M&A and Real Estate - Baltic Legal Guide by Law Firm VARUL

Baltic Legal Guide

Table o conte

of ents Table of Contents

Overview

Credentials

Corporate

Capitalisation and Accounting

Corporate Governance

Shareholdersâ&#x20AC;&#x2122; agreements

Minority rights

Takeovers

Employment

Tax

Merger Control

Financial Assistance

IPR

M&A Real Estate

SPA

Key People

Contacts

OVER VIEW

Overview

Overview VARUL’s M&A and Real Estate legal guide is a practical tool for transaction advisors and entrepreneurs engaged in mergers and acquisitions in the Baltic region. The comparative legal guide offers a thorough yet

VARUL has ‘very good understanding of business ideas, and excellent understanding of clients’ needs and goals’. Legal 500

concise overview of the legal matters to keep in mind when carrying out transactions either in one or all Baltic States.

M&A Practice

Services

Our Baltic M&A team advises local and international

•

Legal audit (LDD)

companies on all aspects of M&A transactions, includ-

•

Transaction structuring

ing legal due diligence. We have advised clients from

•

Pre-contractual negotiations

multiple business sectors and been involved in many

•

Shareholder agreements

cross-border transactions.

•

Management buyouts (MBO)

•

Take-over bids

We provide all-inclusive and inventive solutions to

•

Joint ventures

M&A transactions by leveraging the expertise of our

•

Mergers, de-mergers, reorganisations

colleagues in other practice areas like corporate,

•

Post-merger integration and restructuring

competition and anti-trust, intellectual property, labour and tax. Industry Sectors •

Energy & Utilities

•

Real Estate & Construction

Law Firm VARUL is an independent full service Baltic

•

Transport & Infrastructure

law firm with offices in Tallinn, Tartu, Riga and Vilnius

•

Financial Services & Insurance

employing a total of 90 attorneys and lawyers. The firm

•

Retail & Consumer Goods

is focused on advising both domestic and international

•

Pharmaceuticals & Life Sciences

clients on all aspects of business law. www.varul.com

•

Telecommunications, Media & Technology

About VARUL

CrEde ntials

Credentials

Credentials •

Advising MSD Estonia on local legal issues

•

Advising on the sale of shares in the Cinamon

related to the international merger of Merck

Group of companies, owning multiple cinemas in

Sharp & Dohme and Schering Plough.

the Baltics, from GILD Arbitrage Risk Capital Fund to DLT Capital.

•

Advising world leader in circuit protection products Littelfuse Inc in cross-border (Sweden,

•

Advising mobile device management leader

USA and Germany) acquisition of an automotive

Fromdistance in selling its shares to U.S. based

component production factory ACCEL in

IT company Numara Software.

Lithuania with a total value of EUR 25 million. • •

Advising Trelleborg, a global engineering group,

Advising Europcar Baltic master franchise holder

in selling its protection products business to

in the Baltics in selling its shares to an Estonian

Ansell, a global leader in protection solutions.

transportation group Hansa Grupp. • •

•

Conducting LDD of the Estonian subsidiary

Advising the sale of shares of an Estonian

of a leading Nordic infrastructure supply

electric motors manufacturer Konesko to

manufacturer in connection with a joint venture

Konecranes Finance, financing arm of a leading

with one of the leading global infrastructure

global lifting equipment manufacturer.

supply manufactures.

Assisting an Armenian investor in the

•

Representing one of the leading alcohol

acquisition of the real estate and hotel operations

producers in Europe – Henkell & Co Gruppe – in

of the exclusive Hotel Riga with a total value of

the acquisition of an Estonian alcohol importer

EUR 30 million.

and in merger control proceedings.

Advising Estonian Internet voting system

•

Advising global IT company Fujitsu Estonia in

developer Cybernetica on entering into a joint

the acquiring process (including LDD) of the

venture with Smartmatic, leading international

data management division of a listed global IT

automated election systems developer.

company.

Advising Grindex – a leading listed

•

Advising Port of Tallinn and Estonian Ministry

pharmaceutical company in the Baltics – in

of Economic Affairs and Communications in

purchasing a factory in Slovakia with a total

acquiring the shares of Estonian Railways with

value of EUR 10 million.

a total value of EUR 200 million.

Credentials

•

Advising Baltic bakery group Latvijas Maiznieks

•

In co-operation with Arnold & Porter and Dewey

/ Eesti Pagar / Lietuviuų kepėjas in acquiring a

& LeBoeuf, advising a major international phar-

major bakery in Lithuania.

maceutical company in its EUR 320 million bid for pharmaceutical group AB Sanitas.

•

Advising GILD Arbitrage Risk Capital Fund in the sale of Lithuanian refrigeration equipment

•

distributor ROLVIKA group. •

Assisting Mebelain in establishing a furniture

Advising Itero IT in selling its shares to TIA Technology, a Danish software solutions provider.

•

plant in Belarus and acquiring funds from EBRD

Advising shareholders of Bakt Autotehnika in selling shares to AD Baltic.

(deal value EUR 14 million). • •

Advising Transiidikeskuse, the parent company

Representing a leading Baltic IT group Blue

of Transiidikeskuse Group, which operates the

Bridge Baltic in an M&A deal in the IT sector.

largest container terminal in Estonia on the sale of its majority shareholding in DBT, a dry bulk

•

Advising Baltijas Lāse in negotiations with the

terminal operated in partnership with the

buyer, and selling the shares of one of Latvia’s

Akron Group.

largest dairy producers Rigas piena kombinats to a high-net-worth individual.

•

Advising Energate, an investment company of Baltcap, in acquiring wind parks and gas

•

Representing Kafijas automāti.lv, one of the

distributors.

largest vending machine operators in Latvia, in selling its shares to Eden Springs, Europe’s

•

Advising the Estonian Olympic Committee on

leading provider of water solutions for the

acquiring shares in Sports Betting and on

workplace.

concluding shareholder agreements.

