Luxury car value threshold raised in Latvia

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In response to a significant increase in car prices, the value threshold for a representative or luxury car has been increased starting July 1, according to a decision by the Saeima on Thursday, April 27.

On Thursday, the Saeima adopted the final reading of the amendments drafted by the Ministry of Finance to the Vehicle Operation Tax and Business Transport Tax Law and the Enterprise Income Tax Law, the Saeima press service said.

The changes require that for cars purchased or leased after July 1 of this year, the value threshold for a luxury car or representative car has been increased from EUR 50,000 to EUR 75,000.

The costs related to the purchase, rental, and operation of a representative car cannot be credited by the company to the costs related to the economic activity and cannot, accordingly, reduce the taxable amount of the company by that amount.

Previously, car dealers pointed out that car prices have increased sharply in recent years, last year car prices increased by 12%, a year earlier by 9%, and a price increase of at least 8% is expected this year. Consequently, non-luxury car prices can currently exceed €50,000.

According to the Ministry of Finance, by changing the value threshold of a luxury car, budget revenues would fall by EUR 2.32 million this year and by EUR 4.64 million per year for the next two years, but this will be offset by a review of the principles and rates of corporation tax on passenger vehicles.

The Ministry explained that the current principle of calculating this tax by the volume of the car engine is not relevant to the current situation, as technical developments allow higher capacity with a smaller volume. Therefore, in future, the rates of this duty will be determined not depending on the engine volume of the vehicle, but taking into account the maximum engine power of the vehicle in kilowatts (kW).

 

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