26th April 2019
There can be no doubt that countries worldwide are focusing more than ever on tax evasion, and introducing stricter tax and compliance systems to claw back lost revenues. The latest nation to follow this trend is Latvia, with recent news from the region suggesting that lawmakers are going to be punishing those breaking the law a lot more harshly than they have previously. This is just the latest step in many the country has been taking to modernise and tighten its tax laws. A recent member of the Eurozone, Latvia has been toughening its compliance stance to bring itself in line other countries in the bloc. For any recruiters looking to place those interested in contracting in Latvia, the 14th easiest country to do business with and an area with a shortage of talent in booming engineering and IT sectors, compliance is a must. So, what do you need to know?
Contracting in Latvia: the latest
This week, The Latvian Finance Ministry announced a set of amendments to the Law on Taxes and Duties, which will enact harsher penalties for tax crimes. These changes will also see a new section added to the law to deal with violations of tax regulation, and powers given to the authorities to oversee applying administrative fines.
The amendments stipulate that the offence of tax evasion or concealing profit will carry a fine of €2,000, a massive increase on the previous fine of €125. Private individuals who do not register with the Taxpayer Register will be also be issued a warning or a fine of €210, and legal entities will now be charged €350. Private individuals or companies’ board members who fail to observe restrictions imposed by the State Revenue Service will be fined up to €2,000. Furthermore, failing to report on cash transactions will carry a payment equal to 3-5% of the value of the transaction made. There will also be fines for late filing of tax returns, at up to €700, depending on how late a tax return is submitted. Persons who fail to report suspicious transactions will face paying out up to €200, while legal entities will face a fine of up to €5,000. According to the amendments, the Revenue Service will be the authority in charge of fining individuals and entities that fail to observe the provisions of the law.
Latest of many steps
This marks the latest of many steps that the country has taken to get tougher on tax, making contracting in Latvia far more complicated. On its entrance to the Eurozone in 2013, many people criticised the low tax rates of Latvia, accusing it of being a tax haven, calling it the ‘new Cyprus’ or ‘poor man’s Luxembourg.’ However, this has changed. Latvia has recently raised corporate tax from 15% to 20%, bringing it closer in line with the EU average of 23.5%, while also changing its flat income tax on all earnings and introducing a progressive band system, with rates of 20% for annual income not exceeding €20,004, 23% for annual income from €20,005 to €55,000 and 31.4% for annual income exceeding €55,000. Furthermore, in 2016, Latvia joined the OECD, architects of the Common Reporting Standard and one of the major international bodies pushing for tougher tax and compliance worldwide.
Contracting in Latvia
Clearly, tax systems in Latvia, across the EU, and globally, are getting tougher. Any recruiters looking to place those interested in contracting in Latvia, need to be aware of this and make sure that compliance is a priority, and that no contractor associated with their firm is using non-compliant solutions. For those who think that having a contractor in contravention of the law won’t affect them – think again. With the introduction of the Criminal Finances Act, anyone associated with your business that is charged by authorities with wrongdoing could result in serious trouble for your company. With the high level of interconnectedness between countries and international bodies, there is no room for taking chances. For this reason, we recommend employing the services of international experts who can fully understand the complexities of international compliance, and put your mind at ease.
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