Tax in Latvia - 2011 key changes

As in the year 2010, also in year 2011 in Republic of Latvia tax rates changed and it affected every citizen – in the amount what had to be paid in specific taxes, in income, in prices of goods and services in which manufacturers and vendors included the new tax rates.

According to the amendments accepted by Saeima, from January 1, 2011 entered into force several changes in taxes and duties:

With the amendments to the Law „On Personal Income Tax” from 26% to 25% has been reduced the tax rate. Also in the Law have been clarified and added other provisions. For example, from year 2011, individuals whose income from capital gains does not exceed Eur 142 per month, can submit Declaration of income from capital to the State Revenue Service once a year. It is also provided that in years 2010, 2011, 2012 are released from imposing a PIT income of Unemployed persons, if the income is gained from the European Social Fund Operational Programme „Human Resources and Employment” or the State budget funds for active employment measures what have been qualified as scholarships by the State Employment Agency.

Amendments of the Law „On State Social Insurance” from January 1, 2011 changed the national social security contribution rate and it is 35.09%, of which the Employer has to pay 24.09%, but the Employee - 11% (until December 31, 2010 Employee had to pay 9%).

Amendments to the Law „On Property Tax” double previously presumed as negligible the real property tax on housing - depending on the cadastral value the tax rate now is 0.2% (if the cadastral value does not exceed Eur 57`000), 0.4% (from the part of cadastral value what exceeds Eur 57`000, but not exceeds Eur 107`000) and 0.6% (from the part of cadastral value what exceeds Eur 107`000). For land and buildings the tax rate is 1,5% from the cadastral value.

New is Law „On the Vehicle Operation Tax and Company Car Tax”. This Law is replacing the annual vehicle fee and charge for the benefit of Employer-owned vehicle for private use.

The Law provides the tax differentiation for cars registered after January 1, 2005, depending on the total weight of the car, engine capacity and power, the higher tax rate is set for high power and exclusive cars. The Law provides tax allowance and exemptions for farmers, large families, disabled persons, operational transport and transport of diplomatic missions.

Amendments to the Law „On Excise Tax” provide that tax for non-alchocolic drinks is Eur 7,4 per 100 litres (previously Eur 5,7 per 100 litres), tax rate for fuel with 5% biofuel add Eur 333 per tonn (previously Eur 233 per tonn). Excise tax for lead free petrol with 5% biofuel is Eur 383 per tonn (previously Eur 317 per tonn).

Also from January 1, 2011 entered into force amendments to the Law „On Excise Tax” for individual tobacco products. Namely, for cigars and cigarillas (for 1000 pcs.) rate is Eur 34 (previously Eur 16), smoking tobacco (for 1 kg) – Eur 41 (previously Eur 33).

In Latvia is introduced in other European Union Member States examined charge of financial stability. The charge is paid by the Credit institutions under the new Law „On Financial Stability charges”. The charge rate is 0.036% per year.

Also changes of tax rates are expected in year 2012. The Minister of Finance excludes the increase of VAT in Latvia, but in other fields the rates shall be increased. Minister of Finance explaints that it is necessary for not decreasing the State total income.

Amendments to the Law „On Taxes and Fees” are adopted. Amendments provide from July 1, 2012 to extend time limit for current tax payments, dividing them in terms up to one year, instead of the previous three months. Tax payments, late charges and penalty fees established by Tax inspection shall be divided into time periods or postponed for up to one year and six months instead of one year. Penalty fees shall also be reduced.

The law “On Taxes and Fees” is amended in the light of plan to combat the hidden economy and ensuring fair competition, as well as taking into account the International Monetary Fund recommendations.

Additional income is expected to gain from the beginning of 2012 by increasing the tax in Latvia on gambling, slot machines and gaming tables from 10% to 15%.

Charge of financial stability shall be doubled, increasing from 0,036% to 0,072% per year.

From year 2012 shall be repealed the property tax growth limit of 25%, what is established in the Law “On Property Tax”. Each local authority shall be able to decide whether in the territory to limit the increment of the property tax and what shall be the limit for growth. This amendment is offered by the proposed property tax reform of the Ministry of Finance.

Valters Gencs

Tax Attorney & Founding Partner

Gencs Valters Law Firm, Riga

Email: valters.gencs@gencs.eu

Tel: +371 67 24 00 90