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Friday 19.10.2018 | Name days: Drosma, Drosmis, Elīna

Economic Diary: new year with new taxes

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The beginning of 2013 was marked by a number of legislative changes related to business activities.

As promised by the Latvian government, PIT has been reduced from 25% to 24% starting from January 1, 2013. Even though the difference is insignificant, it will allow entrepreneurs to save some money on workforce.

However, real estate tax rates have gone up. Their rates will now be set by municipalities from now on. This instrument was given to municipalities for the first time, so that they would be able to affect the residents’ level of welfare and business environment on their territory. The government reduced the maximum rate. For most objects, it will not exceed 1.5% from their cadastral value.

Requirements on the use of cash in business were also made stricter. In the past, enterprises were required to declare transactions worth up to 3 000 LVL with legal persons on a monthly basis. Now, this requirement is active for transactions worth 1 000 LVL. Furthermore, transactions worth 2 000 LVL or more with individuals that do not perform any business activities will be required to be reported annually. Finally, the maximum allowed payment amount in “live” currency was reduced from 10 000 to 5 thousand LVL.

But the most important event – Latvia gradually introduces a holding regime. Starting from January 1, Corporate Income Tax on inbound and outbound cross-border dividends is cancelled. Tax payments from interest payments and royalties will no longer be collected from the ones going to EU countries. Starting from January 1, 2014, the same will apply to payments in favour of companies from third countries. Furthermore, starting from 2013, income from share sales will not be subject to this tax; losses will not be allowed to be used to reduce the taxed income.


The name of the first businessman in Latvia to complete the entire process of registering a firm using the portal was revealed this week. It was Janis Gailis, a businessman from Valmiera, who created the Ajanapa Company in the end of 2012. He was even congratulated by Justice Minister Janis Bordans.

It became possible to register a firm without having to leave the home computer in November 2012. Using electronic services, it is now possible to not only found a company, but also make changes and receive all the necessary information. The filling out of all the applications, provided the person knows the information he needs to input in each space, does not take longer than 30 minutes. If the person chooses a fast procedure, his company is created within one day’s time. The standard procedure takes three days.

The amnesty, which no one really needed

The first week of 2013 marked the conclusion of the collection of applications from individuals and legal persons that wanted to participate in the tax amnesty initiative of the State Revenue Service (SRS). It was planned in the beginning of the project that nearly 110 thousand companies and residents would use the opportunity of having part of their tax debts written off. However, the real results turned out to be far more modest. There were only 1 792 applications submitted in the period from October 1, 2012 to January 2, 2013: 1427 applications stated the write off of nearly 10 million LVL in uncollected taxes.

Social organizations representing the interest of business do not believe the tax amnesty initiative has failed: more than three thousand individuals have used it. However, it should have been carried out earlier, they note.

“We proposed a similar initiative two years ago. If it had been realized then, the count would have been tens of thousands. This is, at its core, a remedy for the consequences of the crisis. Like any medication, it should be taken at the right time. Unfortunately, many did not last long enough to be able to use it, and are now in the middle of an insolvency process,” – says the Chairman of the Latvian Chamber Commerce and Industry Janis Endzins.

Once more about taxes

This week marked the conclusion of the European Commission’s proposal to review the current system of beneficial VAT rates in EU countries.

Consumers and business representatives were able to give assessments to the current order and offer their own ideas regarding possible changes. The processing of results may take up to several weeks. It is planned to prepare specific legislative initiatives based on these opinions in 2013.

In general, Brussels is aiming towards cancelling VAT benefits, which are not the same in different countries and prevent effective function of the single EU market. Furthermore, it is important to make sure that similar products and services are charged with taxes equally.

“EU countries need new income sources, business needs less complicated tax system with lower expenses. We are more interested in the question: will specific beneficial tax rates bring the profit they were intended to bring, or create more trouble than they are worth?” – notes European Commissioner for Budget and Financial Planning Algirdas Semeta.

The European Commission believes that limiting the use of lowered VAT tax rates would allow the governments to increase budget revenue without having to increase taxes. Furthermore, the standard VAT rate could be reduced in some countries.


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