|
Lithuania’s Proposed Foreign
Investment Laws: A Free Market
Critique
N. Stephan Kinsella Jackson & Walker, L.L.P. Houston
[For current author info as of 04-2002: see: www.KinsellaLaw.com]
February 1994
Draft Submitted to The Russian Oil & Gas Guide
May differ slightly from version published in:
The Russian Oil & Gas Guide, vol. 3, no. 2 (April 1994), p. 60
I. Introduction
Are foreign investors welcome in Lithuania? The answer to this question depends upon
whether Lithuania is willing to protect investors’ property rights so that they have an incentive to
invest their capital in a risky regime. A government’s willingness to protect investors’ rights is
evidenced, in part, by the contents of its foreign investment laws.
At the time of this writing (December 14, 1993), a Draft Project of “Law on Foreign Capital
Investment in the Republic of Lithuania” (hereinafter referred to as the “Draft Law”) was under
consideration by the Lithuanian parliament. An examination of the proposed law’s provisions,
including its deficiencies, may be of interest to Western investors.
Mr. M. Černiauskas, President of the Association of Lithuanian Chambers of Commerce and
Industry, recently contacted Mr. E. Blake Mosher, Chief Executive Officer of Mosher International,
Inc., to request Western comments on the Draft Law. Mr. Mosher subsequently contacted me to
offer me the chance to comment upon the Draft Law prior to its being voted upon by the Lithuanian
parliament. At this writing, the Draft Law is still apparently under consideration by the parliament.
The following analysis is based on the comments I submitted to Mr. Černiauskas.
II. The Draft Law
According to Article 1, the purpose of objective of the Draft Law is to “regulate relations
between legal persons registered in the Republic of Lithuania and other foreign states, citizens of
other states and stateless persons, making investments of their owned assets in the Republic of
Lithuania . . . .” The law also regulates “relations between the State and foreign investors, as well
as foreign capital investments during the whole period of their existence.”
The law is not intended to regulate “the emergence, transformation and termination of
ownership and related legal issues between foreign investor (investors) and legal and natural persons
of the Republic of Lithuania . . . .” Nor does the Draft Law “regulate relations between citizens of
the Republic of Lithuania and those of foreign states, stateless persons or legal persons of other
foreign states, participating in the process of privatization of state property.”
Thus, the main purpose of the Draft Law is to provide a framework governing investments
in Lithuania by foreign investors. This is accomplished by providing what types of investment are
permissible (and in which sectors of the economy), and by providing for a licensing system and for
investment guarantees.
III. General Considerations--Protection of Private Property Rights
As a general proposition, Lithuania will be successful in attracting foreign capital
investments in proportion to foreign investors’ ability to make (and keep) profits by investing there.
Protection of investors’ property rights is essential to this. The more that private property is
protected in Lithuania, the greater an investor’s ability to make more long-range future plans, which
increases the chances of success and also increases the amount of profits which can be expected.
Additionally, if an investor’s property rights are well-protected, he is also more likely to be
willing to invest in Lithuania in the first place, since he has more confidence that he will be able to
keep any profits he earns. A strong Lithuanian policy of protection of private property will reduce
the political risk of doing business in Lithuania, which will increase the amount of profits that can
be earned and will decrease the costs of doing business, thereby attracting more investments in
Lithuania.
Therefore, the more that property rights are protected, the more investments Lithuania will
attract. Further, Lithuania gives up nothing at all by strengthening investors’ private property
rights--except the discretion to expropriate or steal investors’ property. But Lithuania will have to
refrain from such expropriations anyway, in order to have a stable and productive market economy
and to become successfully industrialized. Thus, it is virtually costless to Lithuania to increase the
protections afforded to foreign investors--for it gives up nothing more than the right to confiscate
investors’ property--and this would benefit Lithuania by making it a more attractive place for
investors.
