The Foreign Affairs Committee: Latvian businesses must be provided with equal opportunities in the transportation of goods of strategic importance

Starting from January 1, 2025, the national minimum monthly wage will be increased from 700 euros to 740 euros

Information from the Cabinet of Ministers of the Republic of Latvia

Foreign investors propose reducing overtime pay; the proposals still need to be discussed

A draft law on cash regulation has been submitted for public consultation

Information from the Ministry of Finance of the Republic of Latvia

The Fiscal Risk Declaration has been submitted for consideration to the Cabinet of Ministers

Information from the Ministry of Finance of the Republic of Latvia

It is intended to promote the development of instant payments in Latvia

On Tuesday, June 25, the government approved two prepared draft laws to ensure equal competitive conditions for payment service providers. This will expand the opportunities for providing payment services, which, in turn, may positively affect the prices of such services.

The amendments aim to promote the payment sector, especially the development of instant credit transfers or instant payments. Payment institutions and electronic money institutions licensed in Latvia, other European Union countries, and European Economic Area countries that provide payment services will be able to become direct participants in the payment system. This will further promote competition and ensure equal conditions for the provision of payment services.

An institution wishing to become a direct participant in the payment system will need to ensure compliance with the requirements mentioned in the Law on Payment Services and Electronic Money, which may necessitate additional improvements to the institution's procedures and investments in new technical solutions.

Draft law on amendments to the Law on Payment Services and Electronic Money.

Amendments to the Law on Settlement Finality in Payment and Financial Instruments Settlement Systems.

The draft laws still need to be reviewed by the Saeima.

Information from the Ministry of Finance of the Republic of Latvia.

A draft law that will reduce administrative burden and promote cooperation with taxpayers has been submitted for public consultation

The Ministry of Finance has submitted amendments to the Law "On Taxes and Duties" (draft law) for public consultation on the Legal Acts Project (TAP) portal. These amendments include several significant changes and clarifications aimed at reducing the administrative burden for both taxpayers and the administration.

To promote cooperation with taxpayers and simultaneously reduce the administrative burden, the draft law proposes improving the regulation of penalty calculations. It stipulates that penalties for late payments of taxes (excluding customs duty), fees, and other state-mandated payments in the unified tax account will be calculated only twice a month, on the 1st and 15th of each month. Moreover, penalties will not be calculated if the overdue tax payment is received by the next penalty calculation date. Additionally, penalties will not be calculated if a declaration is submitted late, but a payment has been made into the unified account by the due date, which has not been used to cover other liabilities at the time of submission.

Given the increased costs of tax debt collection, the draft law proposes raising the threshold for initiating tax debt collection from 15 to 40 euros. However, the uncollectible tax debt threshold remains unchanged for property tax and will continue to be 15 euros.

To ensure clear and consistent interpretation of legal norms, the draft law proposes excluding the signs of suspicious transactions in the field of taxation from the law. This means that a subject of the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing (Prevention Law) will report a suspicious transaction to the State Revenue Service only if there is suspicion that the funds involved in the transaction were obtained directly or indirectly as a result of a criminal offense in the area of state revenue.

Considering the applicability of the new European Union de minimis aid regulation, from June 30, 2024, the draft law plans to exclude de minimis aid in the fisheries sector from the law – the tax administration's right to reschedule or defer overdue tax payments for up to five years if the Cabinet of Ministers has approved the opinion prepared by the Ministry of Agriculture on the need to support a specific taxpayer in the fisheries sector in overcoming financial difficulties related to the restrictions imposed by Russia. It should be noted that since August 1, 2022, all taxpayers whose economic activities have been adversely affected for a prolonged period by circumstances of force majeure have access to a support solution – an extended tax payment deadline of up to five years. This permanent legal support regulation has been developed to avoid creating new support regulations in several laws related to overcoming specific crises when the tax payment deadline delay is caused by specific force majeure circumstances, including the armed conflict initiated by Russia in Ukraine.

To limit unregistered economic activity, tax evasion, and other violations, such as illegal and unauthorized trade of goods in the global network, the draft law includes regulations allowing the State Revenue Service to not only disable and suspend domain names but also restrict access to domain names or IP addresses in the territory of Latvia. Thus, the regulation included in the draft law expands the State Revenue Service's ability to act promptly and make decisions regarding domain names registered outside the Latvian zone.

