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Dear clients and cooperation partners,
We are delighted to inform you that our Tax & Customs Team has received the international “Baltic States Tax Firm of the Year” award. Also in this Tax Newsflash, we continue providing information on changes to Latvian tax laws. This time, we explain amendments to the Personal Income Tax (PIT) Law. In the section under SORAINEN news you can read about the tax news seminar offer, as well as latest publications.
- AMENDMENTS TO PERSONAL INCOME TAX
- SORAINEN NEWS
First ever “Baltic Tax Firm of the Year” award goes to SORAINEN
The list of awards for law firm SORAINEN has gained an addition – prestigious publication International Tax Review has awarded the firm the title of “Baltic States Tax Firm of the Year”. This is the first time that Baltic tax firms have been evaluated.
SORAINEN won the “Baltic States Tax Firm of the Year” award for the most innovative international and cross-border tax advice in the region. The awards were based on the size, innovativeness, and complexity of tax matters advised between February 2009 and February 2010, as well as the general capability of a firm’s tax team. Tax firms were evaluated by International Tax Review staff, who consulted a large number of tax advisers, private-practice lawyers, tax executives, and in-house counsel. Transaction experience submitted by the SORAINEN Tax & Customs Team included tax advice to AON, Barclays Bank, Royal Boskalis Westminster NV, and Airo Catering Services.
International Tax Review, part of the Euromoney Legal Media Group, has established itself globally as the most authoritative magazine dedicated to international tax strategy. The annual European Tax Awards are now in their fifth year, though the Baltic States category was only included this year. For the “Baltic States Tax Firm of the Year” award, SORAINEN was nominated alongside Deloitte, Ernst & Young, and PricewaterhouseCoopers.
1. AMENDMENTS TO PERSONAL INCOME TAX
1.1. PIT will not apply to assistance for covering medical treatment costs
As of 9 June 2010, assistance in the form of money (any sum) received from a public benefit organisation to cover expenses for medical treatment will not be included in a person’s annual taxable income and thus will not be subject to PIT (26%). So far, only assistance received from charity organizations or from institutions financed by the state budget was exempt from PIT and only if it did not exceed the annual non-taxable minimum sum.
However, it should be noted that this assistance will be exempt from PIT only if the claimant proves use of the relevant sum for medical treatment by presenting the relevant documents. The public benefit organisation will be obligated to keep these documents available.
Although this assistance will be exempt from PIT, it should still be kept in mind that if the non-taxable minimum sum (also including this assistance in the form of money) exceeds four times the annual non-taxable minimum, then the individual concerned must file an annual income declaration and present documents in support to the SRS. Therefore it is important to take care of these documents and to obtain a statement from the public benefit organisation in time that it has these documents.
Likewise gifts (in total) received from natural persons for medicine and medical treatment services will not be taxable in future, if the following conditions are met:
- The gift is received as a non-cash transaction (that is, by bank transfer).
- The following supporting documents are available to the person who receives the gift:
- a doctor’s note or opinion confirming the need for medical treatment starting from the day when the gift was received; and
- other supporting documents confirming use of the gifted sum (for example, receipts, cashier receipts, and the like).
- The gift is used for medical treatment services within two years from receipt of the gift.
The new norm will apply from 2010. An exception is the case when a gift is used for cosmetic operations. That is, a gift can still be used for cosmetic operations and avoid being taxable but only if:
- a person receives the gift from a spouse or a relative up to the 3rd degree of kinship; or
- a person receives the gift from other persons and the sum of one or several gifts does not exceed LVL 1,000 (EUR 1,423) in a taxation year.
If medical costs are covered by gifts received from public benefit organisations or other parties, then the recipient of the gift will not be allowed to reclaim these costs from the state as justified costs (upon filing annual tax declaration).
1.2. Gifts for covering education costs likewise not to be taxable with PIT
Gifts intended to cover expenses for acquiring higher education and all degrees of professional education, costs of obtaining a specialism (profession, trade, occupation) in Latvian educational institutions or programmes accredited by the state, as well as educational institutions of EU Member States and EEA States will be fully exempt from PIT.
As with gifts for medical treatment services, educational gifts are PIT exempt if the following conditions are met:
- the gift is received as a non-cash transaction (that is, by bank transfer);
- the recipient has supporting documents confirming use of the gift for educational purposes;
- the gift is used to obtain education within two years from the day of receiving the gift.
These expenses, if covered by gifts, will not be recoverable from the state (as justified costs upon filing a declaration). The procedure applies as of 2010.
1.3. Procedure for determining capital increase taxable with PIT
Previously, a capital increase was determined according to the formula:
Price of capital disposal – (purchase value of the capital asset + costs) = capital increase |
Starting from 2010, the capital increase will be calculated taking into account also any investment in a capital asset during the period of ownership. Shareholders’ investments in company share capital or real estate are considered to be such an investment; however, in relation to real estate it is regarded as an investment in a capital asset only when:
- supported by documents and related to improvement and renovation of immovable property;
- made after 31 December 1993;
- not acknowledged as taxpayer’s operational expenses either as wear and tear of fixed assets or as regular costs.
Thus, the formula for calculating capital increase will be as follows:
Price of capital disposal – (purchase value + costs + investment in capital asset during period of ownership) = capital increase |
The same procedure for calculating the capital increase will apply to liquidation quotas.
For a specific range of people the capital increase from real estate disposal taxable with PIT will be smaller if calculated by this formula (and the PIT payable to the state budget will likewise be smaller).
In future, claims for payments of interest on loans for purchase of a capital asset to be included in the purchase value of a capital asset will also be allowed only if supported by documents evidencing connection between the loan and purchase of the capital asset.
1.4. Recovery of taxes paid for capital increase
Amendments to the PIT Law likewise exclude from tax income from disposal of capital assets (capital increase) acquired on the basis of transactions concluded and registered under the procedure specified in regulatory enactments until 31 December 2009. This norm refers to all such income received from 1 January 2010. Persons who have already calculated or paid PIT on this income can correct it upon filing their declaration for 2010.
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2. SORAINEN NEWS
2.1. A SORAINEN invitation
Once again, SORAINEN would like to contact readers who have faced difficulties in recovering overpaid VAT until the coming into effect of amendments to Section 16, Clause 10 of the TD law in 2003 whereby taxpayers’ right to recover VAT overpayment from the state was limited by setting a three year time limit. We are ready to assist you as well!
2.2. Seminar offer on tax news
SORAINEN Tax & Custom Team lawyers are willing to organise specialist seminars on tax amendments operative from 1 January 2010 (for more information please see Latvian Tax Newsflashes No 18, No 19 and No 20) for employees of our client companies. Seminar topics depend on each client’s interest in a particular theme and on the specific character of their business. An agenda will be tailored specially for client needs and most important issues. For additional information or seminar applications, please contact Jānis Taukačs by e-mail.
2.3. Read the latest publications by specialists of the SORAINEN Tax & Customs Team
- Senior associate Diāna Kļuškina published an article in portal iFinanses.lv: “Will it be gainful to pay the micro-enterprise tax?”.
- Partner Jānis Taukačs’ article in magazine Bilance and latest blog in portal Db.lv: “Micro-enterprise tax – what's under it?”, “Justice can be obtained at the Ministry of Finance and the SRS – yes indeed!”.
All these publications, as well as the archive with previous SORAINEN tax publications, are available here.
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