Flash News offers the latest information on current tax, accounting, legal and other business issues.
Sole traders were exempt from making advance personal income tax (PIT) payments in 2020, 2021 and 2022 after tax aid measures were adopted under section 6 of the Covid-19 Act. According to the current rules and the information published by the State Revenue Service (SRS), sole traders would have been required to resume advance PIT payments in 2023, with the first payment due on or before 23 March. However, proposals were submitted on 3 March to extend the deadline for another year.
Thanks to the considerable interest in PwC Academy’s introductory lecture in November, which offered an overview of the content of PwC’s Digital Academy (still available as a video recording), in January PwC’s Digital Academy Latvia launched a series of three webinars for managers, accountants, bookkeepers and everyone who works with data, reports and standard processes on a daily basis.
We are happy to share with our MindLink.lv readers the topics we discuss in our webinars.
In our article of 27 September 2022 we explored what Power Query is like and why we should use it, as well as giving a brief overview of what the tool offers. This article explores how we can benefit from using Power Query to compare data, because participants of PwC Digital Academy Latvia’s upcoming webinar on 23 February will have the opportunity to find out how they can set up templates in practice for comparing various types of data.
On 19 January 2023 the Cabinet of Ministers met to debate and approve proposals for amending the Company and Consolidated Accounts Act (CCAA), which provide for extending the time limits set for small companies to file their financial statements (FS). The amendments are to cover FS prepared for the year ended on 31 December 2022 and later. The proposed extension is one month.
Amendments to the Proof of Identity Act that came into force on 1 September 2022 will also affect entities that are subject to the Anti Money Laundering and Counter Terrorism and Proliferation Financing Act (“AML/CTPFA subjects”). If you want to keep your client relationships then you should evaluate how the amendments will affect them, and you should adopt solutions that will allow you to legally continue those relationships.
As Russia continues the war in Ukraine, the US and the European Union (EU) together with other countries keep increasing the size of sanctions imposed on Russia.
At the EU summit held on 30–31 May 2022, the European Council agreed on the sixth package of sanctions against Russia that will mainly apply to crude oil and petroleum products supplied to EU member states. Yet the Council of Europe has agreed a temporary exception for crude oil supplied through pipelines. Ursula von der Leyen, President of the European Commission, has said that the restrictions included in the package will in fact stop around 90% of EU oil imports from Russia by the end of this year.
As the size of the sanctions grows, confused companies are having more and more questions about how to cope with the increasing sanctions burden, whether a company is supervised by particular regulatory bodies, and whether the current sanctions rules and guidelines provide for setting up an internal control system to manage sanctions risk.
If a company finds it is governed by the Anti Money Laundering and Counter Terrorism and Proliferation Financing (AML/CTPF) Act, it has two priority steps to take: register as an entity subject to the Act after stating a type of activities governed by the Act, and appoint an officer responsible for ensuring compliance with the Act’s requirements under section 10. This appointment must be reported to the relevant supervisory authority such as the State Revenue Service or the Financial and Capital Markets Commission.
As you may know, Latvian taxable persons can recover VAT paid on purchases in another member state under Council Directive 2008/9/EC, i.e. local VAT is refunded to taxable persons that are not established in the member state but are established in another. As Britain left the EU on 31 January 2020 with a period of transition to 31 December 2020, the single EU VAT refund procedure is no longer available to recover UK VAT after 1 January 2021. The single procedure can still be used to recover any UK VAT paid in 2020, but the filing deadline is almost upon us: 31 March 2021.
The United Kingdom (“UK”) left the EU at midnight on 31 January 2020. The Brexit agreement provided that EU nationals staying in the UK until the end of the transition period would keep the social rights that go with EU citizen status, i.e. the opportunity to apply for various benefits, pensions and other social entitlements in the UK, similar to living in other member states. The Trade and Cooperation Agreement signed on 30 December 2020 is applied provisionally from 1 January 2021 pending ratification at EU level. The Agreement includes a separate protocol on social security coordination. This article explores some key changes in social security to be considered by employers after Brexit and in the light of the new agreement.
