Micro-enterprise in Latvia
In order to become a micro-enterprise taxpayer, the following main conditions must be fulfilled:
- a turnover not exceeding LVL 70,000 per calendar year;
- number of employees – up to 5;
- a salary per employee not exceeding LVL 500 a month.
The status of a micro-enterprise payer can be acquired by a limited liability company, individual merchant, individual enterprise, a farm or a fish farm, or a natural person registered at the State Revenue Service as an economic operator according to the above conditions.
The micro-enterprise tax of 9 % is calculated and paid from the enterprise’s turnover. If the turnover is exceeded, a tax rate of 20 % will be applied, and the enterprise will lose the status of a micro-enterprise as from 1 January of the next year.
It must be taken into account that if a 12-month turnover exceeds LVL 35,000 an enterprise must register as a Value Added Tax (VAT) payer.
In regard to salary calculation, employees of a micro-enterprise are not entitled to tax relief, namely, the untaxed minimum and dependent care tax credit. No taxes are calculated and deducted from the monthly salary of employees of a micro-enterprise – it means that an employee receives a net salary.
It is essential to know that an employee’s salary comprises all benefits provided by the micro-enterprise taxpayer (in the form of money, services and natural values). The income of an employee includes a salary; bonuses; presents; a holiday grant; benefits including severance pay and compensations (travel allowances and unused holiday pay); payments into private pension funds; life and health insurance premiums and a benefit from personal use of a company vehicle. A tax of 20 % is imposed on the amount by which a salary of LVL 500 is exceeded in a specific month.
Advantages of a micro-enterprise
- The tax rate is only 9 %, and it is calculated and paid from the turnover.
- An employer does not have to pay mandatory social insurance contributions.
- The tax is to be reported and paid once in three months.
- According to the conditions concerning micro-enterprise taxpayers no opinion by a certified auditor is needed when preparing an annual report.
- No advance payments of corporate income tax are to be paid.
- Members of staff can work as employees in several companies.
Disadvantages of a micro-enterprise
- No tax relief is granted to employees of a micro-enterprise.
- The salary (not exceeding LVL 500) must include all benefits provided by an enterprise.
- The status of a micro-enterprise taxpayer can be changed to the status of a personal income taxpayer or corporate income taxpayer only after the end of the relevant taxation period (namely, a calendar year).
- If an employee works only in a micro-enterprise, the range of available state social insurance benefits is limited.
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