REPUBLIC OF LITHUANIA REPUBLIC OF LITHUANIA Law On Foreign Capital Investment in the Republic of Lithuania Chapter 1 GENERAL PROVISIONS Article 1. Objective of this Law This Law establishes the relations between the legal and natural persons of the Republic of Lithuania and foreign state subjects of investment which evolve when capital of foreign origin is being invested in the Republic of Lithuania in the forms of investment determined by this Law, the relations between the State and foreign investors, as well as investments of foreign capital throughout the entire period of their existence. The procedure for founding a foreign commercial bank or a commercial bank with foreign capital and the procedure for their operation shall be established by the Law on Commercial Banks of the Republic of Lithuania. Article 2. Definitions As used in this Law: "Foreign state enterprises" means enterprises, amalgamations, associations and other organisations including those which have the rights of legal persons and those which have no such rights, irrespective of whether they are profit-seeking or non-profit organisations, which have been formed or organised and registered in any other way in accordance with the laws of a foreign state, the principal office of which is in a foreign state and in which no capital of Lithuania's legal or natural persons is employed; "Subjects of investment" means enterprises of foreign states, or persons who are not citizens of the Republic of Lithuania, or stateless persons permanently residing abroad who are investing capital of foreign origin in the Republic of Lithuania and whose capital at the moment of investment is of foreign origin; "Capital of foreign origin" means capital belonging to the investor by the right of ownership which was created or otherwise lawfully acquired outside the territory of the Republic of Lithuania and not by Lithuania's legal or natural persons, as well as reinvestment. It may be: 1) monetary funds in freely convertible currency or in the national currency of Lithuania; 2) the following property valued in freely convertible currency or national currency of Lithuania for forming or increasing the authorised capital:
- a)movable and immovable property; and
- b)intellectual and industrial property; "Investment of capital of foreign origin" means lawful actions of an investing entity, in the process whereof capital of foreign origin is invested into enterprises in the Republic of Lithuania; "Spheres of investment of capital of foreign origin" means all spheres of economic-commercial activities with the exception of spheres of activities prohibited and restricted as well as licensed under the Law on Enterprises of the Republic of Lithuania and this Law; "Foreign investor" means the subject of investment which has invested or started to invest capital of foreign origin in the Republic of Lithuania in accordance with the procedure established by the laws of the Republic of Lithuania regulating separate types of enterprises. "Investments of capital of foreign origin" means capital of foreign origin belonging to foreign investors, which has been invested in the Republic of Lithuania; "Enterprise" means an economic unit operating under the Law on Enterprises of the Republic of Lithuania and under the laws of the Republic of Lithuania regulating separate types of enterprises; "Investment dispute" means every legal dispute between a foreign investor (investors) and the Republic of Lithuania, concerning a foreign investment. Chapter 2 INVESTMENT OF CAPITAL OF FOREIGN ORIGIN Article 3. The Right to Invest Capital of Foreign Origin in the Republic of Lithuania The foreign state subjects of investment shall have the right to invest capital of foreign origin in the Republic of Lithuania in the forms established by this Law. The procedure and conditions of investing capital of foreign origin shall be established by this Law and other laws of the Republic of Lithuania or by international agreements to which the Republic of Lithuania is a party. Documentations that would confirm the origin of foreign capital shall be prescribed by the Government of the Republic of Lithuania. State institutions or officers shall have no right to prohibit or restrict the investment of capital of foreign origin if the capital of foreign origin is invested in compliance with the laws of the Republic of Lithuania. During the period of existence of an investment in the Republic of Lithuania, the foreign investor shall enjoy the same rights regulating economic-commercial activities and shall have the same obligations as the legal and natural persons of the Republic of Lithuania. Article 4. Investment Forms of the Capital of Foreign Origin Subjects of investment shall have the right to invest capital of foreign origin in the Republic of Lithuania in the following forms: 1) by establishing an enterprise; or 2) by acquiring shares in a going concern or a share in the enterprise's authorised (ownership) capital. Foreign investors shall have the right to sell, transfer as a gift, pledge or otherwise dispose of the fully paid shares in accordance with the procedure established by law. Article 5. Establishment of Enterprises Foreign state enterprises shall be entitled to establish their subsidiaries in the Republic of Lithuania or become their managers, or open representative agencies, that shall not be legal persons and may not engage in business activities. The procedure for establishing, operating and liquidating of enterprises and representative agencies of foreign state enterprises, as well as their legal status shall be established by the Law on Enterprises of the Republic of Lithuania, appropriate laws on the types of enterprises and other laws regulating the activities of