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Dear clients and cooperation partners,
The first issue of the Latvian Corporate Advisory Newsflash covers practical information relevant to company management, with additional information on current amendments to the procedure for preparing annual financial statements, the procedure for registering new employees with the State Revenue Service, involvement of employees in decision-making, and on new regulation for commercial transactions. We also draw your attention to the latest tax law amendments.
USEFUL INFORMATION
Deadline approaches for filing annual report with State Revenue Service
We would like to remind you that under the Law on Annual Reports, all companies are required to file their annual report approved by the shareholders’ meeting with the State Revenue Service no later than one month after approval of the annual report and no later than four months after the end of the reporting year. Thus, if the company’s reporting year is the same as the calendar year, no later than by April 30. An exception is made for larger companies that comply with the criteria set by the Law on Annual Reports. These companies may file their annual report no later than seven months after the end of the reporting year.
In addition to the annual report and the auditor’s statement on the annual report (for those companies that satisfy the criteria set forth in the Law on Annual Reports, as well as companies whose articles of association or decision of shareholders’ meeting states that the annual report is to be reviewed by an auditor), the Commercial Law states that before approval of the annual report a board proposal must be prepared regarding distribution of profit (in case of losses – regarding improvement of financial status) and, if the company has a council, a report from the council regarding the annual report. Further, under the Law on Groups, dependent companies are required to prepare a statement of dependence, unless a group agreement has been concluded.
The annual meeting of shareholders for approval of the annual report must be held no later than by the deadline mentioned above, and the notice convening the meeting must be sent to shareholders of limited liability companies at least two weeks before the meeting (for joint-stock companies, the deadline is at least 30 days before the meeting). Along with the notice convening the meeting, shareholders must be sent the annual report, statement of dependence, auditor’s statement, and the report from the council, as well as the board proposal.
We remind you that even as of 1 July 2008, it is no longer a requirement to file the annual report and the documents annexed to it with the Register of Enterprises. The annual report must be filed only with the State Revenue Service, along with explanations on approval of the annual report by the shareholder’s meeting or shareholders’ meeting minutes (or an extract) on approval of the annual report.
Term of office of board and council members is limited
We recommend checking whether the term of office of current board members of the company (or council members, if a council has been formed) has not expired as generally board members are elected for three years if the articles of association do not set a shorter period. If the term of office of the board or council members has expired, the shareholders’ meeting should either re-elect the current officials for the next term of office or elect new ones, and the decision must be registered with the Commercial Register.
As the term of office of the board and council members usually comes into effect as of adoption of a decision by the shareholder’s meeting and as registration of any changes with the Commercial Register is only a mandatory action post factum, the term of office of the board and council members expires even before the term apparent from the public registers.
Do shareholders’ actual details correspond to the information in the shareholders’ register?
Under the Commercial Law, the shareholders’ register held by the board is the only document certifying the status of shareholders in a limited liability company or joint‑stock company (in the case of registered shares).
Quite often a shareholder changes its registered address, business name, or even type of company. In that case it is advisable to verify that the information or any changes is also communicated to the board of the companies in which the shareholder holds a interest so that the information in the shareholders’ register can be updated without delay. Additionally, limited liability companies must file the updated shareholders’ register with the Register of Enterprises.
If you have any questions on these issues or require our assistance in preparing any documents, please contact office managing partner Eva Berlaus (eva.berlaus@sorainen.com; tel. +371 67 365 000).
LEGAL NEWS
Procedure for preparing annual financial statements amended
On 1 January 2010, Amendments to the Annual Accounts Law came into force. Under these amendments, when preparing annual financial statements for reporting year 2009 (and subsequent years), companies which do not exceed two of the following criteria, that is:
- balance sheet total does not exceed LVL 250,000 (approx EUR 355,700);
- net turnover does not exceed LVL 500,000 (approx EUR 711,435);
- average number of employees in the accounting year does not exceed 25,
do not need:
- to prepare a cash flow statement;
- to prepare a change in the shareholders’ equity statement;
- to calculate and indicate the amounts of deferred tax assets and liabilities.
