We draw your attention to new amendments to tax legislation. As the situation in relation to many other amendments to tax laws is not clear at present, this Newsflash will provide an overview only on those amendments announced in the official gazette “Latvijas Vēstnesis” which came into effect in November or will come into effect in the very near future. In the next Tax Newsflash, to follow shortly, we will inform about amendments adopted by the Saeima (Latvian Parliament) at the second reading on 1 December this year.
1. CORPORATE INCOME TAX
New procedure for adjustment of income by payments of interest on loans
On 18 November this year, new amendments to the Corporate Income Tax (CIT) Law came into force. Under the amendments, taxable income in future will not have to be adjusted by payments of interest on loans received from banks that are located:
- in EEA countries (Norway, Iceland, and Liechtenstein);
- in a country that has concluded a convention or treaty with Latvia on avoidance of double taxation and non-payment of tax (for example, Albania, Azerbaijan, Belarus, amongst others). Income will also not have to be adjusted if a loan is received from the European Bank for Reconstruction and Development, the European Investment Bank, or the Council of Europe Development Bank. Previously, income through payments of interest on loans required no adjustment only when a loan had been received from banks located in Latvia or EU countries, or the State Treasury, the Nordic Investment Bank, or the World Bank Group.
Meanwhile, we also draw to your attention that although the list of exceptions has been extended, limitation of interest payment (Section 6.4 CIT) will also apply in future to interest payments from loans received from Latvian residents. Previously this procedure referred only to non-residents.
The above procedure is applicable as of the taxation period starting in 2010.
Good news to taxpayers involved in public and private cooperation
Amendments to the CIT law also lay down a procedure for writing off costs in relation to public and private partnership (PPP) contracts. Moreover, during the PPP contract period, a taxpayer will be able to write off in equal parts long-term investments made to a public partner’s fixed assets transferred by the PPP contract. These norms are also aimed to apply to PPP projects already under way.
The same procedure for writing off costs refers to concession contracts if the Cabinet of Ministers (CM) has approved conditions for granting a concession under the procedure laid down by law.
2. PERSONAL INCOME TAX (PIT)
Monthly non-taxable minimum and PIT allowance decreased
On 23 October this year, the CM adopted amendments to CM Regulations No 531 so that that the monthly non-taxable minimum will be LVL 25 as of 1 January 2010 (instead of the present LVL 35). In turn the tax allowance mentioned in Section 13.1.1 of the law on personal income tax (PIT) for each person (that is, for a minor, unemployed spouse, or parents and others) will be LVL 25 (instead of the present LVL 65).
Irrespective of recent statements in the mass media that international lenders object to decreasing the non-taxable minimum and that the situation can change any moment, so far no changes have occurred and the non-taxable minimum is expected to apply from 1 January 2010.
Decrease in daily expense allowances for business trips abroad
As of 14 November amendments to CM Regulations No 219 came into force. These lay down the procedure for compensating expenses related to business trips and employees’ official journeys. Under the amendments, the future daily maximum compensation to employees for business trips and official journeys not subject to PIT is decreased by LVL 5 to LVL 15 on average.
PIT to apply to employer-employee presents
By amendments to CM Regulations regarding income subject to payroll tax, the list of benefits exempt from payroll tax has decreased. As of 1 January 2010, payroll tax will also apply to presents and other benefits to employees. At present, payroll tax does not apply to employer presents not exceeding the minimum monthly salary (that is, LVL 180).
3. VALUE ADDED TAX
In the September 2009 Tax Newsflash we wrote about amendments to value added tax (VAT) on the:
- option for related taxable persons to unite in a VAT payers’ group;
- right to decrease VAT by the amount of VAT on bad debts;
- special tax regime (VAT exemption) in transactions involving import of products.
These amendments have now been adopted, and in effect from 1 December 2009. The amendments are discussed in detail in the September edition of the Tax Newsflash, which you can read here.
4. EXCISE TAX
On 7 November 2009, amendments to CM Regulations No 525 came into force. These lay down the procedure for a decreased tax rate or exemption from excise tax on separate oil products. The amendments mainly address decrease of the administrative burden on taxpayers who carry out business in a free port or a special economic zone (SEZ) and use reloading/transporting equipment at several addresses in one free port or SEZ territory.
