At 1st of January, 2014, changes of the Law on the resident income tax and Law of the state social insurance came into force. These changes affects Members of the board of the limited liability companies registrated in Latvia and from now they are assessed with salary tax and obligatory state social insurance contributions.

Article 1 of the Law on the resident income tax now concerns that the resident income tax is a tax which is applied for income of physical persons and consists of:

1)  salary tax, which employer pay for employee’s income;

2)  fixed income tax of economic activity income;

3)  economic activity income tax, if it is not object of enterprise income tax and tax of other income sectors;

4)  capital income tax, including tax of capital increase;

5)  patent fee of different kind of economic activities;

6)  part of micro-enterprise tax according to Law of Micro-enterprise tax.

Resident income tax object is a income of local taxpayer for taxation period, but salary tax object is a resident income taxpayer’s income for period of month. (Article 3 of the Law on the resident income tax)

The income of resident income taxpayer consists of :

1)  income, which salary tax have to be paid from

2)  other income of physical person, which resident income tax have to be paid from

(Article 8.1 of the Law on the resident income tax)

Current legislation imposes, that to income, chargeable to salaries tax, is addedsalary, bonuses, unique and systematic compensation and other income,which the employee receives on the current or past service basis by companies, cooperative societies, state and local institutions, associations, foundations, individual businesses and farms, also the income realized on the duties established in the companies regitered in Latvia, a co-operative society and the European Cooperative Society Board.

According to these changes,from 1st of January, 2014, relating to the company board members, salary tax will be calculated and paid in cases whenthe company board member personally will not be realized incomefor fulfillment of their duties, but there will be found other criteria, according to the Law on the resident income tax.

There will be deemed that company board member has received a salary of taxable incomefor the minimum monthly wage in the fiscal month of the year, when there has been no employee’s or members of the board who gets salary, which is not less than minimum monthly wage according to the regulations, if:

1. in the pre-taxation year:

(1)  when there has been no employee’s or members of the board who gets salary, which is not less than minimum monthly wage according to the regulations, and

(2)  company turnover exceeds limits allowed by law for 12 minimum monthly salary amount multiplied by a factor of 3,3;

2.  company has the turnover in the taxation year (Article 8.2.9 of the Law on the resident income tax)

Finding all of the above criteria will be considered that in the month which the corporation have a turnover, the board member has received a salary of taxable income in amount of minimum monthly salary, so salary tax will be charged from virtually non-existent company board members income.

There have been provided an exception to the principle above. Article 8.2.9 of the Law on the resident income tax will not be in force and will not be considered that a member of the company board has received a salary of taxable income if some member of the board, which fit on Article 8.2.9 of the Law on the resident income tax, as a member of the board 1)receives monthly salary at other company which is not less than five times the minimum monthly wage amount and 2)both companies are members of a group of companies, according to the Article 8.2.10 of the Law on the resident income tax.