enterprises. Enterprises and representative agencies shall be registered in accordance with the procedure established by the Law on the Register of Enterprises of the Republic of Lithuania. Article 6. Formation of the Enterprise Capital The authorised (ownership) capital of an enterprise may be formed from monetary funds or non-monetary (property) contributions as well as from industrial and other intellectual property. Foreign investors must pay their monetary contributions to the enterprise's authorised (ownership) capital that is being formed in freely convertible currency or in the national currency of Lithuania. The contributions of foreign investors in movable or immovable property, industrial and other intellectual property shall be valued in freely convertible currency or in the national currency of Lithuania according to the agreement between the parties. The value of contributions of foreign investors, expressed in freely convertible currency, shall be expressed in terms of national currency of Lithuania in accordance with the official rate of litas against foreign currency as declared by the Bank of Lithuania on the day of signing the enterprise founding documents. Article 7. Guarantees to Foreign Investors Foreign investments, the profits, income, dividends, rights and lawful interests of investors in the Republic of Lithuania shall be protected by the laws of Lithuania. Property may be taken for compensation only in the cases and according to the procedure established by the laws of the Republic of Lithuania, only for public needs and only by compensating the investor (investors) for the market value of the property taken for compensation. The amount of compensation for the taken property must correspond to the market value thereof right before the taking of the property for compensation or before public announcement with respect to the property, depending on which is prior. Interest calculated in accordance with the London Inter Bank Offered Rate (LIBOR), accrued beginning from the day the announcement about the taking of property for compensation is made until the day of payment of the compensation, shall be included in the amount of the compensation. The compensation must be paid in freely convertible currency or, with the investor's consent, in the national currency of Lithuania no later than within three months of the day the announcement about the taking of the property for compensation is made. At the request of the investor (investors), the amount of the compensation shall be transferred abroad without any restrictions. The institutions of state power and government or their officers shall have no right to interfere with the foreign investors' management, use or disposal of the property belonging to them by the right of ownership, except in cases of violation of laws of the Republic of Lithuania. Disputes concerning the rights and lawful interests of the foreign investor (investors) shall be disposed of, following the agreement between the parties, by the courts of the Republic of Lithuania, or international arbitration or other institutions. In the event of disputes, foreign investor (investors) shall have the right to apply directly to the International Centre for the Settlement of Investment Disputes in compliance with the norms of the Washington Convention of 18 March 1965 "On the Settlement of Investment Disputes between States and Nationals of other States". Chapter 3 SPHERES OF INVESTMENT OF CAPITAL Article 8. Spheres of Capital Investment wherein Investment of Foreign Capital is Prohibited Investment of capital of foreign origin shall be permitted in all spheres of economic-commercial activities with the exception of the spheres : 1) relating to security and defence of the State; 2) manufacture or sale of narcotic substances, and other non-medicinal, poisonous substances that produce strong effect; 3) growing, processing, and sale of cultures that contain narcotic and poisonous substances, or substances having strong effect; and 4) organising of lotteries. Article 9. Licensed Activities For carrying out licensed activities established by the Law on Enterprises of the Republic of Lithuania, a licence or permit issued by the Government of the Republic of Lithuania or any other institution authorised by it, must be obtained. Chapter 4 ACTIVITIES OF ENTERPRISES Article 10. The Right of Enterprises to Use a Land Lot and another Real Property Enterprises shall have the right to possess by the right of ownership, lease, or use in any other manner the real property necessary for carrying out its activities, as well as to take on lease land lots in accordance with the laws of the Republic of Lithuania. Land lots owned by the state may be leased to enterprises for up to 99 years. The conditions and procedure for the extension of the lease of the land lot by the right of priority shall be established by Law on Land Lease of the Republic of Lithuania. Private land lots shall be leased according to the agreement between the parties. Article 11. Liability of State Institutions and Officers Conducting Inspections The institution that conducts inspections must keep commercial secrets of inspected enterprises confidential. The contents of the commercial secret shall be established by law. The officers who have divulged the commercial secrets that they learnt about in the course of inspection shall be liable under laws. The damage caused to enterprises by unlawful actions of state institutions or their officers shall be compensated for in full by the institution that caused it. The damage shall be compensated for in full from the state budget, provided that the institution that conducted inspection, shall prove that it has insufficient amount of funds for the compensation of the