Text consolidated by Valsts valodas centrs (State Language Centre) with amending laws of:

15 December 2011 [shall come into force from 1 January 2012];

19 September 2013 [shall come into force from 1 January 2014];

6 November 2013 [shall come into force from 1 January 2014].

If a whole or part of a section has been amended, the date of the amending law appears in square brackets at the end of the section. If a whole section, paragraph or clause has been deleted, the date of the deletion appears in square brackets beside the deleted section, paragraph or clause.

The Saeima1 has adopted and

the President has proclaimed the following Law:

Micro-enterprise Tax Law

Section 1. Terms Used in this Law

The following terms are used in this Law:

1) micro-enterprise – an individual merchant, an individual undertaking, a farm or fishing enterprise, as well as a natural person registered as a performer of economic activity at the State Revenue Service, or a limited liability company, if they conform to all of the following criteria referred to in this Clause:

a) the participants (if any) are natural persons,

b) the turnover does not exceed 100000 euros in a calendar year,

c) the number of employees does not exceed five at any time. An employee who is absent during employment relationship (including on study leave without retaining work remuneration, on maternity leave, parental leave, leave for the father of the child, adopters or another person who actually takes care of the child, as well as on leave without retaining work remuneration, or receiving sickness benefit) and who does not receive income from the micro-enterprise for the period of time, as well as employees suspended from work shall not be included in the number of employees,

d) members of the board of directors of a limited liability company may only be employees of the micro-enterprise,

e) the natural or legal person referred to in this Clause is not a member of a partnership;

2) micro-enterprise owner – a participant of a limited liability company conforming to the criteria of the micro-enterprise, an owner of an individual undertaking, farm or fishing enterprise, an individual merchant or another natural person registered as a performer of economic activity at the State Revenue Service;

3) micro-enterprise employee – a natural person employed by a micro-enterprise on the basis of an employment contract and the micro-enterprise owner, as well as a procuration holder;

4) micro-enterprise tax – a tax, which includes:

a) mandatory State social insurance contributions, personal income tax and State fee of the business risk for micro-enterprise employees,

b) enterprise income tax, if the micro-enterprise conforms to the features of the enterprise income taxpayer,

c) personal income tax of the micro-enterprise owner for the part of the micro-enterprise revenue from the economic activity;

5) turnover – revenue from the economic activity of the micro-enterprise;

6) [15 December 2011].

[15 December 2011; 19 September 2013; 6 November 2013]

Section 2. Right of Micro-enterprises to Opt for Payment of the Micro-enterprise Tax

(1) A micro-enterprise is entitled to opt for payment of the micro-enterprise tax, if the restrictions laid down in this Law have been observed.

(2) If a natural person is a participant in several limited liability companies, only one of these companies has the right to opt for payment of the micro-enterprise tax.

(3) If a natural person is a participant in a limited liability company and the owner of a farm or fishing enterprise or an individual merchant, or a performer of economic activity registered at the State Revenue Service, micro-enterprise taxpayer has the right to opt for payment of the micro-enterprise tax only for one of these forms of economic activity.

(4) A micro-enterprise is entitled to opt for payment of the micro-enterprise tax, if the income of a micro-enterprise employee from the taxpaying micro-enterprise does not exceed 720 euros per month.

(5) A micro-enterprise is entitled to acquire the status of a micro-enterprise taxpayer, if it has reached a written agreement with all the employees of the micro-enterprise regarding application of the micro-enterprise tax. Such agreement may be included as a separate provision in the employment contract.

(6) A micro-enterprise taxpayer who has discontinued economic activity and paying of the micro-enterprise tax in the taxation period may not repeatedly select to pay the micro-enterprise tax in the same taxation period and in post-taxation period.

(7) A micro-enterprise, which has chosen to pay the micro-enterprise tax, may not concurrently pay personal income tax or license fee for income from economic activity.

(8) The condition of Paragraph seven of this Section shall not apply to a micro-enterprise taxpayer who determines income from economic activity in accordance with Section 11, Paragraph twelve of the Law On Personal Income Tax.

[15 December 2011; 19 September 2013; 6 November 2013]

Section 2.1 Income of a Micro-enterprise Employee from a Micro-enterprise

(1) For the application of this Law the following shall be considered income of a micro-enterprise employee from a micro-enterprise:

1) in relation to the micro-enterprise owner – the income which is the funds withdrawn from the micro-enterprise for personal consumption in each month of the relevant quarter and other income obtained from the micro-enterprise in the form of money, services or another form, except dividends;

2) in relation to the micro-enterprise employee who is employed on the basis of an employment contract – the income which is the work remuneration calculated each month of the relevant quarter on the basis of the current or former employment relationship and the payments that are not directly related to work remuneration or benefits directly or indirectly obtained by the employee in money or in other items from the employer for work in the micro-enterprise, unless laid down otherwise in this Law;

3) in relation to the micro-enterprise owner with whom the micro-enterprise has entered into an employment contract – the amount of income specified in Clauses 1 and 2 of this Paragraph.

(2) The income of a micro-enterprise employee referred to in Paragraph one of this Section from the micro-enterprise shall not include:

1) the benefit from the use of a car belonging to the micro-enterprise or at the disposal thereof for such tasks or needs, which are not related to the performance of work duties or economic activity in the micro-enterprise, if the enterprise car tax is paid for the car in the month of obtaining the benefit;

2) the funeral benefit granted by the employer in case of death of the employee of the micro-enterprise or his or her spouse or kin (kinship up to the third degree within the meaning of The Civil Law), the value of which does not exceed 213.43 euros;

3) the compensation for official travel and work travel expenses to the employee in accordance with laws and regulations that provide for the amount of compensation for expenses arising as a result of official travels or work travels;

4) the compensation which is disbursed by the employer to the employee for depreciation of the personal vehicle of the employee (which is used for work needs according to the employment contract) and which is determined in the amount of 0.04 euros for each kilometre driven, but not more than 57 euros per month;

5) other compensations, which are disbursed by the employer in accordance with the Labour Law and which are justified with documents certifying expenses.

