Estonia: Legal Update - The Baltic States Commercial Law

ESTONIA

The Parliament has abolished (effective 21.07.2000) the Foreign Investments Act, which allowed the government to restrict such investments by either forbidding them outright or requiring a license for the establishment of enterprises with foreign capital in specific areas of business. The abolishment was required to harmonise Estonian legislation with that of the European Union. The Act was deemed to be in violation of the principle of free movement of capital.

Amendments to the Fuel Excise Tax (effective 01.09.2000) place an excise tax on fuel components, in addition to the existing tax on fuels. The aim of the amendments is to curtail the current practice of avoiding the tax by importing fuel components and then mixing them with fuel. Amendments to the Income Tax Act (effective 01.01.2001) will raise the maximum amount of income one may earn without having to pay income tax to EEK 12 000 a year, thus slightly easing the tax burden on lowerincome individuals. Amendments to the Value Added Tax Act (effective 01.07.2000) place a 5% VAT on the sale of residential district heat and heating fuel. The amendments will further increase the tax to 18%, effective 30.06.2001.

The Insurance Activity Act (effective 01.08.2000) partially replaces the previous Insurance Act. The new Act includes provisions on insurance business forms, relevant licences, accounting, insurance brokers, reinsurance, etc. The new act is harmonised with the European Union Acquis. Amendments to the Traffic Insurance Act (effective 08.07.2000) permit lower insurance rates for vehicles that are leased for use outside of Tallinn.

Draft amendments to the Work Time and Rest Time Act would limit the maximum weekly work time to 48 hours, instead of the previous limit of 60 hours.

Amendments to the Language Act (effective 01.07.2000) require private enterprises to only use the Estonian language, if it is in the public interest to do so, i.e., in matters of public safety, order, and administration, as well as in health care and work safety. Also, the previous language requirement for foreign specialists working in Estonia for over one year was abolished for specialists working based on a fixed-term contract. With the new amendments the Language Act complies fully with European Union norms. The Tobacco Act (effective 01.01.2001) establishes additional restrictions on smoking. The amendments prohibit smoking in a number of public places, including on public transportation, in municipality and state facilities and health care and sports facilities, etc. The Act sets specific requirements for smoking rooms which employers should provide, if possible. Draft amendments to the Public Procurement Act would greatly increase the number of government contracts subject to regulation, since the value of such contracts triggering regulation has been significantly decreased. According to the draft, public procurement procedures would be required when the object or service to be purchased costs at least EEK 10 000, or, in case of building services, at least EEK 30 000.

The new Commerce Law, one of the most significant laws related to business and trade passed in recent history, will be effective 01.01.2001. Sorainen Law Office is currently preparing to distribute an overview of the most significant aspects of this law and how it will affect business in Latvia. Privacy Law

The law On Protection of Information on Physical Persons, effective 06.04.2000, is intended to protect both the possession and use of such information. The terms ìuseî and ìuserî are broadly defined. Collectors and processors of such information must be registered with the State Information Protection Agency, a division of the Ministry of Justice.

The new Copyright Law, effective 11.05.2000, states that works located in Latvia in any material formówhether or not circulated in Latviaóbelong to the author or his heirs. The author has non-transferrable rights to: be recognised as the author, his name, the inviolability of the work and to make decisions about circulating or recalling the work.

Amendments to the laws On Entrepreneurial Activity, On Limited Liability Companies and On Joint Stock Companies, effective 11.05.2000, reflect the new Law on Concerns (see below). Joint stock companies (A/S) may now be founded by a sole founder. Amendments to the law on A/S state that the advisory council must be (re)elected (as one unit) to a three-year term by 01.08.2000. Also, in the event a council member must be replaced during the course of a term, the replacement member`s term expires together with the rest of the council. The Law on Concerns (Koncernu likums), effective 27.04.2000, covers entrepreneurial associations which are composed of a dominant parent company and one or more dependent subsidiaries. In order to be affected by this EU-compliant law, the dominant company—whether foreign or Latvian—must have a decisive impact on the affairs of the subsidiary(ies). The law calls for the conclusion of a concern agreement, which must be registered with the Company Register, establishes restrictions on the relationship between the companies, protects minority shareholder rights, limits the influence of the dominant company and establishes other regulations regarding the activities of the concern. Subsidiaries that have not signed concern agreements are required to prepare together with the annual report a dependency report that will be subject to a mandatory audit. Aspects of the amendments to the law On Joint Stock Companies have various effective dates. The amendments state that the amount of paid foundation capital may not exceed that of registered capital and that the credit institution capital may consist solely of cash. Insurance companies and credit institutions may invest real property in the foundation capital and may increase and decrease the foundation capital only with the permission of the Finance and Capital Market Committee. The law has also been supplemented with a provision stating that the company’s supervisory council has the right to dismiss board members engaging in "malicious" or "grossly negligent" behaviour, as these terms are defined in the Civil Law.

