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Support Regulation Introduced by Latvia for Companies Affected by the Covid-19 Crisis. Practical Nuances, Problems and Dynamic Amendments to the Regulation.

Support Regulation Introduced by Latvia for Companies Affected by the Covid-19 Crisis

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The same as the majority of the European countries, Latvia also, first of all, thinks about solidarity between the state and entrepreneurs on the prevention of the immediate unemployment situation. In order to motivate entrepreneurs affected by the crisis not to discharge employees, having idle-time, and to try to wait for the transfer from the crisis and restrictive measures, the state offers to pay out idle-time benefit for employees of the companies, temporarily not being able to employ and pay out a salary to them during the period of idle-time as a result of the crisis. Since the Cabinet of Ministers extended emergency situation until 9 June, idle-time benefit will be available until 30 June.

It should be noted that the case of each company requires an individual approach, examining whether the company fully qualifies for the receipt of idle-time benefit, as quite a large number of criteria should be complied with. On the basis of the current practice and problems identified based on the cases of customers, we have established a consolidated and transparent summary of the regulation on idle-time benefit.

Idle-time benefit. Who can apply for it?

  • companies, the revenues of which in April 2020 have decreased by at least 30%, in comparison with the relevant month of 2019;
  • companies, the revenues of which in April 2020 have decreased by at least 20%, if the export volume in 2019 constitutes 10% of the total turnover or constitutes at least EUR 500,000, or the paid out monthly average gross salary in 2019 is at least EUR 800, or long-term investments in fixed assets on 31 December 2019 constitute at least EUR 500,000;
  • newly established companies shall calculate the decrease in revenues from the average monthly turnover in 2019;
  • an employer, employing an employee in Latvia, for which taxes are paid in Latvia (SIA, AS, branch, union, etc.), may apply for it;
  • it is possible to apply for idle-time for a part of employees, while continuing to employ the remaining part of employees. However, if idle-time is declared for the whole company, board members may also receive idle-time benefit;
  • employees, who are employed by several employers, may also receive the benefits;
  • self-employed persons whose income does not exceed minimal wage except for those who receive income from royalty payments are eligible;

employees who also receive income up to 460 euro may be eligible to receive benefit.

Those who cannot receive idle-time benefit:

  • Companies, which do not have tax debts exceeding EUR 1000 and have not requested to prolong the payment thereof or distribute it in timeframes, which have not submitted declarations and annual reports, have been deleted from the VAT Register or the operation of which has been suspended, which have an insolvency proceeding, and the declared monthly taxes of which during the period of the last 6 months have been below EUR 200 per month, cannot apply for idle-time benefit;
  • Members of the board of the companies may only receive idle-time benefit in the case if all employees of the company have idle-time;
  • Members of the council may not receive idle-time benefit;
  • If the employee is incapable of work (sickness), then it is not possible to receive idle-time benefit;
  • Employees, who have commenced employment relations after 1 March 2020;
  • Employees, who are at the same time employed by the state or a municipal authority or capital company, or perform commercial activity;
  • Companies, the employees of which are leased as a labour force;
  • Companies, for which additionally payable taxes have been determined as a result of a tax audit;
  • Companies, which (or members of board of which) are punished for violations of tax, customs, employment regulation.

Regulations on the receipt and use of the benefit

  • If the company has any tax debts, it should first request to postpone tax payments and afterwards request granting of the idle-time benefit;
  • The company should substantiate this and how the Covid-19 crisis has caused the idle-time of employees;
  • Application of the benefit may be submitted once per month for a period of one month;
  • The employer shall not employ the employee, while the benefit is paid;
  • The employer is restricted to give a notice of termination of the employment contract for one month after submission of the application;
  • The employee shall not hire new employees for work while employees receive the benefit;
  • Idle-time benefit shall not be subject to taxes;
  • Decision regarding granting of the benefit shall be adopted within a time period of 5 days.

The amount of the idle-time benefit in Latvia is determined in the amount of 75% of the monthly average gross labour payment for the previous six month period before the announcement of the emergency situation, or according to the actually declared data regarding the employee during the previous six months, however, not exceeding EUR 700. Employees, having children in their supportive custody, may receive an additional payment of EUR 50 for every child.

! It is important to indicate that the employer may decide, whether it is possible for it to provide a pay-out of the salary of the employee in the actual amount during the period of idle-time; however, it is not an obligation, and it shall be at the discretion of every employer to decide whether the compensation of the employee during the idle-time will be the same as it is determined in the employment contract. This condition shall only refer to those employees, for which the idle-time benefit is applied for and is paid out.

It should be noted that as of 7 May Government’s decision employers may apply for idle-time benefit only for the next period and not for previous periods. If the State Revenue Service has declined to grant idle-time benefit, only employer may challenge this decision. However, following the latest development Government decided to introduce idle-time assistance benefit up to 180 euros to those who either received idle-time benefit less than 180 or did not receive it all.  

