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Tax news for 2021

Amendments to the Value Added Tax Law

Amendments to the Value Added Tax Law (Amendments to the VAT Law) were adopted on 24 November 2020 which shall enter into force on 1 January 2021.

Refund of the orverpaid VAT

The procedures for the refund of the overpaid VAT are changed upon entry into force of the amendments.

Until 31 December 2020, the State Revenue Service (SRS) had the obligation to refund overpaid VAT to the taxpayer within 30 days after the deadline for submission of the VAT declaration or the date of the submission of the VAT declaration if such declaration has been submitted after the respective deadline has expired, or after the date of the submission of the adjusted VAT declaration, provided that certain criteria are met. The conditions are cancelled from 1 January 2021 and the SRS shall have the obligation to refund the overpaid VAT to all taxpayers within 30 days after the deadline for the submission of the VAT declaration.

According to the amendments to the VAT Law, Section 110 is excluded from the VAT Law which granted the right to the SRS to extent the period for the refund of the overpaid VAT. Upon the exclusion of this Section from the Law, the SRS shall have the obligation to refund the excess VAT within a certain period of time, unless the SRS has decided to carry out a tax inspection (audit) or a data conformity audit in accordance with the procedures laid down in the law On Taxes and Duties.

The new procedures for VAT refunds shall apply to such VAT overpayments which, as of 1 January 2021, are indicated in the VAT declarations submitted to the SRS.

Extension of the period for the application of the reduced VAT rate of 5%

The application of the VAT rate in the amount of 5% is extended until 2023 for certain types of fresh fruit, berries and vegetables, including washed, peeled, shelled, cut and packaged, but not thermally or otherwise processed (for example, frozen, salted, dried).

Editorial clarifications

Certain adjustments of a technical nature have been introduced for the purpose of reaching a common understanding of the legal framework and for minimising room for interpretation thereof and also for establishing clear and unambiguous rules both for VAT payers and the tax administration:

-         the reverse charge procedure for the payment of VAT on timber transactions, i.e., Section 141 of the VAT Law;
-         clarification of the reverse charge procedure for the payment of VAT on scrap metal transactions, i.e., Section 143 of the VAT Law.
-         Furthermore, the terminology related to natural persons of a third country or third territory who bring the goods acquired inland out of the territory of the European Union has been clarified. In particular, the words “who is not a taxable person” are replaced with the words “whose place of permanent residence is not”.

Amendments to the law On Personal Income Tax

Amendments to the law On Personal Income Tax (Amendments to the PIT Law) were adopted on 27 November 2020. The amendments shall enter into force on 1 January 2021, however, the date of introduction of certain provisions is different.

Changes in the PIT rates

The progressive PIT rate has been reduced from 31.4% to 30% and such rate is applied to the part of the income which exceeds 62,800 euros.

It has been determined that the PIT rate, which under the summary procedures has to be paid by a professional athlete who has been declared as such within the meaning of the Sports Law, is 20% of the annual total income from employment earned from professional sport.

Cancellation of the patent fee payment regime

The patent fee payment regime is cancelled from 1 January 2021 and the reduced patent fee payment regime is introduced instead. The reduced patent fee payment regime may be applied only by retired persons and persons with Group I or II disability, provided that such person is not a payer of the payroll tax, does not employ other persons in the course of the economic activity thereof and the annual income thereof does not exceed the amount of 3,000 euros.

The reduced patent fee shall be 17 euros per year or nine euros per half year.

During the transition period, those who have paid the patent fee for 2021 until 31 December 2020 will be entitled to apply the regime effective until 31 December 2020 throughout the period for which the patent fee has been paid in 2021, however, not longer than until 31 December 2021.

Changes in the application of the PIT for persons receiving royalties

The current tax regime shall be applied to royalties until 1 July 2021. Accordingly, the application of the PIT for intellectual property payments which do not qualify as income from paid employment as of 1 July 2021 shall depend on whether such income is paid by a collective management organisation or by another person.

