“There are four main new legislative developments which have shaken the market in Latvia,” says Andra Rubene, Partner at TGS Baltic in Riga, who lists the GDPR, amendments to Latvia’s Law on the Prevention of Money Laundering and Terrorism Financing, and changes to the country’s corporate and personal income tax laws as of primary significance.
The General Data Protection Regulation, approved by the EU Parliament on April 14, 2016 and coming into force on May 25, 2018 is generating the most attention at the moment. “The changes are dramatic,” Rubene says. “Before, penalties were smaller, but the new larger ones are frightening the market.” The approaching deadline resulted “in organized panic” she says, and thus legal assistance with GDPR compliance is often necessary. “Everyone is struggling to complete compliance by the deadline,” but she says that, overall, business are “rather prepared.”
Going forward, Rubene says, “there are a lot of questions and uncertainties about how the regulation will be applied later in practice and which direction the interpretation will go.” The most frequently-discussed topic is the length of time the data must be stored and the legal basis for that storage, depending on the kind of data involved. And while the main goal is to protect the data of natural persons, “for businesses it is a burden.” Nonetheless, she believes that in the long run the business community will benefit, as “clear and understandable guidelines will increase the organization and functionality of any business.”
Other changes related to data and identity security are in Latvia’s Law on the Prevention of Money Laundering and Terrorism Financing. Based on EU Directive 2015/849, the law requires companies in Latvia to disclose their beneficial owners to the Latvian Commercial Register by March 1, 2018. According to Rubene, Latvia is the first Baltic State to translate the directive into law. Although the main purpose of the law is to penalize fraud, money laundering, and the lack of transparency, there are significant personal data protection considerations for beneficial owner of some companies. “For publicly traded companies this is not a huge issue, but for others there is a struggle,” she says, as many companies are concerned about potential risks to beneficial owners, since their personal data will be publicly available.
On January 1, 2018, a new Corporate Income Tax (CIT) law came into force in Latvia, Rubene reports, raising tax on dividends from 15% CIT to 20% CIT, and eliminating any personal income tax on profit from dividends in case of CIT paid. According to her, the new law was needed to increase the efficiency of tax collection. “For us in Latvia it was time to change our tax system slightly,” she says, noting that, unless the amendments fully positive and effective, “the multiple changes in the tax law made system no longer stable and cause caution, as a downside.” She expects the effects of the new Corporate Income Tax law to be visible in the following years.
The Personal Income Tax law was also changed at the beginning of the year, Rubene reports, in the form of significant amendments to the calculation of salaries, with differentiated taxes (i.e., larger taxes from larger salaries, smaller taxes from smaller salaries) applied as an “attempt to introduce proportionality.” She says, "the idea is good, but currently it seems that it does not fully work in practice.”
Finally, turning to the law firm market, Rubene reports that the economic growth in the country has resulted in an improved legal services industry. “Since we are currently in a good economic cycle, and the law firms have matured, it is the best time.” In particular, she says, law firms have started introducing knowledge management tools and AI software. The first increases efficiency: lawyers are able to work more quickly and produce work of better quality. The second is related to developing templates to ease and shorten the process of drafting and checking documents. “Currently legal services are in demand, but there is a lack of a competent work force, and clients expect us to improve our efficiency. This is a good time for improvement.”