According to the Commercial Law the merchant may temporary suspend its business activities for a period not exceeding 3 years by informing the Register of Enterprises and record it in the Commercial Register and the State Revenue Service (‘SRS’). For more detailed information of the topic, please refer to our previous article "Temporary suspension of business activities" published in November 2016.

It should be noted that the provisions of the Commercial Law on temporary suspension relate to limited liability companies, general partnerships, limited partnerships, individual merchants and joint-stock companies.

Actions before temporary suspension of business

Before decision on the temporary suspension, and the official entry in the Commercial Register, following conditions of the Article 333.3 (1) of the Commercial Law have to be met:

1)     all tax debts (if any) have to be paid, also for duration of temporary suspension of business;

2)     the merchant cannot employ employees, or in case there are employees, the merchant (the employer) must notify the employees on the termination in accordance with Labour law (Chapter 26);

3)     an annual report or in the cases specified by the law - financial statement - has to be submitted for the last reporting period;  

4)     all liabilities have to be settled which deadlines are due before or during the suspension period and creditors’ claims with the deadline after the suspension must be ensured.

The merchant must inform in writing all known creditors of the intention to suspend the business and publish a notice on place of reporting and deadline of creditors' claims in the official gazette "Latvijas Vestnesis". Afterwards the merchant must submit application for suspension not earlier than one month following the publication.

5)     a report on economic activities have to be prepared and submitted for a period not less than 12 months (i.e. following end of the previous annual year).

The report should be prepared in accordance with the guidelines of the laws and regulations on the annual accounts additionally providing details of the losses due to asset impairment incurred during to the suspension. In addition, a stock-taking has to be carried out in order to determine if during suspension period losses will be caused due to the impairment of assets. The report has to submit to the SRS not later than one month after the approval.

Actions after temporary suspension of business

Temporary suspension of the business activities does not exempt from the obligation to file tax returns by set regulatory deadlines, unless the relevant tax law provides otherwise.

Employer reports. Having regarded that the business activities may be temporary suspended as per the procedures specified in the Commercial Law only with a condition that the merchant does not have any employees, and, if so, - the employer is not required to submit employer’s report during the suspension period.

Value added tax returns. According to the value added tax ('VAT') Act, if the merchant has temporary suspended its business activities in accordance with the provisions of the Commercial Law, the SRS makes a decision on the exclusion from the VAT register within 5 working days after having received information from the Register of Enterprises on the business suspension.

Further, within 20 days after the exclusion from the VAT register the merchant has to submit last VAT return for the latest tax period. When preparing the VAT return, the Article 104 of the VAT Act on possible input VAT corrections should be taken into account.

After the renewal of business activities, if it will be necessary, the merchant will be required to re-register at the VAT register according to the standard procedure as per the Article 66 of the VAT Act.

The corporate income tax declaration and advance payments. If the entry of the merchant’s temporary suspension of activities is recorded in the Commercial Register, the law "On Corporate Income Tax" (‘CIT Law’) does not provide an exemption from the obligation to submit a CIT return. Consequently, the CIT return will have to be submitted even if the business activities have been suspended during the entire tax year.

It should be taken into account that the minimum CIT amount payable for the tax year is 50 euros, and it also applies if the merchant, CIT payer, suspends its business activities.

Whereas, CIT advance payments will not have to be paid during the months when business activities have been suspended with an effect from the month in which the entry of the business suspension is recorded in the Commercial Register.

Annual reports and archive storage. According to the Law "On Accounting" the business suspension based on the merchant's decision does not exempt from preparation of an annual reports.

In addition it should be noted that the business suspension does not relieve merchants from further storage of company's archives.