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Wednesday 25.01.2017 | Name days: Sigurds, Zigurds
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Economic Diary of Latvia. Two favourite questions – what should be done and who is to blame

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThis week, Latvia’s Parliament has finally concluded its work on amendments to the Immigration Law. This work continued for over a year. This law has been added with many new articles that cover the order for the issue of residence permits in exchange for investments.

Amendments will come into force on 1 July. This means new life for the people who already have residence permits and those wish to receive them.

First of all, deputies approved the norm that provides for the payment of EUR 5,000 for repeated extension of a residence permit issued for a five-year period. Certain groups of investors, however, will have to pay EUR 5,000 for the first extension. The majority of residence permit holder will have to make the first payment ten years from receiving the document.

The approved norm states that residence permit holders who were provided with permits in exchange for purchase of real estate before amendments of 2014 will not have to perform this payment initially. Thy will have to pay EUR 5,000 in order to extend their permit a second time.

Approved amendments do not change the norm previously supported by Saeima’s Defence, Internal Affairs and Corruption Prevention Committee that states how extension of residence permits issued in exchange for purchase of real estate property before amendments of 2014 will include the payment of EUR 5,000 for the first time.

Finances received from this redaction of the law will be added to the Economic Development programme.

Secondly, approved amendments also provide the Cabinet of Ministers the right to assess the influence of residence permit on state security and economic development and implement restrictions on the issue of permits to citizens of third countries for a period of time not longer than five years.

Thirdly, the law states that a foreign citizen will become eligible for the issue of a residence permit in exchange for purchase of no more than two real estate objects (except for empty land) outside of Riga, Jurmala, Adazi, Babite, Baldone, Carnikava, Garkalne, Ikskile, Kekava, Marupe, Olaine, Ropazi, Salaspils, Saulkrasti or Stopini worth no less than EUR 250,000.

The norm according to which foreigners are able to request residence permit issue in exchange for purchase of real estate property worth no less than EUR 250,000 remains in force.

Furthermore, a number of other amendments have been added to rules that govern the issue of residence permits in exchange for investments into capital associations. Including this one – a residence permit issued to a foreigner will be allowed to be revoked if the foreigner’s tax debt exceeds EUR 150,000.

As BNN had previously reported, demand for residence permits had dropped significantly after adoption of amendments to the Immigration Law. Foreigners who applied for residence permits had purchased 273 real estate objects. Compared with the number of real estate objects bought in 2014 (2,250), this result turned out 8.2 times smaller. It was 5.7 times smaller in comparison with 2013 (1,556); 3.7 times smaller in comparison with 2012 (1,013); 2.5 times smaller in comparison with 2011 (669). This also had an impact on the size of investments: in 2014 non-residents spent EUR 397.3 million on purchases of real estate property in Latvia and EUR 73.6 million in 2015.

The local market has become active. This market remained in deep stagnation during the best years of residence permit issue. According to information from Balsts, compared with May 2015, the number of apartment purchases has grown 23% in May 2016.

Growth slower than zero

According to estimates from Economy Ministry, average consumer price growth could be close to zero this year.

The ministry’s experts believe inflation will remain under influence from global oil and food prices in 2016. Following a significant decline of global prices in 2015 and the beginning of 2016, February market the beginning of their growth, which was caused by different short-term factors. This is why it is not expected that they may start growing rapidly in the near future.

Economy Ministry notes that price rise was more rapid than usual in May. During the pre-crisis period, reduction or slight increase of prices was usual for May. This year, however, May’s price growth remains the most rapid since 2008.

In May, when compared with April, consumer prices in Latvia have grown 0.6%.

Search for the guilty

Data concerning the level of grey economy in Latvia’s construction sector was published this week. This study was carried out by Business against shadow economy association and SSE Riga. As it turned out, interviewed representatives of construction companies view the applied measures to reduce grey economy in construction as insufficient, to say the least. The adoption of a reverse payment order for VAT was mentioned as the only positive example by representatives of the industry. According to them, it is the only measure that has had a positive effect on the decline of grey economy.

Arnis Sauka, SSE Riga associated professor and member of the board of BASE, mentioned during the presentation that the study offers a number of proposals to reduce the level of grey economy in the country’s construction sector – adoption of a minimum wage, refusal of the use of the lowest price criterion during procurements, development of model contracts, effective addition of construction entrepreneurs classification in public procurements and others.

As part of the study, expanded interviews were held with managers of 30 of Latvia’s largest construction companies, representative surveys of managers and leading specialists of 254 companies were held, experts of Latvia’s Chamber for Commerce and Industry were interviewed, as were experts of Latvia’s Employers’ Confederation and Construction State Bureau.

As previously reported, the proportion of envelope wages in Latvia’s construction sector is 36.3%, which is significantly higher than the average across the country – 17.9%.

Inara Petersone, the resigning head of the State Revenue Service, mentioned in an interview to Ir magazine that efforts to combat grey economy alone cannot hope to provide the state budget with EUR 500 million, or EUR 750 million and even EUR 1 billion. If the government remains in development of a new plan and coordination talks for said plan for two years, as much time will be necessary to realize the plan, Petersone said. She believes the development process of the next year’s budget will be very complicated. In addition, it will be followed up by a search for the guilty.

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