In 2018 several changes take place in Latvian tax system. Like anything new, the changes in the system will take time to get used to and will initially create more work for accountants. In this article, we bring out the most important changes.
In quite many changes Latvia actually follows the lead of its neighbor – Estonia. This gives 1Office clients a huge advantage because having offices and teams in both countries enables us to take the experience we already have from Estonia and put it to good use to consult our Latvian clients.
Changes in companies’ taxation
CIT will be raised from 15% to 20%. The most significant change is that the corporate income tax (CIT) is going to be payable on distributed profits only. No CIT is payable if the profit is reinvested. CIT is not applicable if the income from which the dividends have been paid has already been subjected to CIT or withholding tax. The CIT exemption for income from sale of shares has been maintained, in case the holding lasts for a period of at least 36 months.
To encourage small businesses in Latvia there is a micro-enterprise tax in effect, that allows individual merchants, farms etc. to pay a tax of 12% of their turnover from up to 7000€ and 15% from their turnover up to 100 000€. From 2018, there will be a flat rate micro-enterprise tax of 15% and the annual turnover will be limited to 40 000€. The law will be toughened and the status of micro-enterprise will be applicable for fewer businesses.
The VAT threshold will be reduced from 50 000€ to 40 000€.
Amended VAT law introduces a VAT reverse charge mechanism for certain transactions, for example construction services.
Changes in personal income tax
Minimum monthly wage is raised from 380€ in 2017 to 430€ in 2018.
Current flat personal income tax (PIT) 23% will be changed into progressive starting from 20% up to 31,4%.
PIT rate for income from capital gains will be a flat rate of 20%.
Dividend income is tax-free if CIT has been paid.
From 2018 everyone whose income (including salary, but also other taxable income) does not exceed 440€ a month will have a non-taxable monthly minimum of 200€.
From 2018 social tax rate will be increased by 1 % from current rate 34,09% to 35,09%. The employer shall contribute 24,09% and employee 11%.