To ensure the correct inclusion of information in the unified electronic working time accounting database, the list of information to be included in the electronic working time accounting system for persons employed at construction sites, as well as for employers and construction initiators, is supplemented. Correct inclusion of information in the said database will improve data quality, thereby enhancing the effectiveness of risk analysis.

The draft law can be viewed on the Legal Acts Project portal.

Information from the Ministry of Finance of the Republic of Latvia

Evaluations of the natural resources tax, VAT, and other tax regimes have been prepared

Based on the opinions and proposals expressed at the meetings of the Tax Policy Improvement Coordination Group, an assessment of the current situation with the natural resources tax and climate taxes has been developed, along with potential proposals for further action. An assessment of the current situation of small tax regimes has also been prepared, providing data-driven insights into the application of these regimes in Latvia and the influencing factors, as well as an evaluation of the current situation of value-added tax (VAT) with suggestions for further discussion.

The evaluation of the natural resources tax and climate taxes includes key indicators such as tax revenues, their share in the gross domestic product (GDP), tax exemptions, and a discussion on the future climate tax policy. Both tax rates and revenues have been compared among the Baltic States. In addition to their goals of limiting environmentally and climate-damaging activities, globally, natural resources and climate taxes are also viewed as financial resources to support a growth-promoting tax structure and appropriate government expenditures.

Given that Latvia must start the second phase of the Emission Trading System (ETS 2) from 2027, an evaluation was conducted on how to implement a gradual transition to expanding the ETS system. The evaluation includes information on the potential positive impact of the discussed proposals on the state budget, which would facilitate state support in matters related to environmental improvement.

The assessment of small tax regimes analyzes the possibilities of their application in Latvia and the factors influencing the choice of such regimes. It provides an overview of the number of taxpayers using one of the currently available small regimes, the total amount of revenue, and the current challenges. The material analyzes different forms of economic activity, their provided opportunities, and possible necessary solutions to address deficiencies. The importance of social insurance in the context of economic activity and the attraction of labor for short-term jobs is also examined.

Although the overall contribution of these regimes to tax revenues is small, they affect a significant number of Latvian residents. Interaction with one of the small tax regimes shapes the attitude of economic operators towards tax payment, understanding of equal competition conditions in the business segment, and perception of social security through the linkage of social contributions with received services and the general sense of whether the tax system is fair to those in similar conditions. In the context of the shadow economy, individuals working in one of these regimes are regularly mentioned as being in a high-risk area.

The main dilemma of small regimes is between the desire to simplify as much as possible the administrative and tax burden for small and/or irregular business operators with limited administrative resources. Thus, the tax aspects should not encourage participation in the shadow economy and should prevent the possibility of using these regimes to avoid tax payments or significantly reduce the amount of regularly paid taxes.

The VAT assessment compares Latvia with European Union member states. Both standard and reduced VAT rates are compared among countries. Indicators such as VAT revenues and their influencing factors, state foregone revenues resulting from the application of reduced rates and exemptions, and the VAT gap are evaluated. Analyzing VAT revenues in Latvia, it is concluded that they are increasing in absolute terms and as a share of GDP. In 2023, VAT revenues amounted to 9.6% of GDP, which is 0.3 percentage points higher than in 2022. Comparing Latvia's VAT revenue share of GDP with other EU member states, in 2022 it ranks 4th, surpassing Lithuania and Estonia and exceeding the EU-27 average of 7.5%.

The data collected in this evaluation indicate that the VAT system in Latvia works well overall and VAT is currently one of the most important sources of state revenue. Compared to the other Baltic States, reduced rates in Latvia are already applied to a wide range of goods and services. The existing VAT rate structure (reduced rates and their targeting) generally ensures that the share of VAT expenses in households with the lowest incomes is moderate compared to other EU member states. The evaluation includes information on the potential impact of the discussed proposals on the state budget, which would facilitate state support in meeting residents' expenditure needs.

During the development of proposals, discussions were held with social and cooperation partners, including the Employers' Confederation of Latvia, the Free Trade Union Confederation of Latvia, the Latvian Chamber of Commerce and Industry, the Foreign Investors' Council in Latvia, and others.

