1.1 Type of funds1.2 Law1.3 Managers, trustees, and custodians1.4 Investment restrictions1.5 Borrowing1.6 Accounts and prospectus1.7 Supervision1.8 Fund and management company ownership1.9 Fund structure1.10 Stock exchange1.11 Bank secrecy1.12 Fund set-up1.13 Foreign funds1.14 Bearer shares1.15 Use of the internet
1.1 Type of funds
In Lithuania collective investment undertaking means one of the following:
- trust/common fund
- investment company with variable capital
- closed-end investment company
- closed-end trust/common fund.
A trust/common fund means assets held by legal entities or individuals in their common ownership that are managed by the management company.
An investment company with variable capital means a company whose shareholders have the right to request at any time that their shares be redeemed/re-purchased and the amount of whose capital varies depending on the issue and redemption/re-purchase of shares. An investment company with variable capital can be only a public limited liability company holding a license issued by the supervisory authority (the Lithuanian Bank) and only of the open-ended type.
A closed-end investment company or trust/common fund means a company/fund whose shareholders do not have the right to request to redeem/re-purchase their shares at any time. The time of redemption is set in advance. A closed-end investment company can be only a public limited liability company holding a license issued by the supervisory authority.
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The following are the main laws governing collective investment undertakings in Lithuania.
- The Law on Collective Investment Undertakings, No IX--1709, dated 4 July 2003.
- The Law on Financial Instrument Markets, No X-1024, dated 18 January 2007.
- The Company Law, No. IX-1889, dated 11 December 2003.
- Other Laws and regulations adopted by the supervisory authority.
All these legal acts are available at Lietuvos Bankas.
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1.3 Managers, trustees, and custodians
A management company may be either a public or a private limited liability company, having obtained a license from the supervisory authority to manage investment companies and/or trust/common funds. Management company may be also insurance company.
A management company and investment company must have the board and the administration. If the management of the investment company's assets is transferred to the (asset) management company, the management bodies of the investment company shall not be formed.
The primary capital of the management company acting in accordance with the Law on Collective Investment Undertakings must be not less than EUR125,000. The primary capital of the management company which is managing pension fund must be not less than EUR150,000. In case a value of investment portfolio of the management company exceeds EUR250 million, the equity capital shall be increased by at least 0.02 percent of the amount exceeding EUR250 million. This provision shall apply until the equity capital becomes equal at least to EUR10 million.
Both the primary and the authorized capital of an investment company entitled to manage pension funds cannot be less than EUR300,000.
The management company must ensure that the persons being entitled to adopt decisions concerning the asset management have the qualification and experience as prescribed by the supervisory authority.
Managers of management companies must be individuals with a good reputation. Employees of the management company may not be the employees of the Stock Exchange, the supervisory authority, or the Central Securities Depository of Lithuania.
The management company may not carry out transactions with the investment company other than entering into the asset management agreement. The assets of the investment fund or investment company may not be transferred to the management company, its managers, board or supervisory council members, and employees (and their spouses). The investment fund and the investment company are also being prohibited to acquire property from the mentioned persons.
The management company may be engaged in management of investment funds and investment companies and may provide the following additional services:
- third party investment portfolio management
- investment portfolio management for pension funds (certain requirements apply)
- advising on investment instruments
- safekeeping and management of units of investment funds or shares of investment companies.
The management company is liable to the investment company and its shareholders for losses incurred through its fault.
The assets of a collective investment undertaking must be entrusted to a depository (trustee) for safekeeping. A depository may be a bank, having a registered office or a branch in the Republic of Lithuania that is entitled to provide investment services in the EU. The depository has the right to delegate all or a part of its functions to other depositories, however, this shall not affect its liability.
Depositories act for the benefit of members of a collective investment undertaking and:
- ensure that the sale, issue, repurchase, redemption, and cancellation of units and shares is carried out in accordance with the requirements of legal acts and incorporation documents
- ensure that the value of units or shares is calculated in accordance with the requirements of legal acts and incorporation documents
- perform instructions of the management company or the investment company, unless they contradict to legal acts and incorporation documents
- ensure that, in transactions involving a unit investment fund's assets, a consideration is paid to the fund's account or to the investment company within an established time limit
- ensure that the income of an investment fund or an investment company is used in accordance with the requirements of legal acts or incorporation documents.
