bnn.lv Latviski   bnn-news.com English   bnn-news.ru По-русски
Monday 24.09.2018 | Name days: Agris, Agrita
LatviaLatvia

De Facto on tax reform: bigger burden for businesses and more freedom for owners

FaceBook
Twitter
Draugiem
print
(No Ratings Yet)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe tax reform provides for the transferring the tax burden to businesses and relieving owners of those businesses of payments. Under certain conditions, businesses will have to pay less taxes than before, says De Facto programme of LTV.

The programme emphasizes that after continued pressure from businessmen, politicians agreed to copy Estonia’s tax regime for businesses. Since 2000, Estonia has been collecting taxes from businesses when money is paid to owners, not when businesses earn profits. This means remaining finances of companies are not taxed.

«This is a very beneficial way for companies to gain finances,» says Prof. Karstens Staers of Tallinn University of Technology. He explains that this way the state shares risks with businessmen because payment of taxes is put off. When a bank issues a loan, it cares nothing for the way the money is used. «In this case, however, the state basically lends money to businesses without any conditions. This is why it is not surprising that businesses like this tax system very much,» adds the economist.

De Facto calculate that a company that earns EUR 100,000 and plans to pay its owners EUR 50,000 in dividends, that company would pay EUR 20,000 in taxes. The owner would get EUR 45,000.

Under the same conditions after the reform, the amount of taxes to be paid would be EUR 12,500. The owner would still get the same EUR 50,000.

Under the new model, businesses will have to pay corporate income tax at 20%. Currently, aside from 15% profit tax, businesses have to pay PIT of 10%. This will change after the reform.

In reality, calculation of profit tax is not simple. Latvia is set to introduce discounts for investments. In certain cases, the current model is more beneficial, the programme says.

«An effective corporate income tax in Latvia is 6-7%, because there are many different discounts in place. In summary, discounts for each business are applied differently. Many don’t pay corporate income tax and divide dividends. Others, however, pay the full 15% rate,» explains Finance Ministry’s Direct Tax Department director Astra Kalane.

She says there will be winners and losers from the tax reform. Still, there will be more winners than losers.

PwC Latvian office manager Zlata Elksnina-Zazcirinska lists the losers from the tax reform: «State enterprises and large international companies that have invested infrastructure. Tax burden for them will definitely increase. Those who have never paid taxes to begin with will have to get used to the new reality.»

As for state companies, the law makes it mandatory for them to pay dividends, so they will have no choice.

But what should private businesses do? There are different options. More often than not, it is predicted that Latvia will have low corporate income tax revenue in the first couple of years after the reform, De Facto notes.

Finance Ministry says more taxpayers will appear in time, because the new model provides for applying taxes for costs not associated with main economic activities. «If a business that is not mainly engaged in provision of services in the tourism field, it will have to pay corporate income tax if it buys a yacht,» Kalane explains.

For Estonia, it is typical for businesses not always investing profits back in production. They do keep money on bank accounts, LTV programme notes. «In worst case scenarios, businesses lend money to the mother company to avoid paying dividends. Changes accepted in Latvia do not provide for prevention of unjustifiably cheap loans for associated persons.»

De Facto was told by certain tax consultants, there will be businessmen who will use the advantages of the new system to empty accounts and disappear without paying taxes.

Ref: 224.109.109.5209


Leave a reply

Week in Lithuania. President proposes amendments to restrict bailiffs' remuneration

Lithuanian President Dalia Grybauskaitė is putting forward amendments aimed at restricting bailiffs' financial remuneration to up to 15 per cent of the amount recovered.

BNN summary of the week: pre-election heat, rule of law in Latvia, Baltics prepare for Pope’s visit

BNN offers a summary of this week’s topical news in a variety of categories: Elections; Change; Stagnation; Fight; Visit; Investigation.

Court reschedules viewing of criminal case due to Non-citizens Congress leader’s poor health

Riga City Vidzeme Suburb Court announced today that the viewing of the criminal case in which leader of Non-citizens Congress Aleksandrs Gapoņenko is accused of inciting national hate will be postponed to a later date.

Producer prices in industry up 1.0% in Latvia in August

Compared to July, level of producer prices in the Latvian industry rose by 1.0 % in August 2018. Level of prices of products sold on the domestic market grew by 1.9 %, but of exported products – went up by 0.1 %.

Bishop: priest suspected of sexual abuse to be operated on in hospital

Pāvels Zeiļa, who is a priest of Rezekne Aglona diocese and the suspect in the criminal case regarding sexual violence and human trafficking, will undergo a complicated surgery on Friday, 21 September, as reported by Bishop Jānis Bulis.

Study: residents withdraw money from ATMs less often but in larger amounts

Every now and then discussions about dropping cash money altogether become active in society, AS PrivatBank representatives say.