(3) The following expenses of a micro-enterprise shall not be applied to the income of a micro-enterprise employee from the micro-enterprise referred to in Paragraph one of this Section and personalised as the income of a micro-enterprise employee:

1) which are necessary for fulfilling the labour protection requirements laid down in the Labour Protection Law;

2) for training of the employee in order to acquire, improve or expand the skills and knowledge necessary in work, profession, position or occupation.

(4) If the micro-enterprise has issued a loan to an employee, which in accordance with the Law On Personal Income Tax is a loan to be considered as equivalent to income, it shall not be part of the income of the micro-enterprise employee from the micro-enterprise and shall be taxable with the personal income tax in accordance with the Law On Personal Income Tax.

(5) If the total amount of loans issued by the micro-enterprise for one natural person exceeds 15000 euros, the micro-enterprise shall provide information to the State Revenue Service, in accordance with the procedures laid down in the Law On Personal Income Tax, regarding the loan contracts entered into with such natural person and the total amount of loans.

(6) Also cash or non-cash advance payment issued to a micro-enterprise employee or micro-enterprise owner from the micro-enterprise shall be applied to the income of the micro-enterprise employee or micro-enterprise owner referred to in Paragraph one of this Section, if settlement of accounts for it or its part is not performed within 90 days after the end of the official travel or work travel, but in other cases – within 90 days from day of issuing the cash or non-cash advance payment.

(7) The time period of 90 days referred to in Paragraph six of this Section shall be counted from the following day after the end of the official travel or work travel or after the day of issuing the cash or non-cash advance payment.

(8) The provisions referred to in Paragraph six of this Section shall not be applied, if the total remaining amount of cash or non-cash advance payments, which is at the disposal of the recipient of the advance payment, does not exceed the amount of the minimum monthly wage specified in the State.

[15 December 2011; 19 September 2013; 6 November 2013 / Paragraphs six, seven and eight shall come into force on 1 July 2014. See Paragraph 5 of Transitional Provisions)

Section 3. Duty of a Micro-enterprise Taxpayer to Inform Employees

(1) Upon entering into an employment contract, a micro-enterprise taxpayer shall inform an applicant in writing that the employer is the micro-enterprise taxpayer, that the personal income tax and mandatory State social insurance contributions of the micro-enterprise employee are determined from the turnover of the micro-enterprise and that the micro-enterprise employee has the right to join voluntarily the State social insurance. This information may be included in the employment contract.

(2) A micro-enterprise, which would like to become a micro-enterprise taxpayer commencing with the next taxation period, shall inform employees in writing that the personal income tax and mandatory State social insurance contributions of the employee of the micro-enterprise paying the micro-enterprise tax are determined from the turnover of the micro-enterprise and that the micro-enterprise employee has the right to join voluntarily the State social insurance.

(3) A micro-enterprise taxpayer shall, not later than a month prior to the end of the taxation period, warn a micro-enterprise employee in writing that beginning with the following taxation period the employee prior to disbursing the income from paid work will deduct tax from his or her wage in accordance with the procedures laid down in the Law On Personal Income Tax and will make State social insurance mandatory contributions in accordance with the procedures laid down for en employee and employer in the Law On State Social Insurance, if the micro-enterprise taxpayer:

1) is anticipating that micro-enterprise taxpayer will not fulfil any of the conditions of Section 1, Clause 1 or Section 2, Paragraph four of this Law in the taxation period;

2) with the following taxation period will lose the status of a micro-enterprise taxpayer due to another reason.

[6 November 2013]

Section 4. Registration of the Micro-enterprise Taxpayer

(1) A person has the right to apply for the acquisition of the status of the micro-enterprise taxpayer concurrently with a submission regarding entering of the individual merchant, individual undertaking, farm or fishing enterprise or limited liability company in the relevant register of the Enterprise register, confirming that in the reporting year, which conforms to the taxation period of the micro-enterprise tax:

1) the foreseeable number of the micro-enterprise employees will not exceed five employees and the employees will be informed in accordance with the requirements of Section 3 of this Law;

2) the foreseeable turnover will be up to 100000 euros;

3) the micro-enterprise would like to pay the micro-enterprise tax.

(2) The Enterprise Register shall send electronically the information regarding the application received for the acquisition of the status of the micro-enterprise taxpayer to the State Revenue Service within one working day after registration of the subjects referred to in Paragraph one of this Section.

(3) A natural person who, upon commencement of economic activity, registers as a performer of economic activity at the State Revenue Service and opts to be a micro-enterprise taxpayer, shall, concurrently with the registration application, submit an application, in which the information referred to in Paragraph one of this Section is indicated.

(4) A micro-enterprise which would like to acquire the status of a micro-enterprise taxpayer shall submit an application to the State Revenue Service by 15 December of the pre-taxation year, where conformity of the taxpayer is confirmed with the criteria specified in Section 1, Clause 1, Sub-clause “a” (if the micro-enterprise is a limited liability company) and Section 2 of this Law, as well as with the conditions referred to in Paragraph one of this Section in relation to the next taxation period.