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Lewben Investment Management is establishing a closed-end real estate fund for informed investors. It is planned that the asset value managed by the fund will reach about 60 million euros. Its duration is estimated to be from 7 to 9 years, the fund focuses on operating and income generating real estate.

“Our analysis has shown that there is a growing number of investors looking for less risky and stable revenue generating funds that have assets with a good solvency history and are valued, despite the highly dynamically developing market in recent years. We will strive for balance with lower risk for investors. In addition, the fund will act as a private limited liability company and investors will become its shareholders, which will ensure a transparent management mechanism, well – known for many investors, “says Audrius Žiugžda, Chairman of the Board at Lewben Investment Management.

According to the requirements set by the Bank of Lithuania, natural and legal persons that meet certain asset value criteria and investing at least 125,000 euros, may participate in fund operations.

Lewben Investment Management is a management company controlled by the Bank of Lithuania and has the right to manage collective investment undertakings for investors. At the end of 2017, Lewben Investment Management managed assets for more than 80 million euros. Lewben Group provides all fund creation and support services: performs the administration and supervision of the fund, advises on issues of law and regulation and regulatory compliance.

An emerge of newly established licensed entities providing financial services is currently observed in Lithuania. Inter-lending platforms, payment, electronic money institutions, specialized banks are being established. The license-regulated market extends services even to traditionally unregulated businesses. There is no surprise at all that retailers can cash out or pay for utility bills. Net interconnected telecommunications companies have recently announced plans to develop a single instant payment service.

The platforms offered by the business offers a chance to make money, but also creates additional troubles. An entry into the financial services market is not so easy. You need to know where there is a threshold that requires a license. Where’s the bar? Here are some control questions.

• Does your company collect money from third parties?
• According to the client’s instructions, your company distributes cash to third parties?
•  Do you offer investment to third parties?
• Are you lending money to third parties?
•  Do you create a tool for a customer (say, a platform) that allows him to pay for goods or services?
• Are you using financial instruments belonging to the client as collateral?

If you answered yes to any of the above questions, then the threshold has already been reached. Even if your company does not need a license today, you can not be sure that it will not need it tomorrow. The need for licensing can grow as the company grows by expanding its service package. The same happened to “Lietuvos paštas”, whose main activities are presentations of correspondence, press and parcels. In order to expand the range of services, the company needed an electronic money institution license. Retail and retail chains Maxima and IKI became the intermediaries of payment and electronic institutions.

Just enter the list

Licensing is like a puzzle – if you choose the wrong puzzle details, the picture will not come out right. Therefore, the type of a license should be chosen with great care. The choice is compounded by the varying regulatory requirements, the growing variety of licenses. It’s no wonder that it‘s easy to get mixed up. Without being a specialist, you may simply not be aware of all the appropriate alternatives provided by different licensing rules.

It is true that the provision of financial services does not always require a license; in some cases, it is sufficient to register with the lists administered by the Bank of Lithuania: the operators of the co-financing platform, the inter-lending platform operators, consumer credit providers, etc.

Sometime the services provided are complex, so you may need to register in several lists. Suppose the company provides a consumer credit service and creates an online platform where a lender and a loan seeker meet. Such a service provider needs to be listed in the list of consumer credit intermediaries and inter-lending platform operators.

One service, several solutions

There are currently eight different types of licenses in the credit and payment market, and nine in the financial instruments market. There are also nine different service providers’ lists. So, in order to choose the most suitable combination of license (regulated activity), you will have to put in a lot of effort. What license is required for your company depends on the specifics of the service offered, the regions, the directions of the proposed activity, the size of the planned investments.

Suppose you want to provide payment services. In this case, you can receive a payment, electronic money institution or bank license. For payments, the license of electronic money institutions can be of two types – limited and unlimited. Instead of a traditional bank license, you can obtain a license of a specialized bank. So, one service – 6 options. It is possible, of course, to start with a limited-payment institution’s license until the business establishes itself in Lithuania. Shortly afterwards, with the increase in turnover and considering the expansion of activities to other European countries, the license can be extended to unlimited.

