Changes in taxation from 2024

Amendmends to the law "On Personal Income Tax" will come to force on January 1, 2024. These amendments state that:

• tuition fees paid by the employer to their employee for obtaining higher education are exempt from salary tax if the studies are related to the acquisition of skills that the employer needs;
• the amount of health insurance premiums paid by the employer that are not subject to salary tax is increased to EUR 750 per year;
• the amount of compensation is increased to EUR 40 per month, which is not included in the income of paid work, for the employee's expenses related to remote work, while establishing it as a permanent norm;
• the tax-free amount of social exemptions is increased (from EUR 1000 or 2000 per year to EUR 3000 per year), which is applied to payments made to citizens by public benefit organizations, religious organizations and trade unions;
• the statutory conditions for the inclusion of contributions from private pension funds in eligible expenditure and costs from private pension funds will also be extended to Pan-European private pension product plans (PEPP);
• income arising from the implementation of support measures for natural persons (outside their economic activities) shall not be taxed if the support measures from the state budget funds are implemented through the State Revenue Service or Joint Stock Company "Attīstības finanšu institūcija Altum".
• the income of a natural person with an unemployment status which has been qualified by the state Employment Agency as a scholarship or remuneration is extended from taxation up until 2026.

From 1 January 2024, micro-enterprise taxpayers, if they obtain income that is object to PIT, will be able to apply the differentiated non-taxable minimum and allowance for dependent persons to this income.

Until 31 December 2024, the PIT regime for recipients of royalty income laid down in the transitional provisions of the Law "On Personal Income Tax" shall be maintained. At the same time, one PIT rate is determined, regardless of the amount of revenue. Accordingly, recipients of royalties to whom royalties are paid by an income disburser who is not a collective management organization, have the right not to register as performers of economic activity, but taxes (PIT and SSC) will be paid by the disburser, applying PIT rate in the amount of 25%. The withheld PIT revenue is distributed as follows: SSC – 80% and PIT – 20%.

From 1 January 2024, a single micro-enterprise tax rate of 25% has been set, regardless of the turnover of the micro-enterprise.

On January 1, 2024, amendments to the Corporate Income Tax Law will enter into force, which provide the following:

• credit institutions and consumer crediting service providers are obliged to pay a tax surcharge of 20% in the taxation year (regardless of the profit distribution), the tax surcharge is calculated by using the financial data of the pre- taxation year and by taking into account profits distributed and the amount of tax paid thereof in the taxation year, simultaneously providing that the tax surcharge paid  is further taken into account when calculating the tax payable on the distribution of profits in dividends;

• entitlement to attribute an operating expenses (including fuel expenses) of representative cars used continuously for a long time (not less than 60 months) to the expenses of economic activity, simultaneously stipulating that during the initial period of the use of the representative cars, the current regulation is maintained and these expenses are considered to be unrelated to the taxpayer's economic activity;

• corporate income tax shall not be withheld from the income derived by the private foreign pension fund for the alienation, leasing or renting of immovable property located in Latvia, if such a private pension fund has been registered and is supervised in accordance with the legal acts of the relevant European Union Member State, or a state of the European Economic Area, or a state with which Latvia has entered into a convention for the avoidance of double taxation and the prevention of fiscal evasion which has come into force.

As of 1 January 2024, gambling tax rate is increased:

• for roulette, card and dice games (for each gambling table) for each current calendar year from EUR 28 080 to EUR 33 696;
• for gaming machines (for each gambling place of each gaming machine) for each current calendar year from EUR 5172 to EUR 6204;
• for gambling, which is organised via telecommunications, irrespective of the type of game from 10% to 12% of the revenue from the organisation of this game.

• In compliance with the conditions contained in the Value Added Tax Law, also not be taxable with VAT participation fees for participation in sports competitions and fees for sports lessons which provided by association or foundation registered in the Register of Associations and Foundations to persons engaged in sports.

• The threshold at which companies must be registered for VAT will rise from EUR 40,000 to EUR 50,000. Raising the VAT registration threshold to EUR 50,000 will reduce the effects of inflation specifically for small businesses.

• From 1 January 2024 Latvia will raise a threshold of bad debt and improve conditions regarding adjustment of input tax for bad debt. The major changes are:

- The value of bad debt of a supplier of goods or services for one recipient of goods or services without tax will be less than EUR 1000, which means – the threshold of bad debt will be raised from EUR 430 to EUR 1000;

- The term of the non-cooperation condition will be reduced from the current 6 months to 3 months;

-  The supplier of goods or services has the right to include the amount of the VAT of the bad debt by submitting the tax return (previously such right was only once a year- in return for the taxation year).

