Yes
Nominal. Information is available online. It is possible to get the of-ficial extract within 1 working day
If real estate is the subject of the sale, then it is necessary to effectuate the transfer by a deed executed before a notary. If the sale of the real estate takes place as a share-deal, a notary deed is not required
No
Yes, if the premises had been transferred into the possession of the tenant However, the new owner of the premises may termi-nate the commercial lease upon 3 months’ advance notice provided the owner needs the premises for its own use.
Yes, pursuant to the provisions of extraordinary cancellation of the lease contracts (under exceptional circumstances)
3 months
No, unless it is agreement with the anchor tenant
No
Only via establishing a right of superficies
A transaction by which the estab-lishment or transfer of a right of superficies is undertaken and the real right contract entered into for the establishment or transfer of a right of superficies shall be notarised
No minimum term for the right of superficies, the maximum term is 99 years
Is real estate registered in reliable public registers?
Are encumbrances registered in the public registers?
What is the cost and efficiency of obtaining information from the public registers?
Should the agreement be execut-ed before a notary or otherwise verified by governmental entities?
Is the buyer bound by unregis-tered encumbrances?
Are commercial lease agree-ments binding to the buyer if not registered in the public register?
Can a commercial lease agree-ment be terminated if the lease agreement has a fixed rent period?
What is the minimum termina-tion notice period for a commer-cial lease agreement that does not contain a fixed rent period?
Is it typical to have change of con-trol provisions in the commercial lease agreements?
Are tenants allowed by law to terminate lease agreements if there is a change of the owner of the real estate?
Can land and a building be owned by different parties?
Estonia Latvia Lithuania
Yes
Yes
Nominal. Information is available online and official extracts are available upon 4 days’ notice
If the real estate is subject of the sale, then it is necessary to effectuate the transfer by a deed executed before a notary. If the sale of the real estate takes place as a share-deal, a notary deed is not required
No, unless the real estate is the subject of litigation
No
Yes, but only by the court under certain conditions
6 months
No, unless it is an agreement with the anchor tenant
No
Yes
Yes
Yes
Nominal. Information is available online and official extracts are available upon 7 working days’ notice, but for an extra payment it is possible to get the extract within 1 working day
Yes, the real estate is the subject matter of the transaction, a notary deed is required. A notary deed will be also required when the real estate is contributed as the pay-ment for the shares or when the deal is structured as a share deal (note: in addition to the deal that is structured as a share deal, see section no. 15)
No
No
Yes, but only by the court under certain conditions unless the agreement provides for special rules
3 months
No, unless it is an agreement with the anchor tenant
Yes
Yes
M&A Real Estate
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M&A Real Estate
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61M&A Real Estate
In exceptional circumstances, state or local municipalities have the right of first refusal, e.g., if the land or the building is located in specific areas or carry a specific purpose or heritage conservation value
The right of first refusal also ap-plies with regard to co-owners of real estate – if any of the co-own-ers intends to transfer its legal share of the real estate to a third party, the remaining co-owners have the right of first refusal.
The statutory right of first refusal also applies to the owner of land which is encumbered with a right of superficies – the owner of the land may demand not later than 1 year before the right of superfi-cies expires that the building built on the land be transferred to the owner of the land in exchange for fair compensation upon the expiry of the right of superficies
Land may be expropriated in the public interest for the exceptional purposes listed in the Immovable Expropriation Act. Expropriation is mostly used by the govern-ment and municipalities for the purposes of road infrastructure development projects. Expro-priation is decided upon by the Government of the Republic. Expropriation may also be decided upon by other state agencies or a local government in the cases specifically provided by law
Are any statutory regulations concerning right of first refusal applicable?
Does expropriation of land by the government or municipality often occur?
Estonia Latvia Lithuania
Yes. The co-owner of the real property has the right of first refusal and may acquire the other part of the real property if the other co-owner intends to sell his part to a third party (other than the co-owner)
The landowner has the right of first refusal to acquire the building on its land and, conversely, the building owner has the right of first refusal to acquire the land under the building
In exceptional circumstances, local municipalities have the right of first refusal, e.g., if the land or the building is located on red lines
Expropriation of land may occur in the public interest and only in special cases.