The assessments can be found in the section "Materials for the development of national tax policy guidelines" on the website of the Ministry of Finance.

For comments and proposals, please write to the email [email protected] by June 27.

Information from the Ministry of Finance of the Republic of Latvia

Starting from July 1, a new simplification for recognized businesses – centralized customs clearance – will be available to customs clients

In accordance with the European Union's regulatory framework in the customs field, starting from July 1 of this year, a new functionality – centralized customs clearance – will be introduced in the Automated Import System (AIS) for goods when submitting an import declaration.

Centralized customs clearance provides new opportunities for customs clients to review their business processes, optimize logistics flows, and consequently reduce costs. To use the new AIS functionality, a business must obtain a Centralized Customs Clearance permit.

The Centralized Customs Clearance permit can only be granted to holders of the Authorized Economic Operator for Customs Simplifications (AEOC) status.

A legal entity that has received the Centralized Customs Clearance permit can submit an import declaration to the customs authority of the country where it conducts its business, while simultaneously presenting the goods to the customs authority of another member state. The customs duty will be paid to the customs authority where the import declaration is submitted.

To obtain a Centralized Customs Clearance permit, a business must submit an application through the European Union's unified European Customs Decision System. Information on accessing the system and submitting an application is available on the SRS website.

Information from the State Revenue Service

Many are upset about the increase in tax rates for goods imported from the Russian Federation and Belarus

State Revenue Service information

The prohibition on importing certain agricultural products for release into free circulation from Russia and Belarus enters into force

According to the amendments to the legislation of the Republic of Latvia, as of March 8, 2024, it is prohibited to import fruits, vegetables, grains, and animal feed products from Russia and Belarus into Latvia, subjecting them to specific customs procedures. The ban also applies to the import of corresponding goods of Russian and Belarusian origin from other third countries.

Importation (import) into Latvia, according to the Law on Agriculture and Rural Development, refers to the release of agricultural and animal feed products in the following customs procedures:

1. Release for free circulation, except for release for free circulation for the purpose of supplying products to a recipient in another member state with exemption from value-added tax;

2. Import for processing, except for import for processing with the aim of destroying products;

3. Import for final consumption.

The ban does not apply to other customs procedures such as transit, storage in free zones, or customs warehouses.

The import ban applies to both companies importing specified cargo and private individuals - travelers and cargo truck drivers who transport goods in personal baggage for personal consumption, as well as individuals receiving postal or courier shipments.

According to Cabinet of Ministers Regulations No. 158 of March 5, 2024, "Regulations on the importation of prohibited agricultural and animal feed products into Latvia," the ban applies to the following agricultural and animal feed products:

• Fresh or chilled vegetables (potatoes, tomatoes, onions, cauliflower, cucumbers, carrots, peas, beans, mushrooms, etc.); frozen vegetables; temporarily preserved vegetables for transportation or storage prior to use; dried vegetables; dried legumes;
• Nuts, fresh or dried; fresh or dried fruits (bananas, dates, citrus fruits, grapes, apples, pears, cherries, plums, strawberries, etc.); frozen fruits and nuts; dried fruits;
• Grain products (wheat, barley, oats, maize, rice, buckwheat, etc.); screenings, husks, and other residues obtained by processing cereal grains or legumes; residues of flour production; beet pulp; oilcakes; ready-made pet food (with exceptions). All HS commodity codes subject to the ban are specified in the aforementioned Cabinet of Ministers regulations.

If customs procedures - release for free circulation, import for processing, and import for final consumption - are applied to the specified agricultural and animal feed products from Russia and Belarus or goods of corresponding origin from these countries, customs will not accept the release of these goods under these procedures. The processing of the specified customs procedures will also be denied if these goods were imported into Latvia before March 8, 2024, and were in temporary storage or if goods were subject to any customs procedure (e.g., transit, storage in a customs warehouse, or free zone).

State Revenue Service reminds that these restrictive measures are additional norms established in addition to the sanctions imposed by the European Union. Companies and individuals involved in international trade must ensure compliance with both EU-imposed sanctions and additional restrictions established by the legislation of the Republic of Latvia.