• According to the amendments of the Enterprise income tax Law, the procedure for deducting the input tax regarding the maintenance expenses of the representative car has been changed, specified the limit regarding the cases where the representative car is in the continuous ownership or possession of the taxpayer for at least 60 months.

• The Value Added Tax Law sets out obligations for payment service providers (i.e. credit institutions, electronic money institutions, payment institutions, institutions licensed in a Member State that have started operations in Latvia in accordance with the procedures specified in Article 31 of the Law on Payment Services and Electronic Money, credit unions), to keep records, store and provide information to the State Revenue Service about payees and cross-border payments.

This regulation takes over the requirements set out in Council Directive (EU) 2020/284 of 18 February 2020 amending Directive 2006/112/EC regarding the introduction of certain requirements for payment service providers, and its purpose is to prevent VAT evasion in cross-border transactions. The exchange of the mentioned information with other Member States will allow analyzing data on cross-border transactions, detecting and controlling fraudulent companies and combating cross-border VAT fraud in e-commerce, thereby reducing VAT losses in Member States and ensuring equal competition.

Accordingly, amendments to the Law on Excise Duties, excise duty rates for alcoholic beverages, non-alcoholic beverages, tobacco products, liquids and components used in electronic smoking devices, tobacco substitute products and marked mineral oils used in special economic zones and free ports, as well as natural gas used for motor fuel shall be increased on 1 March 2024:

• for other alcoholic beverages (ethyl alcohol) from 1724 euro to 1862 euro per 100 litres of absolute alcohol. The price per litre of a spirit drink (vodka, brandy, etc. with an alcoholic strength of 40% vol) could rise by 0.67 euro. However, the price per litre of alcoholic cocktails with an alcoholic strength of 5.2% vol could increase by 0.09 euro;
• for beer from 8.2 euro to 9 euro per hectolitre/degree of alcohol. The price per litre of a beer with alcoholic strength 5.2% vol could increase by 0.05 euro;
• for fermented beverages (not exceeding 6% vol ) from 64 euro to 70 euro per 100 litres. The price per litre of a cider (not exceeding 6 % vol) could increase by 0.07 euro;
• for wine an fermented beverages (from 6% vol) from 111 euro to 122 euro per 100 litres. The price per litre of a wine or fermented beverage (from 6% vol) could increase by 0.13 euro;
• for intermediate products (not exceeding 15% vol) from 111 euro to 122 euro per 100 litres. The price per litre of intermediate products (vermouth) (not exceeding 15% vol) could increase by 0.13 euro;
• for intermediate products (from 15 to 22% vol) from 185 euro to 203 euro per 100 litres. The price per litre of intermediate products (vermouth, port wine) (from 15to 22% vol) could increase by 0.22 euro;
• for non-alcoholic products (with sugar content 8 grams per 100 ml) and energy drinks from 14 euro to 17.5 euro per 100 litres. The price per litre of soft drinks (cola etc. with sugar content from 8 grams per 100 ml) could increase by 0.04 euro;
• for cigarettes minimum duty level from 135.9 euro to 156.3 euro per 1000 cigarettes, specific tax from 104 euro to 119.6 euro per 1000 cigarettes and ad valorem remain 15% from maximum retail price. The price per pack of cigarettes (20 items) could increase by 0.49 euro;
• for cigars and cigarillos from 126.7 euro to 164.7 euro per 1000 items. The price per pack of cigars or cigarillos (10 items) could increase by 0.46 euro;
• for smoking tobacco and tobacco leaves from 91.9 to 105.7 per 1000 grams. The price per 40 grams of smoking tobacco could increase by 0.67 euro;
• for heated tobacco from 218 euro to 251 euro per 1000 grams. The price per package of heated tobacco (20 items/5.3 grams) could increase by 0.21 euro;
• for liquids and components used in electronic smoking devices from 0.20 euro to 0.24 euro per 1 ml of liquid. The price per package of 2 ml (SALT) could increase by 0.10 euro, however, price per 10 ml could increase by 0.48 euro;
• for tobacco substitute products from 120 euro to 138 euro per 1000 grams. The price per package of nicotine pouches (14 grams) could increase by 0.30 euro;
• for marked mineral oils used in specific economic zones and free ports from 60 euro to 148 euro per 1000 litres, while extending the scope of beneficiaries of relief in special economic zones and free ports in accordance with amendments to the Law On the Application of Taxes in Free Ports and Special Economic Zones. The price per litre of marked mineral oil could increase by 0.11 euro;
• for natural gas used as fuel, if the natural gas trader has reached the de minimis State aid threshold, from EUR 1.91 to EUR 9.64 per MWh. The price per 1 kg of natural gas could rise by 0.14 euro.