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Sunday 19.08.2018 | Name days: Melānija, Imanta
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Tax reform challenge in January: labour tax recalculation

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU2018 commenced for Latvia with a historical tax reform and conceptual changes, significantly affecting everyday work performed by businessmen, employers and accountants. One of the changes financial specialists have to remember when calculating wages for January is the one for personal income tax, which also includes changes for state social insurance fees and solidarity tax, BNN was told by accounting experts.

Association of Accountants of the Republic of Latvia (AARL) board member Lilita Bērziņa says: «It is clear that the tax reform will have a significant effect on all Latvian businesses, because unlike other tax rates that change year after year, these changes are conceptual. The most topical challenge for accountants is wage calculation for January 2018, because not only the process has been changed, it has also become more complicated as a result of changes. More progressive calculation of personal income tax provides for an individual approach for every employer. The new law concept provides for diverting part of the responsibility to employees if they receive bonuses or have several jobs.»

The most notable change to PIT is a more progressive calculation of the tax, which provides three rates – 20% for income under EUR 20,004 a year, 23% for income from EUR 20,004 to EUR 55,000, and 31.4% for income larger than EUR 55,000 a year. At the same time, the law limits returns for eligible expenses and benefits. There is also the change of solitary tax concept.

PricewaterhouseCoopers (PwC) tax consultancy office manager Irēna Arbidāne: «Employees will feel changes from the tax reform immediately – in the form of net wage increase. Benefits from massive changes are expected in a long-term perspective – in the form of tax payment culture and transparency. People have to keep in mind that changes will require more work and processing of a large volume of information by accountants. Experienced professionals have a lot of questions.»

AARL and PwC specialists have compiled aspects accountants and employers have to remember after massive labour tax changes:

Considering progressive calculation of PIT, calculation of wages will be a more complicated process. It will require more time and effort from accountants, which could increase workload for them.

Considering differentiated PIT calculation and the option to carry over eligible expenses and benefits between different income forms paid by a single employer, it will be easy for accountants to make mistakes in wage calculations.

Introduction of a progressive PIT puts a greater degree of responsibility for employees as well. This means accountants will have more questions for employees – it will be necessary to perform more interviews to clarify details.

The number of residents who will have to submit income declarations will increase.

Rules and information regarding topical labour tax changes are not available in a single documents – accountants have to study associated Cabinet of Ministers requirements and official documents.

These and other major matters associated with labour force tax changes will be reviewed and discussed during the thematic Tax Reform Marathon. It is a programme of training seminars organized by AARL and PwC to help keep managers, financial directors, accountants and other interested parties about important tax changes.

Ref: 224.109.109.4094


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