Saeima approves next year’s tax reform – what will change?

The Saeima has approved a total of 12 laws associated with the reform after reviewing more than 300 proposals. Review of proposals that had nothing to do with the reform has been put off until the budget approval period, when they will be discussed in more detail.

In his speech to parliamentarians, Prime Minister Maris Kucinskis thanked them for their understanding and support. He said work that lasted for half a year has gained new value. Now the objective is using those tools to help the economy grow and improve residents’ welfare, said the prime minister. He also thanked the opposition, which proposed pragmatic proposals, as well as the government’s social partners. Kucinskis emphasized that the approved reform is a compromise. Finance Minister Dana Reizniece-Ozola also offered words of gratitude, emphasizing that there will not be any more major changes to the tax reform.
 

Saeima Budget and Finance Committee’s Chairman Janis Vucans (UGF) said this was the first step towards the tax reform’s realization. There is still important work to do in implementing the changes into the system.
 

The most massive changes are planned for the Personal Income Tax Law. Amendments are intended to introduce a differentiated PIT rate next year. The tax rate for annual income under EUR 20,000 will be 20%, for income under EUR 55,000 it will be 23%, and for income above EUR 55,000 – 31.4%.
 

Major amendments are also planned for the Law on State Social Insurance. Amendments state that social fees are to be increase by one percentage point. The rate of social fees paid by employers for insured employees will be 35.09% (24.09% covered by the employer and 11% – by employee).
 

Also amendments provide an obligation to perform mandatory payments from royalties. Recipients of royalties will perform 5% payments from royalties to insure their pension.
 

Minimal wage in Latvia will be increased to EUR 430 instead of EUR 380 next year. It is also planned to increase maximum differentiated minimum next year from EUR 115 to EUR 200. In 2019, it will be EUR 230 and EUR 205 in 2020. Non-taxable minimum will gradually reduce depending on income level. No non-taxable minimum will be applied for income above EUR 1,000 a month next year, EUR 1,100 in 2019 and EUR 1,200 in 2020. As for pensions – non-taxable minimum is planned to be increased to EUR 250 a month (EUR 235 currently) next year, EUR 270 in 2019 and EUR 300 in 2020.
 

A change will be added to PIT for patent fees next year – it range between EUR 50 to EUR 100 a month instead of the previous EUR 43 to EUR 100. A reduced patent fee amount will be applied for 1^st and 2^nd group invalids.
 

Amendments to the Corporate Income Tax Law are meant to introduce a new tax payment regime. This new regime allows postponing the payment of the tax until the moment revenue is divided or is otherwise diverted to other costs, ones that are unrelated to the company’s development. Amendments also state that calculated dividends will be applied with 20% rate. Dividends paid to private persons will not be applied with PIT.
 

Amendments to the Excise Tax Law are intended to compensate losses from tax reform’s realization. Amendments also provide for raising excise tax for fuel, cigarettes and alcohol.
 

Amendments to the micro-enterprise tax payment regime provide for maintaining a unified tax rate for all micro-enterprises at 15% for turnover. Maximum turnover is planned to be reduced from the current EUR 100,000 to EUR 40,000. Changes also state that from 1 January 2019 onward micro-enterprise employees will be allowed to work in a single company.
 

A reverse VAT rate will be applied to supplies of construction materials, metal products, household appliances and game consoles, thereby expanding the range of industries applied with reverse VAT payment order.

BNN/LETA

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