To encourage the growth of small and medium-sized businesses in Latvia, the Latvian administration approved the Micro-Enterprise Levy. The GST applies to various types of vendors, farmlands, other private individuals, and LLCs that have preferred to acknowledge the micro-enterprise standing. The state permits small corporations to pay a flat 9% GST on their revenue. The levy is to be funded 4 times annually on the quarterly turnover.

The small-sized firm levy is a solitary tax bill that consists of the following taxation: 

  • Required Government social security commitments, 
  • Financial investment fee for micro-enterprise staff, 
  • Corporate taxes, and 
  • Personal taxation of an owner for financial activity earnings.

Right of being the micro-enterprise 

Individual merchants, specific ventures, and farmlands all have the authority to become micro-enterprises. An individual who is registered with the National Tax Authority can also be regarded as a small-sized firm. Any limited liability corporation that prefers to become one.

There is the option to reimburse the levy if the yearly salary from trade does not surpass EUR 40 000. If the representatives of an LLC are only natural individuals, the LLC can request the levy. This form of tax is also applicable to businesses with fewer than five workers at any given time. An employee’s monthly income from such an organization cannot exceed EUR 720 for this purpose.

A firm may acquire the position of a small firm if it has consented with all of its staff to the implementation of micro-enterprise GST. This accord could be included as a separate requirement in the job proposal.

Restrictions applied

A firm that has picked to pay such duty may not reimburse personal taxes or the intellectual property fee at the same time. A worker is not eligible to claim the non-taxable minimum and individual tax exclusions for the time they worked for the taxpayer. A natural individual hired by such a taxpayer may only be recruited by one such firm at a moment. If staff is already hired by some other small-sized company, the State Budget Facility will not verify them as a contractor in the enterprise. 80% of these taxes go to required Nation social security commitments. As they are significantly lower than other taxes, this may have a significant impact on pensions and entitlements.

Registration process

By filing for a taxpayer rank, you can acquire the position of a micro-enterprise taxable person. A single individual who is engaged in business activities may apply to the SRS for eligibility. A sole proprietor, independent business, farm, or limited liability company may apply to the State Tax Authority.

The Federal Tax System makes the call on the judgment of accepting or reducing the request within five business days.

Tax rates 

The effective rate is 15% of revenue for amounts less than 7000 €. The level is also 15% if the earnings are between 7000.01 and 100,000 euros in the first, second, and third years of working. 

The percentage rises to 18% beginning with the fourth tax year. Furthermore, the corporation is required to spend an extra tax known as State National Pension Required Funding.

Objective of enterprise

The duty was enacted to assist new local firms and to decrease the expenses linked with launching a firm. The legislation helps businesses transform from the shading (grey) industry to the lawful (white) industry. 

The emergence of the micro-enterprises levy and other legislative alterations made it possible for industrious individuals to establish a company fairly easily and inexpensively. 

However, many businesses rapidly started to use this system to lessen their taxation. As a result, the Latvian legislature amended laws. Based on the provisions, the tax application is very restricted.