Changed procedure for registering new employees with the SRS
Starting from 6 February 2010, employers have to register new employees with the State Revenue Service (the SRS) not later than one day before they commence work for the particular employer. These changes are intended to reduce illegal employment. Relevant amendments were made to Cabinet Regulation No 942 of 2008 regarding registration of persons making mandatory payments of state social insurance and reports regarding mandatory payments of state social insurance and personal income tax.
According to the previous regulation, the employer had to register new employees with the SRS by the fifth day of the month following the month when the employee began working. Thus, during audits from state institutions, employers sometimes claimed that employees were working for them only for a couple of weeks so that by law they still had time to register the employees with the SRS.
Employers must involve employees in decision-making
On 21 January 2010, the Parliament adopted a law On Involvement of Employees in Decision-making in a European Company, a European Cooperative Society, and in Case of Cross-border Mergers.
The law states that from now on companies must involve employees in company decision-making (so-called participation rights) when a European Company or a European Cooperative Society is to be registered in Latvia or if their registered address is moved to Latvia, and in cases of cross-border merger.
To ensure the involvement of employees, companies will have to negotiate with a special negotiating group (employees' representatives) and to conclude an agreement on rules for involvement of employees in decision-making within the company. If no such agreement between employee representatives and the company can be reached or if both parties mutually agree, then employee involvement in decision-making will be governed under the general rules on employee involvement laid down by law. An agreement on involvement of employees in company decision-making must be filed with the Register of Enterprises together with other documents necessary for registration of the company.
Respective amendments have also been made to the Code of Administrative Violations, setting liability for employers who breach the rules on involvement of employees.
New regulation for commercial transactions
As of 1 January 2010, substantial amendments to the Commercial Law have come into effect by supplementing the Commercial Law with a completely new chapter regulating agreements on commercial purchase, commercial storage, and commercial commission, as well as forwarding, factoring, leasing, and franchising agreements. These amendments relate to separate spheres of commercial transactions and should be taken into account when planning transactions in 2010.
If you have any questions regarding new regulation of commercial transactions, or require a review of standard agreements used so far for transactions with clients or cooperation partners, please contact partner Agris Repšs (agris.repss@sorainen.com; tel. +371 67 365 000).
TAX NEWS
Income from capital gains to be taxable
Starting from 1 January 2010, when a natural person disposes of:
- shares, units, investments in a partnership, and other financial instruments;
- investment fund certificates and other transferable securities that confirm participation in investment funds or equal enterprises of joint investments;
- debt instruments (promissory notes, deposit certificates, short-term debt instruments issued by commercial companies) and other monetary instruments traded in money markets;
- real estate (including rights to acquire real estate);
- a commercial enterprise;
- intellectual property,
the difference between the disposal price of the listed capital asset and the purchase value (or the difference between remuneration received as a liquidation quota and the value of the respective investment) or the capital gain is subject to a personal income tax (PIT) rate of 15%.
A PIT rate of 15% must also be deducted if the transaction or any part of it does not take place, but under agreement provisions on capital disposal a person receives remuneration (for example, earnest-money or the like), which is not returnable.
Tax on income from capital other than capital gains
Income from capital (which is not a capital gain) consisting of:
- dividends or income from shares in a company (that is, a SIA or AS), or units in a cooperative society, or other rights not deriving from debt liabilities to participate in distribution of profit of these companies;
- interest and comparable income, also income related to interest income;
- income from investment of payments made to private pension funds;
- income from life insurance contracts with accumulation of funds
is subject to a 10% PIT rate. In contrast to other types of income, calculation of taxable income from dividend and interest income takes no account of costs related to acquisition of that income.
For more information about these and other amendments to the tax laws please refer to SORAINEN Tax Newsflash No 18.
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