Advising a sole shareholder of Vastse-Kuuste

•

Advising the buyer, Stichtig Tripod Investment

Meat Processing in selling shares to Atria - one

Management Fund (Netherlands), in acquiring a

of the leading food companies in the Nordic

major alcohol production factory in Lithuania.

countries, Russia and the Baltic region. • •

Advising a Euroapteek, member of the Baltic

Advising Alro Group Investment Fund (UK) in all of its acquisitions in Lithuania.

pharmaceuticals chain Euroapotheka, in acquiring a number of pharmacies in Estonia.

•

Advising a provider of vehicle tracking and positioning services Navirec on selling the company

•

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.

to GSMvalve.

Corporate

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Corporate

Public registration of companies

Estonia

Latvia

Lithuania

The registration departments of the county courts in Estonia (i.e. registrar) maintain the Commercial Register of the enterprises of sole proprietors located in and companies whose seat is in the territorial jurisdiction of the registrar

The governmental authority that maintains the register of the companies is the Company Register of the Republic of Latvia, and is subordinated to the Ministry of Justice

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.ur.gov.lv

www.ariregister.rik.ee

www.registrucentras.lt Are company laws codified in one legal act?

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.

All company laws, except some regulations that concern stateowned assets, company groups and some aspects of the financial institutions, are contained in one Commercial Law (Komerclikums)

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.

Main types of companies

Private limited liability company (osaühing = OÜ)

Private limited liability company (“SIA” or sabiedrība ar ierobežotu atbildību),

Public limited liability company / public stock company (AB or akcinė bendrovė)

Public limited liability company (“AS” or akciju sabiedrība).

Private limited liability company / closed stock company (UAB or uždaroji akcinė bendrovė)

Public limited liability company (aktsiaselts = AS)

Most popular type of company

OÜ

SIA

UAB (private limited liability company / closed stock company)

Key corporate documents and the laws that govern share transfers and corporate governance

Articles of Association (põhikiri) and the Commercial Code (Äriseadustik)

Articles of Association (statūti) and the Commercial Law

Articles of Association (Įstatai), the Civil Code (Civilinis kodeksas)and the Lithuanian Law on Companies (Akcinių bendrovių įstatymas)

Company registration costs (excl. legal fees and translation costs)

OÜ:

For the registration of a SIA, costs are approx. EUR 170 (i.e. state duty, publication in official gazette)

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

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.

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 (approx. EUR 25 per signature)

Capitalisation and Accounting

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Capitalisation and Accounting

Minimum share capital (EUR)

Estonia

Latvia

Lithuania

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

SIA: EUR 2,800 (however, under certain circumstances equity capital may be less than the mentioned minimum amount)

UAB: EUR 2,900

AB: EUR 43,450

AS: EUR 35,000

AS: EUR 25,000 Mandatory reserves

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

Thin capitalisation rules

Yes, dividends cannot be paid out if the net assets become negative

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

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 the net assets become negative

Yes. Dividends cannot be paid out if at least one of the below conditions exists: a) the company has unsettled obligations, the term of settlement whereof has passed before the date of the adoption of the decision 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

Minimum dividends

N/A

Annual accounts and publicity

Annual accounts are mandatory and publicly available

Annual accounts are mandatory and they are publicly available

Local accounting standards vs IAS

No major deviations

Financial year

Any period of 12 months, usually the calendar year from 1 January to 31 December

Certified auditor

OÜ: Mandatory if two of the three criteria are fulfilled: a) the sales revenue or income exceeds EUR 2,000,000 b) the total assets as of the balance sheet date exceed EUR 1,000,000 c) the average number of employees exceeds 30 people

Mandatory if two of the three criteria are fulfilled:

Mandatory where at least two indicators thereof on the last day of the financial year exceed the following limits:

Mandatory if one of the three criteria is fulfilled: a) the sales revenue or income exceeds EUR 6,000,000 b) the total assets as of the balance sheet date exceed EUR 3,000,000 c) the average number of employees exceeds 90 people AS: always mandatory

(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.

1) net turnover during the reporting financial year – EUR 3,475,440 2) the value of the assets specified in the balance sheet – EUR 1,737,720 3) the average annual number of pay-roll workers during the reporting financial year – 50 persons

Corporate Governance

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Corporate Governance

Corporate structure

Estonia

Latvia

Lithuania

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

SIA: one-tier structure with an option to have a two-tier structure

UAB: one-tier structure with an option to have a two-tier structure

AS: mandatory 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)

Management board (juhatus)

Management board (valde)

Supervisory board (nõukogu)

Supervisory board (padome)

Manager or Head of the Company (bendrovės vadovas), who is usually called Director or General Director

AS: mandatory two-tier structure Names of corporate bodies

Board (valdyba) Supervisory board (stebėtojų taryba) Highest governing body

Supervisory board (non-executive board)

Election of supervisory board

OÜ: meeting of the shareholders (osanike koosolek)

SIA: general meeting of the shareholders (dalībnieku sapulce)

AS: general meeting of the shareholders (aktsionäride üldkoosolek)

AS: general meeting of the shareholders (akcionāru sapulce)

OÜ: Generally optional. Mandatory if so prescribed by the articles of association. Minimum 3 members, maximum term in office is 5 years

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, minimum 3 members, the maximum term in office is 5 years

AS: Mandatory, can consist of 3 to 20 members. If the stock of the company publicly traded – the minimum is 5 members. Maximum term in office is 5 (five) years

The persons receiving the most votes at the general meeting of the shareholders shall be elected ¹

> 50% of the votes of shareholders present at the shareholder meeting ¹

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 twotier structure, so either Supervisory 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

If the stock of AS is publicly traded, the minimum number of members is 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

Minimum number of supervisory board members’

Maximum number of supervisory board members

Unlimited

Minimum number of management board members

Maximum number of management board members

If the stock of AS is publicly traded – the minimum is 5 members.) 20

Corporate Governance

Estonia

Latvia

Lithuania

OÜ: The person(s) receiving the most votes at the meeting of the shareholders shall be elected ¹

SIA: >50% of the votes by the shareholders present at the shareholder meeting ¹

AS: The person(s) receiving the most votes at the Supervisory Board meeting

AS: >50% of the votes by the members of the Supervisory Board present at the meeting.