With these general considerations in mind, it is clear that the Draft Law should be revised
to strengthen as much as possible the protections offered to foreign investors. Below I discuss some
of the ways in which this might be done.
(The Draft Law is provided in the appendix to this article.)
The foreign investment protections discussed below would be equally beneficial to investors in other
developing countries, and even in the West.
IV. Analysis
A. International Commitment--Concessions and Stabilization Clauses
Although the Draft Law purports to give investors certain protections and property rights,
there is nothing that would prevent the Lithuanian government from changing this law. If an investor
must rely upon the existence of the law to be sure that his property rights will be respected, then his
property rights will be uncertain to the extent the government is likely and able to simply revise or
abolish the law which gives his property protections. Even if the Draft Law were to state that the
government may not pass future laws which violate property rights vested in foreign investors by the
current law, in reality a future legislature is always able to change the law.
One way to reduce this problem is to internationalize the protections and promises made by
Lithuania concerning the sanctity of investors’ property. This may be done, for example, through
a treaty, by which a state obligates itself and becomes bound under international law. Although this
does not physically prevent the state from breaching the treaty, states are, practically speaking, far
more reluctant to breach an international obligation than to merely change one of its own internal
laws.
Thus the Bilateral Investment Treaties (“BITs”) entered into between some pairs of nations,
such as Russia and the United States, offer strong protections for the property rights of foreign
investors. Lithuania should therefore be urged to enter into BITs with the U.S. and other Western
states.
International law also recognizes the ability of a state to bind itself internationally through
individual contracts between the state and foreign investors, sometimes known as concessions, and
referred to herein as investor-state contracts. Any investor-state contract should contain an
international arbitration clause, which can give jurisdiction to a neutral third party (such as the
International Center for the Settlement of Investment Disputes, or ICSID), as well as a so-called
“stabilization clause.” A stabilization clause would provide that the law in force in Lithuania at a
given date--typically, the time the investor-state contract takes effect--is the law that will supplement
the terms of the contract, regardless of future legislation, decrees, or regulations issued by the
government.
Therefore, all the protections afforded to investors in the Draft Law should be be
internationalized, to help ensure that these protections cannot be arbitrarily overturned by a future
legislature. The Draft Law should include a provision authorizing and requiring the government to
issue a form contract or license from the state to the investor, which contains international arbitration
and stabilization clauses (to internationalize the license), and which incorporates all the protections
embodied in the Draft Law as of the date of issuance of the license. This would extend the
protections embodied in the Draft Law into the license, thereby internationalizing and thus
strengthening the private property rights afforded in the Draft Law.
Under this system, any time an investor began to invest in Lithuania, he would automatically
receive such a license from Lithuania, containing a solemn contractual guarantee from Lithuania to
abide by the promises made in its Draft Law, and to not change the internal laws of Lithuania in a
way that would diminish the property rights guaranteed to the investor. Investors receiving such
licenses would be more confident that Lithuania does not intend to expropriate their property or raise
taxes to a confiscatory rate.
Investors would also feel that a confiscation of their property would be more unlikely to
occur, since this would be a breach of international law by Lithuania, which it would probably be
reluctant to do. This would increase Lithuania’s attractiveness and stability, would reduce political
risks faced by investors, and would thus encourage greater investment into Lithuania.
B. Expropriation of Investors’ Property
Article 6: Foreign Investment Guarantees states that “State authority bodies or governmental
bodies shall have no right to encroach upon foreign investments or property of foreign investor.”
This seems to indicate that an investors’ property rights should be respected by the government,
which implies that the government will not expropriate or nationalize such property.
However, the next paragraph states “Compensation for the appropriated property shall be
paid no later than within three months in invested currency or Lithuanian national currency, if capital
of an enterprise was formed by non-monetary (property) contributions, according to the actual
market value of the property.” This sentence appears to contemplate government appropriation (i.e.,
expropriation or nationalization) of investors’ property.
