Most important Latvian tax changes in 2016

Hereby we describe the latest amendments in Latvian tax laws.

Minimum wage, Personal Income Tax and non-taxable income

State Budget is still under the pressure and the government is searching for the ways to reduce the gap between raising social expenses and State income. There are some new tax incentives in order to improve the existing situation in the Budget. Minimum wage is set to be 370 EUR from the 1^st January of 2016 (instead of previous 360 EUR). Personal Income tax rate still remains 23% however it was said to be gradually decreased. Non-taxable income which was previously 75 EUR is changed to a variable amount which will depend on income – basic limit will remain at 85 EUR.

Due to the reasons mentioned before, Latvia cancels the benefit for those employees or self-employed persons whose taxable income was exceeding 48 600 EUR. Since 01.01.2016 the amount exceeding the threshold of 48 600 EUR shall become taxable with Solidarity tax. It is calculated the same way as social contributions – 10.5% paid by employee and 23.59% paid by employer – 34.09% in total. The Ministry of Finance explains that only 4.7 thousand people will be affected by this new tax.

Microenterprise tax

The long discussions about the necessity of Microenterprise tax regime have led to the new (but not the last) amendments to the Law on Microenterprise Tax. The tax rate until 01.01.2017 remains 9% for the turnover reaching 100 000 EUR. Since 01.01.2017 the effective rate shall be 5% (from turnover) in the first three years of operation, but in the fourth year of operation it shall be 8% (instead of 12%). The maximum allowed number of employees remain 5 and maximum turnover – 100 000 EUR. The employees should be informed in a written form that they work for the company registered for Microenterprise Tax regime. Due to the distorting difference between social protection of regularly employed persons and those employed by microenterprises the last amendments introduce additional payable social contributions for those employees working for the microenterprise. This amendment will enter into force starting from 01.01.2017. Also the microenterprise tax regime shall not be applicable in 37 certain fields of activity, but this clause is also recently postponed until 2017.

VAT news

The following changes to VAT Law come into effect since 01.01.2016:

• reverse charge for mobile phones, computers and electrical components - effective from 1^st of April, 2016;
• 21% VAT on ticket sales for commercial culture events;
• 21% VAT on maintenance fee of real estate - effective from 1^st of July, 2016;
• Allowed limit of input VAT of deductible car expenses is reduced from 80% to 50%.

Financial information exchange

In order to reduce the impact of grey economics as well as improve the discipline of tax paying the government has approved the rules setting the order of automatic information exchange between financial institutions and State Revenue Service. One of the focus points of SRS shall be the information on non-resident accounts kept in Latvian banks.