The depository is liable for losses incurred by members of a collective investment undertaking or a management company due to a failure of the depository to fulfill its duties.
A depository may not at the same time be engaged in the activities of both the management company and the investment company. The head of the management company or the investment company, a board member or its employee may not be the manager, board member, or staff member of the board of the depository which has in its safekeeping the assets of the investment fund (or investment company), if the functions of a manager, board member, or member of the board staff are directly related to activities of the depository.
The depository may be replaced by the management company or the investment company subject to the approval by the supervisory authority.
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1.4 Investment restrictions
The assets of the investment fund or investment company may not be transferred to its management company, the manager, the board, and the supervisory council members, employees (their spouses) of the management company. The investment fund or the investment company is prohibited from acquiring property from the mentioned persons.
The assets of the investment fund or the investment company may not be lent, pledged or given as guarantee or surety to secure third party obligations. The above shall not prohibit acquisition of unpaid securities and money market instruments.
Transactions for sale of securities, money market instruments, or other investment instruments which the investment fund or investment company does not hold may not be concluded on their account.
Investment in the units or shares of collective investment undertakings shall be allowed provided that the undertakings comply with the following requirements.
- Undertakings have been licensed in the Republic of Lithuania or in any other state where they are subject to supervision equivalent to that prescribed in the European Union, whereas the Lithuanian supervisory authority is co-operating with an appropriate foreign supervisory authority.
- The level of protection for the rights of members of collective investment undertakings is equivalent to that laid down under the Law on Collective Investment Undertakings.
- Business of collective investment undertakings is reported in half-yearly and annual reports to enable an assessment to be made of the assets and liabilities, income, and operations over the reporting period.
- No more than 10 percent of their net assets may be invested in units or assets of other collective investment undertakings.
No more than 10 percent of the net assets may be invested in each of the undertakings referred to hereinabove (that is, in undertakings licensed in the Republic of Lithuania or in any other state where they are subject to supervision equivalent to that prescribed in the European Union). No more than 30 percent of net assets may be invested in aggregate in units of limited distribution of collective investment undertakings and other collective investment undertakings that are not regulated under the Law on Collective Investment Undertakings.
A close relationship is deemed to exist between collective investment undertakings if they are managed by the same management company or such management companies in which more than a half of management body members are the same persons or which are controlled by the same person or one of which holds more than 10 percent of votes at the other management company's general meeting. Units or shares of related collective investment undertakings may be acquired only at the net assets value.
Private capital collective investment entities are allowed to invest up to 30 percent of their net assets in securities or money market instruments of a single company. Diversification rule exempt may be applied for four years from the day when the supervisory authority approves the prospectus.
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An investment company or the management company that manages the assets of an investment fund may not borrow funds, except for loans with duration of three months in the amount of up to 10 percent of its net assets taken for maintaining the liquidity. This does not mean that it is prohibited to borrow foreign currency for the purpose of acquisition of transferable securities or money market instruments, provided the lender is submitted at least an equivalent amount in another currency in order to secure repayment of the loan.
Alternative collective investment entities or management companies which manage alternative collective investment entities can borrow up to 200 percent of their net assets for the period set in the foundation documents.
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1.6 Accounts and prospectus
An investment company and a management company (for each investment fund it manages) must publish:
- a full prospectus
- a simplified prospectus (not necessary for closed-end type investment company or for management company which is managing closed-end investment fund)
- an annual report for each financial year
- a half-yearly report covering the first six months of the financial year (half-yearly report).
A full and a simplified prospectus must include the information necessary for investors to be able to make an informed judgment about the investment proposed to them and the associated risks. A full prospectus shall explicitly indicate the risk profile. A simplified prospectus should be designed to be investor friendly and should present a source of valuable information for the average investor. A simplified prospectus of an investment fund's management company licensed in the EU Member-State or of an investment company, translated into the Lithuanian language, may be used in the Republic of Lithuania as promotional material not requiring any additional information. The annual report must include financial statements, a report on the activities of the financial year, and other information which will enable investors to make an informed judgment on the development of the activities of the collective investment undertaking and its results.
Should there be any changes in the information published in a simplified or full prospectus the prospectuses shall be amended within seven days from the occurrence of the changes.