This apparent inconsistency should be eliminated and the law should be clarified. If no
expropriation of private property by the state is to be allowed, the law should not contemplate that
it may occur. If, on the other hand, expropriation is to be allowed, it should be limited in scope to
only narrow situations, since any encroachment upon investors’ property rights will harm Lithuania
by making it a less attractive place to invest in.
The Draft Law should be revised to clearly state that the government does not have the right
to expropriate an investor’s property, nor even the right of eminent domain. Since values are
subjective, it is impossible to determine an “appropriate” amount of compensation to pay an investor
for the “value” of the property which is taken.
However, if it is politically unacceptable to remove the government’s power of eminent
domain, which is likely, the Draft Law should at least clearly state that, in the event of an
expropriation, the full value of the property should be received, which includes the market value of
both lucrum cessans (future profits lost) and damnum emergens (damages). This “full value”
standard will help to protect both the value of the investor’s property, as well as the property itself,
since the government is less likely to expropriate property, the more compensation it would have to
pay for it.
Additionally, the Draft Law should state that investments shall not be expropriated, directly
or indirectly (which includes both indirect and “creeping expropriation”), unless the expropriation
is: (1) for a public purpose; (2) performed in a nondiscriminatory manner; (3) accompanied by
payment of prompt, adequate and effective (i.e., full value) compensation; and (4) in accordance with
due process of law.
The Draft Law should also provide that any legal expropriation that complies with these
international law requirements must be accompanied by full compensation, as discussed above. Any
expropriation not in accordance with these provisions should be deemed an illegal expropriation, and
a higher amount of compensation should be awarded--for example, the value of the property taken
times three, a treble damages standard often found in anti-trust and other laws. If treble-damages
standards are validly used by governments to deter especially egregious private behaviour, it also
makes sense to subject governments themselves to similar penalties, to deter them from breaching
fundamental international law.
C. Natural Resources
Article 13: Foreign Capital Investment which is Prohibited without Concession, provides that
exploration and exploitation of state owned natural resources is prohibited without a concession.
As discussed above, any property rights acquired by investors should be protected also through a
standard form of license or other form of investor-state contract, which internationalizes Lithuania’s
promises to respect investors’ property rights.
Certainly a concession, if it contains international arbitration and stabilization clauses,
performs this function. Therefore, the concession described in this Article should provide, similarly
to the suggested license, that the concession will contain international arbitration and stabilization
provisions.
D. Taxation
Article 19: Taxation of Enterprises, should be amended to provide that tax rates shall not be
raised higher than the rates in effect at the time the investor began its investment; or, that foreign
investors shall never be treated less favorably, i.e., taxed at higher rates, than nationals of Lithuania;
or both. The Article should provide that any prohibited increase in taxes includes both direct and
indirect tax increases--including the effects of inflation, since price inflation is caused by government
expansion of the money supply and is economically equivalent to a tax.
If these guarantees were fortified by the internationalized, routinely-granted license suggested
in this paper, investors would be more confident that the taxes in effect currently would not increase
and eat away at their profits. This certainty of the ability to earn and retain profits would be an
additional incentive for investors to invest in Lithuania.
Moreover, if Lithuania is able to do so, it should eliminate all tariffs and taxes of whatever
kind, except perhaps for a modest amount of sales taxes, which could be imposed on foreign
investors, with this regime backed by an internationalized promise as discussed above. Lithuania
could become a tax haven and the resulting rush of investors to invest in Lithuania could transform
its economy virtually overnight. There is nothing preventing Lithuania, or any other country, for that
matter, from doing this, other than anti-capitalistic inertia and ideology.
Article 20: Tax Reliefs and Tariffs, provides for income tax reductions for five and three year
periods. These periods should be extended as much as politically feasible, and the percentage
reductions on tax rates should be increased as much as politically feasible.
