Dear client and cooperation partner,
We draw your attention to new changes to tax laws, including amendments in relation to excise tax and corporate income tax, as well as our recommendation regarding payment of dividends.
1. NEWS FOR SMOKERS
Amendments to the law on Excise Tax come into force from 23 October 2009. The changes apply excise tax to tobacco products depending on the vehicle in which they are transported in a natural person’s baggage. Tobacco products imported in baggage of natural persons from abroad (countries that are not Member States of the European Union) will not have excise tax applied if the import is not commercial and the amount of tobacco products (in any combination) does not exceed the following numbers:
Import of these products will not be considered to be commercial if excise products are imported only once a day. The previous regulation, under which import of excise products would not be considered commercial if it does not take place regularly, was quite imprecise.
2. NEWS FOR DONORS
Amendments to the law “On Corporate Income Tax” come into force from 20 October 2009. The amendments supplement the law “On CIT” with a new section 20.1. This renews the rebate previously stated in section 20. Further, in the same way as until 1 July 2009 when section 20 was excluded from the law, companies will be allowed to discount tax by 85% from sums donated to budget institutions as well as associations, foundations, and religious organisations registered in Latvia or their institutions that have acquired the status of a public benefit organisation.
Moreover, the rebate will also be granted to donations to State companies that perform State cultural functions under the Ministry of Culture (for example, theatres), as well as (starting from 2011) associations, foundations, and religious organisations or their institutions registered in another EU or EEA member state, if these institutions have acquired a status that can be considered a public benefit organisation under the laws of the respective EU or EEA Member State. By 2011, a regulation must be prepared to administer donations diverted to associations and foundations established and registered in the EU.
Under the transitional regulations, CIT payers apply CIT discount to donations paid during the validity of section 82 (from 1 July to 20 October) under section 201 of the law. Thus for the whole taxation period, the tax discount is applicable, not the rebate, and the discount is limited to 20% of the tax.
3. SORAINEN RECOMMENDS CONSIDERING PAYMENT OF DIVIDENDS
Although the 2010 budget is still under development and final decisions in relation to tax changes are yet to be made, it has become known that the government has conceptually decided on expanding the basis for personal income tax. It is expected that a 10% tax will be applied to dividends. Although tax law amendments will most likely take effect on 1 January 2010, according to the latest public information the tax will be applied to dividends that are paid after the coming into force of the amendments, irrespective of the period when the profit was earned.
Although this change of conditions is contradictory to the principle of legal reliance, in order to decrease the burden of taxes it is worth considering options to pay dividends this year.
4. QUESTIONS FROM SORAINEN CLIENTS
In this section we draw your attention to topicalities important for our clients at this time. This tax newsflash covers dividend payments to non-residents.
On paying dividends to non-residents, an enterprise must deduct tax at 10%. However, in relation to dividends the law “On Corporate Income Tax” (CIT Law) provides for non-discrimination due to citizenship declared in the primary legislation of the EU – the Treaty Establishing the European Community. As a result, dividends received in Latvia by residents of other EU Member States should be tax-exempt in Latvia. On application of this exemption, many Latvian enterprises have encountered practical difficulties related to amendments to the CIT Law.
Starting from 1 January 2009, the CIT Law requires the taxpayer to have a statement from the tax administration of the place where the receiver of the dividends lives. The statement should confirm that the receiver of dividends complies with the following requirements:
a) the receiver’s form of business is mentioned in Appendix No 1 to the CIT Law,
b) under tax regulatory enactments of the EU Member State, the receiver is considered to be a tax resident of the respective EU Member State and on the basis of a tax convention concluded with a third country, the receiver is not regarded as a tax resident in a country that is not an EU Member State,
c) the receiver is a taxpayer who pays one of taxes mentioned in Appendix No 2 of the CIT Law unless the receiver is released from payment of the respective tax and can choose tax exemption.
Our recommendation to non-residents would be to clearly indicate the requirements of Latvian law to the parent company so that the requirements are included in the application for a statement and upon receipt of the statement to check whether the information you have is satisfactory for non-deduction of tax. Likewise we advise not only to ask for a statement from the non-resident but a copy of the application for the statement. Take into account that formally the previously used residence certificates do not meet requirements. Therefore, starting with this year, each case of money transfer to a foreign country must be carefully evaluated. Further application of the norm is related to interpretation of the new statement requirement. In practice, tax administrations of other countries usually do not confirm that an enterprise is registered in a specific form. In practice, foreign tax administrations issue residence certificates confirming that the specific company is resident in the country, but they fail to mention that the company is not resident in a different country. Therefore please contact your tax advisor if you are not sure about meeting these criteria.
5. SORAINEN PUBLICATIONS
The fallowing new Tax team publications are available In the Sorainen home page (to read the full articles in Latvian, please click here):
- Sorainen Tax team senior associate Diāna Kļuškina has published articles on “Non-resident payers of corporate tax in Latvia” and “Tax rebate to donors”.
- Jānis Taukačs, head of the Sorainen regional Tax team, has published an article on “VAT ‘optional provisions’ – already from 1 October?” in the magazine “Bilance”.
- Jānis Taukačs was interviewed for the magazine “Dienas bizness” on “The Government stumbles in the tax knot”.
- Sorainen Tax team associate Alisa Šurko has published an article on “Small victories in battle against VAT overpayment”.
You can also follow the most topical tax news on Twitter in Latvian and in English.
6. INVITATION TO SEMINARS
6.1. Significant changes in the EU and Latvian VAT systems
Sorainen Riga office Tax team invites clients and cooperation partners to a seminar on “Significant changes in the EU and Latvian VAT systems.” The seminar will take place on 5 November 2009 at 15:00 at Sorainen’s premises in Riga, at 21 Valdemāra Street, 4th floor, and will be held in Latvian. To read the programme and register for the seminar, please click here.
6.2. Pan-Baltic cross-border mergers: legal, practical and tax perspectives
Sorainen is organising seminars on “Pan-Baltic cross-border mergers: legal, practical and tax perspectives” in Sorainen offices in Riga, Vilnius and Tallinn. Tax aspects of Baltic cross-border mergers will be covered by Jānis Taukačs, head of the Sorainen Tax team. The seminar was held in Riga on 8 October, but you can still apply for the seminar in Vilnius (27 October) and Tallinn (10 November). To read the programme and register for the seminar, please click here.