HND Grupa design company, involved in Zolitude tragery, declared insolvent

Building engineer Ivars Sergets company HND Grupa, which was involved in the case revolving around the Maxima supermarket that collapsed in Zolitude, killing 54, not five years ago, has been declared insolvent, as reported by Latvijas Avīze.

Deputy Chief of State Fire and Rescue Service suspected of misappropriation

Latvia’s Interior Affairs Ministry’s Internal Security Bureau has detained deputy chief of State Fire and Rescue Service Ints Sēlis and one other official – a senior inspector, as reported by Panorāma programme of LTV.

Washington sanctions China for buying Russian military equipment

U.S. government has introduces sanctions against the Chinese army over a purchase of fighter jets and missile systems from Russia, despite a U.S. sanctions law targeting Moscow for attempts to sway in the 2016 U.S. election.

Autumn expected to begin soon in Latvia

Friday, 21 September, is expected to be warm in Latvia. Sun and considerable amount of clouds are expected, but not precipitation. Wind will draw in from the south, reaching a speed of 15-17 m/sec in western and central regions, as reported by Latvia’s Environment, Geology and Meteorology Centre.

Brexit: a finish line with no end in sight

Less than 200 days are left before Britain officially leaves the European Union. The state of the agreement between Britain and EU only serves to create more chaos, from which neither Britain nor EU, or even Latvia will benefit.

EU underlines to London: No-deal Brexit also option

European Union's top officials and member state leaders planned to push for a Brexit deal in October, while urging London to give ground on the issues trade and the Irish border by November, to avoid a no-deal Brexit.

Lithuanian PM, a presumable presidential hopeful, set to curb grocery price growth

Having chastised food retailers on many occasions for high grocery prices, Saulius Skvernelis, the Lithuanian Prime Minister, stepped forward in the bid to harness local supermarkets. The presumed presidential candidate of the ruling Farmers and Greens (LVŽS) has summoned this week executives of major retail food chains, scolded them and reaffirmed his pledge to rein in the edging up prices.

Industrial prices in Estonia – up by 3.4% on year

The industrial price index in Estonia has risen from August 2017 to August this year by 3.4%, official statistics show.

Latvian parliament approves transition to competence-based approach in education content

On Thursday, 20 September, Latvia’s Saeima approved in the final reading amendments to the Education Law, necessary for the gradual introduction of competence-based approach in education materials.

Latvian Saeima wants to disallow shareholders to work in company management board

On Thursday, 20 September, Saeima approved in the first reading amendments to the Credit Institutions Law that provide for multiple measures to enhance Latvia’s finance system and its long-term stability, as reported by the parliament’s press-service.

Aglone Council prohibits residents from organizing protests during Pope Francis’ visit

A protest against the Catholic Church’s ban on abortions and expression of shock in relation to the recent sex scandals involving Catholic priests was planned to take place in Aglone during Pope Francis’ visit, but the city council decided to disallow them.

Latvian parliament conceptual supports pension bonus indexation

On Thursday, 20 September, Saeima supported in the first reading several initiatives for a more rapid pension climb for several groups of pensioners, as reported by Saeima press-service.

Majority Saeima deputies support open president vote; UGF members fail to decide unanimously

On Thursday, 20 September, amendments to the Constitution regarding open election of the state president were approved in the second reading.

Four Estonian parties have strong support, enough to enter Riigikogu

Four Estonian parties are believed to currently have enough support to enter the Estonian parliament, a broad opinion poll showed, as leading parties compete for voter backing.

Vitol Group concerned over state of rule of law in Latvia; turns to state officials

One of the largest energy resource traders in the world – Vitol Group – has sent a letter to Latvia’s highest ranking officials, expressing deep concern over the rule of law and application of legislative acts in the litigation between LatRosTrans and Polocktransneft Druzba over the EUR 66 million worth technological oil.

As Pope heads to Baltics, more attention to Catholic sex abuse

The time, when Roman Catholic Pope Francis is set to visit the Baltics, greatly differs from the visit by Saint John Paul II in 1993. There is public resentment over the countries spending several million euros to host the trip of the pontiff and the Catholic sex abuse scandals are topic of discussion.

Officials asked to take responsibility for misuse of state resources

If misuse of state resources takes place, officials have to take responsibility and pay for the damages caused to the state, says Public Expenditure and Audit Committee chairman Andris Bērziņš.

May asks EU not to divide Britain, while Brussels waits for UK change of position

At a European Union summit in Austria, UK's Prime Minister Theresa May called on EU leaders leave behind "unacceptable" Brexit demands that according to her may rip Britain apart.

Saeima decides to divide EUR 8.3 million of healthcare budget funds to finance reforms

Saeima’s Budget and Finance Committee has supported the initiative to divide EUR 8.277 million from the planned chronic patient care funding to further finance reforms in the country’s healthcare system.

Newest comments