Article 20 also provides that, if an enterprise is voluntarily liquidated during the time when
these tax reliefs are in force, or within three years thereafter, the investor must disgorge the “saved”
tax reliefs that they received. This provision is one of the worst provisions in the Draft Law. It
should definitely be abolished.
It is wrong to think that an enterprise can be made to be profitable by force, threats, or
coercion, which is what this law amounts to. This law provides a perverse incentive for companies
investing in speculative or risky enterprises to avoid investing in Lithuania, for it effectively
increases the potential losses the investor may face. In order to be successful, businesses must also
be allowed to fail when market conditions so dictate. If firms’ ability to fail is removed, so is the
ability to succeed--just as an individual can only be moral if he is free to choose both the right and
wrong course of action. (This parallel between moral flourishing and flourishing in the market is
no coincidence, for the free market, a liberal order under which individuals are free and treated as
sovereigns, is the moral economic system.)
E. Leases on State-Owned Land
Article 14: The Right of Enterprises to Use Land Plots and Real Property provides that State-owned land may be leased for enterprise for up to 99 years. This provision should be amended to
allow or even require the government to internationalize any such lease, i.e., to include international
arbitration and stabilization clauses in the lease contract to ensure that rights granted to investors-lessees are protected as fully as possible.
F. Reduce Regulations on Acquisitions of Shares
Article 9: The Right of Acquisition of Shares of Enterprises and Credit Companies requires
that foreign investors must procure the consent of the Bank of Lithuania in order to acquire up to
20%, 33%, or 50% of the shares of credit companies. Such regulations are unnecessarily
burdensome and costly for investors, and tend to increase the cost of business and thus reduce the
incentive for investment in Lithuania.
Such regulations also presume that the investor has in improper purpose, and are thus a form
of “prior restraint.” However, for law-abiding investors, it should be presumed that the investor has
no improper purpose and is attempting to legally and properly make profits by creating wealth. The
requirement to obtain the Bank of Lithuania’s consent before acquiring varying percentages of shares
in credit companies should be deleted or diluted as much as politically feasible.
G. Legal Monopolies and Other Monopolies
Article 10: License to Make a Foreign Investment or to Participate in Certain Types of
Activity requires an investor to obtain a license when investing in certain enterprises holding a
monopoly in the Lithuanian market. While a legal monopoly, such as the government’s monopoly
over the printing of money or the building of roads, is a true monopoly, the concept of a non-legal
monopoly has always been a problematic one, and legal systems would be well-served to abolish this
concept.
Typically, “monopoly power” is attributed to any successful company that prospers and
grows because it is innovative, efficient, and satisfies its customers’ demands. Thus to punish firms
for being “monopolies” is to punish success and flourishing. Rather, Lithuania needs to encourage
success in order to build a healthy, robust economy. Therefore Article 10 should be amended to
require a license only for investments in legal monopolies, if at all.
H. Prohibited Investments
Article 12: Investment Object wherein Foreign Capital Investment is Prohibited prohibits
foreign investments in certain sectors of the economy. Some of these are defensible on sovereignty
or national security or defense grounds, such as illegal narcotics and weapons. However, items 5-9--manufacturing of alcoholic beverages; securities, banknotes, coins, and stamps; treating of certain
dangerous illnesses; treating animals with certain diseases; and gambling activities--are unduly
restrictive.
Each of these activities, as long as they are legal, could benefit from the increased capital,
know-how, technology, and competition which would result from allowing foreign investors to
invest in these areas. For example, if wine or beer can be made more cheaply or more efficiently or
in greater variety due to foreign capital or control, there is no reason to deny Lithuanian citizens the
benefits of having greater options to choose from. As the successful history of privatization shows,
private enterprises can efficiently perform activities historically monopolized by governments, such
as minting of coins. Items 5-9 should therefore be deleted from the list of prohibited investments.
