While the draft amendments of the tax laws have not yet been published, the Ministry of Finance has informed the public about planned amendments to the tax laws, which merchants are already actively discussing. We would like to inform about the Ministry’s offer regarding a personal income tax and mandatory social security payments taxation of employment income, namely, a personal income tax and mandatory social security payments.  

1. Social security payments

Solidarity tax

In 2015, the maximum of yearly employment income, subject to mandatory social security payments is 48,600 euros. The maximum amount, or "ceiling" was introduced in order to balance social contributions of the high-paid employees with state guarantees to pay high pensions when these employees would retire.

In connection with the budget for the year 2016, it is proposed to cancel the threshold mentioned above, so all employment income in 2016 would be subject to mandatory social security payments. At the same time, the employee will receive social security (benefits, provisions for pension funds, etc.) only for the payments up to the threshold, the difference would be used for other social budget spending. According to Ministry of Finance’s calculations the state budget will receive 40.9 million euro as an additional income[1].

Minimum social security payments for employees with low income

In order to ensure that employees have a minimum level of social security, it is proposed to set a mandatory minimum of security payments for employees whose income from employment is lower than the national monthly minimum wage (in 2015 - 360 euro). According to the proposals the employer will pay social security payments for an employee whose income is less than the minimum wage if the employee has provided a salary tax book to the employer and the employee is not employed by microenterprise. The employer will pay from its own funds a difference between the actual and the minimum social security payments, including an employer who is a microenterprise taxpayer. There is a transitional period for new rules. Thus, if the proposal will be accepted, additional social security payments should be paid as from 2017.

2. Personal income tax

According to the information published in the website of Ministry of Finance in 2016 it is planned to increase the non-taxable income by 10 euro (from 75 to 85 euro), as well as to keep the tax rate of 23%, without reducing it to 22%, as it was decided previously. In addition, it is proposed to reduce the list of dependents for which taxpayers are entitled to apply the tax relief, i.e. for adult and working able persons, such as the non-working spouse. However, this does not apply to the relief prescribed for adult children up to the age of 24 who continue to study.

In addition, the Ministry of Finance has prepared proposals for reform of the personal income tax system by introducing differentiated non-taxable income or progressive tax rates. Regardless of which of the variants will be accepted, it is unlikely that it could be introduced in the beginning of 2016.

The Ministry of Finance’s report on these proposals is available at:

http://tap.mk.gov.lv/lv/mk/tap/?dateFrom=2014-09-09&dateTo=2015-09-09&text=riekšlikumi+diferencētā+&org=0&area=0&type=0.

All aforementioned proposals are discussed and in general accepted by the government. However, Saeima should discuss and approve them by the end of the year.

[1] http://www.fm.gov.lv/lv/aktualitates/jaunumi/budzets/51233-nakama-gada-budzets-versts-uz-nevienlidzibas-mazinasanu-un-nodoklu-progresivitati

Contacts of Advisory unit

If you have any questions or need more detailed information, please contact:

Ina Spridzāne (ina.spridzane@leinonen.lv, tel. 67358635) or Kristine Erele (kristine.erele@leinonen.lv tel. 67358600).

If you are interested in the news of tax, employment and other business-related legislation in Estonia and Lithuania, please visit: http://leinonen.lt/news/news-2015 un http://leinonen.ee/news/news-2015.