Latvia Payroll & Tax Overview A GUIDE TO DOING BUSINESS IN LATVIA 2017
Contents 1.0 Key Country Facts and Public Holidays 3 2.0 Business and Culture in Latvia 4 3.0 Visas and Work Permits 5 4.0 Tax and Social Security 6 5.0 Compliance 8 6.0 Statutory Absence/Payments 9 7.0 In-country Payroll Providers 11 8.0 About This Payroll and Tax Overview 12 2017 The Global Payroll Association, Inc.; All Right Reserved -2-
1.0 Key Country Facts and Public Holidays 1.1 Official Language Latvian. 1.2 Currency Euro 1.3 Country Dial code The country dial code is +371 1.4 Country abbreviation The country abbreviation is LV 1.5 Statutory Filing Payment Methods Latvian VAT returns have been filed electronically since 2011, with electronic authentication, over the internet. 1.6 National Minimum wage The monthly minimum wage in Kazakhstan is 22,859 tenge. 1.7 Filing Deadlines Monthly filing deadline: Any Latvian monthly or quarterly VAT filing is due on the 20th of the month following the period end. The VAT is payable on the same date. Annual filing Deadline: Taxpayers are required, in certain situations, to submit an annual VAT return by 1 May of the year following the tax year; for example, when a business needs to make input VAT adjustments. 1.8 Fiscal year Jan. 1 through Dec. 31. 1.9 Time Zone Eastern European Time Zone UTC+02:00 Date Holiday 2017 1 Jan New Year's Day 14 Apr Good Friday 17 Apr Easter Monday 1 May Labour Day 4 May Independence Restoration Day 5 May Independence Restoration Day Holiday 23 Jun Midsummer's Eve 24 Jun St John's Day (Midsummer's Day) 18 Nov Independence Day 24 Dec Christmas Eve 25 Dec Christmas Day 26 Dec 2nd Day of Christmas 31 Dec New Year's Eve 2017 The Global Payroll Association, Inc.; All Right Reserved -3-
Business and Culture in Latvia 2.1 Establishing as an Employer A business may be carried on by a: Self-employed person A self-employed person is a person carrying on economic activity and registered as a self-employed person. Economic activity is any systematic, independent activity carried on for consideration. Economic activity, for example, is activity related to the performance of a contract for services, property management, and an activity carried on a household plot belonging to a person. Economic activity also consists of providing professional services should you not be employed by the entity to which you are providing services. Individual trader A natural person carrying on an economic activity and registered in the Commercial Register. An individual trader is liable for his or her debts to the full extent of the trader s property and must register with the Commercial Register as an individual trader where the annual turnover from economic activities carried on by him or her exceeds LVL 200,000 or the economic activities carried on by him or her correspond to the activities of a commercial agent or a broker, or the annual turnover from such activities exceeds LVL 20,000 and in order to carry on those economic activities, the trader simultaneously employs more than five employees. Partnership (general partnership and limited partnership) A general partnership is considered to be a partnership with unlimited liability. A general partnership is a partnership the purpose of which is to carry on commercial activities utilizing a joint firm name, and in respect of which two or more persons have concluded a partnership agreement without limiting their liability towards the partnership's creditors. A limited partnership is considered to be a partnership with limited liability. It is a partnership the purpose of which is to carry on commercial activities utilizing a joint firm name, and in respect of which two or more persons have concluded a partnership agreement, where the liability of at least one of the partners towards the partnership s creditors is limited to the amount of the partner s capital contribution. A company limited by share capital (a limited-liability company (sabiedrība ar ierobežotu atbildību) and a joint-stock company (akciju sabiedrība)) A limited-liability company or SIA is a company the equity capital of which consists of the aggregate of the par value of its shares. A limited-liability company is a (closed) private company and its shares are not publicly traded. The company s owners are not liable to the company s creditors with their own private property. The company is a legal person. A joint-stock company or AS is a company the equity capital of which is equal to the aggregate of the par value of its shares. A joint-stock company is an open (public) company and its shares may, as required by law, be publicly traded - the shares can be listed on the stock exchange. The company is a legal person. 2.2 Employment An employer and an employee establish an employment legal relationship by a contract of employment. By means of a contract of employment an employee undertakes to perform specific work, subject to specified working procedures and orders of an employer, while the employer undertakes to pay the agreed work remuneration and to ensure fair and safe working conditions that are not harmful to health. A contract of employment shall be entered into in writing. If written form has not been complied with, an employee has the right to request that the contract of employment be expressed in writing. In order to afford additional protection to an employee, the Labour Law also provides that where an employee and an employer, or at least one of the parties, has begun to perform the duties contracted for, a contract of employment that does not conform to the written form shall have the same legal effect as a contract of employment expressed in writing (Section 41 of the Labour Law). 2017 The Global Payroll Association, Inc.; All Right Reserved -4-
