Information about mutual funds Inducement payback

Inducement is considered to be any benefit received from the third party by Luminor Bank AS (hereinafter - the Bank) or paid to the third party by the Bank*, i.e. reward, commission, fee and other monetary or non-monetary benefits related to the provision of investment services to the customers (hereinafter – Inducement).

Within the framework of investment fund distribution, Inducement is a payment that the Bank directly or indirectly through an agent receives from investment fund management company for the total value of investments of the Bank’s customers in the investment funds managed by the relevant investment management company. Most often the customers of the Bank had made investments in 2020 and 2021 in the investment funds managed by Nordea Investment Funds S.A.

When performing assessment of investment services provided to the customers for annual year 2020 and 2021, the Bank concluded that in accordance with Inducement Policy for the Provision of Investment and Ancillary Services (hereinafter - the Policy), it cannot retain the received Inducement in relation to distribution of investment funds units/shares for the relevant year.

The Bank may receive and retain Inducement in relation to the provision of investment services, other than indicated in paragraph 1.6 of the Policy, only in the cases, when the relevant Inducements comply with all provisions set forth in Section 4 of the Policy and if:

• such Inducements are designed to enhance the quality of the relevant services provided to the customer;
• quality enhancements of the relevant services are proportional to the level of Inducements received;
• Inducements do not impair compliance with the Bank‘s duty to act honestly, fairly and professionally in accordance with the best interests of its customers; and
• Inducements do not, by their nature or proceeding from their function, create a conflict of interest between the Bank and the customers.

The Bank performed repayment of all Inducement received in relation to investment fund distribution for annual year 2020 and 2021.

According to the Policy 2.1.2. paragraph the processes how Inducements are attributed and refunded to the customers are described in internal regulations. In brief, the volume of Inducement received by the Bank and repaid to the customer is determined in accordance with annual management fee of the investment and Inducement ratio (share of the annual investment fund management fee received by the Bank) of the fund.

Inducements will be repaid to the customer’s current account in EUR currency that is linked to the financial instruments’ account. Or in cases, if the investment funds in 2020 and 2021 were safeguarded in the Luminor Investor platform - in the EUR account of the platform.

For each investment fund, which has been owned by the customer in 2020 and 2021 and for which the Bank has received the Inducement, the repayment shall be made in a separate payment to the relevant account of the customer. For example, if the customer owned units/shares of six Nordea funds during 20XX, then six payments will be made to the account.

Most often the customers will receive repayment of Inducements received from Nordea Investment Funds S.A., managed investment fund P class shares, but also payments received for distribution of other investment management companies’ funds will be repaid.

For tax purposes, inducement payments are considered as client’s income from sale of financial instruments or derivatives. According to the Lithuanian Law on Personal Income Tax (PIT), generally the investor's profits from sale of financial instruments are taxed with 15% PIT rate. In addition, a non-taxable amount of EUR 500 may be applied. The profits not exceeding amount of EUR 500 are not taxable (with some exemptions).

Calculation of PIT:
PIT = (Sales income – acquisition costs – additional costs (commission fees, notary fees, etc.) – EUR 500) x 15%

If the annual amount of investor’s profits from sale of financial instruments and other non-employment related taxable income exceeds the amount of 120 national average salaries (in FY2022 EUR 180.492), 20% PIT rate is applied on the exceeding amount.

In case of a sale of financial instruments that are assets of the joint ownership of the spouses, the income is considered to have been received by both spouses (in equal parts, unless otherwise agreed by the marriage contract). Accordingly, the above tax-free EUR 500 amount may be applied by each spouse separately.

Bank’s obligations regarding tax withhold:

• Customer - natural person tax resident of Lithuania: the Bank does not have an obligation to withhold and pay PIT to the State budget. The Bank is only obliged to report such payments to the clients by filling the Annual payments to the residents declaration form. The customer shall independently and, if necessary, through tax advisor, assess the procedure for calculation, reporting and payment of the personal income tax to the State budget.
• Customer - natural person - non-tax resident of Lithuania: such income from sale of financial instruments is not considered as taxable income of a non-resident of Lithuania, PIT shall not be applied in Lithuania. Such customer shall independently and, if necessary, through tax advisor, assess the procedure for calculation, reporting and payment of the personal income tax in his tax residence state.
• Customer - legal person: the customer - a legal person shall be responsible for calculation and payment of the corporate income tax in accordance with the applicable tax regulation of its residence state.