General Remarks: Returns, Procedure, Appeals

The only taxes for which the taxpayer need not furnish a return are the tax on income from capital and the tax on income from rural estate. For all others, a return must be furnished annually (on a date which will be mentioned in dealing with the assessment of each tax), except for tax on income from urban estate, for which returns are triennial.

These returns are sent to the tax inspectors, who have wide powers to obtain from public administrations and enterprises and from the taxpayer all information necessary for checking the returns.

The tax is assessed by “tax committees”, presided over by inspectors of the Administration, who are aided by assessors chosen from among taxpayers. A fortiori these committees have the same rights of control and enquiry as tax inspectors.

Taxpayers may contest the decisions of committees, first by appealing to the committee and then by appeal to the “Central Tax Committee” at Riga, which is made up of officials of the different administrations and representatives of taxpayers. A final appeal lies with the Senate — that is, the first chamber of the legislative body.

These appeals must be lodged within certain time-limits fixed for each case and varying, as a rule, from a fortnight to one month from the date of serving the assessment notice.

Further, failure to make a return or to observe the provisions of the law and the orders of committees and refusal to comply with the requests of committees or inspectors for information render the offender liable to a fine and may deprive him of his rights of appeal.

Tax on Income from Urban Estate

Determination of Taxable Income. — The taxable income is obtained by deducting from gross income the cost of maintaining and working the estate. These costs are reckoned according to the nature of the property and the purposes for which it is used. The amount is fixed by the Finance Minister and varies from one town to another between 20 and 95 per cent of gross income, according to the property.

Exemptions. — The following property is exempt from this tax: estates belonging to the Government and to public corporations or to religious and cultural foundations, charitable and educational institutions, hospitals, etc.; also, subject to reciprocity, premises belonging to foreign diplomatic representatives. Moreover, no tax is collected if it amounts to less than 2 lats per estate. New dwelling-houses are not taxable for the first three years.

Computation of Tax. — The rate is 1½ per cent of the rental value of the property; 75 per cent of the yield goes to the commune in which the property is situated.

Tax on Rural Estate

Determination of Taxable Income. — The rental value on which tax is levied and which must correspond to the theoretical net income of the estate is determined by the Administration on the basis of the land register and all other relevant data.

Exemptions. — The exemptions are in principle the same as for the tax on urban estate. But property the rental value of which does not exceed 500 lats is tax-free, and new property, brought into existence under agrarian reform, is exempt from tax for the first six years.

Computation of Tax. — The rate is 1½ per cent, of which one-third goes to the local commune.

Tax on Income from Capital

Determination of Taxable Income. — This tax is imposed on:

It should be noted that this tax is levied exclusively upon the incomes enumerated and that interest on loans between private persons and income from foreign securities are not liable.

Since this tax is collected at the source, the recipient of taxable income does not need to make a return to the Treasury.

The rate of the tax is 5 per cent, and, owing to the method of collection, no question of abatement, deduction, etc., can arise.

Credits opened or advances granted by State, municipal or private banks on pledges in the form of securities or bills are liable to a special tax amounting per annum to 0.396 per cent of the sum advanced. The banks pay this tax in the course of the month following the closing of their accounts and may recover from the borrower.

Taxes on Trade and Industry

As already mentioned, industrial and commercial enterprises are liable to a patente tax, fixed on the basis either of turnover or of the enterprise’s registered capital (banks and insurance enterprises); further, they are liable to profits tax, computed on the basis of net profits, and to a tax on the registered capital, which concerns only companies.

Determination of Taxable Sum

Persons liable to the taxes on trade and industry have to file a return with the fiscal administration before April 1st of each year, giving their turnover, profits and any other particulars which may help to assess these taxes. The date is advanced to February 1st for enterprises that have been established in the course of the previous year.

Patente tax being based on turnover, it is not necessary to deal in detail with the methods which are used to ascertain this turnover; the Administration fixes it, of course, by reference to the returns, the accounts of the enterprise, if any, and other evidence derived from various sources which, in the absence of accounts, enable the turnover to be determined by a process of assumption.

Nor does any difficulty arise in connection with insurance enterprises and banks; the patente tax due from them is determined by reference to their operations, and this applies also to the tax on the capital of companies.