3.0 Visas and Work Permits 3.1 Visas Nationals from the USA, Canada, New Zealand, Australia, Israel, Japan, Switzerland and EU are authorized to apply for their residence permit (for the purpose of undertaking an employment contract) after they have arrived in Latvia. However, all nationals from countries excluded from the above mentioned list are required to apply for and obtain their residence permit prior to entering Latvia. All other foreign nationals (citizens from out with the EU member states) are legally required to obtain a work visa to undertake full time employment in Latvia. This particular type of work permit is applied for through the Latvia Office of Citizenship and Migration Affairs Department. Latvia Short Term Visa The short term visa is valid for a period for one year and allows the applicant to stay in Latvia for a maximum period of 90 consecutive days. Latvia Long Term Visa This visa enables the applicant to reside in Latvia for up to 90 days every time they enter Latvia, however the visa is only valid for 1 year. Individuals Restricted from applying for a Long Term Permit: B1/B2 visas, re-entry permit or holders of a refugee travel document are exempt prohibited to apply for a long term visa. Latvia Working Holiday Visa A working holiday visa is obtainable by all Canadian and New Zealand nationals who want to reside and take up employment in Latvia for a maximum period of 12 consecutive months. This permit is only available to Canada and New Zealand nationals as Latvia has a reciprocal working holiday agreement with them. Latvia Work Permit The Latvia work permit is an essential document to have for foreign nationals intending to take up employment in Latvia. A work permit is required by the individual before they can undertake in any form of employment in Latvia. For an applicant to be approved a Latvia work permit they must satisfy the following conditions; the applicant must provide the original employment contract in his/her application the employment contract must be from a Latvian registered business The employment contract my have a residential permit included Exemptions to obtaining a Latvian Work Permit If you are a manager of a company representing a foreign firm you will not need to acquire a work permit to undertake your business activities in Latvia If you are a shareholder of a Latvian registered company you will not need a work permit If you are a current holder of a Latvia permanent residential permit you do not need to obtain a work permit to carry on employment in Latvia Latvia Residential Permit A holder of a Latvia residential permit gives them the right to reside and seek employment in Latvia. This type of permit is required by individuals who are foreign nationals and who intend to reside in Latvia for a period of over 90 consecutive days from the date of entry in Latvia. If you are an entrepreneur wishing to open a business in Latvia or are a businessman/woman intending to manage a Latvian business you are legally required to obtain a Latvia Residential Permit. Required documents to apply for a Latvia Work Permit include; Valid passport 2 x passport photos 2 x completed employment permit application forms Medical certificate stating good health of applicant Proof of sufficient funds (can be in the form of bank account statements) Medical insurance Inclusion of the relevant visa application fee Relevant marriage and birth certificates of spouse and dependants traveling with the applicant Employment contract from the sponsor Letter of intent from sponsor 2017 The Global Payroll Association, Inc.; All Right Reserved -5-
4.0 Tax and Social Security 4.1 Tax Tax system in Latvia The Ministry of Finance shall develop state tax and customs policy, as well as prepare recommendations for institutions responsible for tax and customs administration on implementation of tax and customs policy activities. Taxes and fees system in Latvia consists of: state taxes, object and rate of which shall be set by the Saeima; state fees which shall be applicable according to Law "On Taxes and Fees" (LV) specific other laws and regulations of the Cabinet of Ministers; local government fees which shall be applicable according to Law "On Taxes and Fees" (LV) and binding regulations issued by the council of local government; directly applicable taxes and other obligatory payments set in the European Union regulatory enactments 4.2 Direct taxes Enterprise Income Tax Shall be paid by legal entities and non-resident permanent establishments for their income. Tax rate is 15%. Personal Income Tax Shall be paid by natural persons for their income. Tax rate is 23%. State Social Insurance Mandatory Contributions Shall be paid by insured persons and their employers. Total rate is 34,09% which varies for different categories of insured persons. Microenterprise tax Tax rate is 9% from turnover. Tax replaces state social contributions both for employees and proprietors and business risk state fee as well as personal income tax or corporate income tax depending on legal form of taxpayer. Legal form of microenterprise could be Limited Liability Company or individual merchant or individual performing economic activity without registration as an individual merchant. To qualify for status of microenterprise taxpayer the following criteria shall be met: employee s income does not exceed EUR 700 per month, turnover