Social contributions and non-resident in Latvia 23.09.2015 Lilita Bērziņa TODAYS AGENDA • • • • Coordination of Social security systems in EU Non-resident’s registration as a social tax payer in Latvia Conditions for employees assignment to work in foreign countries Duty to register as a tax payer in Latvia Coordination of Social security systems in EU • By May 1st, 2010 the Regulation 883/2004 and application regulation 987/2009 are in force: • - European Parliament’s and Council’s Regulation EC No.883/2004 from April 29th, 2004 about coordination of Social security systems; - European Parliament’s and Council’s Regulation EC No.987/2009 from September 16th, 2009, which defines the order of realization of Regulation (EC) No.883/2004 about coordination of Social security systems. Coordination of Social security systems in EU • Social contributions always stay in that member state, where they are made! Participants • Person works in only one state– BASIC PRINCIPLE – employees, who operate in one member state are subject of the law of concerned member state (regardless of the country of residence) It is not important, where this person lives or where the employer is registered • Employee’s assignment to temporary work performance in other member state- employee works in some member state on behalf of employer’s task, who usually makes operations there, and who is assigned by mentioned employer to other member state to make an operation on behalf of mentioned employer’s task, also further can stay socialy insuerd at the first member state, if the predictable time of work is not more than 24 months and the mentioned person is not assignet to replace another person. (A1 certificate) Non-resident’s registration as a social tax payer in Latvia Other member state’s employer, who employs an employee, to whom, in accordance with the Regulation No.883/2004, the laws and regulations of Republic of Latvia are applied, registers at the State Revenue Service as a payer of compulsory contributions, by subbmiting an information indicating: • Name of employer, • Registration number (in other member state), • Legal address. The State Revenue Service applies a registration code of 11 signs to this employer. Employee begins a work in foreign countries • • For persons, who begin or end an hired work in foreign countries (in other European Union’s member state or state, with whom Latvia has adopt and enforced convention about double taxation and prevention of fiscal evasion), an employer – resident of Latvia - not later than one day before a person begins or ends a work, submits information regarding employees at the State Revenue Service. By submitting an information regarding employee’s works beginning in foreign countries, employer must show the code of the country, where this employee will be employed. Conditions for employees assignment to work in other EU member state(to apply Regulation’s No.883/2004 12(1) clause conditions) • Employee is a socially insured person in Latvia; • Employee has to be socially insured at least for one month and in Latvia for he/her is being or was paid the State Social Insurance’s contributions. • Work in other member state has to be done for the company, which assigns the employee. • During all period of assignment there has to be direct working relations between the company, which assigns the employee and the assigned employee. Operations in two or more EU member states simultaneously or alternately • If you work in more than one member state, you have to define a member state, in which you are most closely connected. Operations in two or more EU member states simultaneously or alternately Employees: • Have to evaluate, in which country the significant operations are being made. • If it is a domicile state, an employee can stay socially insured at the domicile state, however, if there is no significant operation in the domicile state, the person has to be socially insured at employer’s legal address or business place, where he/she is employed. Significant operations To define, whether person makes significant operations in the member state, it takes working time and/or salary into account. In accordance with general evaluation, if less than 25% from person’s working time is spent in domicial state and/ or less than 25% from person’s salary is received in the member state, than it will show that this person doesn’t make significant operations in the mentioned member state. Operations in two or more EU member states simultaneously or alternately If a person in his/her domicile state doesn’t make any significant operations, than this person has to pay social insurance contributions: • In that member state, where company’s or employer’s legal adress or business place is, if this person is employed by one company or employer; To receive A1 certificate • In case of employee’s assignment, employer has to fill in the Application to social insurance status maintenance in Latvia, working in other EU state by assignment; • Has to submit an approved copy of the Agreement with assigned employee. • Copies of companies agreements (distribution of services and goods), to approve significant operations