Company formation and accounting in Latvia
Last updated: 2016-06-26
An individual who engages in business activities may register in the Register of enterprises as a sole trader, and also may register only in the State Revenue Service.

This article describes a situation if a person is registered in the State Revenue Service.

Self-employed person.

The term "self-employed (pašnodarbinātais)" is used in the law "On State Social Insurance".
Self-employed is a person who receives the income as:
  • Person performing individual work.
  • A person whose permanent place of residence is in Latvia and who receives a royalty (for copyright and related rights), except the heir or other successor of copyrights.
  • A sworn notary.
  • An attorney at Law.
  • A sworn auditor.
  • A sworn judicial executor.
  • A sole trader.
  • Another individual, whose permanent place of residence is in Latvia, and who is registered as a payer of income tax on business activities (the person engaged in economic activity).
  • The practicing doctor, pharmacist, veterinary surgeon, optometrist.
  • The owner of a peasant (fishermen's) farm who, not having an employment relationships with the management institution of his farm, manages the farm, if for the farm, under the law has not been appointed (selected) a manager (director).
  • A person whose permanent place of residence is in Latvia and who are paid from the loan issued to the Republic of Latvia in the form of foreign technical assistance or issued by foreign financial institutions.

The term "self-employed person" is related to the Mandatory contributions of state social insurance and the self-employed person is socially insured person, if the person paid social insurance payments.

Self-employed person, in most cases must pay social insurance contributions, if the income of the person in a month reached a certain minimum amount (in 2016 year - 370 euros per month).

A person engaged in economic activities.

A person engaged in economic activities is the person doing any activities aimed at trade, production of goods, execution of work and rendering services for a fee.

Economic activities are also:
  • activities related with the execution of the undertakings (contractor's) agreement,
  • professional activities,
  • building management (maintenance) services,
  • activities of a commercial agent,
  • activities of a broker,
  • activities of a sole trader,
  • activities of an individual enterprise (a peasant (fishermen's) farm), belonging to a natural person.

Professional activity is any independent provision of professional services outside of employment relationships.
Professional activity is also scientific, literary, teaching, actor's activity, activity of producer (stage director), doctor, attorney, auditor, notary, judicial executor, land surveyor, appraiser, activity of artist, composer, musician, consultant, engineer, accountant or architect.

The activity of an individual is also considered as economic activity if it meets one of the following criteria:
  • A person commits three or more transactions during a taxation period (a year) or 5 or more transactions within 3 taxation periods.
  • Revenue from transaction exceeds 14 229 euros during the taxation year, except for certain revenues from the alienation of personal property.
  • The economic essence of the operations or the amount of owned items indicates the systematic activity, with the aim to make a profit.

An individual before starting the economic activities must register such activities in the State Revenue Service.

How to register as a person, doing economic activities?

Unlike, for example, a limited liability company, the person doing economic activities must not create equity capital.
For registration it is not necessary to pay the state fee.
It is not necessary to prepare the articles of association.

To register, must fill out and submit an application to a department of the State Revenue Service.
In the application must specify:
  • Name and surname.
  • Personal code or date of birth (for foreigners).
  • Identification number (if assigned).
  • Phone number.
  • Address of declared residence.
  • Address where you will do business.
  • Information about the bank accounts that will be used for economic activities.

Also, there may be obligation to submit a written consent of owner of immovable property, where you plan to business, to use the property for business.
The consent is not required if the application for registration signs a person who owns the property, or is declared place of residence in this property.

If an individual wants to register as doing professional activities (eg, doctor, attorney, notary) and legislation for persons engaged in such professional activities, sets special requirements for education, professional qualification, the use of the name of the professional activity, then, at the moment of submission of the application, the person must have the right to carry on business in the profession.

What is the difference between self-employed and a sole trader?

A sole trader is a natural person who as a merchant is registered in the Register of enterprises (commercial register).
A self-employed person is registered only in the State revenue service.
For registration in the commercial register you must pay the state fee and a fee for the publication.
For registration as a self-employed person you do not need to pay the state fee and a fee for publication.

For the self-employed person legislation sets limits (requirements) in relation to the type of activities, annual turnover, number of employees.
If the activities of self-employed person go beyond these limits, then the self-employed person must register the activities in the commercial register (for example, as a sole trader or may register limited liability company).

The taxation of self-employed person and a sole trader is the same.

Taxation.

If a person is registered as a payer of micro-enterprise tax, then the person must pay this tax.

If a person is registered as a payer of value added tax (VAT), then the person must pay VAT.

If a person is not registered as a payer of micro-enterprise tax, then:
  • Obligation to pay personal income tax (23% from profit) and
  • If profit reaches a certain amount (370 euro per month during Year, 2016), then obligation to pay the state mandatory social contributions (general rate in 2016 is 30.58%).

Companies that pays remuneration to a natural person (except employee), before payment need to check if the person has is registered as doing economic activities.
If the person is not registered, then the company must withhold taxes from this payment and pay to government budget.

If a person is registered as doing economic activities, but actually the activities are not carried out and the amount of calculated income tax (or the tax on micro-enterprises) is less than 50 euros per year, then in most cases the person must to pay minimum tax 50 euros per year.
To avoid such a situation, it is necessary to inform the State revenue service about termination of economic activities.

Social guarantees of self-employed person.

Paid the state mandatory social insurance payments are allocated to types of social insurance.
For example, in the year 2016, if the self-employed person pays social security payments in the amount of 100 euros, then:
  • 23.86 euro is used for pension insurance,
  • 2.33 euro is used for disability insurance,
  • 2.94 euro is used for maternity and unemployment insurance,
  • 1.45 euro is used for insurance of parents.

Social guarantees depend on the amount of paid the state social insurance payments. Government guarantees (according to legislation) old age pension in amount of approximately 60% of income, for which the social insurance payments are paid.



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