I. Presumption of Permissiveness of Actions
In the original American constitutional system, it was presumed that all actions by individuals
were permissible unless expressly prohibited by government. This is a general presumption of
individual liberty, and it is necessary for any successful society and economy. The opposite system
that has been implemented in certain countries holds that only actions which are expressly permitted
by the government are allowed, while anything else is prohibited. It is essential for businesses that
the former system be in place, rather than the latter.
To that end, the Draft Law should contain a provision which provides that, in cases of doubt
or ambiguity, or where the Draft Law or other laws are silent, it is presumed that any investment-related activity of a foreign investor is permissible and legal. Thus, investors would be free to
engage in actions not prohibited by the Draft Law. This would increase the certainty of the legality
of options open to investors, and would hence broaden their range of legal options, which increases
investors’ chances at making profits. This, in turn, increases Lithuania’s attractiveness as a host
country for investment.
J. Contract Rights as Property Rights
Often it is unclear whether contractual rights are property rights or something related, but
different. Because contract rights--for example, accounts receivable--are assets as important to many
companies as tangible property like land and buildings, the Draft Law should clearly provide that
“property” and “property rights” includes all sorts of rights, including immovables such as land,
movables such as office equipment, corporeals and incorporeals, intellectual property rights, and
contract rights, all of which are equally protected private property rights.
V. Conclusion
One of the problems the emerging economies of Eastern Europe face is that too much
attention is being paid to the advice of Western governments. Western governments are facing their
own problems now, primarily because of too much government interference and regulation in the
free market, which, ultimately, is the only creator of wealth.
Eastern Europe should be wary of accepting the advice of Western governments to tax and
regulate the market, adopting our IRS, SEC, and anti-trust laws. The soundest critique of Western
economic problems has been that explaining why government intervention and the erosion of
individual rights, including property rights, has resulted in our recessions and stagnation.
If Eastern Europe’s nations would learn from the West’s successes--which were built on free
enterprise and private property--but also from our mistakes--i.e., too much government--they could
be well on their way to economic prosperity. The private property-oriented suggestions offered
herein can help lead Lithuania towards this goal.
APPENDIX
DRAFT PROJECT:
LAW ON FOREIGN CAPITAL INVESTMENT IN THE REPUBLIC OF LITHUANIA
Chapter 1
GENERAL PROVISIONS
Article 1.Objective of the Law
This Law shall regulate relations between legal persons registered in the Republic of Lithuania and
other foreign states, citizens of other states and stateless persons, making investments of their owned
assets in the Republic of Lithuania, as well as relations between the State and foreign investors, as
well as foreign capital investments during the whole period of their existence.
The Law shall not regulate the emergence, transformation and termination of ownership and related
legal issues between foreign investor (investors) and legal and natural persons of the Republic of
Lithuania, with the exception of cases established by this Law.
The provisions of this Law shall not regulate relations between citizens of the Republic of Lithuania
and those of foreign states, stateless persons or legal persons of other foreign states, participating in
the process of privatization of state property.
Article 2. Definitions
Definitions as used in this Law.
“Objects of Investment” - production, trade, services.
“Entities of Investment” - legal persons, registered in foreign states, who make investments of
foreign capital in the Republic of Lithuania, as well as citizens of other states and stateless persons,
permanently residing abroad at the moment of making foreign capital investment.
“Foreign Investor (Investors)” - an investment entity whichever pursuant to the procedure
established by laws has invested its owned assets in the Republic of Lithuania.
“Foreign Capital” - to an investment entity by the right of ownership, the following assets
belonging:
1) convertible currency;
2) evaluated in convertible or Lithuanian national currency:
a) real estate (buildings, constructions, premises and other real estate), located in the
Republic of Lithuania or in other foreign states;
b) industrial or intellectual property;
c) movable property;
used to form or increase authorized capital.
“Foreign Capital Investment” - single legal action by which an investment entity puts its owned
capital in the Republic of Lithuania.
“Foreign Capital Investments” - investment of investor’s capital in production, trade, services
provided.