Amendments to the law On State and Municipal Procurement Contracts, effective 06.04.2000, pertain to public procurement contracts, whether through bidding or other means. The law includes a clause, effective 01.07.2000, stating that construction projects with the government with a value exceeding LVL 1 000 000,00 must comply with state standards for construction contracts.

The law On Protection against Subsidised Imports, effective 01.01.2001, establishes a procedure by which domestic producers receive compensation for subsidies granted by importing countries to the foreign producers for goods imported into Latvia. The rationale for the law is to cover losses suffered by domestic producers as a result of the subsidies competing importers receive. Domestic producers may apply to the Domestic Market Defence Bureau to request an investigation on the existence, extent and influence of such subsidies. Amendments to the law On the Protection of the Domestic Market, effective 05.05.2000, state that the Cabinet of Ministers will form an institution charged with facilitating the implementation of this law, the "Antidumping Law" and the law "On the Protection against Subsidised Imports". Amendments to the Antidumping Law are effective 01.07.2000. The amendments provide for setting different dumping prices for the transitional period, setting market prices for goods and supplemental provisions regarding price corrections. The Cabinet of Ministers’ Regulations on Market Intervention in the Grain Market are effective 01.07.2000. These regulations determine a procedure for intervention in the Latvian grain market for 2000 and 2001. Geared towards market stability, market intervention efforts are carried out by the state based upon production and consumption figures. The state purchases wheat and rye from Latvian farms according to the intervention prices listed in these Regulations The Cabinet of Ministersí regulations Procedure for Recognition of Compliance Documentation Issued Abroad is effective 16.06.2000. The regulations provide a procedure for recognition of documentation concerning goods and services with countries with which Latvia does not already have a separate agreement on recognition of such compliance documentation. The Cabinet of Ministersí Regulations on the Safety of Electrical Equipment are effective 16.06.2000. The regulations set safety standards for electrical goods and goods containing electrical components available on the free market, as well as establish a procedure for the assessment of compliance of such goods and market regulation.

Amendments to the law On Taxes and Duties, effective 16.05.2000, clarify the rules regarding the calculation of late tax payments. The law mandates that restrictions on cash payments in retail business transactions only apply to purchasers of goods. It is also supplemented with a new clause which prescribes responsibility for tardy filing of taxes. Such tardiness may result in fines, which vary depending upon the length of the delay. Also, the General Director of the Service is now empowered to mitigate such fines, and not the Minister of Finance, as was previously the case. The Cabinet of Ministers` writ On the Treaty between the Government of the Republic of Latvia and the Government of the Russian Federation Regarding the Prevention of Double Taxation and Tax Evasion in regard to Income and Capital Gains is effective 02.06.2000. The law On the Agreement between the Republic of Latvia and the Republic of Armenia Regarding the Prevention of Double Taxation and Tax Evasion in regard to Income and Capital Gains is effective 07.06.2000.

The Cabinet of Ministers` Regulations On Safety Systems and Equipment to be used in Explosive Environments are effective 01.07.2003. Explosive environments are defined as flammable materials, steam, aerosol emissions or dust mixed with air under normal atmospheric conditions (frequently found in various shafts). It is anticipated that these systems will be classified and various safety criteria established.

The Cabinet of Ministers issued amendments, effective 02.05.2000, to Regulation no. 112 General Building Regulations. The amendments prescribe simplified preconstruction procedures, administration and project coordination and list fee amounts.

A Regulation On Travel Packages, effective 03.05.2000, was issued in accordance with the Law . on Tourism. The Regulation determines the order in which these services are to be prepared and implemented, information required in contracts, service provider and customer rights and responsibilities, and establishes a procedure for securing down-payments made by customers for travel packages.