Annual and half-yearly reports shall be published and submitted to the supervisory authority. A copy of the simplified prospectus must be offered to the subscribers of units or shares free of charge before the conclusion of a contract. Copies of a full prospectus, the newest annual reports, and subsequent half-yearly reports must be supplied to subscribers for units or shares free of charge on request. The annual and half-yearly reports shall be supplied to the participants in the collective investment undertaking free of charge on request. The annual and half-yearly reports must be available to the public at the places specified in the full and simplified prospectuses.
Annual financial statements shall be audited. Auditor's opinion, including qualifications and audit report shall be submitted as an appendix to the annual reports.
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As of 1 January 2012 the regulatory and supervisory powers are delegated to the the Lithuanian Bank (the supervisory authority).
Lietuvos bankas (Central Bank of the Republic of Lithuania)
Totorių g. 4, LT-01121 Vilnius, Lithuania
Telephone: +370 5 268 0029
Fax: +370 5 262 8124
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1.8 Fund and management company ownership
There are no restrictions on the percentage of units in the funds which may be held by one person or group of persons, nor is there a minimum number of unit holders set by law.
If individual or legal entity intends to acquire or to increase controlling interest up to 20 percent, 30 percent, or 50 percent in fund or management company it has to inform the supervisory authority and obtain prior consent. The same rules apply if individual or legal entity intends to decrease controlling interest.
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1.9 Fund structure
Common fund/investment company with variable capital which assets are divided into sub-funds is considered as umbrella collective investment undertakings.
Assets of sub-funds must be kept in a single depository. Assets, constituting one sub-fund may not be used against the liabilities to participants or third parties of another sub-fund.
Umbrella collective undertaking must have a common full prospectus. Simplified prospectus may be drawn up for each sub-fund individually.
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1.10 Stock exchange
A Stock Exchange quotation is available to the Lithuanian and foreign funds on terms that are not less onerous than those applying to other publicly quoted companies. Securities of the foreign funds may be quoted if they are approved by the supervisory authority.
When securities of an investment company with variable capital are sold, general rules which are applied to public limited liability companies do not apply.
Alternative collective investment entities are not allowed to sell their shares on the Lithuanian share market.
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1.11 Bank secrecy
Financial sector businesses are required to comply with the Money Laundering Regulations requiring verification of identity of investors. Financial and credit institutions, including investment companies, management enterprises, trustees of investment companies must identify the identity of a customer if monetary transactions involve an amount of EUR15,000 or more or its equivalent in a foreign currency.
In the case of a suspicious transaction, the identity must be established irrespective of the amount of a transaction and the transaction must be notified to the state authorities.
Detailed regulations concerning bank secrecy, including reporting, are laid down in the Resolution of Security Commission No 1K-2 dated 5 March 2009.
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1.12 Fund set-up
The time required as well as the cost for the establishment of an investment company depends on complexity of the investment company.
The license to perform the investment activity must be issued within 6 months after all the necessary documents and data needed are submitted to the supervisory authority. The license fee is 1,900 Litas (LTL) (approximately EUR550).
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1.13 Foreign funds
A management company licensed in an EU or EEA Member-State may establish a branch in the Republic of Lithuania provided that the foreign supervisory authority communicated to the supervisory authority the company's program of activity specifying the services it plans to provide, the intended structure of the branch, the contact location for applying for documents, and full names of the branch's managers.
A management company licensed in an EU or EEA Member-State may begin providing management services in the Republic of Lithuania without establishing a branch on the expiry of one month from the date of communication by the foreign supervisory authority of its program of activity to the supervisory authority. From that moment the management company shall be entitled to distribute the units or shares of the collective investment undertakings which it manages and to provide other services unless the Lithuanian supervisory authority establishes within the said period that there are reasons specified in the Law on Collective Investment Undertakings for refusing authorization for the above activities.
A management company licensed in a non EU or EEA Member State may provide services in the Republic of Lithuania in accordance with the procedure laid down for companies licensed in the EU or EEA Member States provided that there is an agreement concluded between the Lithuanian supervisory authority and foreign supervisory authority to ensure effective supervision of activity and provision of information.
If a management company or an investment company, licensed in a foreign state, proposes to distribute units or shares in the Republic of Lithuania it must first inform the supervisory authority thereof.
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1.14 Bearer shares
Bearer shares are not restricted by Lithuanian legislation.
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1.15 Use of the internet
There no specific legal regulations regarding use of the internet as a marketing tool for sale of investment companies in Lithuania.
© 2014 KPMG Baltics, UAB, a Lithuanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.