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 general meeting of the shareholders according to a special procedure of the allocation of the votes

Employee representatives on the executive and non-executive boards

Not mandatory

Approval of the annual accounts

>50% of the votes present at the general meeting of the shareholders (AS) or the meeting of the shareholders (OÜ) ¹

>50% of the votes of shareholders present at the shareholder meeting ¹

By a majority of the votes present at the general meeting of the shareholders ¹

Election of the non-executive and executive board

>50% of the votes of the shareholders ¹

Non-executive board:

By a majority of the votes of the general meeting of the shareholders (following a special procedure) or by the supervisory board (if formed)

Election of the management board

SIA: optional, by >50% of shareholders present at the meeting ¹ AS: obligatory, as elected are considered persons, who have gained the most votes of shareholders present at the meeting, taking into account the maximum number 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

Share capital increase

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 shareholders, unless higher requirement derives from the articles of association (põhikiri) ¹

Amendments to the Articles of Association

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 shareholders, unless higher requirement derives from the articles of association (põhikiri) ¹

Election of the auditor

>50% of the votes present at the general meeting of the shareholders (AS) or the meeting of the shareholders (OÜ) ¹

SIA: at least 2/3 of the votes present at the meeting of the shareholders ¹

UAB / AB: at least 2/3 of the votes present at the general 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 shareholders ¹

UAB / AB: at least 2/3 of the votes present at the general meeting of the shareholders ¹

AS: at least 3/4 of the votes present at the meeting of shareholders ¹

>50% of the votes of the general meeting of shareholders

By a majority of the votes present at the general meeting of the shareholders ¹

Corporate Governance

Exclusion of the shareholders by legal action

Estonia

Latvia

Lithuania

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.

SIA: A shareholder, who without justifiable reason, failed to perform 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 expelled 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.

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 person’s activities and where there are no grounds to expect any changes in the said actions

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 shareholder by legal action in court is not available.

A shareholder shall have no right to file an application if the incorporation 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

AS – the exclusion of the shareholder by legal action in court is not available; exclusion of the minority shareholders is possible by a shareholders´ resolution holding 90% or more of the votes by way of a squeeze-out Non-competition rules

Applies by law to the management board and the supervisory board members

Applies by law to the management board members

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

Domicile or other requirements to executive and non-executive board members

No domicile or residence requirements

No domicile or residence requirements.

No domicile or residence requirements

Mergers and Demergers

At least 2/3 of the votes present at the general meeting of the shareholders (AS) or the meeting of the shareholders (OÜ) ¹

SIA: at least 2/3 of the votes represented at the meeting of shareholders ¹

OÜ: each management board member is authorised to perform the transactions unless joint representation applies

SIA: each management board member is authorised to perform the transactions unless joint representation applies. There is no specific regulation regarding decision-making process.

Sale and purchase of movable and immovable assets

Notarised consent is required to become a member of the management board or supervisory board

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 Liability of the non-executive and executive board members

Unlimited

At least 2/3 of the votes present at the meeting of the shareholders ¹

AS: at least 3/4vof the votes represented at the meeting of shareholders ¹

AS: > 50% of the votes of the management board plus prior consent from the supervisory board may be applicable Unlimited

¹ unless the articles of association prescribe a greater majority requirement.

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

20 Shareholders’ agreements

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Shareholder’s agreements

Estonia

Latvia

Lithuania

Legal framework

Vague, general contract law principles and legal requirements of other relevant laws

Vague, general contract law principles and Commercial Law, Civil Law

Vague, general contract law principles and legal requirements of other relevant laws

Case law

Very limited, high legal uncertainty

Whether case law supports that the shareholders’ agreement prevails over the articles of association

No. The validity of the voting in bodies cannot be challenged under the shareholders’ agreements, but this does not automatically exclude the implementation of sanctions and other legal consequences under the shareholders’ agreements

Controversial case law, no clear support for the shareholders’ agreement prevailing over the articles of association

Dispute resolution by arbitration

Disputes over the shareholders’ agreements are resolved as ordinary contractual disputes and an arbitration clause can be used. This also means that the shareholders’ agreements apply to new shareholders only if all the parties, including the new shareholder, consent to it (except for certain cases of universal succession)

Due to the legal link between the shareholders’ agreement and the articles of association 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

Dispute resolution by arbitration becoming more usual and common. However, due to the legal link between the shareholders’ agreement and the articles of association 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

Arbitration cannot be used for challenging decisions of corporate governing bodies, as the articles of association cannot include an arbitration clause Publicity of the shareholders’ agreements

Not public

Registration of the shareholders’ agreements

Not subject to registration in public records

22 Shares

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Share ownership document

Share certificates

Estonia

Latvia

Lithuania

OÜ: the list of shareholders (osanike nimekiri)

SIA: the shareholders’ register (dalībnieku reģistrs)

AS: share register (aktsiaraamat)

AS: the shareholders’ register (akcionāru reģistrs)

UAB: share, share certificate or an extract from the shareholder’s security account (vertybinių popierių sąskaita)

AS – the shares are electronically registered in the Estonian Central Register of Securities

AB: an extract from the shareholder’s security account (vertybinių popierių sąskaita)

Optional

Optional in the case of material shares (only in UAB)

SIA: Yes, unless otherwise specified in the articles of association.

UAB: Yes

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 Right of first refusal

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

Pre-emptive rights to acquire new shares

Who maintains and keeps the shareholders’ register?

