Board member’s estimated income and taxes

Officials, usually members of the board, are often appointed in their positions in several companies that are a part of the company group, and often those positions are assigned for companies in several different countries. In such cases a question can arise – should the official be paid in one or all countries? According to the Latvian Commercial Law, appointed board members have a right to compensation, however, considering economic and financial aspects, the shareholders of the company can that no compensation is awarded. Therefore, the issue of paying taxes becomes relevant, because in any case, duties are performed according to the position.

If the board member is not remunerated and the company has achieved a monthly turnover of at least five minimum monthly salaries, an obligation arises to pay taxes on the estimated income of the board member in accordance with the provisions of Article 8, Part 2.9 of the Law on Personal Income Taxes and Article 1, Clause 2, subclause m of the Law on State Social Insurance, Clause 2.9 of Article 8 of the Law on Personal Income Tax is not applicable:

  • even if the member of the board meets all the criteria set out in the article, but as a member of the board in another capital company in the current month, he receives a remuneration that is not less than the minimum amount of monthly wages, if the monthly turnover of the relevant tax year is greater than the amount of five minimum monthly wages and both capital companies is in the same company group;
  • in the calendar year when the capital company is registered in the Enterprise Register of the Republic of Latvia.

The law offers an exemption, but it should be noted that confirmation is required that the board member holds an equivalent position in one of the other commercial companies of the group. In this case, a letter from the main commercial company of the group can serve as proof that the board member holds such a position in another company of the group and receives compensation in the amount of five minimum salaries.

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