State Revenue Service information

Taxpayer rating is available to anyone interested in the SRS Public Database

As of today, February 28, 2024, on the website of the State Revenue Service, anyone interested can view the tax payment rating of each Latvian company. The rating is a evaluation by the State Revenue Service of the company's compliance with tax obligations and has an informative nature. The rating facilitates understanding of the company's situation for its business partners, clients, and other stakeholders.

Baiba Šmite-Roķe, Director-General of the State Revenue Service, says, "We have created the taxpayer rating to strengthen public understanding and demand for fair business, motivate entrepreneurs to work honestly, and practically help understand how to do it. This very practical tool was developed using data analysis and technology capabilities provided by the State Revenue Service. This is the beginning of a more open collaboration between entrepreneurs and the State Revenue Service, which we can further improve and strengthen."

Ināra Pētersone, Vice President of the Latvian Employers' Confederation and Executive Director of the Health Care Employers' Association, adds, "The taxpayer cares about their reputation, and the publicly available rating created by the State Revenue Service will undoubtedly help both the entrepreneur understand their position in cooperation with the State Revenue Service and compare it with market participants, and to choose a business partner more confidently."

Zlata Elksniņa-Zaščirinska, Chairperson of the Foreign Investors' Council in Latvia (FICIL), appreciates the efforts put into creating the taxpayer rating system by the State Revenue Service, emphasizing its role in promoting transparency. The system allows companies to easily obtain data on the tax compliance of their business partners, which is crucial for evaluating potential partners.

The company's tax payment rating, expressed with a letter, can now be viewed on the State Revenue Service website in the public database by entering the company's name and registration number.

Since the end of 2023, companies themselves have access to their rating and the detailed criteria that form it in their electronic declaration system (EDS) profile. The rating indicators serve as a roadmap for improvement in tax payment, providing information for companies to understand areas for improvement. This detailed information, visible only in the EDS, can be voluntarily shared by companies with their business partners and other stakeholders.

Healthy tax payment discipline and a good rating offer advantages in collaboration with the state. Companies with an A rating receive comprehensive support and a wide range of benefits, while control measures are planned only for companies with potential risks. The list of advantages available to A-rated companies can be found on the State Revenue Service website.

The rating is based on six sets of data: registration data, timely submission of declarations and reports, tax payment, applicable fines, the level of remuneration in the company (including a comparison with other professionals in the specific industry), and information indicating violations.

In summary, all companies have been assigned one of five rating levels:

• A-rated companies fulfill their obligations with the state on time and completely, with no significant risk of violations.
• B-rated companies generally fulfill their obligations, but there is room for improvement in the timely submission of more accurate declarations, timely payment of taxes, and industry-average labor compensation, allowing them to move up to a higher rating level.
• C-rated companies have been excluded from the VAT payer register or the State Revenue Service has decided to suspend their economic activities due to violations. The ability of such companies to fulfill their business obligations is critically evaluated.
• N-rated companies are inactive taxpayers, not conducting economic activities according to their self-declared information.
• J-rated companies are newly registered taxpayers, established within the last six months. They have not yet proven themselves with actions, so they are not evaluated. However, every new beginning that is being formed responsibly is welcomed.

As of February 1, 2024, 24,355 companies, or 18% of all Latvian companies, have received an A rating, constituting 87% of the state budget revenue. 60,013 companies, or 44%, have a B rating, while 8,727, or 6%, have a C rating. 4,212 companies, or 3%, were newly established, and 39,342, or 29%, are inactive taxpayers.

The establishment of the rating system was envisaged by the amendments to the "Law on Taxes and Duties" adopted by the Saeima on June 8, 2023. The rating system is part of a broader set of changes planned by the EU Recovery Fund reforms and investment projects specifically aimed at combating the shadow economy. Among other significant activities within these measures, improvements have been made to the State Revenue Service's working methodology, including the development of a handbook for reducing undeclared income and adjusting it to the current situation with the impact of COVID-19, as well as creating a more precise business typology for risk assessment.

For questions about the rating system, companies can contact the State Revenue Service through the usual channels, including the "Correspondence with the State Revenue Service" section in the EDS, or via a dedicated consultation phone line at 67120022. Both received questions and suggestions from companies are essential for the State Revenue Service's work in planning further improvements and development of the rating system.