The UK left the EU on 1 January 2021 and now fits the definition of a “third country.” Having joined the European Community on 1 January 1973, the UK is the first country to have formally left the EU after spending 47 years as a member state. Changes brought about by Brexit are affecting not only taxation, immigration and trading but also the operation of the Anti Money Laundering and Counter Terrorism and Proliferation Financing (“AML/CTPF”) Act.
It has been some time since Covid-19 changed our daily lives. The resulting changes to the business environment and especially employment have become a normal part of our daily lives, as the interest in remote and hybrid work grows. This way of working allows employees to choose the place or country where they carry out their job duties. Yet this unlimited mobility may create tax risks to the employer. In this article we explore whether a company may be exposed to permanent establishment (PE) risk under certain conditions if a member of its management team works remotely. We also look at how the tax authorities of other countries have responded, in order to identify the riskiest countries.
On 14 February 2023 the EU Council decided to add four jurisdictions to the EU blacklist, bringing the total to 16. This blacklist is coming up for review in October. The Latvian blacklist of 12 jurisdictions in the Cabinet of Ministers’ Rule No. 819 is based on the EU blacklist as updated by the EU Council on 4 October 2022. While no amendments are being proposed, companies should prepare themselves for any resulting changes in advance and estimate their business impact.
When it comes to performing a transfer pricing (TP) analysis of financial transactions, attention is usually paid to loans and cash pool transactions. Yet there are some other financial transactions between related parties that often fail to receive a proper assessment in the TP documentation: financial guarantees. The current market environment has more creditors such as banks asking for a guarantee before they lend to customers. In this series of articles we explore TP aspects of guarantees, compare different approaches to determining an arm’s length price of a guarantee, and analyse relevant case law.
It has been some time since Covid-19 changed our daily lives. The resulting changes to the business environment and especially employment have become a normal part of our daily lives, as the interest in remote and hybrid work grows. This way of working allows employees to choose the place or country where they carry out their job duties. Yet this unlimited mobility may create tax risks to the employer. In this article we explore whether a company may be exposed to permanent establishment (PE) risk under certain conditions if a member of its management team works remotely. We also look at how the tax authorities of other countries have responded, in order to identify the riskiest countries.
On 14 February 2023 the EU Council decided to add four jurisdictions to the EU blacklist, bringing the total to 16. This blacklist is coming up for review in October. The Latvian blacklist of 12 jurisdictions in the Cabinet of Ministers’ Rule No. 819 is based on the EU blacklist as updated by the EU Council on 4 October 2022. While no amendments are being proposed, companies should prepare themselves for any resulting changes in advance and estimate their business impact.
To ensure a company’s capital adequacy or business growth, its shareholders may decide to increase its share capital and later make a reduction. This article explores some corporate income tax (CIT) aspects that should be considered when it comes to changing the size of share capital.
It has been some time since Covid-19 changed our daily lives. The resulting changes to the business environment and especially employment have become a normal part of our daily lives, as the interest in remote and hybrid work grows. This way of working allows employees to choose the place or country where they carry out their job duties. Yet this unlimited mobility may create tax risks to the employer. In this article we explore whether a company may be exposed to permanent establishment (PE) risk under certain conditions if a member of its management team works remotely. We also look at how the tax authorities of other countries have responded, in order to identify the riskiest countries.
Sole traders were exempt from making advance personal income tax (PIT) payments in 2020, 2021 and 2022 after tax aid measures were adopted under section 6 of the Covid-19 Act. According to the current rules and the information published by the State Revenue Service (SRS), sole traders would have been required to resume advance PIT payments in 2023, with the first payment due on or before 23 March. However, proposals were submitted on 3 March to extend the deadline for another year.
Does the land owner – a taxable person registered for Latvian VAT – have a right to demand payment of VAT in a forced lease of land? And should the amount of VAT be included in or paid on top of the rent? In this article we are looking for answers.
