Managing the consequences of the economic crisis
Edgars Strautins and Janis Loze
Loze & Partners
Latvia
Edgars Strautins (Bio)
Janis Loze (Bio)
During 2010-11 Latvia still struggled with the consequences of the economic crisis facing reduction of state budget expenses, tax rate increase and structural reforms in the government sector, just to mention a few. Besides that, there were some significant events in the Latvian political and business arena.
In October 2010, a new Parliament was elected and the new cabinet was formed in November 2010. V Dombrovskis retained his powers being appointed as the Prime Minister once again. In late December 2010, the Law on State Budget 2011 was adopted - this draft law provided for a state budget consolidation in the amount of Lats500 million (€714 million). A half of that was supposed to be gained by the increase of tax rates and duties, and another half was supposed to be saved up by the reduction of state budget expenses. Meanwhile the International Monetary Fund put a veto on the realisation of public-private partnership projects in Latvia - new projects could not be launched and the current ones had to be frozen at least until 2012.
The Polaris process
In order to make the attraction of investments more active, systematic and to utilise available resources more efficiently, a certain strategy was created which was named the 'Polaris process'. This strategy defines target industries for investments in which Latvia already has some experience, infrastructure and forerun, as well as those which are deemed to be promising in the near future. At the moment the following industries have been named as target industries: metal working, engineering, electronics, wood-processing (sub-sectors with high added value), transit and logistics, information technologies, health care, life sciences (pharmacy, bio-technologies within medicine and veterinary, as well as agro-bio-technologies) and green technologies. The Polaris process focuses on the alliance between public institutions, private sector and academic institutions – it integrates high-level state institutions, municipalities, universities, representatives of the Investment and Development Agency of Latvia, industrial associations, and private companies into a harmonised system.
As of the January 1 2011 a discount on the company income tax was renewed for the investments into certain industries: investment €7-50 million provides for a discount of 25% of the initial sum of long-term investment but investment above this rate provides a discount of 15%. The discount applies only to the following industries: production of food-stuffs (except agriculture and fisheries), wood-processing, production of chemicals, pharmaceuticals, computers, electrical and optical devices, as well as metal working, except steelworks and nautical architecture.
Commercial law
At the Parliament of Republic of Latvia, a bill amending the Commercial Law is under way at the moment. This draft law provides for a simplification of reorganisation process of companies and stipulates that shareholders, which are legal persons or hold at least 25% of the shares for the benefit of another person, will be obliged to disclose the actual beneficiary to the Enterprise Register, providing some exemptions when such a disclosure is not obligatory. There is also a provision that prescribes that shareholders' meetings will have to be held in the same administrative territory where the registered office of the company is. This draft law is to enter into force on June 1 2011.
Finally, it is planned to introduce a benchmark declaration of income starting from the January 1 2012. According to the draft law, a benchmark declaration of income will apply to Latvian residents irrespectively of their nationality.