Several changes in the tax field from 1 July

At the end of last year, the Saeima adopted several amendments to various tax laws and regulations, some of which enter into force on 1 July 2021. They will affect employers, micro-enterprise tax payers (both company owners and employees), persons carrying on economic activities, recipients and payers of royalties, and excise duty payers. We would like to remind you of the most important changes and encourage you to learn more about them in the “Tax Changes 2021” section of the State Revenue Service (SRS) website.

Changes for employers

As of 1 July 2021, minimum mandatory state social insurance contributions (minimum mandatory contributions) will be introduced. If an employee’s salary in a quarter is less than three minimum monthly wages set by the Cabinet (€500 per month in 2021, or €1,500 per quarter), the employer must pay the minimum mandatory contributions from its own funds on the difference between €1,500 and the employee’s declared salary (the contribution base). 

The State Social Insurance Agency will calculate the minimum mandatory contributions additionally payable by the employer and notify the employer of these contributions in the Electronic Declaration System.

Changes for micro-enterprise tax payers

As of 1 July 2021, employment taxes on the salaries of employees of a micro-enterprise tax payer must be paid under the general procedure, namely, personal income tax and mandatory state social insurance contributions (VSAOI) in full.

As of 1 July 2021, minimum mandatory contributions must also be paid by self-employed persons who have chosen the micro-enterprise tax regime and whose income is less than the minimum wage set by the Cabinet—€500 per month or €1,500 per quarter. Micro-enterprise tax payers who are employers must make these contributions both for themselves (if they do not work elsewhere) and for their employees.

If a micro-enterprise tax payer who is not simultaneously an employee forecasts that their income from economic activity will no longer reach €1,500 in each quarter during the rest of the year, they must submit an application to the SRS indicating their planned income for the following quarter. In that case, minimum mandatory contributions for the self-employed person (the micro-enterprise tax owner) will not be calculated and will not have to be paid.

The application must be submitted in free form in the “Correspondence with the SRS” section of the Electronic Declaration System: by 15 July 2021 for the third quarter of 2021; by 15 October 2021 for the fourth quarter of 2021.

Changes for micro-enterprise employees

As of 1 July 2021, micro-enterprise employees who were hired by 31 December 2020 (and who are not company owners) may submit their tax booklet at their primary place of employment and apply the non-taxable minimum to their income and receive tax relief for dependants. From 2022, they may also submit an annual income tax return and receive a refund of overpaid personal income tax.

Changes for persons carrying on economic activities, or self-employed persons 

As of 1 July 2021, self-employed persons must make VSAOI contributions for pension insurance at a rate of 10% (instead of the previous 5%).

The procedure for self-employed persons making VSAOI contributions remains unchanged:

• if monthly income from economic activity reaches or exceeds the minimum wage (€500), contributions of 31.07% must be made on at least €500 (or on a higher contribution base selected by the person), and 10% on the difference between actual monthly income and €500 (or the higher contribution base selected).

• if income is less than €500 per month—10% of actual income.

As of 1 July 2021, minimum mandatory contributions must also be paid by self-employed persons whose income is less than €1,500 per quarter. Self-employed persons who are employers must make these contributions both for themselves (if they do not work elsewhere) and for their employees.

If a self-employed person who is not simultaneously an employee forecasts that their income from economic activity will not reach €1,500 per quarter, they must submit an application to the SRS indicating their planned income for the following quarter. In that case, minimum mandatory contributions will not be calculated and will not have to be paid. The application must be submitted in free form in the “Correspondence with the SRS” section of the Electronic Declaration System: by 15 July 2021 for the third quarter of 2021; by 15 October 2021 for the fourth quarter of 2021.

Changes for royalty recipients

From 1 July to 31 December 2021, authors may continue using the royalty tax payment regime without registering economic activity; however, several significant changes must be taken into account. The tax rates have changed—the royalty payer withholds tax at source on royalty income as follows:

• up to €25 000—25%
• over €25 000—40%.

The royalty payer does not apply deemed expenses before withholding the tax.

This new payment procedure does not apply to collective management organisations. The procedure for withholding tax on royalties received from collective management organisations remains unchanged.

As of 1 July 2021, royalty recipients whose income is less than €1,500 per quarter must make minimum mandatory contributions.

However, if a royalty recipient who is not simultaneously an employee forecasts that their income from the royalties received will not reach €1,500 per quarter, they may submit an application to the SRS indicating their planned income for the following quarter. In that case, minimum mandatory contributions will not be calculated and will not have to be paid.

The application must be submitted as a free-form notification in the “Correspondence with the SRS” section of the Electronic Declaration System: by 15 July 2021 for the third quarter of 2021; by 15 October 2021 for the fourth quarter of 2021.

Changes for royalty payers

For royalty payers that are collective management organisations, the procedure for withholding tax remains unchanged. For royalty payers that are not collective management organisations, a new procedure for paying and declaring personal income tax will apply to royalties paid from 1 July 2021 to 31 December 2021.

More information is available in the “I am a royalty payer” section of the SRS website, www.vid.gov.lv.

Changes for excise duty payers

The main changes in the area of excise duty concern businesses that carry out or plan to carry out activities involving heated tobacco, liquid used in electronic cigarettes, its components, and tobacco substitute products (for example, nicotine pouches, etc.).

As of 1 July 2021, liquids used in electronic cigarettes, their components, tobacco substitute products, and heated tobacco must bear excise duty stamps.

A person carrying out activities on 1 July 2021 involving liquids used in electronic cigarettes, components for preparing liquids used in electronic cigarettes, tobacco substitute products, and heated tobacco must take an inventory, as at 1 July 2021, of the liquids used in electronic cigarettes, their components, tobacco substitute products, and heated tobacco owned by that person that do not bear excise duty stamps and for which excise duty was paid by 30 June 2021.

Liquids used in electronic cigarettes, components for preparing liquids used in electronic cigarettes, tobacco substitute products, and heated tobacco that were released for consumption in Latvia by 30 June 2021 and do not bear excise duty stamps may be sold until 31 December 2021.

More information on obtaining excise duty stamps, paying excise duty, and conducting inventories is available in the “Excise Duty” section of the SRS website, www.vid.gov.lv.

Useful information

To explain exactly how these changes will affect businesses and different groups of residents, the SRS has held several online seminars on amendments to tax laws and regulations in 2021. All of them, as well as the seminar presentations and answers to questions asked during the seminars, are available in the “Tax Changes 2021” section of the SRS website, www.vid.gov.lv.

If you have any questions or uncertainties, please call the SRS Advisory Telephone at 67120000 or submit your questions in writing in the “Correspondence with the SRS” section of the SRS Electronic Declaration System (EDS).  It is important to note that when calling the SRS Advisory Telephone at 67120000, anyone can also receive a personalised consultation by logging into the SRS EDS during the call and providing the code displayed there.

Author:

Ministry of Finance

fm.gov.lv