Financial Services, Latvia, Legislation, Taxation

Additionally, as of January 1, 2009, the exempt minimum income will be lowered from LVL 100 to LVL 90, whereas the allowance amount for calculating the personal income tax figure, will be LVL 63, instead of the originally planned LVL 70, writes LETA.

Following long discussions, on the night of December 12, Saeima decided to endorse the Latvian economy stabilization plan, which, among other issues, stipulates introduction of sweeping changes to the tax system, including reduction of the personal income tax.

The Ministry of Finance prognosticates that the lower personal income tax will benefit the economic development of the country, as it will allow the employers to make savings on tax-paying related labor costs. It will also contribute to increase of residents' money resources, which will stimulate demand for goods and services.

The personal income tax reduction is expected to reduce the national budget revenues by approximately LVL 66 million per year in 2009 and in the three following years. Local governments will feel the reduction of income the most.

Additional personal income tax breaks will apply to the handicapped, politically repressed and members of the national resistance movement, for them the income tax will be reduced to approximately 12.5%, instead of the initially set 25%.

The Ministry of Finance prognosticates that the additional personal income tax alleviations will have a positive impact on the employment level.