damage caused to an enterprise. The conditions and procedure for the compensation for damage out of the state budget shall be established by law. Article 12. Taxation of Enterprises The taxation conditions applied to enterprises may not be worse that those applied to the legal and natural persons of Lithuania. If an enterprise was established (registered) or foreign capital was invested before 31 December 1993, the part of its profit (income) (proportional to the share of foreign investment in the enterprise's authorised (ownership) capital) due to that foreign investment and not used for labour costs, and reinvested in the enterprise, shall be taxed for five years by corporation (income) tax reduced by 70 percent. Upon the expiration of this 5 year period the part of profit (income) due to the foreign investment shall be taxed for another three years by corporation (income) tax reduced by 50 percent. If an enterprise was established (registered) or foreign capital was invested within the period between 1 January 1994 and the coming into effect of this Law, the portion of profit (income) due to foreign investment shall be taxed for six years by corporation (income) tax reduced by 50 percent. Article 13. Tax Incentives Applied to Enterprises If a foreign investor (investors) has acquired at least 30 percent of the enterprise's authorised (ownership) capital and has invested foreign capital worth of at least USD 2 million, such enterprise shall be exempt from corporation (income) tax for three years from the moment the income is received. Such enterprise shall pay for the subsequent three years corporation (income) tax reduced by 50 percent. An enterprise willing to exercise the right to tax reliefs provided for in this Article, must file with the Tax Inspectorate the documentation prescribed by the Government of the Republic of Lithuania, confirming the foreign origin of capital and investment into the capital of an enterprise. Other tax exemptions shall be applied in the manner established by the laws of the Republic of Lithuania. Article 14. Customs Duty Exemptions Contributions of foreign investors made into the enterprise's authorised (ownership) capital that is being formed or increased , and used as long-term assets, shall be brought into the country free of customs duties. If an enterprise is being liquidated by its founder, the assets or a portion thereof which corresponds to the amount of the foreign investment and which, on the decision of the shareholders, is due to foreign investors, shall be taken out of the country free of customs duties. Article 15. Acquisition of Ownership Rights to Profit, Income or Dividends, Received in accordance with Law Profit, income, or dividends received in accordance with law shall belong to foreign investors by the right of ownership. Foreign investors shall have the right, after having paid the taxes, to transfer the profit, income or dividends belonging to them by the right of ownership to a foreign country without any restrictions. The transfer shall be performed according to the official rate of litas against foreign currencies declared by the Bank of Lithuania on the day of transfer. Taxes may not be levied on the share dividends of foreign investors unless the same is applied with respect to legal and natural persons of the Republic of Lithuania. Foreign investors may also export their profit, income, or dividends in the form of goods and services purchased on the domestic market, or reinvest the same into the economy of the Republic of Lithuania. Chapter 5 INTERNATIONAL AGREEMENTS Article 16. This Law and International Agreements If an international agreement provides for different conditions of foreign capital investment or the existence of investment than this Law , the norms of an international agreement shall be applied. Chapter 6 FINAL PROVISIONS Article 17. Conditions of Investment of Capital of Foreign Origin and Existence of Investments under Effective Laws Subsidiaries of foreign enterprises, founded and registered before the date of the entry into effect of this Law must, by the decision of the founder, reorganise its activities within 9 months from the date of the enforcement of this Law, in accordance with the Company Law of the Republic of Lithuania, and register it in the manner prescribed by the Register of Enterprises of the Republic of Lithuania. Stock companies or close stock companies in which foreign investors have acquired at least one share prior to the coming into effect of this Law, must, within 6 months from the date of the enforcement of this Law, replace the Registrar in the manner prescribed by the Chief Registrar of the Republic of Lithuania. If the subsidiaries of enterprises of foreign states, and stock companies or close stock companies in which foreign investors have acquired at least one share, shall not reorganise their activities or shall not replace their Registrar within the time limit specified in parts 1 and 2 of this Article, they shall be liquidated in accordance with the procedure established by the Government of the Republic of Lithuania. Article 18. The Repeal of Existing Legislation Regulating Foreign Capital Investments To repeal the following laws: The Law on Foreign Investment of the Republic of Lithuania, No. I-905, 29 December 1990, the Law on the Amendment of the Law on Foreign Investment, No.I- 2302, 11 February 1992, and the Law on the Spheres of Business Activities wherein Foreign Investment is Prohibited or Restricted, No.I-1276, 2 May 1991. Article 19. Coming into Effect of this Law This Law shall come into effect as of 1 August 1995. I promulgate this Law, passed by the Seimas of the Republic of Lithuania. Algirdas Brazauskas President of the Republic Vilnius 13 June 1995 No. I-938