The Finance Capital Market Commission Law is effective 01.07.2001. On this date, the Securities Market Commission, Bank of Latvia Credit Institution Supervisory Council and Insurance Supervisory Inspection will cease to function. The Finance Capital Market Commission will unify these institutions and assume all of their rights, responsibilities and obligations. In conjunction with the formation of the Commission, the laws On Securities, On the Bank of Latvia, Law on Credit Institutions, Law on Mortgage Bonds and the Criminal Law are being amended. The amendments are effective 01.01.2001. The formation of the Commission will also cause amendments to be made in the law On Private Pension Funds, effective 01.07.2001. The essence of the amendments is that only banks, insurance companies, brokerages and investment firms licensed by the Commission will be permitted to oversee pension fund capital. Amendments to the law On Investment Companies are effective 04.07.2000 (the amendments relating to the change in the name of the Securities Market Commission are effective 01.07.2001). The amendments set more stringent regulations for persons who may be investment company board members and establish limits on material purchases using firm assets.

Aspects of the Amendments to the Law on Insurance Companies and the Regulation Thereof have various effective dates. The law has been supplemented with regulations on insurance for risk of loss and insurers’ rights to insure other risks. The remaining amendments pertain to the formation of reserves, examination of auditors in insurance companies, the formation of reinsurance programs, instances in which an insurance company’s license may be revoked, and other insurance industry regulation, all of which is carried out by the Finance and Capital Market Committee. Amendments to the law On Insurance Contracts are effective 01.07.2000. The amendments introduce two new terms: "bonus" and "repurchase amount". The law also contains new provisions which regulate in detail requirements for personal insurance contracts.

Large-scale amendments to the Pharmacy Law and the Medical Law are effective 14.06.2000.

Amendments to the Company Law (effective 04.04.2000) were passed to regulate the payment of bonuses to members of the Board or the Supervisory Board of the company and who are public officials representing the state or a municipality. Under the amendments, such members’ bonuses must be transferred to the State or the respective municipal budget. If the affected members are employees of state-owned or municipal enterprises, bonuses are to be transferred to the respective enterprise.

Amendments to the Law on Commercial Banks (effective 07.04.2000) allow an affiliate (department) of a foreign bank in Lithuania to establish additional offices in Lithuania, provided that the Articles of Association (Bylaws) of the affiliate allow for this possibility. In such case, subdivisions are entitled to carry out all activities defined in the Articles of the affiliate.

Amendments and supplements to the Law on the Lease of Land (effective 13.06.2000) more precisely define land lease relations between lessees and the State as a lessor. Also, state land may now be leased to persons by auctioning such land to the highest bidder.

The Procedure on Issuing, Amending and Terminating Residence Permits for Foreigners in the Republic of Lithuania, adopted 01.05.2000, establishes an order for issuing permanent and temporary residence permits to foreigners. In accordance with Article 11 of the Law on the Status of Foreigners, temporary residence permits may be granted to foreigners residing in Lithuania for more than 90 days in one calendar year and who satisfy other conditions set forth in this Law. The Ministry of Social Security and Labour passed a measure establishing a new Procedure on Employment of Foreigners in Lithuania (effective 15.06.2000). The new Procedure states that an employer may only conclude an employment agreement with a foreigner holding a work permit (with exceptions specified in the Law on the Status of Foreigners).

The Parliament adopted a Law on Levies (effective 01.01.2001), which sets forth an order for calculating, collecting and controlling the collection of state and municipal levies.

The Law on the Status of War (effective 28.06.2000) establishes a new procedure for declaring and withdrawing the status of war with other countries. The Law permits restriction of certain rights and freedoms of both citizens and foreigners during times of war and contains provisions concerning the activities of enterprises during wartime.

Amendments to the Law on Industrial Design (effective 12.05.2000) expand the rights of industrial design owners. The owner of a registered industrial design has the exclusive right to prohibit others from manufacturing, selling, issuing, importing, exporting, accumulating or otherwise using such designs for commercial purposes.

The Parliament passed a new Law on Assessment of Environmental Impact of Planned Economic Activities (effective 01.06.2000). This Law is to regulate the procedure for such assessment and the responsibilities developers are required to undertake. An annex to the Law establishes a list of types of economic activity whose impact on the environment must be evaluated before the respective activities may begin.

The Law on Food (effective since 01.07.2000) establishes quality and safety requirements for food to be sold to the general public, the competence of state institutions and public organisations in protecting consumer rights regarding food and regulates the duties and obligations of food manufactures, service suppliers and sellers.

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