Or, suppose you want to establish payment instruments or to keep customers’ funds, so there will be a natural need for an electronic money institution or a specialized bank license. If you are late, the lack of a license will slow down business development, if you go into licensing too early you will experience extra unnecessary costs. So there is no single recipe which license to choose – each case is unique.

One spark would be enough

Any company changes from the very beginning of its operations – it grows, expands, and certain business changes may cause it operate within licensing activities. Let’s say you are a bookkeeping company that calculates salaries for employees every month. The customer transfers, for example, 10 thousand to your company. asking you to distribute the money as salaries. You complete the client’s request. Such actions already have the characteristics of payment services and if you do not have the appropriate license, you risk being penalized for carrying out the task.

You need to have a license, even if you collect money from third parties for the purpose of distributing them. Let’s say you’re in the apartment building community. The Community accounting officer collects contributions from the population and distributes them, so the company performs a payment function. Not surprisingly, some of the communities are already registered as payment institutions.

What if you suddenly find yourself running without a license? Of course, fine or even criminal liability. Both a legal person and a natural person can be punished. Imagine having one spark, one unhappy client, to get into a fire.

The business community is dominated by the stereotype that licensed activity is an unbearable burden. However, this may only be the first impression. Yes, the license undoubtedly implies additional administrative costs, but the company that buys it eventually wins. Owning a license creates an image of a safe and reliable business partner, as well as opens the door for complex services.

We are glad to inform that Rytis Davidovičius, Director of Asia Pacific Region, has accepted the challenge of becoming Director of Lewben Group Business Development.

One of the strengths of Lewben Group is the synergy we create throughout all the companies of the group, by offering a whole package of various professional services to our clients. That is why it is very important for the group to have a responsible person, who will be managing group level projects of pursuing strategic business development opportunities in developing relationships with our clients and promoting sales of the whole Lewben Group.

The Director of Lewben Group Business Development will report directly to CEO of Lewben Group.

SAF-T (Standard Audit File for Tax) is a standard accounting data file that is required by the State Tax Inspectorate and other statutory services in xml. Such data collection format was created by the Organization for Economic Cooperation and Development, in the hope that SAF-T will make tax paying more effective and easier, also help identify key areas for tax evasion. So far, in Europe SAF-T is used by 6 countries: Portugal, Luxembourg, France, Poland, Lithuania, Austria and Norway (delayed until 2018). We can rejoice that we are one of the first and even more advanced than our neighbors when implementing this system, and our IT specialists will be able to offer their best practices to foreign markets by installing similar systems. However, at this point the joy currently ends.  Various changes, even those that greatly dampen the daily routine of businesses are okay as long as they feel the value and meaning of those changes. So far, SAFT – T brings additional obligations only. Of course, the introduction of this system will make checks for tax and other institutions smoother and more efficient as all the initial data required for inspections will be made available through SAF-T. However, when providing data to SAF-T, VMI will receive a lot of confidential and company-sensitive information. For example, purchase data, prices, and customer information – you could say that all of the business know – how will be made available. And how will the tax administrator be able to use this data – still remains a rhetorical question. So it is up to us to work, and only  hope that we are working for the good of everyone, that the goal will be achieved and we will bring more taxes in the state budget. After all, we are all patriots of our country and we want the state to be richer: teachers and doctors receive higher wages, seniors – higher pensions.

Who and when must submit data to SAF-T

The Government will continue with it’s 2015 Resolution No. 699 which decided that starting 2017 January 1st, largest companies will be required to submit accounting data in the SAF-T file. According to this resolution, upon request of the responsible authorities, all profit-making legal entities will be required to provide SAF-T, with the exception of SE “Deposit and Investment Insurance”, European economic interest groups and economic entities subject to insolvency proceedings or out-of-court bankruptcy proceedings.

