The offer of the Ministry of Finance to abandon the special tax regime – royalties from next year – caused a major storm this week. After much criticism, the idea is paused, but what will happen next?
Last year, almost 40,000 people were registered as royalty recipients. The Ministry of Finance points out that ideologically only 5,000 would correspond to the status of royalties – writers, musicians, artists and other creative professions. Others use it for tax optimization purposes, covering financial services, retail, catering, sports and many more. At the expense of social contributions.
To address this shortage of social cushions, the government has already agreed to introduce minimum social contributions. Assuming the minimum wage next year will be 500 euros, those minimum contribution would be about 170 euros.
At the same time, the Ministry of Finance proposed to abolish the special regime for royalties from 2021. Instead, the persons concerned could either register their economic activity or apply the same treatment as those who receive remuneration under a company contract. In fact, the same tax treatment as paid income. Latvia’s creative circles were categorically against the intentions of the Ministry of Finance.
“We really see it as an attack on national culture. I’m sorry, but that’s the way it is. ” Rūta Muktupāvela, the chairwoman of the National Culture Council, emphasizes that this will actually deprive creative workers of a fifth of their income. She describes such a fight against tax optimizers as a hammering with mosquitoes. It was also confusing that such an ambitious change was proposed only four months before it came into force – in many places measures are already planned for next year.
“It simply came to our notice then. Funding already distributed, budget adopted. We are now introducing a change in the tax regime so quickly, neither from this nor from the industry that has also suffered the most from Covid-19. “Then the industry simply ended,” says Muktupāvela.
“Given the opposition of the creative industry and also the Ministry of Culture, the issue of royalties was removed from the agenda of the government meeting this week in order to find a more acceptable solution for the parties.”
Ritvars Jansons (NA), Parliamentary Secretary of the Ministry of Culture, emphasizes that most royalties recipients work simultaneously in several tax regimes. An ideal solution could be a single business account from which certain taxes would be deducted from specific revenues.
“We have to take into account that there are people, for example, writers in retirement years, whose fees are low, they enter irregularly. If he has to become self-employed and have to pay every month, even if he has no income, it only causes him losses, ”says Jansons.
The Ministry of Finance supports the idea of a single economic account, but there is still a need to talk to the commercial banks themselves. Currently, the best solution is being sought together with the Ministry of Welfare and Culture, but the current situation with tens of thousands of royalty recipients cannot continue.
“Currently, too many people are geniuses in Latvia, unique. We need to find that balance between a beat of a muse and just work. ”
With a possible solution to the royalty problem, come up planned in the coming weeks.
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