On Tuesday, 20 December, the Saeima adopted in the final reading the fast-track amendments to the Micro-enterprise Tax Law and the Law on State Social Insurance, according to which as of 1 January 2017 the micro-enterprise tax rate is set at 15% of turnover and the introduction of the proposed minimum social insurance contributions is called off.
In the second reading the Micro-enterprise Tax Law was supplemented with a provision of a 12% tax rate applicable to micro-enterprises with an annual turnover not exceeding 7000 EUR in 2017.
These amendments abolish the previous changes made to the Law on 23 November, which aimed to gradually discontinue the micro-enterprise tax regime altogether. Jānis Vucāns, Chairman of the Budget and Finance (Taxation) Committee, previously explained that the current tax regime will remain in force until a preferential tax regime for small and medium enterprises is developed.
Entrepreneurs who, in light of the planned changes, decided to shut down their business operations, will be able to reapply for the micro-enterprise tax regime until 31 January 2017.
According to the amendments, in 2017 and 2018 the micro-enterprise tax revenues in the amount of 70.4% and 89% respectively will count as mandatory state insurance contributions.
The Saeima made appropriate amendments to the related laws as well, calling off the proposed minimum social contributions. The amendments to the Law on State Social Insurance revoke the previous changes adopted on 30 November 2015, which proposed to introduce minimum social contributions from ¾ of the minimum salary as of 2017, and from the entire minimum salary as of 2018.
Furthermore, following a request by Raimonds Vējonis, President of the State, the Saeima revised specific amendments to the Micro-enterprise Tax Law and tasked the Cabinet of Ministers with drafting new legislative proposals by 1 June 2017, which would introduce a specialised simplified tax regime for small and micro enterprises to replace the current micro-enterprise tax regime. The current micro-enterprise regime will remain in force at least one year after the new regime is introduced.
The revised Micro-enterprise Tax Law no longer contains sectoral limitations.
The annotation of the amendments points out that even with the transitional period during the switch-over to the new tax regime, the changes would require substantial restructuring of small enterprises, including switching to the new tax regime, incurring higher labour costs on part-time and low-paid jobs, as well as seasonal jobs. Also the non-governmental sector objected to the proposed changes this autumn, pointing out that they would interfere with the ability of associations and foundations to attain their socially responsible objectives.
The amendments to the Micro-enterprise Tax Law, the Law on State Social Insurance, the Law on Maternity and Sickness Insurance, and the Law on Unemployment Insurance will come into force as of 1 January 2017.
Saeima Press Service