Jānis Taukačs Partner janis.taukacs@sorainen.com
	Alisa Šurko Associate alisa.surko@sorainen.com

In this Tax Newsflash, we continue providing information on changes to Latvian taxes. This time, we explain news of micro-enterprise tax and personal income tax along with details of changes to taxes and fees and the new procedure for compensating business travel expenses. The SORAINEN news section contains the most recent publications by lawyers from the Tax & Customs Team.

Micro-enterprise tax

Reminder: Everyone wishing to apply the MET must register with the SRS by 15 December. SORAINEN articles (in Latvian) on MET are available here:

• Representation Expenses in the Accountancy of a Micro-Enterprise Taxpayer;
• Contemplation on Choice to Pay the Micro-Enterprise Tax;
• Should Income from Securities Transactions Be Subject to Micro-Enterprise Tax?;
• Choice to Become a Micro-Enterprise Taxpayer – for New and Already Registered Enterprises;
• Experts: Micro-Tax Will Not Suit Everybody;
• Possibility to Become an Employee of a Micro-Enterprise and the Tax Consequences Arising.

Changes to the law “On Personal Income Tax”

On 10 November 2010, several amendments to the PIT Law were announced. The most significant novelties are as follows:

1) On divorce, as of 1 February 2011 PIT will not be applied to sums received due to a divorce on the basis of a court judgment or to sums received in compliance with an agreement in the form of a notarial deed on division of spouses’ joint property concluded on dissolution of marriage.

2) If a debt is cancelled, as of 24 November 2010 income received from 1 January 2011 to 31 December 2012 as a result of decreasing or cancelling loan (credit) liabilities will be exempt. However, these changes are more of interest to natural persons who undertook loan (credit) liabilities until 2009 to purchase real estate for residence (and this real estate is secured by a mortgage) but who are on the brink of insolvency and cannot cancel the credit obligations mentioned. All other cases, for example decrease of loan obligations between spouses or among relatives, will be comparable to a gift for which the person in most cases should calculate PIT of 26%.

3) Changes to time limits for filing declarations and paying PIT. A new procedure for filing income declarations will apply. So an annual income declaration will have to be filed for income received starting from 2011, from 1 March to 1 June of the following taxation year (at present this term is set to 1 April). If the tax calculated exceeds LVL 450 (approx EUR 640), then the person can pay the PIT in three instalments – by 16 June, 16 July, and 16 August (so far, PIT had to be paid by 16 April, 16 May, and 16 June). Declarations will need to indicate only information that the SRS does not have. The SRS must ensure availability of this information.

Using cash in wholesale

Changes to the law “On Taxes and Fees” come into force providing mainly that as of 1 July 2011 only non-cash settlement in wholesale is allowed, except if a non-cash settlement is notified to the SRS in writing and if a register of buyers is kept allowing identification of buyers who settled in cash. In practice, wholesalers will most likely introduce client identification (loyalty) cards for this reason.

New procedure for compensating business related travel expenses

As of 27 October 2010, new CM Regulations No 969 “Procedure for Compensation of Costs Related to Business Travel” came into force replacing previous CM Regulations No 219. Although the new CM Regulations differ little from the previous ones, they still provide a couple of innovations.

For example, as of 1 January 2011 additional costs covered for an employee during a business trip due to the specifics of work may not exceed 70% of salary calculated for the respective month and the sum of calculated additional expenses. If, however, the sum of the expenses covered exceeds this threshold, then the calculated excess sum of additional expenses will not be compensatory and will be subject to tax. Until 31 December 2010, compensation for additional expenses incurred during business travel due to specifics of work is paid for each day of business travel at the rate of LVL 4 (approx EUR 5.70) (if business travel is in Latvia) or within the scope of the daily allowance mentioned in the appendix to the regulations (if the business travel is abroad).

SORAINEN news
Most recent publications by the Tax & Customs Team:

• Partner Jānis Taukačs’ commentaries in the articles “A Life-Buoy Will Be Thrown at Creditors” (in the newspaper Bizness&Baltija in Russian) and “Where Does the Big Fish Swim?” (newspaper Chas in Russian) the most recent blog “Short Instruction on How to Recover VAT if All Falls Apart” (in portal Db.lv in Latvian), as well as an interview “Zest is Needed!” (in the journal Lietišķā Diena in Latvian).
• Senior associate Diāna Kļuškina has published articles “Foreigners’ Services in Latvia and Subjecting Their Income to Tax” (in portal iFinanses.lv in Latvian) and “Responsibility for Payment of Taxes Instead of a Non-Resident” (in the journal Bilance in Latvian).
• Follow SORAINEN daily Twitter tax news here.

Participation at conferences:

• On 17 December this year, partner Jānis Taukačs will participate at the conference “Audit, Taxes and Accountancy 2010” with a presentation on “Positive Experience and Solutions in Disputes with the SRS”.
• On 25 December this year, senior associate Diāna Kļuškina will speak at the forum “How to Become a Micro-Enterprise?” organised by iFinanses.lv, the Latvian Chamber of Commerce and Industry and Latvijas Hipotēku un zemes banka (Mortgage and Land Bank of Latvia).

Landmarks & victories:

• Landmark – the number of Tax & Customs lawyers in SORAINEN offices in Lithuania and Estonia has significantly increased. Tax experts from the Big 4, Saulė Dagilytė and Elvira Tulvik, have joined.
• In addition to the recent victory at the Constitutional Court in a VAT case, SORAINEN recovered approximately EUR 200,000 for the client without court proceedings due to careful arguments submitted with references to the case law of the Senate of the Supreme Court and the EU, before adoption of the final decision at an SRS audit.