Foreign companies that have registered as VAT payers in Lithuania, have branches and representative offices of foreign legal persons, permanent establishments, public sector entities and other non-profit legal entities will not need to file accounting data in the SAF-T file. It may be that foreign companies, in order to avoid providing data to SAF-T, will tend to not establish a private limited liability company in Lithuania, but open a branch.

Entrepreneurs must be prepared to submit a file according to the turnover of the previous year from:

– January 1st 2017 – if 2015 turnover exceeds 8 million EUR;

– January 1st 2018 – if 2016 the turnover exceeds 700 thousand. EUR;

– January 1st 2019 – if in 2017 the turnover exceeds 45 thousand. EUR;

– January 1st, 2020 and later – if the turnover of the previous year exceeds 45 thousand. EUR.

The information in the SAF-T system is provided only upon request of the tax administrator. Most likely, this will be companies suspected for tax evasion also transactions between companies might be monitored. At the request of the STI, the file must be submitted in 10 days – a shorter term is determined only at the request of the taxpayer or with their consent.

How to get ready

So far not all companies are ready to install this system. This is partly due to the fact that not all companies have an obligation to provide data from the Big Book. The lower the company’s turnover, the later they have to take care of it. However, if you do not need it today, it does not mean that you do not have to be prepared. Here are some steps that must be taken by an enterprise in preparation for the implementation of SAF-T.

– Check the net sales revenue for the past year (find out if and when you need to provide SAF-T);

– Contact your accounting manager to inquire whether they have developed a SAF-T solution;

– If the developers of the accounting software do not have a SAF-T solution, look for programmers who can install the SAF-T module in the program;

– Take into consideration future SAF-T costs in next year’s budget;

– It is now possible to reconcile the accounts of the Big Book with the chart of accounts specified in the classification, if it does not match;

– Cooperate with IT specialists and managers in implementing the SAF-T module.

Information is provided not only to the STI

By the way, business do not have much of a choice whether or not to provide data to the SAF-T – prosecution or fines might be imposed. Interestingly, not only the STI is entitled to data like full payroll, company bank account statements, payments, wage calculations, depreciation, etc. Upon request, the entity must provide the SAF-T file to:

– The customs of the Republic of Lithuania;

– Financial Crime Investigation Service (FNTT);

– State Social Insurance Fund (VSDF).

SAF-T is one of the subsystems of the smart administration i.MAS, installed a little more than a year ago. Implementation of the system in Lithuania is still in progress, so it is still difficult to retrospectively assess its benefits. And whether the anxiety about data security has a basis. However, we would like to believe that the State Tax Inspectorate will find good arguments and dispel the anxiety, and the information that companies provide will surely be fruitful in order to achieve effective collection of taxes into the state budget.

The American business magnate, investor and philanthropist Warren Buffett once said in an interview that he would leave his children ‘enough money so they would feel they can do anything, but not so much that they could do nothing’.

Passing on a business is not only a gift to future generations, but also a great responsibility. Heirs who inherit high value assets may lose the motivation to strive, improve and achieve something themselves. Often it is a case of wasting wealth rather than boosting it. Reckless business transfers can endanger the continuity of the business, and undermine the interests of business partners, employees, and even the public. How can you find the ‘middle ground’ in passing on business? It is much more complex than transferring an apartment, a car, a garden, household items or money in a bank account. Businesses have been passed on abroad from one generation to another for hundreds of years, but in independent Lithuania this practice is only beginning to develop. The tools available in the country's legal system do not always create a basis for achieving the best result in business transfer, often creating conditions that interfere in the process of keeping the business in the family. Regardless of which specific tools you choose, it is important to understand that business transfer, like the business itself, is a long process that requires a good strategy, preparation, and consistent implementation.

The first step towards the successful transfer of assets is to make an inventory of the assets. This step is important not only to the party doing the transfer, but also to the recipients, so that they know everything about the property, and, if necessary, receive it from third parties who are managing the property on behalf of the owner. During the inventory process, you must ascertain:

- How much and what assets there are

- In which jurisdictions they are

- What asset classes they belong to

- How they are managed: directly, through controlled legal entities, on the basis of informal agreements with business partners, or through independent trustees.