in Latvia. These can be submitted by company’s choice. • It is advisable to fill in this application at least 6 weeks before beginning operations in other country. Conditions to company, which assigns an employee, to apply conditions of the Regulation Company, which assigns an employee, has to make a signifficant bussiness part in Latvia: • • Company’s registered office and administration’s place; Member of employees in Latvian company and in other member state’s company; Place, where the assigned employees are recruited; Place, where the most contracts with customers are signed; Legislations, which are adjusted to contracts, which Latvian company has signed with customers and employees; Number of contracts realized in Latvia and other country; Company’s turnover for previous 12 months in Latvia and other member state. 25 % from total turnover in Latvia can be reasonable criterium. Company’s operation period in Latvia since its foundation uzņēmuma darbības periods Latvijā kopš tā dibināšanas e.a. • • • • • • Examples – which state’s social insurance system would be applied? • Estonian company signs a contract of employment with an Estonian citizen about a job, which will be realized in Latvia. (Basic principle- in Latvia. Exception is, if its not assigned to short term with A1 certificate) • Lithuanian company signs a contract of employment with a resident of Latvia about a job, which will be realized in Latvia (in Latvia) • Latvian employer assigns an employee to Estonia for 10 month to carry out market research (Employee’s assignment A1 – in Latvia) • Resident of Latvia signs a contract of employment with Irish employer for a job in Ireland (Ireland, because the working place is in Ireland) • Jānis is a resident of Latvia, who signs a contract of employment with Estonian employer. Two days per week he works in Latvia, three days – in Estonia (In Latvia, because 25% from incomes are made in Latvia) Duty to register as a tax payer in Latvia • Any person, who gains incomes in the Republic of Latvia, is the Personal Income Tax and Corporate Income Tax payer, if the specific tax law doesn’t provide otherwise. • Any incomes, which are gained by person, who is domestic taxpayer, is applied with Personal Income Tax and Corporate Income Tax, if the specific tax law doesn’t provide otherwise. Residents • Person’s declared place of residenceis in the Republic of Latvia or • This person resides in the Republic of Latvia for 183 days or more in every 12 months period, which begins or ends at taxation year, or • This person is a Latvian citizen, who is employed in foreign countries by gouvernment of the Republic of Latvia. • In tax laws a taxpayer, who is not a physical person, will be regarded as resident, if it is made and registered or it had to be made and registered in accordance with legislation of the Republic of Latvia. Non-residents • Non-residents pay taxes in accordance with the legislation of the Republic of Latvia about in Latvian Republic, its territorical waters and airspace gained incomes, as well as other taxes accordingly the concrete tax legislation. The tax conventions have to be taken into account! Permanent Establishment • • • • It is considered that non-resident (foreign merchant) has a permanent establishment in Latvia, if simultaneously all following conditions are complied: 1) non-resident (foreign merchant) uses in Latvia a concrete place of operations; 2) the place of operations is being used constantly or is made with purpose to use it constantly; 3) the place of operations is used for making economic activities. Permanent Establishment It will be considered that non-resident (foreign merchant) has a permanent establishment in Latvia, if it makes at least one of the following operations in Latvia: • 1) uses a building site or makes construction, montage or instalation works, or makes with a building site or mentioned works related supervision or consultative operations; (convencions) • 2) uses for nature resources’ research or obtaining provided equipment or items, drilling platforms and specialized ships or makes with them related supervision or consultative operations; • 3) in time period or time periods, which in total exceed 30 days in any six months period, provides services, including consultative, management and technical services, by using the own employees or added staff; • 4) uses a physical, legal or any other person’s operations for the needs of own economic activities, if the mentioned person is authorized and regulary (more than once in taxation period) uses powers of attorney to conclude contracts on behalf of non-resident (foreign merchant). Sample of payroll calculation in Latvia • Monthly payroll and tax calculation, when the gross monthly salary is EUR 1 000 and the employee is a local Latvian resident, who has joined the compulsory accumulative pension scheme and who is not an expatriate with the certificate A1: • • • • • • • Gross monthly salary (in EUR) 1000 € Social contribution10.5 %(employee's)105 € Tax exempt basic allowance 65 € Taxable salary 830 € Income tax 23% 190.90 € Net salary 704.10 € Social contribution 23.59 %(employee's) 235.90 € Thank you!