“Enterprise” - a newly established, reorganized or operating enterprise whereto a foreign capital
is invested.
“Enterprise Controlled by Foreign Investor (Investors)”:
- upon the establishment, reorganization or participation in the operating enterprise the newly
emerged right for a foreign investor (investors) to determine character or type of activity of
an enterprise or to manage it (by a direct control right);
- by the establishment agreement of an enterprise and bylaws or acts of management bodies
of an enterprise the granted right to a representative or representatives of an investor
(investors) to determine character and type of activity of an enterprise or to manage it (by
indirect control right).
“Investment Dispute” - a dispute between a foreign investor (investors) and the Republic of
Lithuania on the amount of compensation for the appropriated property order and conditions of
payment.
“Concession” - the compensation agreement for the permission to exploit state owned resources for
a period defined in the agreement.
“National Regime” - legal environment whereat legal persons registered in foreign states, citizens
of other states and stateless persons at the moment of making investments and within the period of
existence of the investment enjoy the very same rights and have the very same responsibilities equal
to those of legal and natural persons of the Republic of Lithuania, with the exceptions of cases
established by this Law.
Chapter 2
FOREIGN CAPITAL INVESTMENT
Article 3. Forms of Foreign Capital Investment
Investment entities shall enjoy a right, without any restrictions, with the exception of cases
established in Article 10 of this Law, to invest their owned capital in the Republic of Lithuania by
the following forms:
1) establishing an enterprise;
2) acquiring securities of operating enterprises;
3) establishing a commercial bank or acquiring shares in operating banks.
Legal persons, registered in foreign states, are entitled to open their mission in the Republic of
Lithuania, which is not a legal person and may not be involved in economic-commercial activity.
Legal persons, registered in foreign states, are entitled to establish their branches, as well as establish
subsidiaries or manage them.
Article 4. National Regime
National Regime shall be applied to investment entities that invest their capital in the Republic of
Lithuania.
Investment entities are considered foreign investors from the moment of establishment (registration)
of an enterprise or acquiring shares of stock or bonds.
Article 5. Amount of Foreign Capital Investment
Amount of foreign capital investment shall have to be not bellow than one thousand USD or
equivalent in other convertible currencies, with the exception of cases set forth by Article 3 of
paragraph 1, 2 and 3 subparagraphs.
Article 6. Foreign Investment Guarantees
Foreign investments, investor’s profit, income, rights and legal interests in the Republic of Lithuania
shall be protected by the State of Lithuania.
State authority bodies or governmental bodies shall have no right to encroach upon foreign
investments or property of foreign investor.
Compensation for the appropriated property shall be paid no later than within three months in
invested currency or Lithuanian national currency, if capital of an enterprise was formed by non-monetary (property) contributions, according to the actual market value of the property.
Compensation, received for the appropriated property, at the request of investors (investor) shall be
transferred abroad without any restrictions.
Foreign investor (investors) in cases of investment disputes shall be entitled to apply directly to the
International Centre for Settlement of Investment Disputes (I.C.S.I.D.), with reference to Convention
“On Investment Disputes between Countries and Citizens of Other States” norms, adopted in
Washington 18 March, 1965.
Article 7. Establishment, Operation and Liquidation of an Enterprise
The procedure of establishment, operation and liquidation of enterprises and their legal status shall
be defined according to the law of that type of enterprise.
Enterprises shall be registered by the procedure established by the authorized governmental body.
The procedure of establishment of a commercial bank with foreign or mixed capital shall be defined
by the “Law on Commercial (Stock) Banks of the Republic of Lithuania”.
Article 8. Formation of Capital of Enterprise
The owned assets of an enterprise shall be formed by monetary and non-monetary (property)
contributions, as well as industrial and intellectual property.
Foreign investor shall have to make monetary contribution to the formed owned capital of an
enterprise in hard (convertible) currency or in Lithuanian national currency in the manner established
by the Government of the Republic of Lithuania.