Together, let's build an even better Latvia!

Information from the State Revenue Service (VID)

By May 1, the State Revenue Service (SRS) invites you to specify the main type of economic activity

In order for taxpayers to fully exercise their rights in the field of taxation, the State Revenue Service (SRS) must have information about the current economic main activity according to the NACE classification[1]. If the main activity changes in 2023, it must be reported to the SRS by May 1, 2024.

The reported main activity must correspond to the actual situation and reflect the taxpayer's - company or economic operator - affiliation to a specific industry and field of activity. If the main activity (the activity that accounted for the largest share in total turnover in that year) changes within the year, changes must be reported to the SRS from January 1 to May 1 of the following year.

Information about the main activity must be reported to the SRS Electronic Declaration System (EDS) in the section "Documents / From the form / Registration and data change forms for taxpayers / Notification of the taxpayer's main activity." Everyone can verify their currently reported main activities and their conformity to the real situation in the SRS publicly available database by entering the specific taxpayer's name, surname, and registration code. The NACE code classifier is available on the Central Statistical Bureau's website as well as in the EDS.

If the primary type of economic activity remains unchanged, information about the main activity for the next tax year does not need to be provided.

More information is available in the informative material "On reporting the main activity" on the SRS website in the section "Taxes/Useful/Notifications and declaration obligations/Informative and methodological materials." In case of questions or uncertainties, we encourage you to call the SRS Advisory Hotline +37167120000, as well as submit your questions in writing through the SRS Electronic Declaration System (EDS) in the section "Correspondence with the SRS." It is important to note that when calling the SRS Advisory Hotline, everyone can also receive personalized consultation if they connect to the SRS EDS and provide the displayed code.

[1] European Union's Statistical Classification of Economic Activities NACE 2nd edition.

Mortgage borrowers will be compensated 30% of the total interest payments

Mortgage borrowers will be compensated for 30% of the total interest payments on loans, as stipulated by amendments adopted in the final reading in the Saeima on Wednesday, December 6th, in the Consumer Rights Protection Law.

With the amendments, mortgage lenders will calculate the total interest payment compensation amount for each contract – 30% of the total interest payments. This information must be submitted to the State Revenue Service (SRS). Compensation must not exceed two percentage points of the specified total loan interest rate for the period.

According to the amendments, mortgage lenders will also provide information to the State Revenue Service about the borrower's bank account to which the compensation amount will be transferred. The calculation and payment will be made once a quarter.

The compensation amount for interest payments will be transferred to each borrower's account by the SRS, and credit institutions will inform their clients about it through their internet banking.

It is specified that income tax will not be applicable to the paid amounts, and debt collection cannot be pursued against them.

The compensation for interest payments applies to mortgage loans for which the contract is concluded by October 31st of this year, and the remaining balance does not exceed 250 thousand euros. Compensation will not be calculated for contracts issued with a fixed interest rate throughout the loan repayment period.

To ensure the payment of compensation for interest payments, a mortgage borrower protection fee is imposed on credit institutions. It is set at 0.5% of the total outstanding balance of mortgage loans issued by the lender.

The application of interest payment compensation and the mortgage borrower protection fee is scheduled to begin in 2024.

Most mortgage loans are issued with a variable interest rate tied to the EURIBOR benchmark interest rate, and the amendments to the law are proposed to provide support to residents when household payments for mortgage loans have increased due to this rate hike, as indicated in the project's annotation by the authors of the law.

Amendments to the Consumer Rights Protection Law will come into effect on January 1, 2024.

Saeima Press Service

FM initiates a broader discussion on changes to the personal income tax declaration system

On Monday, October 16, the Ministry of Finance (FM) will propose in a meeting of the ruling coalition parties to ensure broader consultations and discussions with government social and cooperation partners on planned amendments to the Law on Personal Income Tax (PIT), which aim to improve the general population's income declaration system. The FM will suggest removing these proposed law changes from the state budget draft package and subject them to further coordination.