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 represented at the general meeting of the shareholders (AS) or the meeting of the shareholders (OÜ)

SIA: Yes

OÜ: The management board. Or the registrar, if the shares are registered in the Estonian Central Register of Securities.

SIA: The management board

AS: the registrar of the Estonian Central Register of Securities

AB: No

AS: No, unless the articles of association provide otherwise

AS: Yes, but it may be excluded if the new shares are issued with a specific aim Pre-emptive rights of stockholders of AS companies may not be revoked or restricted by a memorandum of association, the articles of association or by a decision of a meeting of shareholders

AS: The management board or the Latvian Central Depository, if stocks of the company are publicly traded.

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

Are changes in the shareholders’ register required to be reported to the Company Register?

OÜ: Yes

SIA: Yes

UAB: Yes

AS: No

AS: Optional

AB: Yes

Public register of shares with the Central Registry

For listed companies only

Access is limited to the shareholders’ lists of other companies in the Estonian Central Register of Securities

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

Access is limited to the shareholders’ lists of UAB in the Register of Legal Entities of the Republic of Lithuania

Public register of share pledges

Estonia

Latvia

Lithuania

Pledges are registered in the Estonian Central Register of Securities if the shares of the respective company are also electronically registered, but access to this data is somewhat limited

Yes. Basic data is available to the public as well (e.g. the amount pledged, the data of the agreement, etc.)

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 agreement, the subject matter of the pledge, the secured obligations, etc,)

OÜ: Not permitted

SIA: Not permitted

Permitted

AS: Permitted

OÜ: Not permitted

SIA: Not permitted

AS: Permitted

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 forward respective information to the Commercial Register, but information on the share pledges may be obtained from the Commercial Register, although access to such data is somewhat limited Different classes of shares

Non-voting shares

Permitted

26 Minority rights

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Minority rights

Estonia

Latvia

Lithuania

What is the main corporate document that protects minority shareholders?

Articles of Association (põhikiri)

Articles of association (statūti)

Articles of Association (įstatai)

Is the shareholders’ agreement an effective tool for participating in the management?

To some extent only

Minimum dividends from profits

No minimum

Minimum investment requirements to start legal action against the management board

None

Time bar for claims for allegedly illegal decisions by the general meeting of the shareholders

1-3 months

3 months

What key decisions can be blocked by the minority shareholders owning less than 50% of the votes, but more than 34%?

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

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

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

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 resolution on the dissolution of the company or the continuation of the activities of the company, the merger, division and transformation of the company, issue of convertible bonds

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)?

OÜ: the right to receive information 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 management 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

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 company; consent for the inclusion and the termination or continuation 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 accounts 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)

To request the convening of a general shareholders’ meeting; to receive information on the company (unless these documents contain a commercial (industrial) secret of the company or confidential information); to file a claim with the court for compensation 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

Estonia

Latvia

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)?

AS: the right to receive information from the management board on the activities of the company; request the convening of the shareholdersâ&#x20AC;&#x2122; meeting; demand the inclusion of certain issues on the agenda of the general meeting; 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

4) If the company is under liquidation, the shareholders have the right to request that the liquidator be appointed by the court

What rights does a shareholder with 5% of the votes or at least EUR 50,000 nominal value of the shares have?

OĂ&#x153;: the right to receive information 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:

AS: the right to receive information 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 shareholdersâ&#x20AC;&#x2122; meeting, to demand the inclusion of certain issues on the agenda of the general meeting

3) Within seven days of publication of a public notice or within five days of the receipt of notice, to request the institution convening the meeting of the shareholders to include additional issues on the agenda of the meeting

Lithuania

5) during the meeting of shareholders or no later than two months after the meeting of shareholders, raise substantiated objections to the elected auditor

1) To nominate their candidate for election for the supervisory board 2) To initiate the convening of an extraordinary meeting of the stockholders

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 shareholders to perform an examination of the founding process of the company 2) To request the re-evaluation of the property contribution according 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 Commercial 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 compensation 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

30 Takeovers

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Takeovers

Name of the national FSA

Estonia

Latvia

Lithuania

Financial Supervision Authority (Finantsinspektsioon)

Finance and Capital Market Commission (Finanšu un kapitāla tirgus komisija)

The Bank of Lithuania (Lietuvos bankas)

www.fi.ee

Mandatory bid threshold

The mandatory bid obligation is triggered when a person has gained dominant influence over the target company and thus:

www.fktk.lv

www.lb.lt

= 50% or more by a single entity or persons acting in concert

More than 1/3 votes in the general meeting of the shareholders by the single entity or persons acting in concert

1) holds the majority of the votes in the company, 2) has the right to appoint or remove the majority of the members of the supervisory board or management board, or 3) alone controls the majority of the votes pursuant to the agreement entered into with other shareholders What are the required thresholds of notice to be provided to the FSA ?

5%, 10%, 15%, 20%, 25%, 50% or 1/3 or 2/3 of the votes

5%, 10%, 15%, 20%, 25%, 30%, 50%+ of the votes

5%, 10%, 15%, 20%, 25%, 30%, 50%, 75% and 95% of the votes (both when shares are acquired and transferred)

What are the consequences of not reporting changes in the shareholding to the FSA?

The FSA may impose a fine up to EUR 32,000

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

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 information 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

Are voluntary public bids allowed?

Yes

Are competitive bids allowed?

Yes

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

Takeovers

What are the criteria to determine the mandatory bid price per share?

Estonia

Latvia

Lithuania

The highest possible purchase price shall be established, taking into account the following circumstances taken as a whole:

The highest of the following three:

The just price is established according to the following principles:

1) the weighted average price of the share transactions concluded on the market during the preceding 6 months or the weighted average price paid for the share in such transactions

2) The transaction value, or

1) The net asset value during last financial year

3) The average stock exchange price for the last 12 months

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

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

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 submission of the takeover application to the FSA

In certain cases the FSA may order to change the price

5) the purchase price is not lower than the book value of the shares Threshold for buy out to be demanded by the minority shareholders?