Under the amendments, when reloading or transporting equipment is used in several addresses within one free port/SEZ territory, a single statement will be issued for marked fuel so that equipment containing marked fuel will be transportable between the addresses indicated in the statement. Previously a statement for purchase of marked fuel was issued for each address where marked fuel was stored and used.
5. NATURAL RESOURCES TAX
New regulations now control the procedure for exemption from payment of natural resources tax on goods harmful to the environment
On 21 November this year, amendments to CM Regulations No 1294 “Procedure for exemption from payment of natural resources tax on environmentally-harmful goods” came into force replacing previous Regulations No 489. The new procedure:
- specifies requirements as to territorial coverage within the scope of managing waste of environmentally-harmful goods under the law on administrative territories and populated areas;
- determines precise forms of plan with supporting documents to be filed with the administration; these forms simplify preparation and filing of plans and overviews;
- specifies collection of waste from environmentally-harmful goods at waste collection points and sorting in compliance with CM Regulations No 985 “Regulations on places for waste collection, sorting and composting of biodegradable waste” of 1 September 2009;
- specifies requirements for formation and application of waste management sites, as well as requirements for managers whose contractual partners do not pay tax on environmentally-harmful goods, which now also include the following additional events to be supported and facilitated: acceptance of environmentally-harmful waste from households at places where environmentally-harmful goods are sold, technical service workshops, repair shops and with the aid of mobile collection points;
- specifies and determines uniform criteria for evaluating conformity of systems for managing waste from environmentally-harmful goods, including criteria for informing the public and involving the public in management of waste from environmentally-harmful goods;
- determines that sites for collecting and sorting waste from environmentally-harmful goods cannot refuse to accept waste from environmentally-harmful goods during waste collecting and sorting place working hours if the owners or managers of those sites have concluded agreements with waste managers on collecting or sorting waste from environmentally-harmful goods;
- specifies financial security documents to be submitted to the fund administration and conditions for the term of their validity.
Note: taxpayers who have places and apply a system of waste management and are released from payment of taxes, or managers whose contracting partners are released from payment of taxes, must file a specified management plan with the administration fund no later than 11 December this year (Clause 2 CM Regulations).
New regulations in relation to procedure for exemption from payment of natural resources tax on packing and disposable dishes and tableware
On 21 November this year, CM Regulations No 1293 “Procedure for exemption from payment of natural resources tax on packing and disposable dishes and tableware” came into force replacing the previous Regulations No 446. As with Regulations No 1294, the amendments specify requirements for managers, documents to be filed with the administration fund, and the like.
Under the regulations, taxpayers who have set up and apply a system of management and are released from paying taxes, or managers whose contracting partners are released from payment of taxes, must file a management plan with the administration fund no later than 4 December this year (Clause 2 CM Regulations).
6. SORAINEN INVITES
On 1 June 2003, amendments to the law On Taxes and Duties came into force. The amendments limit taxpayers’ rights to tax repayment from the State by setting a three-year time limit on claims. Previously, for almost nine years this limitation had not existed so that taxpayers planned their activities relying on the fact that they would be entitled to refund of overpaid tax at any time. Although six years have passed since introduction of this limiting norm, taxpayers are still lingering in SRS and court corridors fighting for VAT overpayments that arose before the amendments came into effect.
Sorainen has filed a claim with the Constitutional Court on noncompliance of this norm with Sections 1 and 105 of the Constitution and asks readers who have faced similar difficulties in recovering VAT overpayments that arose before the norm came into effect, to contact us. We offer to assist you as well!
7. SORAINEN PUBLICATIONS
Sorainen home page now contains the following new Tax team publications (to read the full publications please click here):
- Jānis Taukačs’ blog in portal Db.lv – “How else could Latvia get EUR 238 million a year by not increasing taxes?”;
- Tax team senior associate Diāna Kļuškina’s blog in portal Db.lv – “Capital tax will be!”;
- Article by Diāna Kļuškina published in “Bilance” magazine – “Company Income Tax – discrimination prevented”.
Likewise please follow the most recent tax news on the Twitter portal in Latvian and English.