If the royalty income is not paid by a collective management organisation, the recipient of income has the obligation to register with the SRS as the performer of economic activity. The author shall calculate the PIT payable from the royalty in the annual income declaration by deducting the notional expenditure rate from the income type in the amount of 25% or 50% of the royalty income and applying the progressive PIT rate. If expenditures exceed the notional expenditure rate laid down in the PIT Law, the author has the right to deduct the actual expenditure from the remuneration obtained for the intellectual property.

During the transition period, i.e., from 1 July 2021 until 31 December 2021, the person receiving royalties has the right to not register as the performer of economic activity. In such case the royalty payer (which is not a collective management organisation), depending on the amount of the royalty, shall withhold the PIT of either 25% or 40% and shall not apply the expenditure rate upon calculating the PIT.

If the royalty income is paid by a collective management organisation, the recipient of income has no obligation to register as the performer of economic activity. The collective management organisation shall, within a year, calculate and withhold the PIT in the amount of 20% after deduction of the notional expenditure rate and shall transfer the withheld PIT to the single tax account.

Upon the submission of the annual income declaration by the author, such royalty income shall be counted in the total annual taxable income and shall be subject to the progressive PIT rate.

Automatic calculation of the PIT according to the annual income declaration

From 2021, the difference of PIT, which has to be paid into the budget, for those inhabitants to whom such difference of PIT has occurred in the previous year, shall be calculated automatically in accordance with the information at the disposal of the SRS regardless of whether the person has submitted the annual income declaration.

All inhabitants who have not submitted any annual income declaration for 2018 and/or 2019 and who, according to the information at the disposal of the SRS, have to pay the difference of the PIT into the budget, the SRS shall perform an automatic calculation of the PIT for the respective year until 1 March 2021 on the basis of the information at the disposal of the SRS and shall notify the person thereof.

The automatic payment of the PIT refund calculated in accordance with the annual income declaration shall be started from 2023.

Other amendments

-         the income of an inherited State funded pension capital shall be taxable with the PIT;
-         the income earned as a result of extinguishing the study and student loans shall not be taxable with the PIT and, upon the fulfilment of certain conditions, also the liabilities against persons taxable with the enterprise income tax shall be either reduced or extinguished;
-         employer compensations for the performers of remote work in the amount of 30 euros per month shall not be subject to PIT;
-         a microenterprise taxpayer has no right to apply the PIT exemption laid down in the PIT Law in respect of dividends and liquidation quota which have occurred until 30 December 2020.

Amendments to the law On State Social Insurance

The mandatory contribution rate has been reduced by 1% from 1 January 2021. Specifically, the employer’s rate is reduced by 0.5% and the employee’s rate is reduced by 0.5%.

The mandatory contribution rate for the pension insurance paid by self-employed persons from the income which does not exceed the minimum salary shall be increased as of 1 July 2021 from the current rate of 5% up to 10%.

The minimum mandatory contributions shall be introduced as of 1 July 2021. The minimum object of mandatory contributions per quarter shall be three minimum monthly salaries (i.e., 500 euros in 2021) — 1500 euros.

The current tax payment regime and rates shall be maintained for the persons receiving royalties until 1 July 2021.

During the transition period from 1 July 2021 until 31 December 2021, the person receiving royalties has the right to not register as the performer of economic activity. Upon the application of such tax payment procedures, the applicable PIT rate also covers the mandatory State social insurance contributions. No additional mandatory State social insurance contributions are required.

Mandatory contributions are not made from royalties paid by collective management organisations.

13.01.21


Author:   

Inga Jomanta

Senior Tax Advisor

Mobile: +37123995382

Email: inga.jomanta(at)leinonen.lv

Līga Treilone

Senior Tax Advisor

Mobile: +37123995387

Email: liga.treilone(at)leinonen.lv

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