Yes, the co-owner of real property has the right of first refusal to acquire the other part (s) of the property if the other co-owner intends to sell his part to a third person (others than the co-owners)
Also, specific rules may apply for land of specific purpose or located in specific areas
Only in special cases, for example, for the purposes of road infrastructure development projects. The decision is made by the National Land Service under the Ministry of Agriculture (Nacionalinė žemės tarnyba prie Žemės ūkio ministerijos) on the request of a state or municipal institution. In each particular case, property valuators determine the value of the land (both sides are allowed to value the land)
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M&A Real Estate
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63M&A Real Estate
The retained profits of corporate entities are not taxed. Corporate tax is applied to the payment of dividends and certain other pay-ments and costs at 20/80
Sole entrepreneurs pay tax on the disposal of real estate as business income taxable at 20%
The gains on the sale of the shares derived by non-residents are not subject to taxation. Where the shares are held in an Estonian real estate company, contractual investment fund or other pool of assets (more than 50 per cent was directly or indirectly made up of immovable property or structures as movables located in Estonia and in which the non-resident had a holding of at least 10 per cent at the time of trans-fer), the disposal of a “real estate” company shares is subject to tax on the gains at 20%
For non-residents, the gains on sale of real estate located in Estonia is taxable at 20%
Notary and state fees apply on transfer of real estate
The transfer of immovable property is generally not subject to VAT. A transaction is subject to VAT (20%) in the case of a transfer of an unused new construction or unimproved land or if the seller voluntarily imposes tax on a certain type of immovable property. In the latter case the Tax and Customs Board must be notified of the taxa-tion of the transaction beforehand. VAT is imposed on a transaction by way of reverse charge
Tax aspects: real estate vs. shares
VAT on real estate
Estonia Latvia Lithuania
Capital gains for the disposal of both real estate and shares for corporate entities are taxed as ordinary income
Gains on the sale of shares de-rived by corporate non-residents are not subject to taxation.
A notable exception to this rule is where the shares are held in a Latvian “real estate” company (more than 50% of the company’s balance sheet assets consist of real estate located in Latvia). The disposal of “real estate” company shares is subject to a 2% withholding tax on the gross sale price. However, such a with-holding would in practice apply only if the purchaser is a Latvian corporate entity
Private individuals are subject to 15% capital gains tax if they dispose of the real estate located in Latvia or the shares of a Latvian “real estate” company
In case of an asset acquisition, a real estate transfer duty of 2% is imposed on the purchase price. The duty applies to each real estate registered. The duty, however, is limited EUR 42 686,15 for non-residential real estate. This duty is not payable in case of shares acquisition.
According to case law, in the case of a merger the stamp duty should not be applicable.
Real-estate related transactions are generally not subject to VAT. However, a transaction is subject to VAT standard rate (21%) in case of unused new construction, building or land or if the supplier opts to tax a supply of used real estate. In the latter case the Tax authority must be notified of the taxation of such transaction.
Capital gains for disposal of both real estate and shares for corpo-rate entities are taxed as ordinary income
A corporate entity’s gain from the transfer of the shares of a com-pany registered in the EEA or in a country with which Lithuania has a double tax treaty are not taxable if the entity transferring the shares holds more than 25% shares at least for 2 years
A corporate entity’s capital gains are also not taxable in cases where the shares are transferred during a reorganisation or merger proce-dure, if the entity transferring the shares holds more than 25% of the shares for at least for 3 years.
Private individuals are subject to 15% capital gains tax on the sale of real estate and shares.
The exception is applicable for individuals in the sale of real estate if the real estate in Lithuania was acquired at least 5 years before the transfer. In this case the incomes of individuals are tax-exempt. The same rule applies for non-resident individuals.
Additional rules and conditions may apply
A transaction is subject to VAT and charged at the standard rate (21%) in the case of the supply of:
•
••
A transaction is not subject to VAT in case of the supply of:
•
•
A taxable person has the right to choose for the real estate, which is exempted from VAT, to calculate VAT if real estate is sold to a VAT payer.
land is transmitted with new buildings or structures or parts thereofland for constructionsnew buildings or structures and their parts
land which is not for construc-tions, and land which is supplied with old buildings or structures or parts thereofold buildings or structures and parts thereof
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64SPA
‘A marvellous team, great in negotiations and disputes’.
Chambers Europe, 2012
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65
Yes
No, but it is slowly forming
It depends on the content of the LOI. Provided that the essential terms of the envisaged transac-tion or legal relationship have been agreed upon in the LOI, the LOI is binding and obligates the parties to conclude the final agreement according to the terms of the LOI. However, the claim only pertains to the obligation to conclude the final agreement and compensation for failure to do so, and specific performance cannot be claimed
There are no statutory R&W for share transfers
However, usual minimum con-tractual R&W are used, such as a warranty that shares are free from encumbrances and that the seller possesses the undisputable title to the shares
A reduction of the purchase price or damages
The annulment of the transaction in case of a gross breach
Yes
The general limitation period for a claim arising from a transaction is 2 years. The general limitation period for a claim arising from law is 3 years and in exceptional cases 10 years
Yes, it is common to use NDA and LOI before the disclosure of data
Are Anglo-Saxon legal concepts widely used in M&A deals?