= 90% or more

= 95% or more (shares and votes of the issuer)

Threshold for the squeeze out of the minority shareholders?

= 90% or more

= 95% or more (shares and votes of the issuer)

Does the FSA approve the mandatory bid prospectus?

Yes

Yes (only circular)

34 Employment

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Employment

Estonia

Latvia

Lithuania

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?

No, unless there is an express agreement with the board member to the contrary

No, unless there is an express agreement with the board member on the contrary

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 Can board members invoke employees’ rights set by law to defer dismissal?

No, unless there is also an employment 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)

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 performance of the board member’s functions, but with respect to some other position)

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

Non-competition obligations after dismissal

Not applicable to dismissed board members, unless it is expressly agreed upon

Not applicable to the management board or supervisory board members, unless expressly agreed

No, unless there is express agreement to the contrary

What are the consequences of not reporting changes in the shareholding to the FSA?

A non-competition agreement with employees applicable after dismissal is only in force if: 1) the term of the non-competition obligation is for a maximum of 1 year from the termination of the employment contract

A non-competition obligation for other employees is only in force where the employer pays compensation to the employee

Following court practice, a noncompetition obligation for other employees is only in force where the employer pays compensation to the employee

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 interest and the material, territorial and temporal scope of the obligation has been reasonably defined Maximum non-competition period by law after dismissal

No clear guidance on this issue is provided in Estonian law, but in practice, 2-3 years is recommended as a maximum period With respect to employees the maximum non-competition period is 1 year from the termination of the employment contract

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 clear guidance in Lithuanian law. It is possible to argue that a 2 year period may be set as an optimum 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

Estonia

Latvia

Lithuania

Is the transfer-of-undertaking directive applicable?

Yes. The transfer-of-undertaking rules are not applicable to the management or supervisory board members with regard to their position, rights and responsibilities as board members; if an employment agreement has been signed with board members for the performance of other responsibilities aside from those of the board, then the transfer-of-undertaking rules apply with regard to such an employment agreement

Yes. The transfer-of-undertaking rules are not applicable to board members if no employment agreement has been signed

Yes. The transfer-of-undertaking rules are not applicable to board members and supervisory board members if no employment agreement has been signed

What are the penalties for a breach of the transfer-of-undertaking rules?

Employment contracts are deemed to be transferred along with the rest of the undertaking by law; if the consultation requirement is breached, a fine up to EUR 1,300 may be imposed

An obligation to hire the dismissed employees and the payment of compensation to the employees for the entire unemployment period.

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 transferring and taking over entities may attach in a form of payment of compensation.

Is there an established case law that protects employees of the seller?

Court practice is undeveloped, but trends are in favour of employees

Court practice is quite developed and in favour of employees

Is the consent of employees required before the asset transfer?

No, unless there is a collective agreement with relevant provisions

No, unless a) there is a collective 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

Are employees required to be made aware of the asset transfer before the asset transfer is implemented?

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

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.

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 business or a part of it and before other decisions that may have a substantial impact on the organisation of work, the workers and their legal position, the employer must inform the employee representatives 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

When are employees required to be hired by the Buyer of the assets?

Employment contracts are transferred to the acquirer of the assets (the company) without any amendments if the buyer continues the same or similar economic activities (i.e. the transfer of the assets is deemed to amount to the transfer of the undertaking)

After the transfer or simultaneously. The terms of employment must remain unchanged

Transfer of the assets (the company) is not a legitimate reason for termination of labour contract, therefore employment contracts are transferred to the acquirer of the assets (the company)

For violation of consultation requirements in EU wide commercial companies, EU commercial company groups a fine in the amount of EUR 7100 will be imposed on the employer.

38 Tax

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Tax

Corporate income tax rate

Estonia

Latvia

Lithuania

20/80

15%

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 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

Resident â&#x20AC;&#x201C; capital gains taxation

The capital gains of corporate entities are not taxed if the corporation retains the profits. Private individuals are subject to 21% capital gains tax

The capital gains for corporate entities are tax exempt income, except for capital gains derived from the sale of offshore securities (15%) Private individuals are subject to 15% capital gains tax

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 throughout 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 ownership of securities acquired before 1 January 1999; or 2) the income is derived from the sale or other transfer into ownership 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 otherwise transferred into ownership

Tax

Non-resident capital gains taxation

Estonia

Latvia

Lithuania

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 applicable tax treaty, tax obligation may be more favourable to nonresidents

Gains on the sale of shares derived by corporate non-residents are not subject to taxation.

Gains on the sale of shares for both corporate and private nonresidents are not subject to taxation 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:

Gains on sale of real estate located in Estonia is taxable at 20%

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

1) income derives from the sale or other transfer into ownership of securities acquired before 1 January 1999; or 2) 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 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 otherwise transferred into ownership

Capital tax on equity/share premium contributions

No capital tax on equity/share premium contributions

Taxation of liquidation proceeds

Taxable on the level of the resident 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 proceeds were not taxed at company level

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 contributions in share capital. Otherwise individual should pay 15% of liquidation proceeds.

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 estate located in Lithuania is subject to withholding tax.

Loss carry forward

Since the profits of corporate entities are not taxable (see for the exceptions above), there are no tax rules on losses carried forward

Losses may be carried forward for an unlimited period of time

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

Sole entrepreneurs may deduct the amount by which business expenses exceed business income for up to 7 subsequent periods (years) of taxation

Losses incurred as a result of transferring securities and/or derivative financial instruments may be carried forward for no longer than 5 consecutive tax periods

Tax

Taxation of loan interest between related entities

Estonia

Latvia

Lithuania

The arm’s-length principle applies

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)

0% or 10% withholding tax applies.

(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

Interest deductibility (thin-cap rules)

There are no specific rules on interest deductibility. The general arm’s-length principle applies to related parties

No withholding tax is levied on interest 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.

