Latvia: Amendments to Personal Income Tax (PIT) Law are announced

On July 25, 2013 in the meeting of Secretaries of the State were announced amendments to the Personal Income Tax Law.

The Ministry of Finance informed that the amendments exclude from the PIT Law the provisions related to fixed-income tax regime, establishing two year transitional period, during which payers, who are registered as fixed-income tax payers, shall be able to continue the application of the regime, but new tax payers shall not be registered.

The tax payer who is registered as economic activity performer, not later that 15 days after submission of declaration, shall have to pay in the budget 50 Euros, if within the taxation year is not gained taxable income from economic activities or the estimated amount of the tax from income does not exceed 50 Euros.

It is also planned to include in the Law the tax anti-avoidance provision, to ensure that the tax payer can only register one status – to register the economic activity in general order, or to register as a micro-enterprise tax payer.

The draft Law provides that for the citizens, who have been granted state old-age pension (including preterm), shall be introduced the reduced patent fee - 17 Euro per year. The income from these payers can not exceed 3,000 Euros.

It is also expected that the PIT shall be imposed to so-called pension compared income - insurance indemnity, what is paid to the insured person according to life-annuity insurance contract.

Amendments shall establish reasonable and fair solution to the matter of PIT imposement to income from the alienation of the person`s real property:

1.) Also in future shall be maintained criteria – the real property has to be in the possesion of the person for 60 months and at least 12 month until alienation - the place of residence. If these criteria are fulfilled, the income of the natural person from the alienation of the property shall not be imposed with PIT.

2.) The additional exception shall be included that in case the natural person alienates the real property owned by the payer for more than 60 months and for the last 60 months before the day of alienation it has been person`s only real estate, such income shall not be applied with PIT.

3.) For persons with the Latvian nationality, who reside outside Latvia for more than six months, if these persons with the mediation of the diplomatic or consular representative office, or directly to the Office of Citizenship and Migration Affairs have announced their residence in a foreign country in accordance with the Population Registry Law, the period of 12 months shall be summarized, ie, it can be any 12 months within the period of 60 months, till the day of alienation of the property.

4.) The draft law also provides that from the tax payment is exempt the income from the alienation of the real property, if this income shall be reinvested in functionally similar property within 12 months from the day of alienation of the first real property. This functionally similar property has to be registered in the Landbook Registry as the only payer`s property.

The draft Law shall be reviewed by the Cabinet of Ministers and it shall be decided by the Saeima.

Valters Gencs

Tax Attorney & Founding Partner

Gencs Valters Law Firm, Riga

Email: valters.gencs@gencs.eu

Tel: +371 67 24 00 90