We have informed our MindLink.lv subscribers about amendments to the Personal Income Tax (PIT) Act that were passed in May 2022. This article explores the amendments and how they affect taxpayers.
They broadly outline changes in a number of areas:
1. Additions to the list of income types that will be excluded from an individual’s annual taxable income and will not be treated as taxable income. In future the following income will be exempt:
2. The procedure for determining taxable income gained from business has been changed. When calculating taxable business income, business expenses will be fully deductible from revenues. Certain changes have been made to how business income is determined for taxpayers with double-entry bookkeeping (for details see our article “Sole trader’s expenses fully deductible again 2/49/22”).
3. Changes have been made to the special rules for determining income from an investment account to facilitate exchange of information for investment account holders (for details see our article “Personal Income Tax Act to be amended in 2022 1/45/22”). Changes have been made also to the income payer’s obligation to withhold tax on interest income at source. Specifically, the income payer will not withhold tax at source on interest income paid into an investment account. Such income will be taxed when funds are withdrawn from the investment account and when the amount paid out of it exceeds the amount paid in.
4. A new rate of 5% applies on interest income (and equivalent income) gained by non-Latvian residents if the following criteria are met under the PIT Act:
To determine the income recipient’s residence, they must provide evidence to the investment service provider or through the central securities depository under the due diligence procedures for automatic exchange of financial account information.
5. Income arising on the sale of a capital asset in the course of an individual’s insolvency proceedings is treated as gained on the date the court decided to terminate the proceedings.
Not long after these amendments were passed on 1 December 2022, Parliament also passed amendments to the PIT Act in their final reading, which provide for applying the royalties regime under the old procedure. The amendments extend the grace period available under the transitional provisions during which royalty recipients are not liable to register as sole traders. The previous law allowed royalty recipients to benefit from this treatment up to 31 December 2022 but the changes extend it to 31 December 2023.
The onus of remitting PIT and national social insurance contributions is still on the payer of income after withholding:
If you have any comments on this article please email them to lv_mindlink@pwc.com
Ask questionSection 5(1) of the Corporate Income Tax (CIT) Act lists payments made to non-residents that are taxable at source. Section 2(2) lists persons that are not subject to CIT. In practice this raises the question of whether non-CIT payers are liable to withhold it on payments made to non-residents. This article answers the question.
To measure the taxable income of businesses and individuals correctly, we need to assess whether self-employed expenses are associated with the conduct of business. In applying personal income tax (PIT), self-employed persons should follow the rules of the PIT Act and the Corporate Income Tax (CIT) Act, which in certain cases may cause disagreement with the State Revenue Service (SRS). This article explores some of the self-employed expenses the SRS may challenge if they are deducted as business expenses.
In one of our previous articles we looked at a Latvian-registered branch paying profits to a Lithuanian company and examined the corporate income tax (CIT) implications. This article explores the CIT implications of income (profit) that a Latvian company receives from its foreign branch.
We use cookies to make our site work well for you and so we can continually improve it. The cookies that keep the site functioning are always on. We use analytics and marketing cookies to help us understand what content is of most interest and to personalise your user experience.
It’s your choice to accept these or not. You can either click the 'I accept all’ button below or use the switches to choose and save your choices.
For detailed information on how we use cookies and other tracking technologies, please visit our cookies information page.
These cookies are necessary for the website to operate. Our website cannot function without these cookies and they can only be disabled by changing your browser preferences.
These cookies allow us to measure and report on website activity by tracking page visits, visitor locations and how visitors move around the site. The information collected does not directly identify visitors. We drop these cookies and use Adobe to help us analyse the data.
These cookies help us provide you with personalised and relevant services or advertising, and track the effectiveness of our digital marketing activities.