On Thursday, 26 November, the Saeima adopted in the final reading amendments to the Micro-enterprise Tax Law, introducing changes to the micro-enterprise tax (MET) application procedure. The amendments are introduced as a part of the legislative package related to the state budget for 2021.
The amendments are introduced based on several shortcomings in the MET regime identified over several years, including a wide-spread practice of using the MET for tax optimisation. According to the explanatory note, such practices distort competition, and those employed under the MET regime pay alarmingly low social contributions, thus jeopardising their future social coverage.
The amendments stipulate that, as of 2021, the MET regime will only be made available to the owner of a micro-enterprise. Accordingly, the general labour tax regime will apply to employees of micro-enterprises. Payroll tax is to be imposed on micro-enterprise employees, and they are to be socially insured.
As of 1 July 2021, the general tax regime is to apply to all MET payers’ employees registered by the end of 2020.
The amendments also revoke the current salary ceiling applicable to MET payers’ employees. It is indicated in the explanatory note that according to entrepreneurs, the salary ceiling has driven many to under-report their actual income from micro-enterprises.
With the new amendments, VAT payers and limited liability companies will no longer qualify for the MET regime, as of 2021.
As of 1 January 2021, the MET rate applicable to annual turnover of up to EUR 25,000 will be set at 25 per cent, with a rate of 40 per cent on all turnover above the threshold.
The amendments will not affect the current breakdown of the MET: 80 per cent of the tax constitute the state social insurance contributions, and 20 per cent—personal income tax.
According to the current provisions, micro-enterprises are allowed to employ up to five employees with a monthly salary capped at EUR 720. The current MET rate applicable to annual turnover of up to EUR 40,000 is set at 15 per cent, with a rate of 20 per cent on turnover above EUR 40,000.
Amendments to the Law will come into force on 1 January 2021.
Saeima Press Service