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Monday 11.12.2017 | Name days: Valdis, Voldemārs, Valdemārs

Economic Diary of Latvia. Finance Ministry vs. laundries

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This week was rich with events. Particularly, it became known how the Finance Ministry will track companies and uncover schemes of, so to say, «tax optimization». Good news first though.

Of pros and cons of investor visas

The Internal Affairs Ministry has presented its annual report on the amount of money that was invested in Latvia in exchange for residence permits. During the period from July 1, 2011 to June 30, 2012 the volume of investments reached 154.08 million LVL – more than twice the amount of investments of last year. The most popular method of acquiring a residence permit is still through purchasing real estate. During this period, foreigners bought objects for a total amount of 126 million LVL, which is 162% more than last year. The second most popular method – investments in company capitals. Foreigners invested a total amount of 4.99 million LVL in 70 different companies, which is 152% more than last year. In total, since the becoming in force of the amendments to the Immigration law two years ago, foreigners brought Latvia 220.49 million LVL.

The reports of the ministry will be submitted to the Defence, Internal Affairs and Corruption Prevention Commission for review in the nearest future. The commission will then evaluate the influence of such investments on Latvia’s economy. Only two negative opinions are known about this. National parties believe these investments to be bad for our country. Economy Minister Daniels Pavluts, on the other hand, sees nothing negative. He notes that a number of Russian businessmen first buy real estate in Latvia, then relocate production here.

Port inspections

While one parliamentary commission is inspecting money flow, the other intends to, finally, clean up Latvian ports. The Saeima National Economy Commission attracted experts from the World Bank, who will inspect the activities of our ports this autumn. The author of this initiative, the head of the National Economy Commission Vyacheslav Dombrovskis believes this industry to be one of the least transparent in our country. According to him, inspection will last for three to six months. Specialists of the World Bank will conclude how effective the current management model is and what reforms are necessary to raise the competitiveness of Latvian transit. Results of the audit will then become the foundation of the reform for the port management system. According to initial calculations, services of the World Bank specialists will cost the State budget 10 thousand LVL.

It is unclear though, why our parliamentarians did not turn to the specialists of our own State Audit Office, who not only performed audits at ports on multiple occasions and prepared reports with detailed analysis of flaws and violations and how to fix them.

Doing business in Latvia

It also became known that Lithuania has all the chances to outrun Latvia in the global Doing Business rating, which is compiled every year by the World Bank and the International Finance Corporation, assessing business climate in 183 countries of the world. Latvia unexpectedly made a leap of ten positions in the last year’s rating: from 31st to 21st position. As a result, Estonia (24th) and Lithuania (27th) were left behind our fair country for the first time in many years. Latvia earned a high place in the rating thanks to a sufficient progress in such areas as business initiation, bankruptcy of companies and electric network connection. However, our neighbours have the chance of climbing higher than Latvia in the upcoming Doing Business 2013. Lithuanian Economy Ministry expects to climb ten positions – to the 17th spot. As the Verslo zinios newspaper writes, the county managed to achieve progress in seven out of ten main rating criteria. These criteria are: business initiation, issue of construction permits, real estate registration, acquiring credits, foreign trade and insolvency process.

Latvian Economy Ministry followed Doing Business when preparing improvements of the country’s business environment in 2012. It was expected that the realization of 30 measures that were included in the plan will allow the country to be included in the first twenty and preserve its conquered positions in a long-term perspective. However, only four out of 30 stated measures were completed by June 1, 2012. Economy Ministry explains the small progress of the plan’s realization with the fact that most measures are planned for the second half of the year. Meanwhile, the institution called all involved structures to perform active steps in realizing the planned measures, so that the planned goals are guaranteed to be reached by the end of the year.

Finance Ministry vs. «laundries»

In 2013, the Finance Ministry wants to increase control over companies to improve tax collection. Particularly, this applies to companies whose officials are registered at, for example, shelters (there were 729 companies on August 17, 2012), Riga, or some other unspecific location stated as place of residence. Having closed these «laundries» for VAT, the budget will receive an additional 5.5 million LVL and 6 million LVL each on 2014 and 2015. Furthermore, the Finance Ministry plans to tighten control on advance payments for economic activities, ones companies usually give their employees. People at the finance institution believe that, in most cases, employees receive salaries that are not subject to PIT and social tax. Ideally, a receiver of such advance payments should present receipts that would prove that those funds were used as intended. But most companies do not do this. The Finance Ministry believes this problem can be resolved by clarifying the rules regarding keeping accounting. These clarifications will state the period an advance payment receiver is obligated to present documents of the use of the received funds. The institution hopes to give the budget an additional million LVL per year by doing so.

It was planned to add a larger amount by obligating businessmen to report the profession of specialists they plan to employ and the person’s daily working hours. As a result, fiscals will be able to compare income of specialists of more or less the same profile at different companies and uncover envelope salaries. Nevertheless, most of the funds – 15 million LVL per year – the Finance Ministry hopes to receive using a natural way – economy growth.


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