- What kind of debts and/or liabilities are related to the assets.

Different asset classes often require different solutions. It is necessary to know the exact composition of the whole asset, so that decisions taken later are in line with the aims of the business owner, and are efficient from a commercial, regulatory and fiscal point of view.

2. Knowing the composition of the property and the aims of the owner, you can proceed to creating a specific plan. This should include the financial, investment, legal, tax and educational aspects. The structure of the business and property may consist of different assets, often located in different countries, with different commercial environments, and may be subject to different regulatory requirements. Therefore, it is very important that the plan is individual and tailored to the specific business and property circumstances. You might find one solution that ensures financial returns from investments, but a different solution will be needed in order to maintain control of the core business, and to ensure that after the transfer it will continue to be managed professionally and profitably.

3. When designing a plan, an important step is to choose the right tool for transferring the assets. There are ways to transfer property, but you have to be properly advised by taxation and legal specialists. As well as the usual will, which unfortunately is not the most effective means of transferring business, the law in Lithuania and in some other foreign countries offers alternative measures that allow for the special business objectives of the transferor:

- A donation contract. This allows for the transfer of property between relatives without negative tax consequences while the owner is still alive. The Civil Code of Lithuania provides the possibility to demand the gift back if it is used for purposes other than what was agreed. A properly structured donation transaction allows the business owner to transfer property to his heirs while he is alive, and, through additional security mechanisms, ensure that the heirs use the gift properly.

- A support/maintenance contract. According to the agreement, the supporter (debtor) undertakes the responsibility to periodically pay another party, free of charge or in exchange for the transfer of capital, a contractually agreed amount, or otherwise support the payee. A support/maintenance contract can be used as an instrument to ensure that family members will be taken care of after the death of the owner of the business. This is especially useful if there are vulnerable people in the family (for example, people with special physical, economic or social needs).

- More sophisticated tools are used abroad. In order to ensure that control of the business is not split between different heirs, and that the business and its returns are distributed fairly among the family, special family funds or trusts are often used. Professional trustees own assets and control them for the benefit of family members. Such funds and trusts make it possible to separate legal property from economic property, thus allowing family members to become involved in the management of the business through positions held in funds or companies. Family members receive financial benefits from successful business activities, but this type of agreement does not allow individual heirs to freely dispose of inherited wealth (for example, by selling).

4. When planning a transfer, it is very important that the plan not only addresses the business transfer but also the current management of the assets. Therefore, the property transfer plan should not be considered an inheritance plan. A business transfer plan should be useful at the current stage. A complex asset inventory and the use of advanced legal instruments for asset consolidation can help to reduce the risks associated with old and obsolete structures, improve business management efficiency, and increase the value of the entire business.

5. It is equally important that the plan is dynamic, and is prepared taking into account specific current commercial and personal circumstances. However, changing circumstances should not make a plan obsolete. It must adapt and remain relevant in order to achieve the original goals, taking into account the fact that personal circumstances (marriage/divorce, the birth of a child, death), the composition of the assets, borrowing conditions and other commercial circumstances, the regulatory environment, and the geopolitical situation may change.

6. The most important step is developing heirs to take over control of the business. This step requires consistent and long-term preparatory actions:

1) develop an interest in the heirs in taking control of the business;

2) provide the heirs with education;

3) create conditions for them to acquire professional experience, understand the specifics of the particular business; and

4) develop leadership qualities.

Coordinating the entire process might require the efforts of more than the business owner: the involvement of external advisers, such as financial, legal, business and even psychologists, might be needed. The implementation of the plan should involve the relatives at the earliest possible stage, so that they know the goals and values of the owner of the business. Such advance communication will allow offspring to prepare to take over a business in the future, will help avoid disputes between family members, and ensure that the family share the same vision and common desire to implement it. Therefore, a well-prepared business transfer plan should be considered a ‘Family Constitution’.