The total costs of real estate transactions, such as purchase and sale costs, can be reduced by more than 40% in Latvia, according to estimates of Latvian Council of Sworn Notaries. It is possible to reduce costs by introducing lower land book state fees and equalizing notary service costs with those in Lithuania and Estonia.
One major benefit from reduced costs and administrative obstacles would be fewer real estate deals that remain unregistered in the state land book.
«There is a large number of people in Latvia who do not register their property rights after carrying out real estate transactions. This is most often related to the state land book fee. But only immediate registration of rights over property can exclude the possibility of having one’s property stolen or be sold multiple times,» – notes LZNP Chairperson Sandra Stipniece.
Large fees also lead to people not registering their properties in the land book – all to avoid paying state fees and PIT. It is a common practice when sides involved in a deal artificially reduce the actual price of the deal to reduce the required state fees, taxes and other related payments. Information compiled in Baltic States shows that residents in Estonia and Lithuania have no reasons to state false information when carrying out real estate transactions. This is because the land book registration fee in those countries is small. Since the presence of a notary is mandatory during such deals, it allows both sides discuss and accurately assess all potential risks and consequences. This helps avoid situations when taxes and fees are paid only in part. Guaranteed administration of state fees is a valued tool to help combat grey economy.
«LZNP’s proposal for real estate transactions reform also provides for the reduction of the 2% state land book fee by 1% this year, 0.7% next year and 0.5% the year after. Annual revenue received from the state land book fee is estimated at EUR 34 million. The loss of revenue from the reduction of the fee would be compensated by a significant reduction of grey economy – close to EUR 15 million, in addition to PIT collected from notary services, VAT and state fees for notary activities, which is another EUR 7 million,» – says Stipniece, adding that the state budget would not lose anything and residents would only benefit from the reform.
In addition to lower registration fees, it would be beneficial to reduce the number of institutions involved in processing real estate property deals. «It would benefit the business environment as well, because instead of visiting seven institutions it would be necessary to visit two (NĪ and the notary). Fewer administrative obstacles benefit the general competitiveness of the business environment and create a safe bedrock for investments,» – adds the chairperson.