The taxable income of the company shall be increased:

Thin-cap rule: a debt-to-equity ratio of 4:1 applies

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

This rule does not apply if a taxpayer proves that the same loan could exist between unrelated parties. Notably, thin capitalisation also applies to variable interest depending on the profits or turnover of a company and the costs of currency exchange results

2) by the interest expenses in proportion 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 convention 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. Tax neutrality of reorganizations

Taxation regulations establish a tax-neutral regime for reorganisations. For example, revaluation of assets and liabilities resulting from mergers are ignored for taxation purposes

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

If all conditions set forth in the taxation regulations are met, then the tax consequences of the reorganisations are tax neutral

44 Merger Control

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Merger Control

Name of the relevant law and the competition control authority

Estonia

Latvia

Lithuania

Competition Act (Konkurentsiseadus)

Competition Law (Konkurences likums)

The Law on Competition of the Republic of Lithuania

Competition Authority (Konkurentsiamet)

The Competition Council (Konkurences padome)

www.konkurentsiamet.ee

www.kp.gov.lv

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 are the merger control rules triggered?

When the aggregate turnover in Estonia of the concentration parties exceeds ca EUR 6.4 million 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

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%

When the combined aggregate income of the concentration parties 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

What types of transactions are triggered?

Share transfers, joint ventures, asset control, the de facto or otherwise contractual acquisition of control

Share transfers, joint ventures, asset control, the de facto or other acquisition of control

Are there any exceptions to the merger control rules?

The transaction will not be subject to control by the Competition Authority if the turnover threshold is not met.

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

Generally, the transaction will not be subject to control by the Competition Authority if the aggregate income thresholds are 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 temporarily 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 securities 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 undertaking 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 dissolution, 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 investment, 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

Notifications need not be submitted 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 134Â 0002) credit institutions or insurance companies the activities of which include transactions with securities for own or other funds, have time-limited ownership rights to market participant 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 insurance 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.

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 management 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 information in one month following the acquisition. Persons participating in concentration, 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 transactions in relation to transferable securities, put on trade in the regulated 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 shareholders and present control does not change (internal restructurings) and if public authorities take over control of the undertakings in case of bankruptcy or a bailout

Merger Control

The turnovers / incomes of what companies are to be taken into account?

Estonia

Latvia

Lithuania

The turnover of the parties to the concentration is to be taken into account.

The turnover of the target companies and the turnover of the buyer are taken into account. Furthermore, the turnover of all related companies of both the buyer and seller should be combined

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 undertakings, are 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 control or whose part is the subject of the acquisition of control

Specific rules apply in cases when the following persons participate in a merger: insurance undertakings, collective investment undertakings or management companies managing them, undertakings which belong to the groups of associated undertakings, and foreingn undertakings

Furthermore, the turnover of all companies connected through the control of the buyer and seller should be combined How is the net turnover / aggregate income calculated?

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 transaction is deemed to be the date of such a concentration. The turnover of all the target companies, which were the objects of the transactions 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 undertaking 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 sector 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 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 undertakings 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 concentration. 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 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 “Financing 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 undertakings belonging to the group of associated undertakings. In cases of difficulty in the calculation of the aggregate income, the Competition Authority shall upon request provide explanations as to proper calculation of the aggregate income

Merger Control

When should notification be submitted?

Estonia

Latvia

Lithuania

Notification has to be submitted to the Competition Authority before the entry into force of the concentration and after:

The notification should be submitted to the Competition Authorities before the completion (closing) of the transaction

The notification should be submitted to the Competition Authority before the implementation of the concentration and after:

1) the entry into a merger agreement or performance of a transaction or other act for acquisition of parts of the undertaking 2) the performance of a transaction or other act for the acquisition of control (without entering the transaction into force) 3) the performance of a transaction or other act for the acquisition of joint control (without entering the transaction into force) 4) the announcement of a public bid for securities

1) submission of a proposal to conclude the agreement and acquire the shares or assets 2) an instruction (a commissioning) to conclude the agreement is placed 3) the conclusion of the agreement, and the acquisition of the right of ownership or the right to dispose of certain assets 4) in the case of a good faith intention to conclude the agreement or to make a public offer to buy-out shares

Can the notification be submitted prior to the signing of the purchase agreement?

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 control, or if, in the case of a public bid, the parties to the concentration have publicly notified their intention to organise such a bid

Yes, provided that the main terms of the transaction have been agreed upon between the parties

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

Can the transaction be closed before clearance by the competition authority?

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

The transaction can be signed prior to the receipt of the approval of the transaction by the Competition Council. However, the transaction 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

No, generally the undertakings participating in the concentration and persons under whom they control have no right to implement the concentration until the resolution 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 transferable 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

Numerous transactions

In applying merger control rules it is important whether the ultimate aim or result thereof is the acquisition 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 nearsimultaneous transactions, the notification has to be submitted before the first of those transactions is put into effect

The concentration shall be notified, irrespective of the number, type, legal nature and time schedule 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 structured so that there are numerous simultaneous or near-simultaneous transactions, then the notification has to be submitted before the first of the transactions is closed

The concentration shall be notified when the ultimate aim or result thereof is the acquisition of control in a target undertaking Where the transaction is structured so that there are numerous simultaneous or nearsimultaneous transactions, it is strongly recommended to notify The Competition Authority on the concentration before the first of a number of transactions is concluded.

Merger Control

Time schedule

Estonia

Latvia

Lithuania

The notification is reviewed by the Competition Authority within 30 calendar days of submission.

The notification is reviewed within one month of submission.