On 28 September the European Commission announced a new action plan for the Customs Union aimed at making EU Customs smarter, more innovative and more efficient over the next four years. This article explores how these measures are to strengthen the significant role the Customs Union has to play.
PwC US has carried out HR Tech Survey 2022. We believe that MindLink.lv subscribers, too, might be interested in its findings, as they relate to one of the traditional corporate processes – human resources (HR), or more precisely, investing in HR technologies. HR technologies in this article mean IT systems that enable the recording of HR processes, such as vacations, time sheets, training courses, hiring and firing. The survey interviewed 688 HR leaders, who answered questions about their technology challenges and achievements. The full survey is unfortunately restricted to the US market, but a summary offering many valuable insights is available here. This article explores what we see as key findings.
There are various programmes out there aimed at increasing a company’s sales by raising the productivity of its employees joining the programme, by increasing customer loyalty etc. Cross-border programmes are also implemented in Latvia, and their tax issues are very topical as well as complicated. This article explores employee incentive programmes in the light of a recent VAT ruling from the Court of Justice of the European Union (CJEU).
Dropping all the hype about the Great Resignation and stiff competition for talent, we invite you to look at investing in your people from a few rational down-to-earth perspectives. Based on a number of PwC surveys, you might end up finding a good argument in your budgeting process in favour of investment initiatives targeting your people.
In November 2022 the European Parliament officially approved the Corporate Sustainability Reporting Directive. The EU member states, including Latvia, now have 18 months to pass the directive into their national law. This enactment is intended to improve the quality of available non-financial information, meet the needs of various stakeholders, and promote Europe’s joint transition to a more sustainable economy.
As Europe is pressing ahead with its Green Deal, the relevance of environmental taxation is growing rapidly in Latvia and across the EU. Our experience suggests that Latvian companies are much better informed about the natural resource tax (NRT) treatment than foreign persons doing business in Latvia. This article serves as a reminder of the NRT treatment for foreign persons. This information may also help Latvian companies identify cases where a foreign supplier has Latvian NRT obligations, which are either not discharged or wrongly shifted onto the Latvian company.
The mergers and acquisitions (M&A) space is justifiably perceived as one of the indicators of economic activity – greater interest in acquiring, merging and investing in companies means more dynamic development of the economy. Compared to recent years, 2021 set a record in terms of number and volume of transactions (up by 48% in the Baltic States) but 2022 saw a slowdown in M&A activity because of geopolitical turmoil. Some transactions are still taking place, while others are put on hold, and the business community is preparing for times that will bring more certainty and stability. Since a successful M&A transaction needs preparation, this is a good time to do the homework while considering the next cycle of economic activity.
The Excise Act was amended on 13 October 2022 with effect from 13 February 2023. The amendments are primarily made to transpose Council Directive (EU) 2020/262 of 19 December 2019 laying down the general arrangements for excise duty (recast) (the “new directive”), which will replace Council Directive 2008/118/EC of 16 December 2008 concerning the general arrangements for excise duty and repealing Directive 92/12/EEC (the “old directive”). More amendments stem from the CJEU’s ruling of 13 January 2022 concerning Mono SIA vs the State Revenue Service (SRS). The court disallows a situation where the ability of diplomatic and consular offices to claim an excise exemption is subject to the condition that payment for goods be made by bank transfer. This article summarises some of the key amendments to the Excise Act.
In November 2022 the European Parliament officially approved the Corporate Sustainability Reporting Directive. The EU member states, including Latvia, now have 18 months to pass the directive into their national law. This enactment is intended to improve the quality of available non-financial information, meet the needs of various stakeholders, and promote Europe’s joint transition to a more sustainable economy.
Our professional experience suggests that paragraph 3.3.2 of the Cabinet of Ministers’ Rule No. 802, “Transfer Pricing Documentation and Procedures for Entering Into an Advance Pricing Agreement Between the Taxpayer and the Tax Authority for a Transaction or a Type of Transactions”, which states that the taxpayer’s transfer pricing (TP) documentation should include financial information and tables showing how the financial data used in applying the TP method is linked to the financial statements, has taxpayers confused as a maze of legal interpretation.
