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Many sectors banned from 'micro-business' status

The Latvian government on Tuesday agreed a list of 37 industries and sectors in which companies will no longer be able to register as so-called 'micro-enterprises'.

The micro-enterprise scheme was set up to encourage the formation of small companies under a low tax regime that would eventually grow into full-scale and full-tax-paying companies.

However, the Finance Ministry believes the rules have been bent so that instead of growing, companies are doing everything possible to remain beneath the micro-enterprise turnover and tax thresholds, even if it means opening up multiple micro-enterprises instead of one large company.

In future, the following sectors and industries will be exempt from taking micro-enterprise status: forestry, logging, and related services, auxiliary mining and quarrying services, tobacco production, manufacture of coke, refined petroleum products, manufacture of basic pharmaceutical products and pharmaceutical preparations, manufacture of metals, construction of buildings, civil engineering, demolition of buildings, site preparation, installation of electrical wiring and fittings, plumbing, building completion, wholesale trade, taxi operation, air transport, telecommunications, programming, information services, financial intermediation, insurance - except operations of insurance agents and brokers - real estate activities with own property, legal and accounting activities, business and management consultant services, architectural and engineering activities, research and development, advertising and market research services, scientific and technical services - except photography, translation, and interpretation services - labor recruitment, personal safety activities, office administration activities - in public administration, defense, healthcare, social care, public, political, and other organizations - manufacture of fabricated metal products - except manufacture of tableware, locks and hinges, tools, and suchlike - and manufacture of automobiles, trailers, and semitrailers - except manufacture of vehicle spare parts.

The Finance Ministry says that social security is often not properly observed in these sectors, there is a high risk of injury and the scope of social services available to employees in these sectors is less extensive than for those employees for which standard taxes are paid.

These sectors also carry a high risk of misuse of the Microenterprise tax-payer's status for tax planning purposes, that is, to avoid taxes, and companies operating in these sectors are often found to be in violation of fair competition principles.

The Latvian Chamber of Commerce and Industry commented that the list of industries and sectors prepared by the Finance Ministry was absurd, and would bolster shadow economy and reduce budget revenue.

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