does not exceed EUR 100 000 per year, the number of employees may not exceed five. 4.2 Indirect taxes Real Estate Tax Shall be paid by real estate owners or legal possessors. General tax rate is 1,5% from cadastral value of property unit. Residential property is taxed at a rate 0,2%-0,4%-0,6% depending on value of the property. Value Added Tax Shall be paid by legal entities and natural persons. Standard tax rate is 21%, reduced tax rate 12%. On 1 January 2013 new Value Added Tax Law has entered into force. Value Added Tax Law replaces the Law On Value Added Tax, which was into force from 1995 till 2012. Excise Duty Shall be applied to oil products, natural gas, alcoholic drinks, beer, tobacco products, coffee and non-alcoholic drinks (except natural juices and mineral water). Electricity Tax Shall be paid by persons supplying electricity to the end-users and self-governing producers. Tax rate shall be set in lats per megawatt-hour. 2017 The Global Payroll Association, Inc.; All Right Reserved -6-
4.3 Social Security The application of social security schemes (including pensions) to persons and their family members moving within the EU, European Economic Area and Switzerland is realized according to the principle of equal attitude and taking into account the requirements of EU directives, including the principles of aggregation of insurance and export of benefits. The bilateral agreements in the sphere of social security (including pensions), up to the present moment, are concluded between Latvia and the United States (only regarding pensions), Canada and the Ukraine. Regarding the 3rd country persons from other countries and their family members, the legislation of Latvia will be applied concerning the social security. Sickness Benefit is granted and paid from the 15th day of the incapacity for work in the amount of 80% from the person s average contribution wage. For the first 14 days of sickness the sick pay is paid provided by the employer. Sickness benefit for sick child care is granted and paid for the period of Social Security incapacity for work from the 1st to the 14th day and from the 15th to the 21st day, also in the cases when the child receives health care at the hospital. Persons entitled to receive: employee, a self-employed person, a voluntarily joined person. Maternity Benefit is allocated and paid in the amount of 100% from the average contribution wage, that is calculated from the six month period income (for the self-employed 12 months). Persons entitled to receive: employee, a self-employed person, a voluntarily joined person. Unemployment Benefit. The unemployment benefit amount is determined by taking into account the length of time the person has been insured, and the average insurance contribution wage. Persons entitled to receive: who has unemployment insurance; total social insurance payments have been made for no less than 1 year and who has gained the status of an unemployed person. Insurance Indemnity Related to Accident at Work or Occupational Disease include: sickness benefit; compensation for the loss of capacity for work; lump sum benefit; compensation for additional expenses, that are connected with medical treatment and rehabilitation, care, purchasing and repair of technical aids, travel costs for visiting the physician. Persons entitled to receive: socially insured, who due to a job injury or occupational disease who has a temporary incapacity for work, loss of ability to work or death. Other kinds of social security benefits, allowances and compensations in Latvia: Child Birth Benefit, Child Care Benefit, Paternity Benefit, Parents Benefit, Family State Benefit, Social Security State Benefit, Disability Pension and others. 2017 The Global Payroll Association, Inc.; All Right Reserved -7-
5.0 Compliance 5.1 Employer Registration The following company incorporation documents must be submitted to the Company Register: Registration application, on a special form provided by the Registry (includes information on Board members and company share capital) signed in front of a notary public Company charter Foundation agreement (Resolution on foundation in case of one founder) Proof of investment Consent to the election to the Supervisory Board (if existence of Supervisory Board is provided in company charter) Consent to the election to the Management Board Notice of the Management Board on legal address of the Company Power of Attorney in case any of the founders is signing the Registration application via authorized person Document certifying payment of state duty Document certifying payment of the publication fee Registration application can also be filed electronically if signed by secure electronic signature. Consent to election to the position of the Management Board member needs to be signed by secure electronic signature or the signature needs to be approved by the notary public or the official of the Commercial Registry. Alternatively the consent can be inserted in the registration application; however the signature of the Management Board member needs to be approved as described above. Consent of the owner of the real estate regarding registering the registered address of the company to be established also needs to be submitted to the Commercial Registry. Notarized Section of Shareholders Register must also be submitted. According to amendments of the Annual Reports Law, the annual report of the company should be reviewed by the sworn auditor and the appointment of auditor is needed only if two of the following three criteria are exceeded: 1) the sum o, f the balance sheet amounts to EUR 400 000; 2) the net turnover amounts to EUR 800 000; 3) average number of the employees during the financial year amounts to 25. 