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Amendments to Tax Legislation Affected by the Covid-19 in the Baltics

Amendments to Tax Legislation Affected by the Covid-19 in the Baltics

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Governments in each of Baltic countries has adopted a special temporary laws on measures for companies to manage the consequences of the spread of coronavirus. See summarized legislation amendments concerning support to enterprises and tax solutions which were implemented by Latvia, Lithuania and Estonia.

Latvian legislation concerning support to enterprises affected by the Covid-19 crisis and amendments to tax laws

Idle-time benefit

Law “On Measures for the Prevention and Suppression of Threat to the State and Its Consequences Due to the Spread of COVID-19” (Crisis Law), adopted on 20 March 2020 by Saeima (Parliament of Republic of Latvia) determine the measures for the prevention and suppression of threat to the State and its consequences, special support mechanisms as well as expenditures which are directly related to the containment of the spread of COVID-19. The law notes, and the relevant Cabinet of Ministers regulations further specify the idle-time, taxation and state-aid measures.

Cabinet of Ministers regulation No.165 “Regulations Regarding the Employers Affected by the Crisis Caused by COVID-19 which are Eligible for the Allowance for Idle Time and Division of the Payment for Late Tax Payments in Instalments or Deferral Thereof for up to Three Years” further puts down the criteria by which the employers and taxpayers which have been affected by the crisis caused by COVID-19 are compensated with idle-time benefit, as well as specify the division of the payment for late tax payments in instalments or deferral up to three years (Regulation).

According to Regulation, the period of idle time is a limited time period lasting from 14 March 2020 until 30 June 2020, but for not longer than the emergency situation. The persons eligible for applying for idle-time benefit are employers whose income from economic activity has, due to the spread of COVID-19, decreased by at least 30 per cent in March or April 2020 in comparison with the respective month in 2019, or decreased by at least 20 per cent in the period mentioned, if in 2019, the export volume of the employer affected by the crisis amounts to 10 per cent of the total turnover or is not less than EUR 500 000, average monthly gross work remuneration disbursed by the employer affected by the crisis in 2019 is not less than EUR 800, as on 31 December 2019, long-term investments in fixed assets are at least EUR 500 000.

Allowance for the idle time is determined in the amount of 75 % of the average monthly gross work remuneration for the period of last six months before the declaration of the emergency situation, considering the information at the disposal of the State Revenue Service, or, in accordance with the actual data declared by employees within the previous six months, but not exceeding EUR 700 per calendar month. Specific criteria must be met, in order to receive the benefit, the employee cannot be dismissed or receive vacation during the receiving of the benefit.

Additionally, there is a separate regulation for self-employed persons to apply for the idle-time benefit as well, and, according to the latest amendments in Regulation, from the 10 April, the idle-time benefit can be also granted for people receiving pension and members of board of undertakings, and additional payment of EUR 50 is added regarding each employee, for each child under the age of 24, being provided for by the employee.

In addition, 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.

On 30 April Cabinet of Ministers decided that in case self-employed persons or employers do not qualify for idle-time compensation they can be eligible to receive idle-time assistance compensation. It is granted up to 180 euro.

Taxation

According to Regulation, in order to apply for the division of the payment of late tax payments in instalments or deferral, the employer affected by the crisis must submit an application to the State Revenue Service through the Electronic Declaration System (EDS) of the State Revenue Service. The same criteria regarding the undertaking must be met, as the criteria for idle-time benefit (income decrease by at least 30 per cent or 20 per cent), and the tax administration has the rights to divide the payment for late tax payments in instalments or to defer it for a period of up to three years.

Crisis Law also states 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.

Commerce and state aid

Latvia adopted state aid in the form of a loan guarantee scheme and a subsidised loan scheme, aid is provided in the form of subsidised guarantees for investment and working capital loans and subsidised working capital loans. The final beneficiaries of the measures are undertakings registered in Latvia, regardless of their size, it may be granted to undertakings that are not in difficulty and/or to undertakings that were not in difficulty on 31 December 2019, but faced difficulties as a result of the COVID-19.