2022 brought more turmoil to the Latvian economy, businesses and people. When it seemed that we had overcome one crisis and learned to live in the post-pandemic world, another crisis arrived, one that is still difficult to grasp. The Russian war in Ukraine, the energy crisis and the fast-growing rate of inflation make Baltic CEOs more pessimistic than they were a year ago about global and Baltic economic prospects, but they are more optimistic about their companies’ own prospects. They see the need for change and they are also thinking about the steps they need to get there, according to PwC’s Baltic CEO Survey 2023, which interviewed 323 CEOs in Latvia, Lithuania and Estonia.
Over time, employment has gone through various stages of evolution. The EU is now standing in the doorway to the gig economy stage and has started drafting rules on platform work. While platform work in Latvia is mainly associated with the food delivery sector, technological advances are expected to make platform business relevant for manufacturing and services as well.
A board member’s liability covers many activities and may have various consequences, such as financial compensation, cash recovery, a ban on the conduct of business, and even a criminal penalty. This article explores areas where the board member may be held liable and looks at ways to mitigate this risk.
Russia’s military aggression has significantly affected some of the businesses importing metal products from Russia and Belarus, as well as industries such as metalworking, defence, construction, mechanical engineering, and information & communication technologies. To promote market stability, the Ministry of Economics intends to implement aid measures as an immediate solution in the form of financial instruments to ensure traders’ future business.
As Europe is pressing ahead with its Green Deal, the relevance of environmental taxation is growing rapidly in Latvia and across the EU. Our experience suggests that Latvian companies are much better informed about the natural resource tax (NRT) treatment than foreign persons doing business in Latvia. This article serves as a reminder of the NRT treatment for foreign persons. This information may also help Latvian companies identify cases where a foreign supplier has Latvian NRT obligations, which are either not discharged or wrongly shifted onto the Latvian company.
With environmentally friendly practices, such as waste sorting and recycling, becoming the order of the day, the natural resource tax (NRT) treatment is a hot topic too. As you know, packaging is one of the items subject to NRT. The obligation to pay tax or the right to take an exemption lies with the person who is the first to sell goods in packaging in Latvia, including foreign companies supplying their goods to Latvian companies. There are plans to amend the NRT Act on how foreign persons may take an exemption.
Sole traders were exempt from making advance personal income tax (PIT) payments in 2020, 2021 and 2022 after tax aid measures were adopted under section 6 of the Covid-19 Act. According to the current rules and the information published by the State Revenue Service (SRS), sole traders would have been required to resume advance PIT payments in 2023, with the first payment due on or before 23 March. However, proposals were submitted on 3 March to extend the deadline for another year.
In 2021 we wrote about the European Commission’s draft regulation on artificial intelligence (AI) whose rules on AI systems include a risk-based approach. This means that any AI systems that are recognised as unacceptable risk systems are not permitted in the EU at all. For high-risk AI systems the draft regulation lays down stringent conditions that must be met before they can be distributed in the EU market. While preparations are being made for applying the AI regulation, in September 2022 the Commission presented a draft directive on non-contractual AI liability rules (the “draft liability directive”), which together with the draft AI regulation and AI product safety rules will create a framework for distributing AI systems in the EU market. This article explores what the draft liability directive requires of companies wishing to distribute AI systems on the market.
Latvian tax residents are also taking the opportunity to work abroad. A Latvian tax resident meeting certain criteria may become a tax resident in the foreign country where he is employed. Selling real estate (RE) located in Latvia or other assets may raise the question of which country’s personal income tax (PIT) is payable on the profit you make on the transaction.
On 8 October 2021 the Supreme Court announced a ruling on case SKA-301/2021 regarding expenses a person incurs in repaying a mortgage on an inherited real estate (RE), which may be treated as an investment in a functionally similar RE.