"Considering that the concept of general income declaration is a very significant issue for the entire Latvian society, I propose ensuring broader discussions and consultations with social and cooperation partners on its content and implementation. I also suggest removing these law amendments from next year's state budget package. I believe that the planned amendments should be reviewed by the Saeima in the ordinary course, in three readings, after the state budget is approved," says Finance Minister Arvils Ašeradens.

The prepared law amendments are developed in line with the task set in the Shadow Economy Restriction Plan for 2021/2022 - to develop regulatory framework for the annual obligation of the general population to declare their income. The draft law aims to improve the existing general population income declaration system.

Ministry of Finance of the Republic of Latvia Information

A new system for processing export declarations has been introduced - the Automated Export System

As of October 10, 2023, a new system for processing export declarations, the Automated Export System, is in operation. It replaces the previously used Electronic Customs Data Processing System (EMDAS) Export Control System.

To process export declarations in the new system, users must log in to the State Revenue Service (SRS) Electronic Declaration System and, upon opening EMDAS, select the Automated Export System. Detailed information on how to complete declarations in the new system is available on the SRS website in the section dedicated to the Automated Export System.

It is worth noting that export standard declarations (EXA, EUA, COA), for which the processing was initiated in the Export Control System until October 10, will also be concluded within the Export Control System. This also applies to simplified and summary export declarations (EXB, EXC, EXX, EXY).

Any changes to declarations concluded in the Export Control System and the annulment (invalidation) of declarations will be handled in the "Post-Clearance" section of the Export Control System.

Information provided by the State Revenue Service (SRS) of Latvia.

The government supports proposals for changes in tax policy

On Tuesday, September 26, the Cabinet of Ministers considered an informative report on the development of the Basic Principles of State Tax Policy for 2024-2027. The report provides information on the work done in assessing the main challenges of tax policy and the resulting conclusions and policy objectives. It also identifies several tax policy issues that will be approved alongside the state budget for 2024, without significantly increasing the tax burden on entrepreneurs and citizens.

The informative report summarizes the work completed so far, including the review of 14 existing tax laws in Latvia, the modeling of macroeconomic scenarios, an assessment of the revenue potential of the Latvian tax system, and the strategic directions for tax policy related to the general goals of the state. The report also sets out the goals of the Basic Principles of State Tax Policy for 2024-2027.

The aim of tax policy is to support progress towards the macroeconomic target, which states that Latvia's economic growth should exceed at least 5% per year to ensure sustainable economic growth and consistent improvement of well-being by 2030, reaching the average EU level of prosperity.

The working group for improving tax policy development has reviewed various possible tax policy changes that will need to be carefully evaluated and modeled when preparing the Basic Principles of State Tax Policy.

The informative report includes various initiatives for possible tax changes that could be included in the 2024 state budget draft package. The overall fiscal impact is planned to be €162.9 million.

Following discussions in the working group, the Ministry of Finance proposed that the government support a special regime for the corporate income tax (CIT) for banks and non-bank lenders, which would require a payment of 20% of the previous year's profit. This is planned to be included in the budget draft package for the following year and is expected to have a fiscal effect of up to €140 million.

The report includes proposals for a gradual revision of excise tax rates to harmonize tax rates and conditions among the Baltic States. There are also proposed changes to gambling taxes, micro-enterprise taxes, and natural resource taxes, as well as a series of changes in tax reliefs.

Additionally, there is a proposal to include favorable thresholds for entrepreneurs by increasing the value-added tax (VAT) registration threshold from €40,000 to €50,000, as well as increasing the VAT input tax limitation for bad debts.

The goals of the Basic Principles of State Tax Policy are to achieve increased funding for sustainable public services and economic development, raise the well-being of citizens, and promote competitiveness in the Baltic region. It is important to consider that the geopolitical situation and the state's development cycle necessitate a significant increase in state funding for public services, especially in support of the healthcare and education sectors, and by investing in state security.

The state tax system must be fair, understandable, and predictable to taxpayers. The government has agreed that tax policy is subject to change once in the political cycle. An essential condition for implementing the Basic Principles of State Tax Policy is the improvement of tax administration and the reduction of the shadow economy. The goal of reducing Latvia's shadow economy is to approach the EU's average indicator by 2027.

The informative report is available on the Legislative Draft Portal. Information provided by the Ministry of Finance of Latvia.