The Parliament (Saeima) on 7 May adopted amendments to the Crisis Law, thus allowing employers who meets the criteria set for a participant in the Advanced Cooperation Program may reduce the employee's compensation for idle-time specified in the Labor Law from 100 to 70 percent of the employee's salary. By applying a reduced downtime payment, the employer will be able to pay the employee compensation, the amount of which cannot be less than the minimum monthly salary, which is currently 430 euros per month. Furthermore, amendments also stipulate that in collective-agreement there might be included provisions that allow part-time work in the event of a temporary fall in production.

Payment of the sick-leave certificate from the State budget

The state has introduced another change in the area of employment, trying to motivate employees and employers to comply with the self-isolation measures. In a general case, when an employee gets sick, an employer has to pay the sick-leave certificate for the employee for up to 10 calendar days. Taking into account the course of the Covid-19 disease, it is currently determined that the state shall pay for sick-leave instead of employers, already starting from the second day, for the following employees:

  • Employees, who suffer from Covid-19;
  • Employees, who have been in contact with a Covid-19 patient and where the epidemiologist has determined quarantine.

Tax holidays

One more mechanism for the support of entrepreneurs during the circumstances of crisis, introduced by Latvia and almost all European countries, is tax holidays. Companies that qualify for certain criteria are entitled to request the State to postpone an income tax payment or to distribute it in timeframes for a time period of up to 3 years, and in such a case the late payment fee shall not be applied for companies and they will not be included in a list of tax debtors (which, for example, prohibits them from participating in procurements).

Companies, which qualify for the application of tax holidays

  • companies, the revenues of which in April 2020 have decreased by at least 30%, in comparison with the relevant month of 2019;
  • companies, the revenues of which in April 2020 have decreased by at least 20%, if the export volume in 2019 constitutes 10% of the total turnover or constitutes at least EUR 500,000, or the paid out monthly average gross salary in 2019 is at least EUR 800, or long-term investments in fixed assets on 31 December 2019 constitute at least EUR 500,000;
  • Newly established companies shall calculate the decrease in revenues from the average monthly turnover in 2019.

It is important to indicate that companies have to carefully and accurately prepare the application for tax holidays, because we have noticed in practice that companies make mistakes and apply for the postponement of the tax payment term according to the general procedure, rather than in accordance with the procedure of the emergency regulation, which means shorter periods of postponement, inclusion on the list of debtors and the fact that a late payment fee in the amount of ¼ will be applied to the company anyway.

The Parliament decided that donations of goods or services to social groups adversely affected by the emergency situation will be considered as expenses related to the economic activity of the corporate taxpayer. In order to receive this aid, a number of criteria must be met and it will be applicable until 31 December, 2020. For example, the recipient of the donation is not a person related to the taxpayer, company publicly informed about the donation and information regarding these expenses was submitted to the State Revenue Service.

Regulation of the commercial activity crisis

The Latvian government has not only determined support mechanisms for entrepreneurs in relations with the state and entrepreneurs, but has also determined temporary regulation on the issues affecting private relations between entrepreneurs and their cooperation partners.

The most important news, introducing changes in the current procedure and targeted towards the temporary protection of companies affected by the crisis, is as follows:

  • Until 1 September 2020, creditors and employees shall be prohibited from bringing an application regarding insolvency to the court;
  • When commencing the recovery of debts, a debtor shall be warned and a time period of 60 days should be provided for expressing of objections;
  • A prolonged period of 60 days for different enforced legal activities (execution of judgment, implementation of the commercial pledge, execution of the mortgage rights etc.) is determined.
  • Limitation period of the rights of claim is suspended in emergency circumstances, providing a possibility for creditors to wait for the performance of recovery and not to lose the right of claim;
  • From 1 April to 1 September, creditors may only apply the lawful late payment interest (6% or 8% and additional 8% + the half-a-year refunding rate determined by the European Central Bank) to debtors;
  • During the crisis the legal protection proceeding is determined by a court for a time period of up to 4 years (previously: 2 years with a possibility to prolong, receiving the approval of creditors and a court).

Another support mechanism is rent exemption or rent fee reduction up to 90% if the company leases premises from a public person, for example, local municipality. To receive this aid, the same criteria for income decrease and tax debts of up to 1000 euro apply.

It should be concluded that the Latvian government works at a very dynamic pace on the regulation in order to minimise the adverse economic consequences of the crisis in the short-term and long-term perspective. Undoubtedly certain inaccuracies and errors arise in a hurry, but it is to be approved that a number of errors are rectified by further amendments to the regulation and the government tries to listen to the opinion of representatives of the industries. We have to say that the dynamics of changes in the regulation are challenging for representatives and the management of companies, trying to follow up on the procedure and pre-conditions, to understand whether the company may apply for state support measures, which is even more challenging for companies with foreign management.

By Rolands Valdemars, Attorney at Law, BDO Law

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