The measures have the exception of retail sale of weapons and ammunition, manufacture and sale of tobacco products, sale of beverages, gambling and betting activities, financial and insurance activities and real estate activities fields. In addition to these sectors, measures are implemented by the state-owned Joint Stock Company and Latvian public development bank “Attīstības finanšu institūcija Altum” and are granted directly or through credit institutions and other financial institutions as financial intermediaries.

In the field of private law the interest on late payments from the 1 April 2020 to 1 September 2020, as well as the statute of limitations from 12 March 2020 to 1 September 2020 have been stopped.

Additional support from local municipalities is available for companies who lease premises from public person. In such occasion a company can receive rent exemption or reduction of up to 90%. Same income decrease criteria and low tax debt criteria apply.

Lithuanian legislation concerning support to enterprises affected by the Covid-19 crisis and amendments to tax laws

Idle-time benefit

On 7 April 2020, the Parliament adopted amendments to the Labour Code, which set out requirements concerning state subsidies to be granted in situations when idle time is announced to employees and specify payments to be made to self-employed persons. According to these amendments, an employer may declare idle-time caused by an emergency situation and quarantine, provided both of the following criteria are met: the employer is not able to ensure work for an employee under the employment contract and the relevant employee is unable to work remotely for reasons of an organisational nature or does not accept another job suggested by the employer. Employers who have submitted applications for idle-time benefit may not dismiss their employees according to Articles 57 and 59 of the Labour Code.

A subsidy is calculated as a percentage of an employee’s salary, which may not be higher than the salary paid before the declaration of the emergency situation and quarantine and lower than the minimum monthly wage set in Lithuania.

Based on an employer’s declaration, salary subsidies are as follows: 70 per cent of an employee’s salary but not more than 1.5 of minimum wage (EUR 910.5 gross), the employer may not dismiss the employee concerned during at least six months after the termination of subsidy payments; 90 per cent of an employee’s salary but not more than EUR 607 (gross). It is set forth in Article 47(1)(2) of the Labour Code that, if idle time of less than one full working month is announced to an employee, the subsidy amount is calculated on a proportionate basis and paid as long as the emergency situation and quarantine persist.

According to legislation, all self-employed persons are paid a fixed amount of EUR 257 per month if the following criteria are met:

  • self-employment status has been registered for a period of at least three months during the last year and has not been de-registered until the declaration of the emergency situation and quarantine;
  • the person has no employment relationship or another relationship that would be regarded as employment;
  • there are no outstanding liabilities to the state budget or the Social Security Service (deferred debts are not of relevance);
  • the entity is not undergoing liquidation or bankruptcy proceedings.

Taxation

There is a list of enterprises that are automatically exempted from taxation and will not be required to pay late payment charges. All taxes due must be paid within two months following the end of the quarantine or a tax credit must be approved by the tax administration. This list mostly includes enterprises that are directly affected by bans on their operations: sports and holiday resorts, hotels, stores (except for food stores) and other kinds of activities that are regarded as vital.

Other undertakings may apply for inclusion in this list through the tax administration. Corporate income tax may be reported on the basis of annual revenue forecasts and not prior year’s results. As a result, all companies making cooperative income tax prepayments are able to reduce their tax expenses.

Deadlines set for the submission of personal income tax returns and tax payments are postponed to 1 July. The tax administration can be requested to extend the payment term for corporate income tax, VAT, personal income tax and other taxes.

Moreover, Lithuania is considering whether the VAT rate may be revised downwards from 21% to 9% for catering services, food and soft drinks.

Those employers who applied for government subsidies to compensate employees’ salaries now may apply for temporary postponement of state social insurance contributions and personal income tax’s payment.

Commerce and state aid

Lithuania adopts subsidised interest rates loans scheme to loans to undertakings most affected by COVID-19 and a subsidised interest rates loans scheme loans for outstanding invoices from 9 April 2020 to 31 December 2020. Aid can be granted to undertakings that were not already in difficulty on 31 December 2019, and is granted through credit institutions and other financial institutions. The amount of the loan cannot exceed EUR 100.000, and it is granted for a period of 24 months. To receive loan, companies must have at least 30% decrease of income.