The position is different in the case of profits tax. The law prescribes that the net profits liable to this tax shall be determined in two ways: empirically, by applying a certain coefficient to turnover, or on the basis of the enterprise’s accounts.

Normally, enterprises not belonging to companies are assessed to profits tax on the presumptive method and, if the taxpayer wishes to be taxed on the basis of his accounts, he must make a statement to that effect when submitting his return, while his accounts must be closed before May 1st of the tax year. He must also submit his books to the tax inspector, if requested.

For purposes of assessing taxable profits empirically, commercial and industrial enterprises are divided, respectively, into 223 and 194 kinds. For each kind, there are minimum and maximum profit coefficients, determined with due regard to the special conditions of each kind. The net taxable profit is obtained by applying to the enterprise’s turnover the coefficient for that kind of business.

If the application of these coefficients gives results that do not appear to reflect the real position of the enterprise, the assessment authorities may reduce the coefficient if the actual profits are lower than the profits reckoned empirically, or may increase it if the actual profits exceed the empirical figure.

Taxation on the basis of accounts is applied to private enterprises which expressly request this method and which satisfy the legal requirements mentioned above, and also to companies. The latter must provide the Administration with a copy of their balance-sheet during the month in which it is approved by the general meeting of shareholders.

In this case, the net profits are the difference between gross profits and expenditure deductible as having been incurred in earning and maintaining those profits.

Gross profits mean all cash receipts and all advantages in kind which an enterprise realises from its operations (whether these are directly or indirectly connected with its purpose or whether they are regular or occasional) or from property in its possession. The following is a fairly complete list of the expenses and items that may be deducted from gross profits in order to obtain the taxable net profit. Unless the contrary appears from the very nature of the expenses in question, the different components of this list are common to all enterprises, whether they belong to individuals or to companies:

Computation of Tax

Patente Tax. — The turnover figure calculated as above serves to divide taxpayers into a number of classes with a special rate of tax for each. For banks and insurance companies, however, patente tax is fixed on the basis not of turnover, but of registered capital.

Profits Tax. — This is a graduated tax, rising from 5 per cent for incomes not exceeding 2,000 lats to 15 per cent for incomes above 15,000 lats. The tax is also progressive in the case of companies, but its tariff is graduated on the basis of the yield on the capital of the enterprise and goes from 7.5% up to 17.25%.

From the profits tax is deducted the amount of patente tax already paid, but, if the amount of profits tax is less than the licence tax, no refund is made. Companies which have to submit a balance-sheet and whose profits are below 3 per cent of their capital pay no profits tax.

Half of both these taxes goes to the commune where the enterprise is situated.

Tax on Company Capital. — This tax is levied at the rate of ¼ per cent when no profits tax is payable; otherwise at ½ per cent.


Determination of Taxable Sum. — Income-tax is levied, in the first place, on income already liable to one or other of the taxes previously mentioned and also on income, like salaries, wages and remuneration of the liberal professions, on which no tax has been paid. Income-tax returns must be filed before April 15th by individuals and before May 15th by companies.

The taxable sum is the total net income of all classes, less certain deductions of income derived from no specific source.

The law divides income the total of which is liable to income-tax into income from capital, income from land and buildings, industrial and commercial profits, wages and salaries, remuneration of the liberal professions and miscellaneous income. It has therefore to be determined for each of these classes how the net amount is to be computed, before adding them all together:

This income too is assessed at its net amount. Pensions paid to persons disabled in the war and to the widows and orphans of fallen soldiers are tax-free.

All this net income is added together, including, in the case of a taxpayer with wife or children not of age living under his roof, the income of the latter, except income from their work. The authorised allowances are then deducted, giving the final sum taxable.

The deductions allowed from total net income are:

The following may not be deducted from total net income:

The net amounts having been added together and the above deductions made, the result is the net taxable sum.

Computation of Tax. — The tax is only levied if the taxable sum exceeds 2,000 lats. Its scale is graduated (see Annex) and rises from 58.30 lats for incomes between 2,000 and 2,010 lats to 36.692 lats for incomes of 150,000 lats, plus one-quarter of the income in excess of 150,000 lats.

The method of computation is different for legal entities which pay profits tax (whose profits, that is, exceed 3 per cent of their registered capital). In their case, the income-tax is equal to half the profits tax for the same year.

The income-tax of legal entities which pay no profits tax is computed according to the ordinary rules.