5.2 Starters/Registration Companies who registered with the company register are automatically registered with the State Revenue Service. All corporations generally are required to register with Company Register upon incorporating, while individuals generally are not required to do so. Employers must file a Particulars of Employees form with the State Revenue Service to register all employees within three days of their hire dates. Those who are not required to register with the Company Register must register with the State Revenue Service within 10 days of signing their first employment contract. 5.3 Leavers/De-registration A contract of employment can be terminated either at the initiative of an employer or an employee. A contract of employment may also be terminated by expiry of a fixed-term contract, by mutual consent of employer and employee, or pursuant to the request of a third party. Parents (guardians) or the State Labour Inspection have the right to request in writing the termination of an employment relationship with a person who is under 18 years of age if such person performs work, which jeopardises his or her safety, health or morals or negatively affects his or her development or education. 2017 The Global Payroll Association, Inc.; All Right Reserved -8-
6.0 Statutory Absence/Payments 6.1 Annual leave Section 149 of the Labour Law stipulates that every employee has the right to annual paid leave. Such leave may not be less than four calendar weeks, without holidays. Persons under 18 years of age are entitled to annual paid leave of one full month. In exceptional cases, however, when granting in the current year of the full annual paid leave to an employee may adversely affect the normal course of activities in the undertaking, it is permitted with the written consent of the employee to transfer part of the leave to the subsequent year. In such case, the part of the leave in the current year shall not be less than two consecutive calendar weeks. Part of the leave may be transferred only to the subsequent year. A special protection with regard to paid leave is afforded by Section 149 (4) of the Labour Law to persons under 18 years of age, pregnant women, women for a period following childbirth up to one year as well as breastfeeding women during the whole period of breastfeeding, stating that the above-mentioned categories of persons have to take the annual leave in the current year. It is prohibited to compensate annual paid leave with money, except in cases when employment legal relationships are terminated and the employee has not utilised his or her annual paid leave. By agreement of an employee and the employer, annual paid leave in the current year may be granted in parts, nevertheless one part of the leave in the current year shall not be less than two uninterrupted calendar weeks. 6.2 Prenatal and Maternity Leave Latvian legislation provides for a special protection afforded to women employees during pregnancy and after childbirth. A woman has the right to prenatal leave for 56 days prior to the birth of a child and to maternity leave 56 days following the birth of a child. The prenatal leave together with maternity leave make 112 calendar days that are granted irrespective of the number of days prenatal leave has been utilised prior to childbirth. However, this does not apply if a woman agrees to be employed. This agreement can be repealed at any time without conditions being forwarded. The leave granted in connection with pregnancy and childbirth is not included in annual paid leave. The Labour Law gives a woman the right to supplementary leave of 14 days added to the prenatal leave in three cases: in case of complications in the pregnancy, childbirth or postnatal period, if two or more children are born, and if the woman has initiated pregnancy-related medical care at a preventive medical institution by the 12th week of pregnancy and has continued for the whole period of pregnancy. Moreover, a pregnant woman prior or following the birth of a child is entitled to several other benefits. Section 37 (7) of the Labour Law stipulates that an employer, after receipt of a doctor's opinion, is prohibited from employing pregnant women and women for a period following childbirth not exceeding one year, but if the woman is breastfeeding during the whole period of breastfeeding if it is considered that performance of the relevant work poses a threat to the safety and health of the woman or her child. Otherwise, in order to prevent any negative effect on the safety and health of a pregnant woman, an employer, after receipt of a doctor's opinion, has a duty to ensure appropriate working conditions and working time for her. If it is not possible to ensure such working conditions or working time, the pregnant woman should be temporarily transferred to a different, more appropriate job. The amount of work remuneration after making amendments to the contract of employment may not be less than the previous average earnings of the woman. There is also a possibility for a pregnant woman, a woman within a period up to one year after childbirth, a breastfeeding woman and an employee who has either a child less than 14 years of age or a disabled child less than 16 years of age to demand determination of a part-time work (Section 134). Section 136 (6) and 138 (6) of the Labour Law prohibits the employment of pregnant women, women for a period up