Recent tax developments

• Latvia

• Tax planning and consultancy

19-06-2015

General

Financial institutions are now obliged to deliver information which is set out in the agreement between the United States of America and Republic of Latvia to improve international tax compliance and to implement FATCA.

Personal income tax – non payment of debts

It has been established that income received by the debtor as a result of the lapse of the time limit to claim by the creditor against the debtor must not be included in the annual taxable income of the debtor, if the creditor has not submitted his claim according to the procedure set out in insolvency law. The same also applies to income that has been received as a result of discharge of loan (credit). Under consumer rights protection law, if the loan (credit) agreement sets out that real property is sufficient collateral for ensuring that the liabilities of the debtor towards the creditor could be discharged in full, and the agreement on the discharge of debt has been put in writing, then any income received by the debtor as a result of the discharge of loan (credit) will not be taxable.

Corporate Income Tax – non payment of debts

It has been established that taxable income may be reduced in accordance with the law by bad debts if all of the following conditions are met:

1. the income relating to such debts has previously been included in calculation of taxable income;

2. the amount of such debts has been written off from the amount of special reserves provided for doubtful debts or directly as losses (expenses) in the accounting of the taxpayer during the current taxation period or any previous taxation period;

3. the debtor is a resident of Latvia, or another European Union Member State, or the state of the European Economic Area, or a resident of a state with which Latvia has concluded conventions on the prevention of double taxation and tax evasion. This is only applicable if the conventions have come into force; and

4. the amount of debt has not been recovered from the debtor (a private individual who is not related to the enterprise) when the loan has been discharged.

VAT

Changes have also been made to the regulations regarding the operation of financial representatives in Latvia in order to improve the competitiveness of the transit and logistics industries. According to the amendments a financial representative may represent VAT payers of other EU member states who are involved in taxable transactions, but are not registered as VAT payers in those member states. The financial representative may also represent certain individuals and entities when purchasing goods within the territory of the European Union, if these goods are received with the aim to deliver them to another member state.