Foreign investors in Latvia propose establishing a single tax regime for all short-term small service providers that perform services on their own, stresses the Foreign Investors Council Latvia (FICIL) in its document on tax policy.
Investors also recommend expanding the existing simplified tax payment regime to include taxpayers like nannies, barbers, photographers, cleaners, designers and other in this regime.
FICIL notes there are many small service providers in the grey zone, because for the work done, including short-term additional work, no PIT and state social insurance contributions are paid.
Investors recommend using a low rate for simplified tax regime, such as 10%, excluding costs of economic activity. Clients pay this to bank accounts. The general remuneration amount subjected to such a regime is not allowed to exceed EUR 40,000.
FICIL also proposes reviewing the non-taxable minimum amount and its application.
According to investors, it is necessary to set a fixed non-taxable minimum or simplify wage calculation, canceling the differentiated non-taxable minimum and adopting multiple progressivism degrees.
Foreign investors propose simplifying the Personal Income Tax calculation system, social contributions and solidarity tax, which should be merged with PIT. According to FICIL, it is necessary to establish a constant non-taxable minimum dependence on annual income.
It is proposed to make the justified expenditures application order simpler by establishing an equal annual limit for all expenses, such as 10% of gross taxable income per capita depending on all categories of expenditures.
Investors say that the State Revenue Service (VID) believes foreign businesses representation offices in Latvia have no right to reduce corporate income tax-related income base related to services, interest for loans received from non-residents with permanent establishment. This generates an additional tax burden of 0.2/0.8.
Investors believe it is necessary to adopt regulation for permanent representation, which would prevent discrimination of non-residents in comparison to businessmen that work in the country as separate legal entities in the calculation of economic costs.
In cases of employment mobility, when it is necessary to attract workers from other cities or regions, FICIL recommends making sure that wage taxes and corporate income tax are not applied with employers’ contributions that cover employees’ rent costs if employees’ permanent residence is in a different city or region, as well as transportation costs to and from home, which are covered by employers from their funds.
FICIL also outlines that corporate income tax law does not have sufficient explanations for prevention of double application of corporate income tax in a situation when the parent company is located in Latvia and its subsidiaries outside Latvia have expenditures unrelated to economic operations that are applied with corporate income tax in other countries. Considering existing corporate income tax regulations in such cases, corporate income tax is normally paid twice – in the jurisdiction of the country where a subsidiary is located and in Latvia.
Investors say that in Latvia in a time when real estate property is under reconstruction and no economic activity is performed during this time, the owner is still expected to pay the full real estate tax amount.
According to FICIL, companies should be provided a 100% real estate tax discount for the duration of reconstruction that does not exceed 12 months. This kind of discount should be outlined in the law. Rules related to real estate tax benefits should be clearly explained, transparent and lacking any discrimination risks depending on municipality or company. Property can be applied with limitation term for reconstruction benefits, such as once every five years.
FICIL also stresses that Latvia has a high corporate income tax rate for regular dividend payment cases. Investors propose adopting Estonia’s experience in this regard – if a company regularly pays dividends, a lower corporate income tax rate.
Foreign investors believe Healthcare Ministry should perform a nation-wide study regarding residents’ dieting habits, survey the main reasons for obesity and opportunities for improvement of food product quality to reduce excessive fat, sugar and salt amount in food products.
Finance Ministry should consider creation of a new excise goods group or exact changes to existing ones to establish more appropriate excise tax rates. The currently proposed group of products, which includes non-alcoholic sweetened drinks, is discriminatory, considering the concentration of sugars in other groups of products, stresses FICIL.
When exacting changes to the excise tax rates in food product group, it is necessary to keep in mind long-term public health considerations without adding unnecessary changes to excise tax tares, FICIL stresses. In the context of the reform it is necessary to equalize relations between excise tax rate for beer and strong alcoholic drinks – increasing excise tax rate for strong alcoholic drinks, respecting the previously established dynamic for changes in the state tax policy’s guidelines.
To increase excise tax revenue for Latvia’s state budget, increase fuel volume demand in the country and preserve and improve competition in the oil products trade sector with neighboring countries (Lithuania, Estonia and maybe Poland), FICIL believes it is necessary to synchronize the excise tax polity in relation to oil products on an inter-government level.
As for the tobacco tax policy, investors believe it is necessary to compose it for a long-term perspective while maintaining the principles of gradual increase and predictability.
Investors also propose reducing VAT rate to 5% for fresh food products to thereby reduce the grey sector’s presence on the goods product and improve competitiveness of local producers.
Another important aspect to consider in relation to the tax policy is reduction of the grey economy sector, stresses FICIL. Currently the fight against grey economy lies on the shoulders of the State Revenue Service.
FICIL stresses that tax changes announced a mere three months before their adoption undermines competitiveness of businessmen and their ability to plan their activities. (BNN/Business World Magazine)