Tax changes in the Republic of Latvia in 2012-2013

On January 1, 2012 in Latvia came into force several legislative projects, what were in responsibility of the Ministry of Finance.

From January 1, 2012 are in force amendments in the Law on Lotteries and Gambling Duty and Tax, what increased the tax rate for gambling slot machines, card and dice games, roulette and video games for 15%.

Similarly entered into force amendments in the Law on Excise Duties. Amendments are applied on movement regularity criteria regarding individuals` performed import from the third countries.

Also have come into force amendments to the Law on Real Estate Tax, establishing that tax rates are being doubled: 1.) if the cadastrial value of the property does not exceed LVL 40`000 (USD 73`500) – tax rate is increased from 0,1% to 0,2%; 2.) from the part of the cadastrial value what exceeds LVL 40`000 (USD 73`500) but does not exceed LVL 70`000 (USD 128`700) – from 0,2% to 0,4%; 3.) from the part of the cadastrial value what exceeds LVL 70`000 (USD 128`700) – from 0,3% to 0,6%.

Also have come into force amendments to Law on the Micro-enterprise Tax. The amendments provide that if the micro-enterprise does not have the turnover in the taxation period, it loses the status of the micro-enterprise tax payer in the post-tax period. The amendments also provide that the micro-enterprise company board members can only be it`s employees – ie. natural persons who are employed on the contractual basis, owner of the micro-enterprise and as well a proctor.

The amendments to the Law on Personal Income Tax in Latvia specify the formulation of the norms regarding exemption from imposing PIT to allowances, what are received in and paid from the budget of other European Union (EU) and European Economic Area (EEA) countries.

To prevent that for similar income is imposed different tax rate, amendments establish that income from the property (for example, renting a property, if there is not performed business activity and recognized operating expenses) is assimilated to income from capital and imposed with the tax rate of 10%.

The income from the disposal of scrap metal is imposed with tax 10%, what is withheld in the place of payout of the income.

Since January 1, 2012 in Latvia is introduced the "reverse" (inverted) application order of the value added tax for construction services. Therefore VAT on supplied construction services is paid in state budget by the recipient of the services.

With the amendments in the Law on Value Added Tax from July 1, 2012 the value added tax rate is decreased from 22% to 21%.

There have also entered into force amendments in the Law on Financial Stability Duty, increasing the duty rate from 0.036% to 0.072%.

As already is known, from 2013 the amendments to the Law on Personal Income Tax shall establish the decrease of the Personal Income Tax rate. The personal income tax rate from January 1, 2013 shall be 24% instead of 25%.

Also with the amendments in Law on PIT shall be provided that further cash or non-cash upfront payments, served out by the company, shall be considered as employment income, if for them shall have not been made settlement of accounts (presented the purchase receipt or returned residual money) within 90 days after the end of the business trip, but in the other cases - within 90 days from the moment of serving the cash or non-cash upfront payment. There shall have to be calculated personal income tax and social security contributions, considering the mentioned upfront payments as employment income. It shall be assumed, that the sum of cash or non-cash upfront payment, for what is not made settlement of account, is the net salary.

Following the amendments to the Law on Taxes and Fees, from January 1, 2012 the tax payers shall have to provide the Tax administration with statutory content information regarding transactions between affiliated undertakings, to justify transfer price compliance with the market price.

With the amendments in the Law on Corporate Income Tax, from January 1, 2013 shall be established that determining the tax payers taxable income gains or losses from alienation of stocks (shares) shall be exempt from corporate income tax. Exception shall be income which is gained if holding company is the resident from low tax country – then shall be applied tax with the rate of 15%.

Starting from July 1, 2013 intellectual property payments and interest payments shall be exempt from tax in Latvia, if they are paid out to European Union or European Economic Area state companies.