COVID-19 in Latvia: Law on measures for the management of national emergency and its consequences, state financial aid

1. Support measures in accordance with the law “On measures for the prevention and management of national emergency and its consequences in relation to the spread of COVID-19”

On 20 March 2020, Latvian Parliament adopted the law “On measures for the prevention and management of national emergency and its consequences in relation to the spread of COVID-19” (hereinafter – the Law). The aim of the Law is to specify measures for the prevention and management of national emergency and its consequences, provide for special support mechanisms, as well as expenditure directly related to the limitation of spread of COVID-19. It concerns tax issues, lease payments to the state and municipal authorities and other public entities, extension of deadlines in connection with performance of debtors’ obligations, restrictions with regard to initiating insolvency proceedings, submission of annual financial statements and consolidated financial statements, restrictions on lotteries and gambling. The Cabinet of Ministers has identified those business sectors, the financial situation of which has significantly deteriorated due to spread of COVID-19 and for which special support mechanisms will be available (see the List in Latvian here). This Law entered into force on the day after its publication, i.e. on 22 March 2020, yet its provisions may have retroactive effect from the day the state of emergency was declared, namely from 12 March 2020.

Lease payments exemption

• State and municipal institutions, as well as derived public persons and capital companies controlled by a public person, freeport and special economic zones shall release private companies of the affected industries identified by the Cabinet of Ministers from the lease payments for use of public assets or assets owned by the companies controlled by a public person, or decide on decrease of the lease and continued use, as well as waive delay interest and penalties, while continuing collection of payments for utilities – electricity, thermal energy, water supply and other property maintenance services for the period of the emergncy.

Main support measures regardless of industry

In the area of taxes

• Faster repayment of VAT – the VAT sums approved from 1 April 2020 to 31 December 2020 will be repaid within 30 days’ time after the submission of a return (not waiting until the end of the year to make repayments). Before repayment of VAT the State Revenue Service will make the payment of taxes, duties, other payments determined by the State and related payments. The Law also provides for a faster reimbursement of the overpaid VAT amounts identified in the declarations submitted by 31 March 2020.
• Individual economic operators are released from the obligation to make advance PIT payments in year 2020 without paying late payment interest.
• Time for the submission of the annual reports for 2019 of commercial entities is extended for 3 months (until 31 July 2020, whereas for the medium-sized, large companies and parent companies, time for preparing consolidated annual report is extended until 31 October 2020).
• Municipalities will have the right to postpone real estate tax payments within 2020.
• The State Revenue Service is not obliged to adopt negative decisions in respect of participants of the enhanced cooperation program until year 2023 if the respective entity is affected by the COVID-19 crisis.
• Undenatured alcohol used in the manufacture of alcohol-containing disinfectants is exempt from excise duty if the purchase or production of denatured alcohol due to the spread of COVID‑19 is significantly inconvenient or not feasible.
• 100% reduction in excise duty security for a temporarily registered consignee who imports and (or) receives alcohol from another Member State.
• 90% reduction in general excise duty security for the approved warehouse keeper carrying out the production of alcohol.

In accordance with the Regulation of 26 March 2020 the Cabinet of Ministers possibility to defer or split delayed tax payments into installments for a period up to 3 years, without paying late payment interest will be available to any company (notwithstanding the industry in which it operates), if the following criteria are met:

• the turnover from commercial activity during March or April 2020 has decreased by at least 30% in comparison to the average monthly turnover during 12 months in 2019 or to the average monthly turnover in the months in the period from 1 January 2019 to 1 March 2020 in which the company has actually operated; or
• the turnover from commercial activity during March or April 2020 has decreased by at least 20% in comparison to the average monthly turnover during 12 months in 2019 or to the average monthly turnover in the months in the period from 1 January 2019 to 1 March 2020 in which the company has actually operated and at least one the following additional criteria is met:
• the amount of export in 2019 constitutes 10% of the total turnover or is not less than EUR 500 000; or
• the average monthly gross salary paid to its employees during 2019 is not less than EUR 800; or
• long term investments in fixed assets as on 31 December 2019 are at least EUR 500 000.

