New regulation related to money laundering, transactions and tax evasion in Latvia

On April 1, 2016 have entered into force amendments to the Law "On Taxes and Fees", establishing that credit institutions and payment service providers have to provide the State Revenue Service (Tax administration of the Republic of Latvia) with the information regarding suspicious transactions what meet the respective signs of suspiciousness in tax matters. 

Therefore with the amendments to the Law the obligation is established for credit institutions and payment service providers, when identifying suspicious transaction according to the Law “On the Prevention of Money Laundering and Terrorism Financing”, to inform the Tax administration for such person`s suspicious transactions, who are residents of the Republic of Latvia or who are registered in Latvia, on transactions what correspond to the signs of suspicious transactions. 

Tackling tax evasion and frauds in Latvia

The information reports have to be provided to the Tax administration for detection and prevention of violations, what results as reduced tax amount paid into the State budget or increased amount deductible from the budget, for what the liability is established in the tax laws, as well as for detection and prevention of offenses for evasion of tax payments and payments equivalent thereto and fraud.

Criteria to evaluate transactions

The Law provides the following signs for suspicious transactions:

  1. Natural person declares income, savings, properties or their value changes with suspicious origin;
  2. Client has unusually large amount of the transactions;
  3. Incoming transactions consist of many small sums, but outgoing transactions are for large sums;
  4. Acquisition of the real property for obviously irrelevant price;
  5. Transaction does not have visible lawful purpose (or commitment to personal and business activity);
  6. Forged document is used in the transaction;
  7. Suspicious transaction with the electronic money;
  8. The money is debited from the account immediately after the crediting;
  9. Natural person, in one or more transactions in cash, invests in commercial company, pays out, lends or borrows from other individual 60 000 euros or more;
  10. Tax evasion;
  11. Striking changes in the account balance (increased turnover, etc.);
  12. Client has excessive number of accounts;
  13. Account turnover mainly consists of cash operations;
  14. Account is far from the residence of the client;
  15. Client is operating as a cover for other person's transaction;
  16. Transaction is not typical for the client;
  17. Client performs complex or unusual transactions (with not clearly understandable economic or lawful purpose);
  18. Not clear origin of the funds used in the transaction.

In order to improve the effectiveness of the Tax administration with respect to the violations, including offences, regarding detection and prevention of evasion of tax payments, it is important to ensure that information on the disposal of the credit institutions and payment service providers regarding Latvian resident`s transactions is available to the Tax administration. It is expected that such practice preventively positively will influence the taxpayers' attitude towards payment of taxes.

Information from the credit institutions in Latvia

So far practice has shown that receiving of the information after the respective request makes difficult in a timely manner to identify tax violations.  

The information received from the credit institutions will be used for tax payers` data analysis, what will help to evaluate the person`s actually received income amount and the real turnover of legal persons and their transaction volume. 

The amendments concern only credit institutions and payment service providers, who are legal persons, therefore the amendments do not influence inhabitants directly. This information by credit institutions and payment service providers is already provided to the Office for prevention of laundering of proceeds derived from criminal activity.

To find out more about tax evasion and money laundering regulation in Latvia please contact our lawyers at info@gencs.eu.

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