A lot of businessmen decide to open a company in Latvia because of the congenial tax climate, especially for holdings. Nevertheless, entrepreneurs should be aware that there are some peculiarities of the Latvian tax legislation that they will definitely face during reporting. The most frequently asked questions, which we get from companies’ owners, concern income tax in Latvia and related reports, the practice of advance payment of the income tax, the nuances of excise taxes payment, etc. This is the reason why we have decided to clear up Latvian tax reporting. There are three popular reports that the Latvian State Revenue Service will expect from you:
- labour reporting;
- PVN reporting (or VAT reporting);
- annual report.
Labour reporting includes:
- recruitment and relieving reports,
- monthly social benefits and personal income tax reports in Latvia.
You have to provide such reports if there are employees working in your company. Recruitment and relieving reportsRecruitment report’s main task is to let the State Revenue Service know that there are new employees in your company. That means that further on them will be paid an appropriate income and social tax in Latvia. The report contains:
- Name and surname of an employee,
- starting date of work,
- position of the hired employee.
You can hire not only a citizen of Latvia but also anyone from abroad. Furthermore, your employee could be working abroad and, in this case, you should mention it in the Recruitment report. If an employee is working outside Latvia, the social tax rate is not always paid. The recruitment report should be sent not later than an hour after the hired employee’s official first day working start. The Relieving report informs to the governmental institution that a person is no longer an employee of your company and that you should not pay any taxes from his/her salary. The Relieving report should be delivered not later than three days after the employee has left your company. Monthly Social tax payment reports in Latvia If your company employs people, you have to give in salary reports and perform tax payments. You will definitely need to be aware of Latvian tax rates. The last date of report submission for each company is defined individually after the first employee is recruited. One report is being submitted each month. The following information should be included:
- Name and surname of an employee;
- number of hours worked;
- tax amounts that have been paid (social and income tax).
One important aspect of Latvian legislation According to Latvian legislation if a company’s volumes grow more than 1800 Euro per month, such company cannot function without any employees. Therefore, the State Revenue Service will be waiting for you to pay social and income taxes even if your company does not actually have any people employed. However, this does not cover companies that has existed for less than one year (up to 1st of January next year). There are some additional cases when this rule does not apply to a company, but to make sure please contact professional advisors.
A company, which has PVN (VAT) code, is obliged to submit transactions declaration. Accounting periods are calculated depending on types and amounts, transferred.
- Monthly reports are required from 50.000 Euro and/or there are deals with the EU;
- The report is submitted quarterly from 14.228,72 Euro to 50.000 Euro;
- Half-yearly report is valid for companies which volume do not step over 14.228,72 Euro per month.
It is extremely important to attend to your volumes in order to understand which periodicity of reports you should stick to.
This is an obligatory type of report for any Latvian company. The only exception from rules is companies which were working less than 6 months prior to 1st of January. Thus, such companies can skip report submission for less than 6 months of work, but next year they will have to report for more than 1 year of their operation. This is a benefit which helps your company to grow, and only afterwards pay income tax. Report for previous year is submitted by 30th of April of current year. Chapters of the annual report:
- Company information;
- Dividends payment decision;
- Company’s management activity report and development plans;
- Financial report;
- Income and losses calculation.
- Statement of Financial Position (or Balance Sheet).
The first report is even more relevant for company’s management. In such a way, they can clearly see the actual business condition. This report contains creditors and debtors list, and shows how profitable was business the previous year in real time. After the report is signed by the company’s managers, it is submitted to the Taxation Office along with the annual tax return and (if required) company’s auditor report. Annual income declaration in Latvia If a year was good for your business, you will have to pay an income tax. In Latvia, it is fixed at 15%. You should also take into account that if the company was profitable this year, next year you will be obliged to pay income tax to the Latvian authorities with advance payments. This peculiarity of Latvian corporate tax legislation brings out many questions and our article about advance tax payments will give you answers. Company’s compulsory audit is described in a separate article. This procedure has to be applied to avoid complications for the owner of the company, when he/she feels that there might be some problems that can cause losses for the company’s management.
Specific reports are required when you have any specific activity that obliges you to pay any extra fees e.g. excise duty in Latvia. Lottery tickets, reports on strict records receipts also belong to a specific activity, which can cause amazement throughout our clients sometimes. Here are some examples of specific activities, which may require additional reports to be submitted. Natural resources usage report After purchasing something for your company (not for sale), you have to recycle the package. If you throw the package to the waste bin, Latvia considers that you are damaging the environment, thus you have to pay an environmental tax. An alternative way not to harm the nature is signing a contract with a recycling company and when reporting all you have to show is a copy of the agreement.
What is the process of reports preparation?
- If you have part-time employees, you send us their work schedules and planned bonuses, penalties and sick leaves to be paid at the beginning of the month.
- We are calculating a payroll, which takes 1-2 days and then send it to you for approval.
- We are preparing all the reports inspired by approved calculation and submit all of them to the State Revenue Service.
- We are sending all requisites and sums of taxes to be paid.
If all the employees work full time and no additional bonuses or penalties are provisioned, we calculate payroll on our own. VAT reporting We are also asking you to provide us with information about deals made on a monthly basis. Meanwhile, we:
- gradually create a set of documents for the annual report;
- follow up types of deals made and check the periodicity of declarations submission (clients do not track quite often if they have deals with the EU);
- have the possibility to create interim statements to predict annual report results.
Consequences of submitting tax reports with errors in Latvia
Here are some penalties you could face if you submit reports with mistakes.
- VAT reports: if there are errors or if the report is submitted late, your VAT number can be terminated. Renewal of the number is time-consuming and a complicated procedure, which will lead to financial and operational losses. You will not avoid administrative penalty as well.
- Fine can be charged if social taxes are not paid on time.
- 300 Euro fine is paid if the annual report is not submitted on time. Latvian authorities can forbid you to hold managerial positions for some time.
These are the reasons why it is important to have a professional accountant at your disposal. He/she should keep track of all reports’ submission deadlines in full. In the meantime, the most weighted decision for many companies is an accounting maintenance via BBCRiga.
Why should you work with us?
- We are aware of all the peculiarities and law traps and we can optimize the tax burden for your company.
- We are insured and we are accountable for any errors we make.
- We guarantee that all reports will be submitted on time. We guarantee that we will answer to all your questions as quickly as possible. You develop your business and we are dealing with accounting.
- If we see ways to optimize your tax burden, we will provide ways to do that for your revision.
- We will communicate with the Taxation Office and answer their requests, as well as provide them with any additional information they require.
- We pay all taxes on time, keep track of reports periodicity and changes in Latvian legislation.
BBCRiga provides professional services of registration and maintenance of companies in Latvia. We are dealing with accounting maintenance and guarantee that our customers will be fully satisfied with the full set of accounting services we offer. To know more about the services we provide, please contact our consultants.