Respective applications should be filed within 2 months’ time from the due date for tax payment or from 22 March 2020.

Impact on payment obligations

• To mitigate the negative impact of the state of emergency on debtors, the Law provides for a number of measures which allow more time for the debtors to comply with their payment obligations. Essentially, such measures are aimed at restricting the creditors’ entitlement to start recovery of debt earlier than 60 days after serving of a notice to the debtor. The Law also provides that creditors will not be allowed to submit insolvency petitions against companies until 1 September 2020. These restrictions are applicable irrespective of the business area of the debtor.

Compensation of idle time

Companies that meet the criteria set in the Regulations of the Cabinet of Ministers adopted on 26 March 2020 can apply for the compensation of idle time. For this purpose the application to the State Revenue Service must be submitted via EDS until 25 April 2020 for the period from 14 March to 31 March 2020 and until the 25^th date of each month for subsequent periods. The Regulations of the Cabinet of the Ministers also set a list of grounds due to which compensation of idle time might be unavailable.

Compensation of idle time in the amount of up to 75% from average monthly salary (not more than EUR 700) will be compensated for employers of industries identified by the Cabinet of Ministers. The list of industries is published on March 24. These amounts will not be subject to personal income tax and social security contributions. At the same time respective employers are released from the duty to pay average earnings to such employees. The Cabinet of Ministers is tasked to draft a procedure regarding payment of idle time compensations. Compensation of idle time shall be suspended once an employer hires new employees.

2. State financial aid

As of 25 March 2020, the following financial support is available to commercial entities:

• Loans for financing of current assets – the maximum loan amount – up to EUR 1 000 000 but not more than 25% of the turnover in 2019, for double the expenditure for salaries (including social contributions) in 2019 and the liquidity needed to operate for the following 12 months. The maturity of the loan – up to 3 years, the initiation of the repayment of the loan may be deferred for a period of up to 12 months.

Loans are not granted for the refinancing of existing liabilities, as well as for the payment of debts incurred before 20 March 2020.

• Loan payment break guarantees for existing and new loans for the financing of current assets (including credit lines, overdrafts), as well as existing loans for investment and financial leasing, if the creditor has agreed to suspend principal payments for up to two years. The guarantee shall be granted in the amount of up to 50% of the outstanding amount, but not more than 25% of the total turnover of the economic operator in 2019 and without exceeding the maximum guarantee amount of EUR 5 000 000. The duration of the guarantee for financial leasing and loans for investment is up to 6 years, while for the financing of current assets – up to 3 years.
• How to get support? Loans for the financing of current assets are granted by the state development agency “Attīstības finanšu institūcija Altum”. A loan may be granted if the borrower complies with the specified criteria and the credit institutions have refused to finance current assets. For guarantees, the respective financial service provider (credit institution, leasing company, etc.) should be contacted.
• Who has access to support? Support is available if an enterprises economically viable and did not had financial difficulties on 31 December 2019, the support is necessary to diminish the negative effects of COVID-19 on its economic activity, and it meets other criteria for receiving the support.

Support is not available to performers of economic activity in non-supported industries – for instance, arms trade, manufacturing and trade of tobacco products, alcohol trade, financial and insurance activities, real estate operations, housing development.

COBALT recommendations for clients

Considering the available support measures, the COBALT team recommends to consider eligibility and necessity for support measures. In particular:

1. to assess whether the industry in which a company operates is considered to be supported (it should also be assessed whether the actual type of business activity corresponds to the type of activity declared to the State Revenue Service);
2. to assess the reasons, due to which the financial situation of a company has deteriorated, including issued loans, paid dividends, an assessment of the debtors, in order to justify, if necessary, that the financial situation has deteriorated because of the state of emergency;
3. to be ready to to prove that company’s financial situation deteriorated as result of the spread of COVID-19, and to provide evidence of decrease in turnover, break in supply chains and export supplies.

Co-authors: Sandija Novicka, Sabīne Vuškāne, Mārtiņš Aljēns, Toms Šulmanis, Andrejs Lielkalns, Vadims Zvicevičs.