Upon the agreement of parties, non-monetary (property) or industrial and intellectual property
contributions shall be evaluated in convertible currency or Lithuanian national currency.
Article 9. The Right of Acquisition of Shares of Enterprises and Credit Companies
Investment entity is entitled, without any restrictions, to acquire shares of enterprises and credit
companies in all property forms, with the exception of cases set forth in this Article.
Investment entity may acquire only registered shares of state and state stock enterprises.
To acquire shares of state and state stock enterprises of specific destination investment entity may
only by obtaining license to make a foreign capital investment by order established in Article 11 of
this Law.
To acquire, increase (decrease) the amount of shares of credit companies up to 20%, 33% or 50%
of a fixed capital of a bank a prior consent of Bank of Lithuania should be received.
Investment entity may acquire shares of enterprises or credit companies of all types of property for
hard (convertible) currency or Lithuanian national currency.
Article 10. License to Make a Foreign Investment or to Participate in Certain Types of
Activity
Investment entity shall receive a license to make a foreign investment when:
1) investing in state and state stock enterprises of special destination, the list of which shall be
approved by the Government of the Republic of Lithuania;
2) investing in an enterprise, holding a monopoly in the Lithuanian market or may gain a
monopoly from the moment of making foreign capital investment.
Article 11. The Procedure of Issuing a License to Make a Foreign Capital Investment
A license to make a foreign capital investment in cases set forth by Article 10 of this Law shall be
issued by the Government of the Republic of Lithuania or its authorized body.
Foreign capital investment shall be made no later than six months from the date of the receipt of the
license.
If the capital of an enterprise is not formed within the fixed period, the license shall be revoked.
Chapter 3
INVESTMENT OBJECTS WHEREIN FOREIGN INVESTMENT IS PROHIBITED OR LIMITED
Article 12. Investment Object wherein Foreign Capital Investment is Prohibited
Foreign capital investments are prohibited in objects engaged in:
1) economic-commercial activity, related to the security and national defence of the Republic
of Lithuania;
2) manufacturing narcotics, narcotic, harmful or poisonous substances;
3) growing, manufacturing and selling cultures, containing narcotic, harmful or poisonous
substances;
4) manufacturing and selling weapons and explosives;
5) manufacturing vodka, wine, liqueurs and other alcoholic beverages;
6) manufacturing securities, banknotes and coins, and post stamps;
7) treating persons ill with dangerous and especially dangerous diseases, including venereal
diseases and infections, skin diseases and aggressive forms of psychic diseases;
8) treating animals with especially dangerous diseases;
9) establishing or operating gambling houses, organizing games of chances or holding lotteries.
Article 13. Foreign Capital Investment which is Prohibited without Concession
Exploration and exploiting of state owned natural resources is prohibited without a concession.
Article 14. Activity of Enterprises, Controlled by Foreign Investor (Investors)
Enterprises, controlled by foreign investor (investors) shall be prohibited from:
1) operating state owned highways, railways, seaports, airports according to their functional
purpose, these objects being of national significance;
2) operating oil and gas pipelines, communications, electric power transmission lines, heating
systems, and ensuring technical functioning of these objects.
Chapter 4
THE PROCEDURE OF THE ACTIVITY OF ENTERPRISES
Article 15. The Right of Enterprises to Use Land Plots and Real Property
Enterprises shall have the right to own or rent buildings and premises necessary for their
commercial-economic activity, as well as to rent plots of land for the construction of said buildings
accordingly to laws of the Republic of Lithuania.
State owned land may be leased for enterprise for up to 99 years, with a right of priority for extension
of the lease.
Private land shall be rented according to the agreement of parties.
Article 16. Accounts of Enterprises
Balance sheet and statistical accounting prescribed by laws of the Republic of Lithuania shall be
applied to enterprises.
