Legal Update - The Baltic States Commercial Law

We have prepared this legal update to give our clients and partners an overview of significant changes and improvements in the laws of the three Baltic states, emphasising commercial law. Please note that the legal update is compiled for informational purposes only and does not include all laws or reflect all changes in legislation, nor are the explanations we provide exhaustive. Therefore, we recommend that you contact your legal advisor for further information.

Amendments to the Securities Market Act (effective 25.02.2000) set requirements for take-over bids and obligate the stock exchange to specify the procedure for take-overs. For example the amendments obligate the takeover bidder to purchase all remaining shares of the public company with the same conditions even after the controlling portion of the shares have been obtained. The amendments also set qualification requirements for securities specialists and investment-fund supervisors.

The government has adopted on 11.01.2000 a list of states that will not be considered as low-tax territories for the purposes of the new income tax act. The list contains 26 states including all EU states (except Luxembourg), Latvia, Lithuania, the USA, Canada, Japan, Poland, the Czech Republic, the Ukraine and Moldova.

The government has passed a new regulation on the amounts of compensation for business trips (effective 01.02.2000). The minimum amounts of daily compensation for employees on business trips are EEK 50 for domestic trips and EEK 350 for foreign trips. The maximum tax-free compensations for trips lasting longer than one day are EEK 80 and EEK 500, respectively. The minimum and maximum accommodation costs are EEK 200 and EEK 700 for domestic trips, and EEK 800 and EEK 1 700 for international trips, respectively.

The government has passed two regulations (effective 24.01.2000) to implement provisions of the Work Health Care and Safety Act. The regulations concern the safety requirements for equipment used for work and personal safety equipment.

Amendments to the Employment Contracts Act and other employment law acts (effective 07.04.2000) raise the guarantees for the employees’ representatives.

Amendments to the Utility Model Act (effective 01.07.2000) broaden the concept of utility models to offer an alternative protection method to inventions that previously could only be protected by patent.

Amendments to the Plant Species Protection Act (effective 01.03.2000) harmonise the act with international practice.

The government has passed a new block exemption allowing competition-restricting agreements which promote specialisation, research and development (effective 20.02.2000).

The Digital Signature Act (effective 15.12.2000) recognises the possibility of certifying a person’s identity via electronic means. According to the Act, state and local government authorities must organise their work so that they may implement such methods by 01.01.2001.

The Telecommunications Act sets specific requirements for businesses in the telecommunications market. The new Act is in compliance with EU norms. The Act will become effective gradually, beginning 01.05.2000 becoming fully effective 01.01.2004.

Amendments to the Bankruptcy Act (effective 02.03.2000) specify which claims can be set off and how in bankruptcy proceedings.

The Law on Commerce (Komerclikums) (effective 01.01.2001) is the most significant piece of legislation relating to Latvian business passed in recent memory. This comprehensive law will set in place a cohesive, revamped body of jurisprudence applicable to the rights and relations of persons engaged in all aspects of commerce and trade in Latvia.

The Cabinet of Ministers issued regulations on the Procedure for Hiring Foreign or Stateless Persons in Latvia (effective 01.04.2000). The Regulations provide a hiring procedure for persons who do not have residence permits, regardless of their reason for residing in Latvia or whether they entered the country legally.

The law On Taxation of Immovable Property, passed on 01.01.1998, contains several provisions which became invalid 01.01.2000, including requirements for submission by property owners to their respective municipalities of declarations of property values and taxable amounts for properties assessed before 1997.

Also, as of 01.01.2000, the law On Property Tax, which included buildings, lost force, since beginning this year buildings, structures and land are covered by the law On Taxation of Immovable Property.

The Saeima (Latvian Parliament) has passed two treaties drafted by the World Intellectual Property Organization Geneva (WIPO): the WIPO Performances and Phonograms Treaty and the WIPO Copyright Treaty (both effective in Latvia 12.02.2000).

The Performances and Phonograms Treaty aims to protect the rights of performers and producers of phonograms and recognises the need to introduce new international rules in order to provide solutions to questions raised by new developments.

The Copyright Treaty’s goal is to protect the rights of authors’ literary and artistic works. It recognises the need to introduce new international rules and clarify the interpretations of certain existing rules in order to provide solutions to questions raised by new developments.

Both Treaties are available in English.

In order to ensure complete and precise execution of the Cabinet of Ministers’ Procedure of Declaration of Goods, the State Revenue Service issued a writ with the self-explanatory title On Documents to be Submitted or Presented in Customs Institutions (effective 01.03.2000), covering a broad spectrum of goods.

