Covid-19 Latvia: New amendments related to the application of corporate income tax

30.04.2020 Covid-19 Latvia: New amendments related to the application of corporate income tax

Article 4.2(2) of the Corporate Income Tax (CIT) Law prescribes that a taxpayer's expenses that are not related to economic activity are an object subject to CIT. 

During the emergency situation, companies are involved in providing social support to certain groups affected by the emergency situation, such as providing computers and other smart devices to schools (for students who should be ensured the possibility of distance learning), handing over disinfectants to medical facilities, providing coffee to doctors, providing lunch to medical staff. The above expenses of the companies that provide such support (unless the support is channelled to public benefit organizations or state or municipal institutions through a donation agreement) are expenses that are not related to economic activity, which increase taxable income.

On 24 April 2020, amendments to the law On Measures for the Prevention and Suppression of Threat to the State and Its Consequences Due to the Spread of COVID-19 came into effect.

The amendments prescribe that the expenses (donation of goods and services) made by a company engaged in the provision of social support to certain groups affected by the emergency situation, or enterprises or associations engaged in certain areas, shall not be included in the CIT base. A company shall comply with the following conditions:

  • the support model has been made public (for example, information about the recipient of the donation and the support has been heard on public radio or television broadcasts, placed on the company's website);
  • the recipient of the donation is not a person related to the company;
  • the company shall provide information regarding the recipient of the donation and the amount of support to the State Revenue Service simultaneously with the return of the last month of the reporting year.

Accordingly, the expenses of the company involved in providing social support to certain groups affected by the emergency situation and meeting the above criteria, related to donations of goods and services, i.e. the support, are recognized as the operating expenses of the company not included in the CIT base and are exempt from CIT.

It should be emphasized that the above does not include the provision of support to the taxpayer's own employees.

If you have any questions, please contact: 

Nauris Grigals, nauris.grigals@tgsbaltic.com

Rūdolfs Vilsons, rudolfs.vilsons@tgsbaltic.com