Article 17. Interrelations between Enterprises and Financial and Control Bodies
Control over conformity of the business conducted by enterprises with the laws of the Republic of
Lithuania shall be exercised by the bodies of State Control and financial bodies of the Republic of
Lithuania.
Upon the demand of the bodies of State Control or financial bodies of the Republic of Lithuania, said
enterprises must, within the limits established by the laws of the Republic of Lithuania, submit the
necessary information on their activities for review.
Article 18. The Responsibility of State Control Bodies and Officers
The control body must ensure the confidentiality of commercial secrets of enterprises reviewed.
The content of a commercial secret is established by the law.
The control body must compensate enterprise for losses incurred.
Losses are completely compensated from the state budget, if the control body proves it obtains no
sufficient means to compensate the enterprise for the losses incurred. The procedure and conditions
for compensating losses from the state budget is established by the law.
Officers, having revealed commercial secrets of the reviewed enterprise, shall be prosecuted.
Chapter 5
TAXES AND TAX RELIEFS
Article 19. Taxation of Enterprises
The procedure of taxation of enterprises shall be established by the Tax Law of the Republic of
Lithuania.
Article 20. Tax Reliefs and Tariffs
If an enterprise is registered in the Republic of Lithuania, profit (income) tax levied on the share of
enterprise’s profit or income (proportionate to the share of foreign capital in the owned capital of the
enterprise), and also reinvested in the production, shall be reduced by 70% for a 5 year period. On
the expiry of the period, profit (income) tax levied on the share of the profit (income) due to the
foreign investment shall be reduced by 50% for a 3 year period.
The tax reliefs indicated in the first point of this Article shall be applied from the moment of the
receipt of profit.
Other tax reliefs shall be applied according to tax laws and other laws of the Republic of Lithuania.
If an enterprise is liquidated by the consent of founders during the time when tax reliefs are valid or
within 3 years since the expiration of tax relief term, it must pay the difference between profit tax
and profit tax reliefs when they were valid.
Alternative of Article 20
Profit and income of enterprises, registered in the Republic of Lithuania, is taxable in general
manner.
Article 21. Responsibility for Violating Tax Law
Penalties, established in the laws of the Republic of Lithuania, for violating of tax laws shall be
applied to enterprises.
Article 22. Disposition of Profit or Dividends, Derived from Foreign Capital Investment
Dividends, profit or a portion of a profit in hard currency of a foreign investor (investors) shall be
repatriated or transferred abroad without any restrictions.
Foreign investors may also transfer all or a portion of their profit, dividends in form of products or
services acquired on the Lithuanian domestic market, or reinvest said income in the economy of the
Republic of Lithuania.
Article 23. Customs Reliefs
Contributions of foreign investors to the owned capital during the period of formation or increasing
thereof shall be exempt from custom duties.
If an enterprise is liquidated by the decision of founders, assets or part of property repatriated of
foreign investors and property acquired by foreign investors for profit or dividends shall be exempt
from customs duties.
Chapter 6
FINAL PROVISIONS
If an international agreement sets other conditions of making a foreign capital investment or
existence of the investment than this Law, in that case an international agreement shall be prevailing.
COMMENTS
To ensure effective functioning of this Law, it is necessary to make complex amendments in laws
related to the establishment and activity of economic entities. For example, the following
amendments shall be made in “Law on Enterprises of the Republic of Lithuania”, as well as in other
laws:
- to separate a branch from a legal person;
- to clearly define features of subsidiaries;
- to provide a right to establish an enterprise (legal person) for one founder;
- to draft and adopt a law, in which opportunity to form capital of an enterprise on the basis
of general partial property of founders would be determined.
Insurance of Enterprises
The property of enterprises in the Republic of Lithuania must be insured by state or private insurance
agencies, regardless of whether same is insured in other localities.
The Procedure of Conducting Financial Operations of Enterprises
Financial operations of enterprises shall be conducted through banks registered in the Republic of
Lithuania. Enterprises may open bank accounts in other states as well.
References
|
