Do not miss deadline of December 15, 2011 to apply for 9% corporate income tax rate in Latvia for 2012

On December 8, 2011 the Parliament has approved on the first reading amendments to the Micro enterprise tax law in Latvia.

The law enables to pay flat-rate tax of 9% on turnover, not exceeding about EUR 100000. 

 The person has the right to apply for the acquisition of the status of the micro-enterprise taxpayer in Latvia  if:

1) the foreseeable number of the micro-enterprise employees will not exceed five employees;

2) the foreseeable turnover will be up to 70 000 lats (about 99 602 EUR).

The tax shall be paid four times a year on the turnover of each quarter.

The flat-rate tax of 9% includes the following tax payments:

• State social insurance mandatory contributions, personal income tax and entrepreneur risk state fee for employees of the micro-enterprise;
• Enterprise income tax if the micro-enterprise conforms to the features of enterprise income tax payer; and
• Personal income tax of owner of the micro-enterprise for earnings of micro-enterprise economic activity.

 A micro-enterprise which would like to acquire the status of a micro-enterprise taxpayer shall submit an application to the State Revenue Service by 15 December of the pre-taxation year, where conformity of the taxpayer is confirmed with the criteria specified above in relation to the next taxation period.

Within five working days after receipt of an application the State Revenue Service shall take a decision regarding registration of the micro-enterprise as the micro-enterprise taxpayer or a decision regarding refusal of registration, if the State Revenue Service has information at its disposal that the applicant does not conform to the criteria and restrictions for a micro-enterprise specified in this Law and, therefore, the status of the micro-enterprise taxpayer cannot be granted.

If the State Revenue Service takes a decision regarding refusal to register a micro-enterprise as the micro-enterprise taxpayer, such decision shall be sent to the taxpayer within a day after taking thereof. If the State Revenue Service takes a decision regarding registration of a micro-enterprise as the micro-enterprise taxpayer, then the status of the micro-enterprise taxpayer shall be applied from 1 January of the next taxation period. The micro-enterprise taxpayer is entitled to change the selected status of the micro-enterprise taxpayer and become a personal income taxpayer or an enterprise income taxpayer accordingly not sooner than before the end of the relevant taxation period. 

The taxation period of a micro-enterprise taxpayer shall be a calendar year.

The amendments to the Micro enterprise tax law envisage that procurator and board members shall be considered as employees of the company.

There are also indicated that the employee in the absence is  the employee, that certain period of time fails to fulfil its duties and within this period does not receive any income from the micro enterprise, for example, the person has the study vacation without receiving of the salary; is on the pregnancy, maternity, paternal etc. leave etc.

The planed amendments to the Micro enterprise tax law indicates that micro enterprise owner’s income is funds seized from the micro enterprise for the personal use in the each month of the relevant quarter; other money, services or other income received from the micro enterprise, excluding dividends. The employee’s income is the calculated salary for the current and previous month of the relevant quarter and other benefits received by the employee in cash or other goods received from the employer for the work in the micro enterprise, unless in the law is set otherwise.

If the owner of the micro enterprise has the Employment agreement with the enterprise, then incomes received as the result of employment relationship shall be considered as micro enterprise employee’s incomes.

In order to prevent avoiding from the tax payment, it is set, that if the micro enterprise will have no turnover in the relevant taxation period, that diverges from the calendar year, when the micro enterprise was registered, the enterprise will lose the status of the micro enterprise tax payer.

If the income of the employee will exceed 500 LVL (about 712 EUR) as result of calculation of the severance pay or compensation for unused vacation if the employment agreement is terminated and the work relationships is not restored within six months after termination of it, it is considered that the amount of the employee income (500 LVL (about 712 EUR) per month) has not been exceeded and no additional tax will be applicable to the exceeded amount.

Valters Gencs

Tax Attorney & Founding Partner

Gencs Valters Law Firm, Riga

T: +371 67 24 00 90

Email: valters.gencs@gencs.eu