Micro-enterprise Tax Law Reforms

Latvia: Parliament increases Latvia’s micro-enterprise taxation rates and decides on future reforms.

On 20 December 2016 the Latvian Parliament expeditiously approved amendments to the Micro-enterprise Tax Law. Consequently, starting from 1 January 2017, micro-enterprises with turnover up to 7000 EUR will be subject to a 12% tax rate, while micro-enterprises with turnover exceeding that limit will be subject to a 15% rate. Moreover, starting from 2018 all micro-enterprises will be subject to a 15% tax rate. However, restrictions regarding the areas of business in which micro-enterprises may be established have been eliminated, and – contrary to an earlier proposal – employers will not be obliged to provide minimum state social insurance contributions for employees.
Following State President Vējonis’s refusal to approve previously proposed amendments to the aforementioned tax code that would have abolished a specific tax bracket for micro-enterprises, the Parliament reassessed the possible tax rates. The President initially criticized the Parliament for failing to establish a preferential tax rate for small business owners, and therefore the prior proposal was rejected. But despite numerous propositions by political parties, a more business-friendly rate would have resulted in substantially reduced contributions to the state budget, and, consequently, fewer resources would have been directed to the state social security safety net.
The affirmed modifications have been met with widespread dismay among Latvian micro-enterprise owners. In addition, the new law has created mass confusion, for the new reforms were introduced just days before the new fiscal year. Although intended to close loopholes in the tax system many micro-enterprises were abusing under the old Micro-enterprise Tax Law, the current system is likely to impede the preferential micro-business environment present in Latvia while doing little to eradicate existing shortcomings.
Nonetheless, the Parliament now has until 1 June 2017 to devise a new tax mechanism to replace the existing micro-enterprise regime and establish a more straightforward tax system for such enterprises.

Source: Micro-enterprise Tax Law

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