A new year, a new beginning! As usual, this article summarises the provisions of tax laws and other legislation affecting the calculation of national social insurance (NSI) contributions, solidarity tax (ST) and personal income tax (PIT) on wages and salaries in 2023.
The last decade has seen a considerable increase in regulatory requirements in the governance and non-financial reporting space. At the same time, various stakeholders (shareholders, employees, customers etc) are expecting reliable, high-quality and standardised information from companies on their governance practices and non-financial performance. Both of these factors affect companies in Latvia as well.
On 13 December 2022 the Cabinet of Ministers passed amendments to Rule No. 656 of 24 November 2015, setting a new monthly minimum wage for normal working hours and laying down procedures for calculating the minimum hourly tariff rate. The amendments are coming into force on 1 January 2023.
Several sections of the Taxes and Duties Act define a taxpayer’s obligations. Section 15.2 requires the taxpayer to prepare a local transfer pricing (TP) file within 12 months after the end of the financial period and, depending on the circumstances, to submit it to the State Revenue Service (SRS) for the financial period:
Situation 1 – within 12 months after the end of the financial period; or
Situation 2 – within one month after receiving a request from the SRS.
This article is meant just for you if you are interested in learning more about a crucial relief in Situation 2. The taxpayer has the right to revise his local TP file every three years if he satisfies a certain condition and meets one annual requirement.
Amendments to the Taxes and Duties Act that require taxpayers to prepare and file a specified form of transfer pricing (TP) documentation with the State Revenue Service (SRS) took effect back in 2018, yet we had not seen any active enforcement steps from the SRS until the end of this summer, when several Latvian companies received an informational report on the submission of TP documentation via the SRS’s e-filing system (“EDS”). These reports imply that the SRS is checking the companies’ obligation to file TP documentation for 2020 and urging them to do so by the deadline stated in the report or to explain why they should not file TP documentation. This article reminds you of the TP documentation preparation and filing requirements and of the SRS’s activities in enforcing them, and we also suggest steps your company might take after receiving such a report.
It has been some time since Covid-19 changed our daily lives. The resulting changes to the business environment and especially employment have become a normal part of our daily lives, as the interest in remote and hybrid work grows. This way of working allows employees to choose the place or country where they carry out their job duties. Yet this unlimited mobility may create tax risks to the employer. In this article we explore whether a company may be exposed to permanent establishment (PE) risk under certain conditions if a member of its management team works remotely. We also look at how the tax authorities of other countries have responded, in order to identify the riskiest countries.
On 14 February 2023 the EU Council decided to add four jurisdictions to the EU blacklist, bringing the total to 16. This blacklist is coming up for review in October. The Latvian blacklist of 12 jurisdictions in the Cabinet of Ministers’ Rule No. 819 is based on the EU blacklist as updated by the EU Council on 4 October 2022. While no amendments are being proposed, companies should prepare themselves for any resulting changes in advance and estimate their business impact.
When it comes to performing a transfer pricing (TP) analysis of financial transactions, attention is usually paid to loans and cash pool transactions. Yet there are some other financial transactions between related parties that often fail to receive a proper assessment in the TP documentation: financial guarantees. The current market environment has more creditors such as banks asking for a guarantee before they lend to customers. In this series of articles we explore TP aspects of guarantees, compare different approaches to determining an arm’s length price of a guarantee, and analyse relevant case law.
PwC US has carried out HR Tech Survey 2022. We believe that MindLink.lv subscribers, too, might be interested in its findings, as they relate to one of the traditional corporate processes – human resources (HR), or more precisely, investing in HR technologies. HR technologies in this article mean IT systems that enable the recording of HR processes, such as vacations, time sheets, training courses, hiring and firing. The survey interviewed 688 HR leaders, who answered questions about their technology challenges and achievements. The full survey is unfortunately restricted to the US market, but a summary offering many valuable insights is available here. This article explores what we see as key findings.