Additional support is available from state-owned investment agency INVEGA which provides loans to cover the deficiency of their working capital and acquire loan, conclude leasing or factoring transactions.

Government decided to support those companies most severely affected by pandemic by subsidiarizing rent up to 50% if the property manager also agrees to make a rent relief of at least 30%. 

Estonian legislation concerning support to enterprises affected by the Covid-19 crisis and amendments to laws

Idle-time benefit

The government of Estonia has approved benefits to be paid to employees. Enterprises meeting two of the following three criteria qualify for the exemption measure:

1) sales or, alternatively, employer’s revenue for a calendar month for which the compensation is sought has dropped at least 30% compared to the relevant figures for the previous calendar month;

2) the employer is not able to provide at least 30% of employees with work to the agreed extent and reduces salaries unilaterally;

3) the employer has reduced salaries of at least 30% of employees by 30% or down to the level of minimum wage. Salaries will be compensated directly to affected employees for whom the employer cannot ensure the agreed amount of work.

The Unemployment Insurance Fund will pay employees compensation amounting to 70% of average salary but not more than EUR 1,000 (gross) per calendar month. The compensation will be regarded as a salary payment by the employer, which is paid by the fund to the employee on behalf of the employer from the fund’s own account.

Employers must pay gross salaries of at least EUR 150 to their employees receiving compensation payments. The compensation paid by the fund must be equal to at least minimum wage defined by the government on the basis of working hours specified in the employment contract plus the salary paid by the employer.

An employee may receive compensation payments for up to two calendar months as long as the employer meets the conditions specified above. Accordingly, the measure can be applied for two months between 1 March 2020 and 31 May 2020.

Taxation

Owing to default interest suspension for two months, tax arrears can be rescheduled at lower interest rates. Undertakings may apply for rescheduling of their tax arrears if there is a need for continued interest relief after May 1 2020 or difficulties in making tax payments after May 1 2020.

All self-employed persons are also subject to the above social tax support measure. Salary-related services to compensate for salary reductions are provided by the Estonian Unemployment Insurance Fund. KredEx has introduced the following measures: loan surety for easing repayment schedules of existing bank loans, business and investment loans.

Commerce and state aid

Estonia adopts loan guarantee and subsidised loan scheme managed by foundation KredEx and the loan guarantee and subsidised loan scheme managed by the Rural Development Foundation. Measures provide aid in the form of guarantees on loans and subsidised interest rates for loans and relate to investment and working capital needs. undertakings registered with the commercial register in Estonia, irrespective of their size.

State aid is granted only to undertakings that were not in difficulty on 31 December 2019, but that entered into difficulty as a result of the COVID-19. The aid is granted either directly or through credit institutions and other financial institutions.

Conclusions

All three Baltic states have specific regulation regarding the lessening of negative impact of the spread of the virus in the fields of tax, employment in the form of idle-time benefit, as well as state aid and various Private Right and Commercial right fields, although the criteria for these relief measures is different in each state, as well as the sums and time periods are various.

Late payment charges are suspended, and employers can apply to receive idle-time benefit for undertakings affected by the virus, with employees in down-time. In Latvia very strict cryteria must be met to receive the benefit, and amount of 75 % of the average monthly gross work remuneration, considering the information at the disposal of the State Revenue Service, or in accordance with the actual data declared by employees within the previous six months, but not exceeding EUR 700 per calendar month, can be received. In Lithuania the benefit is up to 70 per cent of an employee’s salary but not more than 1.5 of minimum wage (EUR 910.5 gross) or 90 per cent of an employee’s salary but not more than EUR 607 (gross), while in Estonia the benefit is 70% of average salary but not more than EUR 1,000 (gross).

All three states have adopted various state aid measures in conformation with the legislation of the European Union, granted either directly or through credit institutions and other financial institutions, as well as stopped the interest on tax debt, provide the possibility of division of the payment of late tax payments in instalments or deferral.

By Janis Zelmenis, Partner, BDO Law

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