5.1.5 Tax laws
The Law on Value Added Tax (2012) stipulates a standard VAT rate of 21%. A reduced rate of VAT at 12% applies to educational literature editions, as well as original literature editions, newspapers, magazines and periodicals (issued at least quarterly), and accommodation in hotels etc.
VAT is not imposed on theatre and circus performances, concerts and cultural and cultural educational events organised by libraries, museums, as well as visits to exhibitions, zoo and botanical gardens, performances for children, performances of amateur arts groups and for charitable purposes; library services; remuneration received by the author for work and utilisation thereof, as well as remuneration received by a performer and a phonogram producer for neighbouring rights and utilisation thereof.
There have been several changes in the law in recent years due to the economic crisis. In 2009 VAT was increased by 3 percentage points from 18% to 21% and in 2011 – from 21 to 22%. Until 2009, the reduced VAT rate was 5% and until 2011 – 10%. Changes impacted also on the cultural industries as VAT was increased for several sectors.
The Law on Personal Income Tax (1994) determines income tax levels. The general rate is 24%, which concerns all wage earners, artists included. Until 2013, it was 25%.
It stipulates that income tax of 24% (until 2010, it was a reduced rate of 15%) is imposed on the income generated from authors' royalties.
Cabinet Regulation Number 899 on Procedures for the Application of the Norms of the Law On Personal Income Tax (by the Law on Personal Income Tax) stipulates that a taxpayer has the right to deduct from the amount of author's fees (royalty) the expenditures of the author of scientific, literary and artistic works, discoveries, inventions and industrial models related to the creation, publication, performance or other utilisation of the works in the following amount:
- 40% from the amount of the author's fee (royalty) for the creation and publication of musical works and for the creation of sculptures, monumental decorative paintings, decorative and design art, easel painting, theatrical set-design art and various graphic art techniques;
- 30% from the amount of the author's fee (royalty) for the creation of artistic graphics and photographs for printing and exhibitions, as well as for the creation of computer graphics and video works; and for discoveries, inventions and the creation of industrial models (from the royalty for the utilisation thereof during the first 2 years);
- 25% from the amount of the author's fee (royalty) – for other musical works;
- 20% from the amount of the author's fee (royalty) for the creation of architectural designs; for the creation of a draft design; and
- 15% from the sum of the author's fee (royalty) for the creation of other works.
The Law on State Social Insurance (1998) determines the status of self-employed people, who earn their income by individual work (includes those who receive royalties - copyright or neighbouring rights remuneration). In 2014, the total rate of social insurance payable is 34.09%: 23.59% by the employer and 10.50% by the employee. Regulations of the Council of Ministers each year determine rates and the minimum amount of social insurance payments for self-employed persons. In 2014, the rate for self-employed persons was 31.06%.
The social security system has no special provisions for freelance or self-employed artists to pay their social security fees.
The Law on Enterprise Income Tax (1995) stipulates that the tax is 15% of taxable income. The tax shall not be imposed on Public organisations and Associations with a non-profit aim.
The expenses not directly related to economic activity are deducted from the tax. It includes social infrastructure facilities, such as educational, cultural, sports etc. institutions, the services of which are provided and rent is determined by prices which are lower than market prices, or free of charge.
In determining taxable income, the profit of a taxpayer shall be decreased by expenditures for the production of the mandatory copy, which in accordance with the Mandatory Copy Law, is supplied to the National Library of Latvia.
The Micro-enterprise Tax Law (2010) stipulates that micro-enterprises (an individual merchant, an individual undertaking, a farm or fishing enterprise, as well as a natural person registered as a performer of economic activity whose turnover does not exceed 100 000 EUR in a year and the number of employees does not exceed five at any time) pay a 9% tax rate.
The Law on Enterprise Income Tax (1995) provides a Tax Rebate for Donors. Tax shall be reduced by 85 per cent of amounts donated to budget institutions, the state capital companies, which perform the state culture functions delegated by the Ministry of Culture, as well as societies and foundations registered in the Republic of Latvia, and religious organisations or the institutions thereof, to which the public benefit organisation status has been granted in accordance with the Public Benefit Organisations Law.
The total tax rebate in accordance with the provisions of this Section may not exceed 20 per cent of the total amount of tax.
The Public Benefit Organisation Law (2004) defines what is public benefit activity: it is an activity that provides a significant benefit to society or a part thereof, especially if it is directed towards charitable activities, protection of civil rights and human rights, development of civil society, education, science, culture and promotion of health and disease prophylaxis, support for sports, environmental protection, provision of assistance in cases of catastrophes and extraordinary situations, and raising the social welfare of society, especially for low-income and socially disadvantaged person groups.
Public benefit organisations have the right to receive tax rebates specified by law, and they shall have other rights specified by law.
Chapter published: 08-10-2014