The Accounting Act and the Cabinet of Ministers’ Rule No. 877 came into force on 1 January 2022. Because no transition period is allowed for the new requirements, this article again highlights key changes affecting the CEO’s duties and responsibility for adopting control system rules that must be described in the company’s accounting policy.
When it comes to performing a transfer pricing (TP) analysis of financial transactions, attention is usually paid to loans and cash pool transactions. Yet there are some other financial transactions between related parties that often fail to receive a proper assessment in the TP documentation: financial guarantees. The current market environment has more creditors such as banks asking for a guarantee before they lend to customers. In this series of articles we explore TP aspects of guarantees, compare different approaches to determining an arm’s length price of a guarantee, and analyse relevant case law.
Our professional experience suggests that paragraph 3.3.2 of the Cabinet of Ministers’ Rule No. 802, “Transfer Pricing Documentation and Procedures for Entering Into an Advance Pricing Agreement Between the Taxpayer and the Tax Authority for a Transaction or a Type of Transactions”, which states that the taxpayer’s transfer pricing (TP) documentation should include financial information and tables showing how the financial data used in applying the TP method is linked to the financial statements, has taxpayers confused as a maze of legal interpretation.
Assessing compliance with the arm’s length principle in transfer pricing (TP) involves conducting a benchmarking study based on high-quality comparable data. While the taxpayer can use internally available data on his transactions with unrelated parties, it’s common practice to use external data obtained from commercial databases or other sources. Several comparable companies are selected from a database according to certain criteria to build a range of financial results. This often raises the question of which values in that range are acceptable to demonstrate that the taxpayer’s controlled transactions are arm’s length. This article explores how wide an arm’s length range may be used in Latvia and compares how this range is interpreted in Lithuania and Estonia.
Since war broke out in Ukraine, many people have been eager to help Ukrainian people with various donations. Last week we wrote about the Latvian VAT treatment of donations and how the tax rules should be changed to cover various cases. This article explores the corporate income tax (CIT) treatment of donations.
Looking for shelter from the war, Ukrainian civilians are emigrating en masse. Several thousands of refugees have entered Latvia, and some Latvian companies have already come forward to employ them. This article explores the tax treatment of these persons being employed in Latvia.
A payment is not always treated as a consideration for services that are subject to VAT. To establish a taxable supply, there must be a direct link between the service and the consideration received for it. There is no direct link between a payment and the service if it is impossible to predict whether the consideration will be received. In its ruling C-713/21 (Finanzamt X) of 9 February 2023, the Court of Justice of the European Union (CJEU) assessed whether 50% of horse race cash prizes that is assigned to a stable owner should be treated as a consideration for a service chargeable to VAT. This article explores some of the legal niceties examined in the CJEU’s new ruling.
Cashback is one of consumer incentive programmes that are currently popular with manufacturers and wholesalers. This could involve a manufacturer (or a wholesaler) refunding a certain amount of money to the end consumer for buying goods they have manufactured (distributed). The refund may be a fixed price for a particular product or expressed as a percentage of the purchase value. A cashback may also occur as a discount coupon distributed by the manufacturer, which the end customer uses with the retailer, who then seeks reimbursement from the manufacturer. This procedure directly stimulates the end consumer’s choice because the manufacturer’s discount reaches him directly instead of being accumulated in the chain of traders. With many companies expanding their business beyond Latvia, a discount may also be granted to customers in other member states. This article explores whether a cashback made by the manufacturer (wholesaler) to the end customer affects the VAT payable by the manufacturer (wholesaler).
On 8 December 2022 the European Commission (EC) published proposals for amending the VAT directive (2006/112/EC) and Council Implementing Regulation (EU) No 282/2011. The proposals are designed to modernise the EU VAT system in the digital age, make it work for companies, and render it more resilient against fraud. The proposals also aim to address VAT issues caused by the platform economy.
This article explores changes to the royalties scheme effective from 1 July 2021 and applicable throughout 2021, as well as other ways in which authors can receive royalties. This article summarises the practicalities and administrative obligations facing the payer of income and the Latvian tax-resident payee.
