In August we wrote about the State Revenue Service’s plans to begin sending out notifications in September asking people to review their income and report it in full. This is one of the steps the SRS is taking as part of the plan to fight the shadow economy. In this article we will look at how this initiative is happening in practice and what is worthy of attention.
The SRS says on its website that the first 5,000 letters were sent on 23 September. A letter notifies you that the SRS is comparing the amounts of cash received in your bank accounts with your reported income and asks you to explain any discrepancies between your reported income and the cash turnover in your bank account. The notification is sent via the SRS Electronic Declaration System (EDS).
Who was ‘lucky’ enough to receive a letter? The first batch went to individuals with the largest discrepancies, i.e. a difference of at least EUR 90,000 between their account turnover and reported income.
Let us now look at a few questions that could arise about receiving a letter.
Once a letter enters the EDS section ‘Correspondence with the SRS’, a notification is automatically emailed to your inbox. It’s a good idea to make sure your contact details in EDS are stated correctly and to monitor your inbox. Due to the recent activities of fraudsters, the SRS recommends opening the letter by separately authenticating in EDS and not through the link added to the email.
If a person isn’t an EDS user, the letter is sent by post to their declared residence address. So it’s a good idea to update details of your declared residence address.
The SRS only receives information from your credit institution about the amount of your account turnover. The SRS doesn’t have any information on payments/transfers received or transfers made, purchases or other transactions in your account, so the SRS requests explanations about what amounts make up the total turnover. It’s also worth noting that an explanation should be given for accounts opened at foreign as well as Latvian credit institutions and payment institutions.
The SRS is currently checking the income reported for 2022 and 2023, yet in its letter the SRS urges you to check the income reported for 2021 as well. A check might result in you having to file or adjust not only your annual income tax return but also your capital gains tax return if you have earned any income from selling capital assets (real estate, shares or securities) during the year.
You should get in touch with the SRS within 30 days after receiving the letter and explain how the cash turnover in your bank account arose and why it’s different from your reported income. The SRS has put together a brochure giving typical examples of unreported income and answering questions about the availability of information in EDS where the taxpayer can verify information available to the SRS already.
If a person fails to respond to a notification, the SRS can launch an in-depth audit and, on detecting breaches, charge the tax due and interest on arrears, plus a penalty. So we recommend you cooperate and respond to SRS enquiries promptly.
The SRS conducts a data compliance review of income reported by Latvian tax-resident individuals. So, if you are living and working abroad and aren’t planning to return to Latvia in the near future, we suggest you notify both your bank and the SRS that you don’t consider yourself a Latvian tax resident. Otherwise the SRS will continue treating you as a Latvian tax resident and might ask you to explain your account turnover.
In parallel to the SRS initiative involving a general request to explain amounts making up a person’s account turnover, similar enquiries about income reporting are being sent to persons that have already filed their tax returns. This kind of enquiry is more detailed and based on an individual assessment of information on the amount of the person’s account turnover at credit institutions and payment institutions that is available to the SRS. On receiving an individual enquiry, you should take similar steps – we recommend cooperating with the SRS and giving a detailed answer about the amounts making up your turnover to ensure you have no additional income to report.
If you have any comments on this article please email them to lv_mindlink@pwc.com
Ask questionThe State Revenue Service (SRS) has drawn up a plan for dealing with situations where individuals have not reported their income in full. This year the SRS has identified about 70,000 individuals with a difference of at least EUR 20,000 between their bank account turnover and reported income. In September the SRS plans to send out notices asking those individuals to review their income and report it in full. Sending such letters is not a new practice – the SRS has used them for several years to check that a person reports all taxable and non-taxable transactions. A letter arrives through the SRS’s electronic reporting system. The SRS has 30 days to wait for a response from the person giving reasons for the discrepancy or adjusting their annual tax return if they find the discrepancies between the bank account turnover and the tax return arise from unreported income.
On 9 September 2024 the State Revenue Service (SRS) reminded Latvian taxpayers about the opportunity to apply for an automatic refund of personal income tax (PIT) without filing the annual tax return (ATR). Persons wishing to receive into their bank account any PIT overpaid in the previous tax year are asked to apply for this service by 30 September 2024. In August 2024 the SRS added Smart-ID to the array of tools for signing in to the Electronic Declaration System (EDS), offering taxpayers an easier method of authentication.
Communicating with the State Revenue Service (SRS) is certainly the safest way to make sure the interpretation of law we use daily complies with how it was originally intended. Most of the guidelines published by the SRS explain clearly how statutory requirements should be applied. Yet the 2019 guidelines on transfer pricing (TP) documentation offer a formula for computing the amount of a controlled credit-line or cash-pool transaction made in the financial year that gives the taxpayer much more room for interpretation. This alternative formula became the subject of debate again in recent communication between TP professionals and the SRS.
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.