Information about mutual funds inducement payback

Inducement means payment or other material or non-material benefit in relation to the provision of the investment service or ancillary investment services to the customer.

Within the framework of investment fund distribution, inducement is a payment that Luminor Bank AS (hereinafter - 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 in the investment funds managed by the relevant investment management company. Most often the customers of the Bank had made investments in 2020 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, the Bank concluded that in accordance with Inducement Policy in Relation to Investment Services and Non-Core Services (hereinafter - the Policy), it cannot retain the received inducements for the relevant year.

The Bank can receive and retain inducements related to provision of investment services only in the cases, when the relevant inducements comply with all provisions set forth in Section 2 of the Policy and if they:

• are designed to enhance the quality of services provided to the client (this applies to payments received from the order execution places and for the purpose of investment research performed by the Bank) and
• do not impair compliance with the Bank‘s duty act honestly, fairly and professionally in accordance with the best interests of its clients.

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

The volume of inducements 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 determined in the Policy.

• Inducements will be repaid to the customer current account in EUR currency that is linked to the financial instruments’ account. Or in cases, if the investment funds in 2020 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 for which the Bank has received an inducement, the repayment shall be made in a separate payment to the relevant account of the customer. For example, the customer owns 6 Nordea funds, then 6 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. A full list of investment funds is available in the Policy.

In accordance with the Law on Personal Income Tax (hereinafter - the Law on PIT), the investment fund certificates are capital assets (Section 11.9, Paragraph 2, Clause 2 of the Law on PIT).

Inducement payment in relation to the investment fund certificates held in the property of the customer is to be considered as income from capital (income from investment fund certificates (Section 8, Paragraph 3, Clause 11.1 of the Law on PIT).

The personal income tax rate to be applied for the income from capital is 20% (Section 15, Paragraph 5 of the Law on PIT).

• Customer - natural person - resident of LR: As far as this income is not listed in Section 17, Paragraph 10 of the Law on PIT as an object of income, from which the tax is to be withheld at the time of pay-out, the Bank does not have an obligation to perform withholding and payment of the tax to the State budget. The customer shall independently and, if necessary, through tax advisor, assess the procedure for calculation and payment of the personal income tax to the State budget.
• Customer - natural person - non-resident of LR: As far as such income from capital is not listed in Section 3, Paragraph 3 of the Law on PIT as the taxable income of the non-resident of LR in Latvia, the PIT shall not be applied in Latvia.
• Customer - legal person: The customer - a legal person shall be responsible for calculation and payment of the enterprise income tax in accordance with the applicable tax regulation of its residence state.