The year 2018 is not far, which carries with it the following changes in taxation. In July 2017, the Saeima adopted a number of laws within the framework of the tax reform, which will change 9 taxes from 15 existing ones.
The most ambitious changes are stipulated in the laws on personal income tax (PIT), on the tax of solidarity, on the profit tax of the enterprise, the law on social insurance, and the excise tax. In addition, some changes have affected the law on VAT, the tax on microenterprises, the tax on the operation of vehicles, on lotteries and gambling.
In this article, we offer you an analysis of changes in the Law on Personal income tax. Taxpayers in the legislation of the Republic of Latvia can be divided into three main groups:
II. self-employed persons (persons engaged in economic activities), and
III. owners of capital.
I. Employees will face the following changes: 1) From 1 January 2018, a differentiated personal income tax is introduced:
A tax rate of 31.4% is applied when submitting a declaration of annual income, and the paid tax includes a part of the solidarity tax established in accordance with the Solidarity Tax Law.
When providing a declaration of annual income, the State Revenue Service (SRS) calculates a tax refund in the cases specified by law at a rate of only 20%.
2) The rate of the tax on wages, which the employer keeps and pays to the budget, will be:
In the event that the employee has not provided the employer with a tax book, a 23% tax applies to salaries of any size.
3) To the incomes from the author’s remuneration for literary works (only) that are created, published and used in the press and other mass media, the rate of 20% is applied.
4) In addition, from January 1, 2018, a differentiated non-taxable minimum is introduced, which will be calculated for each employee individually. In the workplaces, in the calculation of wages the forecasted by the SRS monthly non-taxable minimum will be applied if the payer’s tax book is submitted. SRS will report information on the applied forecasted minimum for each employee to the employer through the Electronic Declaration System twice a year – until January 1 and until August 1.
Based on the foregoing, there may be a situation, when income changes and the application of a differentiated annual non-taxable minimum, the taxpayer will have to pay extra in the PNN budget.
5) Starting from July 1, 2018, one can get an additional benefit for an unemployed spouse, on whose dependent is:
6) The amount of the non-taxable burial allowance granted by the employer has risen to 250 euros (now it is 231.43 euros).
7) Non-taxable gifts from the employer will be 15 euros (now 14.23 euros).
8) An increase in non-taxable lows for the pensioners is also expected:
9) The calculation of compensation for justifiable costs will change:From the amount of annual taxable income, one can deduct the justified expenses of a taxpayer or his family members, not exceeding 50% of his income, but not more than 600 euros for each member of the family. It means that if one has an annual income of 1000 euros, then justified costs are accepted only up to 500 euros.
We would like to remind that the justified expenses are: the costs of treatment, education, donations, including donations to political parties, education of children by interests (swimming, language courses, etc.)
In addition, the amount of justifiable expenses includes contributions to private pension funds and payments under the life insurance savings agreement, which must be concluded for at least 10 years, in an amount that does not exceed 10% of the taxable income of the taxpayer, but not more than 4000 euro per year.
II. Taxation of economic activity of an individual will change:
Since January 1, 2018, the limitation of expenses from economic activities is introduced in the amount of 80% of the total income of economic activities. In reality, of course, the expenses can be even more, but only 80% are taken into account for calculating the tax.
Also new methods of accounting for depreciation of fixed assets are established, namely: if the cost of fixed assets is more than 1000 euros, then the double wear rate is not applied.
III. The following changes are related to the capital gains tax:
To be continued on the changes in taxes in 2018.