to one year after giving birth and a breastfeeding woman in overtime work or at night. These women cannot be sent on a work trip (Section 53 (2) of the Labour Law), unless they agree. Persons on maternity leave are granted state social insurance benefit - maternity benefit if these persons are socially insured according to the Law on State Social Insurance. Section 5 of the Law On Maternity and Sickness Insurance stipulates that a maternity benefit is a benefit granted and paid to a woman for the period before and after confinement if a woman does not come to work and in this way loses her earnings. Section 146 of the Labour Law ensures the right of every employee who has a child under one and a half years of age to additional breaks of not less than 30 minutes, which are granted not less than every three hours. Breaks for feeding a child are included as working time, paying the average earnings for such time. 2017 The Global Payroll Association, Inc.; All Right Reserved -9-
6.3 Leave to Father of a Child, Adopters and Other Persons There are special provisions introduced in the Labour Law concerning the leave of other persons caring a child. In accordance with Section 155 of the Labour Law, the father of a child is entitled to leave of 10 calendar days that is granted within a twomonth period from the birth of a child. If a mother has died in childbirth or within a period up to the 42nd day of the postnatal period or up to the 42nd day of the postnatal period has refused to take care and bring up the child, the father of the child or any other person actually taking care of the child is granted leave for the period up to the 70 th day of the child's life. If a mother cannot take care of the child up to the 42nd day of the postnatal period due to illness, injury or other health-related reasons, the father or another person who actually takes care of the child are entitled to leave for those days on which the mother herself is not able to take care of the child. In a family that has adopted a child under two months of age, one of the adopters enjoy a leave of 56 calendar days starting from the day of adoption of the child (Section 7 of Law On Maternity and Sickness Insurance ). In a family, which has adopted a child between two months and three years of age, one of the adopters shall be granted leave of 14 calendar days. 6.4 Parental Leave In accordance with Section 136 of the Labour Law, parental leave is granted to each of the parents. Every employee has an individual right to parental leave in connection with the birth or adoption of a child for a period up to one and a half years until the child reaches the age of eight years. It can be granted as a single period or in parts. Additional security guarantees are the inclusion of the time spent by an employee on parental leave in the total length of service and retention of the previous job. Where this is impossible, the employer has a duty to ensure equivalent or similar work. 6.5 Supplementary leave An annual paid supplementary leave of three working days is granted to employees having three or more children under the age of 16 years or a disabled child and to employees exposed to special risk. A collective agreement or a contract of employment may determine other cases (for instance, night work, shift work, long-term work, etc.) where an employee also receives an annual paid supplementary leave. 6.6 Study Leave Pursuant to Section 157 of the Labour Law, employees are entitled to study leave provided that the work has not been discontinued, that the studies are undertaken at an educational institution of any type and that such right is provided for in a collective work agreement or a contract of employment. The study leave can be granted either with or without retention of work remuneration. However, if parties to the contract of employment have not agreed the right to study leave, employers are free to deny attending of studies. 2017 The Global Payroll Association, Inc.; All Right Reserved -10-
7.0 In-country Payroll Providers ACUMEN INTERNATIONAL is a SINGLE REGIONAL PEO and PAYROLL PROVIDER in 33 countries in the former Soviet Union, Eastern and South-Eastern Europe plus Central Asia since 2001. +44 (0) 203 468 8777 info@acumen.pro www.acumen.pro Since 2002, Expaticore has specialised in Local National and Expatriate payroll, Assignment Management Services and International HR Consulting Services. +001 212 239 2625 amorris@expaticore.com www.expaticore.com 2017 The Global Payroll Association, Inc.; All Right Reserved -11-
8.0 About This Payroll and Tax Overview 8.1 Copyright All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher. 8.2 Disclaimer Every effort has been made to ensure that all information in this booklet is correct at the time of publication. This information should be used as reference only and not as a sole source of decision making. 8.3 The Global Payroll Association Global Payroll Association is the first international payroll association of its kind. We are a central hub for all-things payroll. A one-stop-shop supplying comprehensive directories, interactive training and in-depth country resources. We are here to help you with your global payroll needs, no matter how complex, connecting you with the world s leading experts and offering a forum to network with other like-minded global professionals. Global Payroll Association welcomes international payroll, HR and financial professionals of all levels. 2017 The Global Payroll Association, Inc.; All Right Reserved -12-
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