Within one month (and in cases specified in Item 3 within four months) of the receipt of a notification on the concentration that meets the established requirements, the Competition Authority must adopt a resolution to:

Within 30 calendar days, the Competition Authority may decide to proceed with an in-depth examination of the case, which may take as long as 4 months

After one month the Competition Authority may, however, decide to proceed with an in-depth examination of the case. In this case the total review of the notification may take as long as 4 months

1) permit the implementation of the concentration 2) permit the implementation of the concentration in accordance with the conditions and obligations established by the Competition Authority for the participating undertakings or controlling 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 conditions in relation to that, in case a dominant position or a substantial restriction of competition in a relevant market will be created due to the concentration. In this case the total review of the notification may take as long as four months.

Do simplified filing rules exist?

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 market share does not exceed 15% (horizontal overlap) or individual or combined post-merger market share does not exceed 25% (vertical overlap) 3) the parties to the concentration jointly establish a new undertaking that does not operate and has no intention to operate in Estonia 4) a party to the concentration acquires control over an undertaking over which the participant, together with another undertaking, is already exercising joint control

Yes, where the merger participants 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

Merger Control

Substantive test

Penalties

Estonia

Latvia

Lithuania

The objective of the provisions on merger control under the Estonian Competition Law is to prevent significant restrictions to competition in the relevant market above all by creating or strengthening a dominant position

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 objective of the provisions on merger control under the Lithuanian Competition Law is to prevent the creation or strengthening of a dominant position, or a substantial restriction of competition in a relevant market

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

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

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

For failure to give notice of the concentration to the Competition Authority, the enforcement of the concentration without permission 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.

If the concentration is not notified 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 submitted (i.e., prior to the closing of the transaction).

A fine of up to 10% of the aggregate annual income of the preceding business year may be imposed on undertakings for:

Failure to notify the Competition Council cannot lead to the application of any criminal sanctions

Misdemeanour: 2 years has passed from committing the misdemeanour and the entry into force of the corresponding judgment or decision

Yes

2) a continuation of the concentration during its stopping; and (or)

No criminal proceedings have been established for the implementation 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

Criminal offence: 5 years has passed from committing the offence until the entry into force of the corresponding court judgment Does the Competition Authority have the right to impose obligations?

1) an implementation of a notifiable concentration without the permission of the Competition Authority;

3) a breach of the conditions or the mandatory obligations of the concentration established by the Competition Authority.

Criminal proceedings may be initiated for the failure to give notice of the concentration, the implementation of the concentration, proceeding without permission 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 Is there a time bar for penalties?

54 Financial assistance

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Financial assistance

Estonia

Latvia

Lithuania

OÜ and AS are prohibited from providing financial assistance to third parties for the acquisition of the shares of the same OÜ or AS

SIA: Companies are not restricted from providing acquisition financing to the buyer

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

Is there a governmental entity supervising the compliance with the rules?

Does the law prohibit themerger 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?

Yes, the Commercial Code establishes such rules

Yes, particular attention should be paid to the Group Law (Koncernu likums)

Yes

The acquisition by the company of its own shares

Allowed in exceptional circumstances

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. Acquisition 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

Does the law provide for penalties for the breach of the financial assistance restrictions?

Are there restrictions on financial assistance?

AS: Companies are prohibited from financing the acquisition of their own shares

56 IPR

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IPR

Name of the public register of trademarks

Estonia

Latvia

Lithuania

Patent Office (Patendiamet)

Patent Office (Patentu valde)

www.epa.ee

www.lrpv.lv

State Patent Bureau (Valstybinis Patentų Biuras)

The Register of Trademarks (Lietuvos Respublikos prekių ženklų registras) www.vpb.lt

Public registration of trademarks

Yes

Is the pledge of trademarks allowed?

Yes

Yes, it can be arranged by a commercial pledge (komercķīla) followed by notice to the Patent Board and both are public

Yes, it can be arranged by the State Patent Bureau of the Republic of Lithuania and the Central Mortgage Office of the Republic of Lithuania. Both are public

Time required to transfer trademark ownership in the public register

1-2 weeks registration. Please note that ownership is transferred from the signing of the transfer deed; entry in the register is informative only

A trade mark transfer agreement with respect to third persons shall take effect on the date of publication of the notice in the official gazette of the Patent Office.

One month

Costs of the trademark transfer

EUR 32

EUR 42,69

EUR 115

Time required to register the new trademark

In practice, between 1.5 – 2 years from the submission of the application

A minimum of 1 – 2 years, unless the third parties or the Patent Office disputes the eligibility of the trademark to be registered

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

Costs of the trademark registration (ca. EUR)

For submission of the registration:

For the submission of the application: EUR 85,37

For the submission of the application to register a national trademark:

1) EUR 140 for one grade 2) EUR 45 for each additional grade For the registration of the trademark: EUR 45

For the registration, publishing and issuance of the registration certificate: EUR 92,49

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.)

58 M&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

M&A Real Estate

Estonia

Latvia

Lithuania

Is real estate registered in reliable public registers?

Yes

Are encumbrances registered in the public registers?

Yes

What is the cost and efficiency of obtaining information from the public registers?

Nominal. Information is available online. It is possible to get the official extract within 1 working day

Nominal. Information is available online and official extracts are available upon 4 days’ notice

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

Should the agreement be executed before a notary or otherwise verified by governmental entities?

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

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

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 payment 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)

Is the buyer bound by unregistered encumbrances?

No, unless the real estate is the subject of litigation

Are commercial lease agreements binding to the buyer if not registered in the public register?

Yes, if the premises had been transferred into the possession of the tenant However, the new owner of the premises may terminate the commercial lease upon 3 months’ advance notice provided the owner needs the premises for its own use.

Can a commercial lease agreement be terminated if the lease agreement has a fixed rent period?

Yes, pursuant to the provisions of extraordinary cancellation of the lease contracts (under exceptional circumstances)

Yes, but only by the court under certain conditions

Yes, but only by the court under certain conditions unless the agreement provides for special rules

What is the minimum termination notice period for a commercial lease agreement that does not contain a fixed rent period?

3 months

6 months

3 months

Is it typical to have change of control provisions in the commercial lease agreements?

