Several changes in the tax field as of 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 business owners and employees), persons engaged in economic activity, recipients and payers of royalties, and excise tax payers. We would like to remind you of the most important changes and encourage you to learn more about them in the State Revenue Service (SRS) website section “Tax Changes 2021”.

Changes for employers

As of 1 July 2021, minimum mandatory state social insurance contributions (minimum mandatory contributions) are being introduced. If an employee’s remuneration for a quarter is less than three minimum monthly wages set by the Cabinet of Ministers (in 2021—EUR 500 per month, or EUR 1,500 per quarter), the employer must pay the minimum mandatory contributions from its own funds on the difference between EUR 1,500 and the employee’s declared remuneration (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 wages of employees of a micro-enterprise tax payer must henceforth 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 monthly wage set by the Cabinet of Ministers—EUR 500 per month or EUR 1,500 per quarter. Micro-enterprise tax payers who are employers must pay 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 EUR 1,500 in each quarter of the current year, they must submit an application to the SRS regarding the planned income for the following quarter. In that case, minimum mandatory contributions for the self-employed person (the MUN owner) will not be calculated and will not have to be paid.

The application must be submitted in free form in the EDS section “Correspondence with the SRS”: 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 principal place of employment and apply the non-taxable minimum to their income and receive tax relief for dependants, as well as submit an annual income tax return as of 2022 and receive a refund of overpaid personal income tax.

Changes for persons engaged in economic activity, or self-employed persons  

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

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

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

• if income is less than EUR 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 EUR 1,500 per quarter. Self-employed persons who are employers must pay 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 EUR 1,500 per quarter, they must submit an application to the SRS regarding the 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 EDS section “Correspondence with the SRS”: 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 2021 to 31 December 2021, authors may continue to use 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 at the following rates:

• up to EUR 25,000—25%
• over EUR 25,000—40%.

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

This new payment procedure does not apply to collective management organisations. When royalties are received from collective management organisations, the tax withholding procedure remains unchanged.

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

However, if a royalty recipient who is not simultaneously an employee forecasts that their income from royalties received will not reach EUR 1,500 per quarter, they may submit an application to the SRS regarding the 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 EDS section “Correspondence with the SRS”: 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 tax withholding procedure 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 SRS website section www.vid.gov.lv “I am a royalty payer”.

Changes for excise tax payers

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

As of 1 July 2021, liquids used in electronic cigarettes, the ingredients used to prepare such liquids, tobacco substitute products, and heated tobacco must be marked with excise duty stamps.

A person carrying out activities on 1 July 2021 involving liquids used in electronic cigarettes, ingredients used to prepare liquids used in electronic cigarettes, tobacco substitute products, and heated tobacco must inventory, as at 1 July 2021, the liquids used in electronic cigarettes, the ingredients used to prepare them, tobacco substitute products, and heated tobacco in their possession that are not marked with excise duty stamps and for which excise duty was paid by 30 June 2021.

Liquids used in electronic cigarettes, ingredients used to prepare such liquids, tobacco substitute products, and heated tobacco released for consumption in Latvia by 30 June 2021 and not marked with 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 SRS website section www.vid.gov.lv “Excise Duty”.

Useful information

To explain exactly how these changes will affect businesses and various 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 SRS website section www.vid.gov.lv “Tax Changes 2021”.

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

Author:

Ministry of Finance