Is there an established case law on M&A disputes?
Is a letter of intent (LOI) binding?
What are the minimum R&W provided under national law?
What are the minimum remedies available to the buyer?
Is it common to use detailed LDD checklists and detailed SPA?
What is the statutory time bar for claims?
Are LOI or NDA often used?
Estonia Latvia Lithuania
Yes
No
No, but it should be expressly provided in the text of LOI
The shares are free from encum-brances and the seller possesses the undisputable title to the shares
The annulment of the transaction and/or a reduction of the purchase price or damages if the minimum statutory R&W warranties have been breached
Yes
At present there is no legal certainty whether the general time bar applies, i.e. 10 years, or if the special 3-year time bar applies
There is also legal uncertainty whether the time bar can be sus-pended by ordinary notice to the respondent or that a claim should be filed with the courts or arbitration
Yes, it is common to use NDA and LOI before the disclosure of data
Yes
On certain aspects of M&A deals
In general no, however, some controversial case law exists
There are no statutory R&W specific for the share transfer, however, under the law the seller has to warrant that the seller pos-sesses a title to the shares
However, usual minimum con-tractual R&W is a warranty that shares are free from encumbranc-es and that the seller possesses undisputable title to the shares
A reduction of the purchase price or a request for compensation of damages
The annulment of the transaction in case of a gross breach
Yes
A general statutory time bar is 10 years. For claims for damages – 3 years
However, in some cases a special time bar should be applied, for example, for Actio pauliana (the right to dispute transactions made by a debtor, where the debtor was not under an obligation to conclude them and where they violate the rights of the creditor, while the debtor knew or ought to have known that prejudice to the creditor would result from that transaction), a special 1-year time bar applies or in case of the annul-ment of a legal person’s decision that the grounds for the transac-tion is required, a special 3-month time bar applies, etc.
It is common practice to use NDA before the disclosure of data
SPA
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SPA
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67SPA
Yes
It depends on the shares subject to sale – if respective shares are registered with the Central Register of Securities (always shares of an AS, shares of an OÜ are optional), then notarisation requirements do not apply; however, if the shares of an OÜ are not registered with the Central Register of Securities, then the SPA must be notarised.
The domestic state courts or arbitration institution (the Arbitration Court of the Estonian Chamber of Commerce and Industry)
Are right-of-first-refusal waivers valid?
Should the agreement be notarised or otherwise approved by a third party?
What is the preferred forum for disputes?
Estonia Latvia Lithuania
No established case law, but most likely they are valid
No
The domestic state courts or SCC Arbitration Institute
Yes
Yes, a notary deed is required when the subject of the agree-ment is 25 or more percent of the shares of all company’s shares account, the price of the shares is more than EUR 14.481 and in case when the real estate is contributed as the payment for the shares, otherwise a notary deed is not necessary
The domestic state courts or arbitration institution (most commonly, the Vilnius Court of Commercial Arbitration or SCC Arbitration Institute)
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68
KEYPEOPLE
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69
KEYPEOPLE
Key People
Estonia Latvia Lithuania
Ants Mailend
Leonid Tolstov
Sander Kärson
Anu Sander
Ingeri-Luik Tamme
Nikita Divissenko
Janis Zelmenis
Vita Liberte
Ansis Spridzans
Svetlana Hramcenko
Dace Indane
Alise Eljasane
Robert Juodka
Ernesta Žiogienė
Tomas Venckus
Giedrė Dailidėnaitė
Liutauras Baikštys
Odeta Maksvytytė
Key People
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CONTACTS
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ESTONIA
Ants MailendPartner, Attorney at Lawtel +372 626 [email protected]
Ahtri 6a10151 TallinnEstonia
LITHUANIA
Robert JuodkaManaging Partner (Lithuania), Attorney at Lawtel +370 5 248 [email protected]
Konstitucijos av. 7LT-09308 VilniusLithuania
LATVIA
Janis ZelmenisManaging Partner, Attorney at Lawtel +371 6722 [email protected]
Kaļķu iela 15LV-1050 RigaLatvia
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