The Cabinet of Ministers issued a Procedure for Issue and Verification of Certificates of Origin of Goods (effective 11.03.2000). The Certificates must be submitted by an institution empowered by the country in which the goods originated and must contain information about packaging and labelling, as well as the goods’ gross and net weights. Separately, the Cabinet of Ministers issued Regulations on Labelling of Consumer Goods, (effective 12.02.2000).

The Order for Fulfilling Customs Procedures—Issuing of Goods Customs-free (effective 01.05.2000) describes the process for releasing goods into circulation, without restrictions or levies from customs authorities. Such goods must be in compliance with relevant international treaties and must fall into one of several categories of goods used for construction, use, repair, etc., of ships, aircraft and drilling platforms.

The Law on Protection of Information about Physical Persons (effective 20.04.2000) was passed by the Saeima to protect peoples’ privacy under the premise that this is a basic right requiring legal protection. The law does not apply to information collected by the government for "home and family needs" or "in the realms of national security and criminal law."

The Saeima passed a new Forest Law (effective 17.03.2000), the goal of which is to regulate the management of Latvian forests in the long term, guaranteeing equal rights for all forest owners and overseers, the inviolability of property rights, and the self-dependency of economic activity; and to establish the responsibilities of affected parties fairly.

Some significant implications of the law are that the ban on foreigners engaging in logging has been lifted, cleared forests must be replanted in three years’ time and forest owners are have been granted greater freedom from government intervention.

The Concession Law, passed by the Saeima (effective 16.02.2000), creates a body of law regarding the granting of specific privileges by the government, including the establishment of guidelines for the conclusion of concession contracts. Practically applied, concession law is frequently applied in lease of government land to a private business, usually to extract natural resources from such land.

Already passed by the Saeima, but not yet signed into law by the President, the Law on Concerns (Koncernu likums), will cover entrepreneurial associations which are composed of a parent company and one or more subsidiaries. In order to be affected by the law, the parent company—whether foreign or Latvian—must have a decisive impact on the affairs of the subsidiary(ies). The law is intended to protect the interests of creditors and minority shareholders. Subsidiaries that have not signed concern agreements will be required to prepare together with the annual report a dependency report that will be subject to the audit and approval of the parent company’s shareholders’ meeting.

Article 13 of the Law on Enterprises, which us to list licensed areas of business activities, was amended to allow enterprises to engage in all business activities without a licence, except cases when the law requires a licence for a specific business activity (effective 16.03.2000).

Furthermore, amended Article 13 of the Enterprise Law sets forth general requirements for the licensing procedures.

Finally, in addition to the requirement of holding licences for specific business activities which are provided for by special laws, the amendments to the Law list nine business areas (e.g., manufacture of explosive materials; manufacture of seals and stamps; manufacture, wholesale and storage of hazardous chemical materials, etc.) for which a special licence issued by a respective state institution is needed.

Article 43 of the Company Law was amended to allow insolvent public companies to increase authorised capital by issuing new shares issued only to the creditors, shareholders and employees of the company (effective 31.12.2000).

Article 45 of the Company Law was amended to allow a company during the same meeting of shareholders to eliminate losses by first decreasing and then increasing the authorised capital of the company and issuing new shares to be acquired by the company’s creditors (effective 31.12.2000).

An amendment to the Law on Investments (effective 8.03.2000) has allowed foreign investments to all possible business investment areas, except the following: those relating to security and defence of the State (except investments from the foreign entities meeting Lithuania’s European and pan-Atlantic integration criteria) and organizing lotteries.

The government of Lithuania has established that dangerous loads are to be transported within the territory of Lithuania following the requirements of the ADR Convention, with exceptions provided for in the Resolution of 23 March 2000 (effective 25.04.2000).

The Government of Lithuania has approved regulations (effective 19.01.2000) aimed at implementing the Law on Taxation of Environmental Pollution. The regulations set forth the order for discharging persons from payment of taxes for pollution in case of implemented measures reducing the pollution not less that 10 percent from the allowed quantity, as well as establish tax rates for movable pollution sources and a list of taxable soil.

The Government of Lithuania on 22 February 2000 decided to privatise "Lithuanian Airlines" by selling 49 percent of shares to a private investor.

Lithuania has entered into a Free Trade Agreement with the Hungarian Republic (effective 1.03.2000).

Prepared by Paul Künnap, Tallinn; Roberts Lismanis, Riga; Kestutis Adamonis, Vilnius.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.