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Nil return in Latvia: a way to start a new life

Olga Pavuk, BC, Riga, 15.02.2012.Print version
After more than 10 years of discussions the Saeima has adopted the law popularly known as nil return. The much-anticipated regulatory enactment adopted December 1, 2011 by the Saeima is the law “On the declaration of property status of individuals and undeclared income”. Upon careful review of the said document we decided to seek advice on the main provisions of the new law from Aleksandrs Lenkovskis, lawyer of INLAT PLUS, and tax consultant Dmitrijs Serebrjakovs.

Aleksandrs Lenkovskis and Dmitrijs Serebrjakovs. BC's photo.

According to the Law fiscal authorities have opportunity to control the property status of natural persons and conformity of their income and expenses to paid taxes as of December 31, 2011, Latvian time 24:00. Natural persons have the opportunity to legalize and declare the income gained during the period from January 1, 1991 thru December 31, 2007, which had to be taxed. The foregoing is the aim of the new Law.


Filling out declaration – a one-time occurrence

According to the law, filling out a declaration is a one-time occurrence, says D.Serebrjakovs. It is necessary to catch the last train and submit the declaration within period beginning on March 1 and ending on June 1, 2012. It’s not the fact, however, that another government will not adopt a new law after some time, says A.Lenkovskis, according to the law you will indicate everything you have and begin a new life thereafter.

The majority of 10 sections of the Law describe the procedure for determination of one’s property status as of December 31, 2011. Only Section 6 explains the possibility of legalizing previously undeclared income. It was unclear, however, why does the period specified in the Law ends on December 31, 2007? D.Serebrjakovs explains that the Law on declaration of income of natural persons is valid in Latvia as of 1994. According to the said law there’s a possibility to explain and correct the welfare for those who failed to declare income gained during past 3 years (2008, 2009, 2010).

The previously undeclared income gained from 1991 thru 2007 will be taxed at the decreased rate of 15% according to the new Law. The income tax shall become due and payable within 30 days of submitting the declaration. In the event the amount of taxes exceeds 1500 LVL, the tax may be paid in three installments, but not later than by the end of 2012.


Who has to submit the declaration

The declaration of property status is submitted by citizens, non-citizens of Latvia, foreigners with valid residence permit or permanent residency in Latvia. However, citizenship or residence permit doesn’t automatically provide for necessity to declare the property, says A.Lenkovskis. Besides the foregoing, a citizen and a foreigner shall have the status of a Latvian tax resident within the meaning of the law “On taxes and fees” or the person will obtain said status after January 1, 2012.


Who doesn’t have to submit declaration

The property in Latvia of value not exceeding 10000 Lats shall not be declared. As well as the property the records of which are found in the public state registers: Land Register, State transport vehicle register, Civil aircraft register, Information system for the tractor-type machinery, Latvian integrated data base of ships.


Property subject to declaring

Property of a natural person in Latvia and outside is subject to declaring if the value of said property in respect of at least one of the items specified in the Law exceeds 10000 LVL. Besides, the declaring obligation applies to the property of that item only.

D.Serebrjakovs explained which articles of property and aggregation thereof are subject to declaring pursuant to Section 3, Paragraph 12 of the Law. It may be painting collection, antiques, furniture, articles of luxury, which are necessary to declare in your opinion. If you don’t know the true value, the Law suggests specifying such articles in column 15 without naming their value, in order to explain the sudden origin of a large sum in case you decide to sell it in the future. This column may be filled out with every little thing you have at home (gold, diamonds, etc.).

Funds borrowed or issued as loan are subject to declaring if the overall amount exceeds 10 000 LVL. It includes bank loans, consumer credits, utility and other payments. God forbid you forget any small loan sum.


Foreign property

Immovable property (as well as transport vehicles, capital shares, co-operative shares, securities, etc) outside Latvia is also subject to declaring regardless of its value. This is because the government of Latvia is unaware of such property, explain INLAT PLUS experts.

The law doesn’t require supporting the information on the existence of such property with documental evidence. Upon filling out the declaration one shall put together its income and expenditures specifying all details in respect of the property, because he or she is liable for the authenticity of the same.

Lawyers advise to keep in mind that the means of gaining income might also be examined.

It is vitally important to fill out the declaration for those who work on the international markets, thus closing the books on their previous tax history, says A.Lenkovskis.

The aim for declaring foreign property lies within the assumption that it might be acquired in consideration of funds, information on which is unavailable in Latvia. For example, if your annual income constituted 200000 Lats, it is possible that a property in Spain might have been bought for the amount of 100000 Lats. In the event the actual income, which has been declared in Latvia annually, was significantly smaller than that, most likely one will be obliged to declare the Spanish property and legalize at least this amount by paying the income tax at the rate of 15%.


If property is built with own hands

Section 3, Paragraph 6 of the Law suggests a natural person to indicate the expenditures incurred. It means that if you have built the house yourself, painted a picture, or created any other piece of art, you will have to justify the expenses exceeding 10000 Lats.

As explained by D.Serebrjakovs: for example, one has bought a land plot, recorded the same with Land Register, and built or still building a house, which is not yet recorded with the Land Register. Such property shall be specified in the declaration. In such case it is necessary to appraise expenditures incurred upon creation of the property with own means or with the help of certified appraiser. The Law prescribes that if the property value is impossible to determine, then market value or any other verifiable value shall be taken into account.

This shall be done if in the future you will decide to sell or gift your own creation leading to questions as to the source of the funds.


Money savings

Special terms apply to money savings. It is now allowed to keep in commercial banks, hiders and cookie jars without declaring an amount not exceeding 10000 Lats (or the equivalent amount in other currency). Savings exceeding the said amount are subject to declaring.

For example, if you have 15000 Lats in savings and this amount was kept in the bank, then the total amount as of 31.12.2011 will be seen on account statements. In such case you have nothing to worry about. However, if you’re keeping 9000 Lats in the bank and 6000 Lats in cash, then you will be required to deposit the amount exceeding 10000 Lats, i.e. 5000 Lats, into bank account.

As of 31.01.2012 the Cabinet has adopted Regulations No. 91 “Procedure for payment by natural persons of cash savings into account at a credit institution”. According to the Regulations, savings (aggregation of funds in different currencies) shall be deposited into bank account by midnight, June 1, and shall remain on account at least 5 minutes, i.e. until 00.05 hours, June 2.

Lawyers advise to deposit the money into bank account if you intend spending a large amount after submission of declaration. If the money specified in declaration were spent till June 1, then you might be requested to provide documents evidencing the expenditures.


Administrative and criminal liability

According to the Law, in the case of failure to submit the declaration on property status or in case of providing false information, persons are subject to administrative or criminal liability prescribed by regulatory enactments.

Lawyers advise to remember that pursuant to Section 219 of the Criminal Law, the punishment for failure to declare income on a large scale is deprivation of liberty for a term nor exceeding four years or a fine not exceeding one hundred times the minimum wage. Administrative fine for failure to submit the declaration in a timely manner may constitute from 50 to 500 Lats.

 

Translation by INLAT PLUS.






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