- The PIT rate in 2014 will remain 24%, and will be further reduced in 2015 – 23%, and in 2016 – 22%. The employer's share of SSC in 2014 will be 23.59%, and the employee’s share – 10.50% (34.09% in total).
- As of 1 January 2016, the option to pay fixed PIT will be abolished (5% on income up to LVL 10,000 (EUR 14,229); 7% on income exceeding LVL 10,000). Starting 1 January 2014, the SRS will not register any new fixed PIT payers.
With regard to self-employed individuals (including micro-enterprise tax (MET) payers) the “minimum” annual PIT of EUR 50 will be payable to the State budget within 15 days after submission of the annual PIT return if:
- those self-employed individuals have no turnover during the taxation period, or
- their calculated PIT is less than EUR 50.
This regulation will not apply to taxpayers who have paid PIT or SSC for employees or themselves as self-employed during the tax year.
Payroll tax for board members:
Payroll tax of at least one minimum salary a month is payable from a board member’s income, if:
- During the pre-taxation year the company’s turnover exceeds 12 minimum monthly salaries multiplied by the coefficient 3.3 (eg in 2013 – LVL 7 920 (EUR 11 269); in 2014 – LVL 8,910 (EUR 12,678)); and
- During the pre-taxation year the company has no employees or board members who receive at least a minimum monthly salary during the whole pre-taxation year; and
- the company has turnover during the current month of the taxation year; and
- the company has no employees who receive at least a minimum monthly salary during the current month of the taxation year.
These provisions will not apply if a board member receives monthly remuneration as a board member of at least five minimum monthly salaries in another group company within the meaning of the CIT Law.
Loans and reduced interest rates:
- Starting 1 January 2014, loans granted to individuals and not repaid within 6 months after the loan maturity date (but not later than 66 months from the loan issue date), will be considered comparable to taxable income and thus subject to PIT. Benefit gained from reduced interest rates will also be subject to PIT at the standard 24% rate, except for loans provided by individuals.
Under the new PIT Act amendments, the following loans will be exempt from PIT:
- a loan up to EUR 1,500;
- a loan issued to cover medical treatment or education costs;
- loans from spouses or relatives up to the third degree;
- loans where the lender is a credit institution or a savings company that has received a special permit (licence) to provide consumer financing services.
- Starting 1 January 2014, the lender (if the lender is a company, individual company, cooperative, fixed establishment of a non-resident, society, establishment, organisation, self-employed individual, consortium) must notify the SRS about loans granted to individuals when the amount of financing provided exceeds EUR 15,000 per individual. If the lender is another individual, it will be the borrower’s obligation to notify the SRS about loans received exceeding EUR 15,000 (except for loans received from spouses and relatives). To calculate the total amount of loans per individual, loans issued before 1 January 2014 must also be taken into account.
- Individual borrowers must notify the SRS by 30 June 2014 about non-repaid loans with outstanding amounts exceeding EUR 15,000 per lender as at 31 December 2013. If a taxpayer notifies, a loan received before 31 December 2013 will not be considered comparable to taxable income and thus not subject to PIT. In turn, if the borrower does not notify the SRS, these loans will be subject to PIT under the new amendments to the PIT Act. The notification form to be submitted to the SRS will be prepared by the Cabinet.
- If an individual borrower is the lending party’s employee (including a Micro enterprise taxpayer’s employee), management or supervisory board member on the day when a loan is issued, both 24% PIT and the additional 22% rate will apply to the amount of a loan considered comparable to income.
- If a lender performs business activities (companies, fixed establishments, self-employed individuals), the lender will be responsible for withholding PIT. If the lender is an individual or non-resident, the borrower will be responsible for calculating and paying tax.
- Benefit is gained from reduced loan interest if the interest rate is lower than the notional market interest rate. The calculated difference (also applicable to interest payments calculated but not actually paid) between the two values will be subject to PIT at a standard 24% rate. The notional market rate is calculated by multiplying the annual average weighted interest rate on loans issued in the respective currency to domestic non-financial companies by a coefficient of 0.7.
- If loan transactions are also subject to transfer pricing (TP) requirements, the lower of the TP adjustment and the difference mentioned above will be considered to be the benefit obtained from a reduced interest rate.
- The new PIT regulations for benefits gained from reduced interest rates will also apply to loans issued before 1 January 2014 (except loans from individuals). The procedure mentioned will not apply to loans issued by credit institutions and savings companies.
Transactions with real estate:
As from 1 January 2014, PIT will not apply to sale of real estate (RE) in transactions when income from sale of RE is invested in functionally similar RE within 12 months after disposal or also before RE disposal.