Micro – enterprise tax in Latvia

To stimulate development to small and medium sized enterprises in Latvia, government of Latvia accepted law on “Micro-Enterprise Tax”.

Micro–enterprise tax is for different forms of merchants – individual merchants, farms, other natural persons that are registered as performers of economic activities, or limited liability companies that have chosen to accept the micro – enterprise status and who, under the law, may make only one tax payment.

The law allows small businesses to pay flat-rate tax of 9% on their turnover. The tax shall be paid four times a year on the turnover of each quarter

The flat-rate tax of 9% includes the following tax payments:

– social insurance mandatory contributions,
– personal income tax;
– entrepreneur risk state fee for employees;
– enterprise or corporate income tax if the micro-enterprise conforms to the features of enterprise income tax payer and
– personal income tax of owner of the micro-enterprise for earnings of micro-enterprise economic activity.

Criteria for a micro-enterprise tax registration

The entrepreneurship must be implemented in the following forms:
• individual merchant;
• individual enterprise, farm or fish farm;
• natural person registered at the tax office as an performer of economic activities;
• limited liability company;

and complying with the following criteria:
1) shareholders (if any) are natural persons. Shareholders of a limited liability company are natural persons – also act as members of the board;
2) the turnover may not exceed 100.000,- eur in a calendar year;
3) the number of employees may not exceed 5 (five) at any time not including absent or discharged employees.
4) income/ salary of one micro-enterprise tax company employee may not exceed 720,- eur per month
Employees are engaged in a micro-enterprise on the basis of an employment agreement. Both natural persons and legal entities must pay the micro-enterprise tax.

How to become a micro-enterprise taxpayer?

– A person can apply for registering as a micro-enterprise taxpayer along with registering the company in the Register of Enterprises. The person must confirm that within the reporting year corresponding to the taxation period of the micro-enterprise tax he will comply with the limitations stated by the Law on Micro-Enterprise tax, i.e., the foreseeable turnover will be up to 100.000,- eur, the micro-enterprise wishes to pay the micro-enterprise tax and the number of employees will not exceed five employees, which employees will be notified of. Information on the received application will be sent to the tax office in next days after company registration of the company in the Register of Enterprises.
– A natural person performing economic activity and registered as an performer of economic activities by the tax office may choose whether to pay the micro-enterprise tax. Along with the registration application, such person must submit an application specifying the information given by the company upon applying at the Register of Enterprises to acquire the status of a micro-enterprise taxpayer.
– If a person already registered in the Register of Enterprises or a natural person already registered by the tax office as an performer of economic activities wishes to become a micro-enterprise tax payer, a registration application regarding registration as a micro-enterprise tax payer must be submitted to the tax office till 15 December of the pre-taxation year.

The status of a micro-enterprise taxpayer can be revoked by submitting an application to the tax office until 15 December of the pre-taxation year.

Consequences of failing to comply with the limitations

• If the income of a micro-enterprise employee exceeds the sum stated in the Law, an increased tax rate is applied.
• A tax rate of 20 % will be imposed on the share of the employee’s income exceeding 720,- eur per month.
• If the number of employees is exceeded and there are more than five employees in the micro-enterprise, then 2 % for each additional employee are added to the tax rate of 9 %.
• However, if the turnover is exceeded, a tax rate of 20 % is imposed on the share by which it is exceeded.

The micro-enterprise tax has to be paid four times per year for the turnover of each quarter. A micro-enterprise tax payer shall submit to the tax office a micro-enterprise tax declaration every quarter till the fifteenth day of the relevant month.

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