On Friday, 27 November, the Saeima adopted in the final reading amendments to the Law On State Social Insurance, stipulating that social contributions will decrease by one percentage point and a minimum amount of mandatory contributions will be set for people whose income is lower than the minimum wage in the country, both for the general tax arrangement and other arrangements. The amendments are introduced as a part of the legislative package related to the State Budget for 2021. 

From 2021, the rate of social contributions will decrease from 35.09 percent to 34.09, or by 0.5 percentage points for both employers and employees. As a result, the contribution rate will be 23.59 percent for employers and 10.50 percent for employees. 

In addition, from July 2021, the minimum object of mandatory state social insurance contributions will be three minimum wages per quarter. Starting next year, the minimum wage in Latvia will be EUR 500, and the planned minimum social contributions will amount to EUR 170 per month for employees for whom the social insurance contributions are made according to general arrangements. 

The minimum amount of social tax will have to be paid quarterly from the amount of three minimum wages; if a person is employed by several employers or employed and self-employed at the same time, the reported income will be cumulated. If the cumulative reported income is smaller than three minimum wages, the employer will have to cover, from their own resources, the difference between the minimum amount of tax and the social tax paid by the employee. According to the amendments, employers will have to pay the mandatory minimum social contributions in proportion to the workload and the salary earned from the respective employer. 

From July 2021, the rate of contributions for pension insurance for self-employed persons will increase from the current five percent of income to 10 percent. The same rate will apply to self-employed persons whose monthly income is lower than the minimum wage. In this case, the person will have to submit to the State Revenue Service a statement outlining the planned income in each quarter. If the income exceeds the minimum wage, the person will have to pay the mandatory contributions at least from the minimum wage, plus 10 percent of the difference between the income and the minimum wage. 

Moreover, from 1 July 2021, payers of the micro‑enterprise tax will have to pay the same social contributions as self‑employed persons, whereas micro-enterprise employees will be subject to social insurance according to general arrangements. 

The amendments also specify groups of persons that will not be subject to minimum mandatory contribution requirements: persons who have reached retirement age or who receive old-age pension; persons with Group I or Group II disability; persons with children up to three years of age; persons with children with disabilities; persons employed in a social enterprise or providing assistant services. In addition, seasonal agricultural workers and persons employed by an employer abroad will be exempt from the minimum social contributions. 

The minimum mandatory contributions are to be introduced to develop a sustainable state social insurance policy in order for all taxpayers engaged in economic activities to pay a mandatory contribution at least at the minimum mandatory contribution level. It will also prevent the exploitation of exceptions in the application of tax regimes, aimed at tax optimisation, according to the explanatory note of the amendments. 

The amendments to the Law will take effect on 1 January 2021. 

Saeima Press Service