Financial Services, Latvia, Taxation

The Finance Ministry indicates that the information provided in the program includes tax reform proposals and fiscal estimates that have been drawn up based on the data available on April 3, 2017.

In the program, the Finance Ministry provides information about the main solutions proposed in tax policy guidelines. The ministry says that there is a plan to reform the corporate income tax system, setting two tax rates on corporate income – a zero tax rate on undistributed profit and a 20% tax rate on distributed profit.

There is also a plan to reform taxes on labor, introducing two tax rates on personal income. A 20% tax rate would be set on personal income that does not exceed EUR 45,000 a year, and a 23% tax would be charged on income exceeding EUR 45,000 a year. The differentiated nontaxable minimum income would be significantly increased.

The Finance Ministry’s program also provides for scrapping the so-called solidarity tax on high salaries and setting the annual ceiling for the object of social security contributions at EUR 85,400. The minimum monthly wage would be raised to EUR 430 from EUR 380, and the nontaxable minimum income for pensioners would be raised to EUR 300 from 235. The ministry also proposes allocating 1% of social security contributions to the health sector.

As a result of the tax reform, the annual turnover ceiling for microenterprises would be lowered to EUR 40,000. The monthly wage limit for employees working at microenterprises would be raised from EUR 720 to 900.

The tax reform also calls for fixing the system of properties’ cadastral value, raising gambling and excise taxes, setting restrictions on tax refunds and stepping up the clampdown on shadow economy.

According to the Finance Ministry, the first set of tax measures planned as part of the reform – cutting taxes on labor – will result in the loss of revenues worth EUR 318 mln in the first year of the reform, another EUR 41 mln in the second year and EUR 12 mln in the third year of the reform.

The second set of tax measures proposed as part of the reform – stimulating investment and businesses’ international competitiveness – would lead to a negative fiscal effect worth EUR 150 mln in the first year of the reform.