No, unless it is agreement with the anchor tenant

No, unless it is an agreement with the anchor tenant

Are tenants allowed by law to terminate lease agreements if there is a change of the owner of the real estate?

Yes

Can land and a building be owned by different parties?

Only via establishing a right of superficies

Yes

A transaction by which the establishment 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

M&A Real Estate

Are any statutory regulations concerning right of first refusal applicable?

Estonia

Latvia

Lithuania

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

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)

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)

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

Also, specific rules may apply for land of specific purpose or located in specific areas

The right of first refusal also applies with regard to co-owners of real estate – if any of the co-owners intends to transfer its legal share of the real estate to a third party, the remaining co-owners have the right of first refusal.

Does expropriation of land by the government or municipality often occur?

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 superficies 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

In exceptional circumstances, local municipalities have the right of first refusal, e.g., if the land or the building is located on red lines

Land may be expropriated in the public interest for the exceptional purposes listed in the Immovable Expropriation Act. Expropriation is mostly used by the government and municipalities for the purposes of road infrastructure development projects. Expropriation 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

Expropriation of land may occur in the public interest and only in special cases.

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)

M&A Real Estate

Tax aspects: real estate vs. shares

Estonia

Latvia

Lithuania

The retained profits of corporate entities are not taxed. Corporate tax is applied to the payment of dividends and certain other payments and costs at 20/80

Capital gains for the disposal of both real estate and shares for corporate entities are taxed as ordinary income

Capital gains for disposal of both real estate and shares for corporate entities are taxed as ordinary income

Gains on the sale of shares derived by corporate non-residents are not subject to taxation.

A corporate entity’s gain from the transfer of the shares of a company 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

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 nonresident had a holding of at least 10 per cent at the time of transfer), 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

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 withholding 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.

A corporate entity’s capital gains are also not taxable in cases where the shares are transferred during a reorganisation or merger procedure, 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

According to case law, in the case of a merger the stamp duty should not be applicable. VAT on 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 taxation of the transaction beforehand. VAT is imposed on a transaction by way of reverse charge

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.

A transaction is subject to VAT and charged at the standard rate (21%) in the case of the supply of: • land is transmitted with new buildings or structures or parts • thereof • land for constructions new buildings or structures and their parts A transaction is not subject to VAT in case of the supply of: • land which is not for constructions, and land which is supplied with old buildings or structures or parts thereof • old buildings or structures and parts thereof 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.

64 SPA

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SPA

Estonia

Latvia

Lithuania

Are Anglo-Saxon legal concepts widely used in M&A deals?

Yes

Is there an established case law on M&A disputes?

No, but it is slowly forming

On certain aspects of M&A deals

Is a letter of intent (LOI) binding?

It depends on the content of the LOI. Provided that the essential terms of the envisaged transaction 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

No, but it should be expressly provided in the text of LOI

In general no, however, some controversial case law exists

What are the minimum R&W provided under national law?

There are no statutory R&W for share transfers

The shares are free from encumbrances and the seller possesses the undisputable title to the shares

There are no statutory R&W specific for the share transfer, however, under the law the seller has to warrant that the seller possesses a title to the shares

However, usual minimum contractual 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

However, usual minimum contractual R&W is a warranty that shares are free from encumbrances and that the seller possesses undisputable title to the shares

The annulment of the transaction in case of a gross breach

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

A reduction of the purchase price or a request for compensation of damages

Is it common to use detailed LDD checklists and detailed SPA?

Yes

What is the statutory time bar for claims?

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

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

A general statutory time bar is 10 years. For claims for damages â&#x20AC;&#x201C; 3 years

Yes, it is common to use NDA and LOI before the disclosure of data

What are the minimum remedies available to the buyer?

Are LOI or NDA often used?

A reduction of the purchase price or damages

There is also legal uncertainty whether the time bar can be suspended by ordinary notice to the respondent or that a claim should be filed with the courts or arbitration

The annulment of the transaction in case of a gross breach

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 annulment of a legal personâ&#x20AC;&#x2122;s decision that the grounds for the transaction is required, a special 3-month time bar applies, etc. It is common practice to use NDA before the disclosure of data

SPA

Estonia

Latvia

Lithuania

Are right-of-first-refusal waivers valid?

Yes

No established case law, but most likely they are valid

Yes

Should the agreement be notarised or otherwise approved by a third party?

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.

Yes, a notary deed is required when the subject of the agreement 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

What is the preferred forum for disputes?

The domestic state courts or arbitration institution (the Arbitration Court of the Estonian Chamber of Commerce and Industry)

The domestic state courts or SCC Arbitration Institute

The domestic state courts or arbitration institution (most commonly, the Vilnius Court of Commercial Arbitration or SCC Arbitration Institute)

KEY PEOPLE

Key People

Estonia

Latvia

Lithuania

Ants Mailend

Janis Zelmenis

Robert Juodka

Leonid Tolstov

Vita Liberte

Ernesta Žiogienė

Sander Kärson

Ansis Spridzans

Tomas Venckus

Anu Sander

Svetlana Hramcenko

Giedrė Dailidėnaitė

Ingeri-Luik Tamme

Dace Indane

Liutauras Baikštys

Nikita Divissenko

Alise Eljasane

Odeta Maksvytytė

Key People

CON TACTS

ESTONIA Ants Mailend Partner, Attorney at Law tel +372 626 4300 ants.mailend@varul.com Ahtri 6a 10151 Tallinn Estonia

LATVIA Janis Zelmenis Managing Partner, Attorney at Law tel +371 6722 2237 janis.zelmenis@varul.com KaÄźÄˇu iela 15 LV-1050 Riga Latvia

LITHUANIA Robert Juodka Managing Partner (Lithuania), Attorney at Law tel +370 5 248 7337 robert.juodka@varul.com Konstitucijos av. 7 LT-09308 Vilnius Lithuania