On 1 January 2016, new binding regulations of Riga City Council (RC) came into force with regard to real estate tax (RET) in Riga. These regulations have significantly changed the previously effective order. We summarise some of the most significant changes in this newsflash.
Requirements of residence declaration for applying the reduced RET rate
The public has widely discussed the news that at least one person needs to be declared at a flat to apply the reduced RET rate. The RET base rate of 1.5% of the property’s cadastral value applies when the condition for applying the reduced rate is not met. In turn, the reduced RET rates that may be applied are:
- 0.2% of the property's cadastral value not over EUR 57,000;
- 0.4 % of the property's cadastral value over EUR 57,000 but not over EUR 107,000;
- 0.6 % of the property's cadastral value over EUR 107,000.
In some cases several reduced RET rates may apply to one property. For example, if the cadastral value is EUR 120,000, then all the three reduced rates will apply in line with the above thresholds (that is, the part to EUR 57,000 will attract a rate of 0.2%; the part from EUR 57,001 to EUR 107,000 will attract a rate of 0.4%, and the part from EUR 107,001 to EUR 120,000 will attract a rate of 0.6%).
A natural person may be eligible for the reduced RET rate for a flat (located in a building divided into apartment properties) or a residential building of one flat if at least one citizen or non-citizen of Latvia has declared their place of residence there by 1 March 2016.
A legal entity may be eligible for reduced RET if at least one citizen or non-citizen of Latvia has declared their place of residence there by 1 March 2016 and the rental agreement is registered at the Land Registry.
Buildings comprising two or more flats, as well as non-residential buildings that contain residential premises, must meet the same conditions for applying the reduced RET rate (that is, the fact of a declared place of residence by the deadline plus (for legal entities) registration of rent agreements at the Land Registry). However, as these buildings have not been divided into apartment properties, the number of declared persons has been set for the number of square meters of the residential area instead of the number of particular premises (for example, one apartment).
Thus, in 2016 the formula is that one person who has declared their place of residence occupies 50 m2 of the building, in 2017 – 40 m2 of the building, and in 2018 – 30 m2 of the building. This also means that in relation to buildings that have not been divided into apartments the headache of declaration will also continue for the following years because the areas eligible for the reduced RET rate in case of declaration will gradually decrease.
Finally, note that in order to obtain the reduced RET rate a person who may declare their place of residence at a property may also come from another Member State of the European Union, the European Economic Area or the Swiss Confederation, or may have a permanent residence permit in Latvia, if they have declared their place of residence in Latvia at least 7 years before application of the reduced RET rate. These persons are not excluded from receiving RET allowances in Riga. This means that, for example, a person who does not qualify for the reduced RET rate but qualifies for RET allowances will receive the RET allowance specified in the RC binding regulations to be calculated from the base RET rate (1.5%).
Higher RET rate in cases of arbitrary and unfinished construction
A higher RET rate will be imposed on owners whose properties feature arbitrary construction or who have not finished construction work on their property within the set deadline. In addition, these properties (including land under the building) will not be eligible for RET allowance.
A RET rate of 3% will apply to all or part of real estate that is not maintained in compliance with legal requirements (ie, where arbitrary construction is carried out). In addition, the higher rate may apply to the entire real estate where arbitrary construction is detected. Thus, if, for example, partition walls have been arbitrarily built, the risk arises that the RET rate of 3% will apply both to the building and to the land where the building is located.
In turn, a building for which a construction permit was issued after 01.07.2013 and the construction work has passed the legal deadline (ie, 5 or 8 years) is liable to the RET rate of 3% of the cadastral value of the land under the building or the building's cadastral value, whichever is higher, starting from the month after expiry of the deadline until signing of the certificate of completion.
On the other hand, buildings for which construction permits were issued before 01.07.2013 will be liable to the higher RET rate of 3%, if
- the construction permit expired on 31.12.2013, the building has not been put into operation, and the construction permit was not renewed by 31.12.2014; or
- the construction permit expired after 31.12.2013 and was not renewed within 12 months after expiry and the building has not been put into operation.
The above higher RET rates will apply and RET will be readjusted starting from the month after a note is recorded in the RC Uniform Information System.
1% will not apply to RET land; higher RET rate for land plots not maintained in compliance with legal requirements
Together with the new RC regulations, the reduced RET rate of 1% will not apply to land; instead, the standard rate of 1.5% will apply in all cases.
Moreover, in addition to the previous practice of applying the higher RET rate to environmentally degrading buildings, the new regulation imposes a RET rate of 3% on land units that are wholly or partly not maintained in line with legal requirements (namely, RC binding regulations on territory and building maintenance). In relation to these land units (as well as environmentally degrading buildings and land under them), the RET allowance will not be available.
Constitutional Court adopts a significant judgment about RC rules banning recovery of infrastructure duty paid where the intention to construct is not implemented.
The Constitutional Court indicates that RC rules that ban refund of duty paid if the building plan is not implemented restrict the right to property guaranteed by Section 105 of the Constitution. Thus, the Constitutional Court found that the rules do not comply with Section 105 of the Constitution and are invalid as of their adoption. In addition, the Constitutional Court noted that in cases when municipal binding regulations do not meet a norm of higher legal force the court reviewing the case may not apply the binding regulations without addressing the Constitutional Court.
Think tank PROVIDUS researcher Agnese Lešinska carries out two significant research projects on construction with regard to informing the public.
The research project Informing the public about construction intentions in compliance with the Construction Law examines how Latvian municipalities follow the obligation to inform the public under the Construction Law.
The research concludes that in disputable cases the court can decide to restore the deadline for challenging a construction permit if it finds that the municipality has failed to inform the public in line with the procedure set in the Construction Law.
In turn, research on Informing the public about construction permits. Summary of Administrative Court case law 2013–2015 reviews case law on restoration of the deadline for challenging construction permits as of introducing a one-month limit for challenging construction permits.
The research indicates that if the contracting authority or municipality fail to meet their obligations to inform the public about construction permits issued in line with legal requirements, the consequences should be taken into account – a restored deadline for challenging/appealing a construction permit. The research also suggests amending the legal requirements and improving the work of those involved in construction.
Annual conference on real estate and construction in the Baltics
RMS-Forum, the Riga Managers’ School section that organises international conferences, will hold an international conference on Real Estate and Construction in the Baltics 2016 on 8 April 2016.