Amendments to the Covid-19 Law

Amendments to the Covid-19 Law

In response to developments in the Covid-19 pandemic.

Amendments to the Covid-19 Law

On 5 June 2020, the Saeima adopted the law on overcoming the consequences of the outbreak of Covid-19 (hereinafter - the Covid-19 Law). The aim of the law was to determine support measures to be provided to the economy during the Covid-19 pandemic to improve the economic situation of the public and economic stability of the country. In response to developments in the Covid-19 pandemic, the Covid-19 Law underwent a number of amendments to revise the support measures and the periods they were available.

Among the support measures available to tax payers, there was a possibility to defer tax payments, including compulsory state social security contributions (hereinafter - social contributions). According to Section 4 of the Covid-19 Law, 30 June 2021 was the deadline for tax payers to apply to have their tax payments split or deferred for a period of up to 3 years. The deferral option was available both to those tax payers who did not have previous extensions of their tax payment deadlines and those who already had their payment deadlines extended according to Section 24 of the law On Taxes and Duties. The combined effect of the above section, which permitted tax payers to defer tax payments for 1 year, and the Covid-19 Law, which permitted to defer tax payments for extra 3 years, was that a tax payer could defer tax payments for 4 years.

The deferral of social contributions may have a material adverse impact on employees whose employers have deferred tax payments in line with the above.

According to Section 5(4) of the law On State Social Insurance, a person is considered to be socially insured in terms of the pension if social contributions have been made on behalf of the person. This means that pension calculations are made on the basis of social contributions that have actually been made, rather than those declared and calculated. In effect, the deferral of social contributions means that the employer makes no such contributions.

It must, however, be noted that other benefits paid by the State Social Security Agency (hereinafter - SSSA) (such as sickness benefits, unemployment benefit, benefits for families with children) are calculated and paid based on the social contributions calculated by the employer (irrespective on whether these payments have been actually paid). Thus, the deferral of social contributions has no effect on other benefits paid by SSSA.

Currently, the Cabinet of Ministers has received amendments to the Covid-19 Law which enable employers to file a list, once in six months, and make social contributions before the end date of the deferral period set in the decision by the State Revenue Service on behalf of those employees who have reached the retirement age according to the law On State Pensions (including premature retirement) or the age of granting the service pension, and for whom the company wishes to make social contributions. In short, social contributions can be made by the employer before the end date of the deferral period only on behalf of those employees who have reached the retirement age or service pension age and have continued working for the employer thereafter. It does not apply to employees who are about to reach this age.

It is also stated in the draft law that the employer is not obliged to make such social contributions before the end date of the deferral period. It is up to the particular employer to decide whether or not this option should be used. The aim of the draft law is to reduce the negative impact on employee pensions. It is planned to enter into force on 1 July 2023 and apply to agreements signed before this date.

A similar issue affects people who pay solidarity tax, which is also calculated based on the social contributions actually paid. Employees are thus affected by the deferral when they file their annual income tax returns (hereinafter – Tax return). According to the law On Personal Income Tax, the share of solidarity tax that is transferred to the personal income tax (PIT) account, covers the highest rate of PIT (31%). However, in the absence of actual payments of solidarity tax, PIT at 31% rate is not covered and this results in a PIT liability in the Tax return. This liability should be covered by the employee.

The Tax return may be amended during a 3 year period after the submission deadline. Consequently, employees can amend the Tax return after the employer has paid social contributions (limited to a 3 year period). This way employees can recover overpaid PIT paid by themselves to cover the above liability. This treatment does not work in the case of a 4 year deferral of social contributions as the possibility to amend the Tax return is then lost. Currently, there are no draft laws that address the calculation of solidarity tax and the resultant PIT debt in the Tax return.



The article provides an insight into what KPMG Baltics SIA considers to be key changes in tax legislation in the 4th quarter of 2022.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


Alise Papina, Senior Manager in Tax, KPMG in Latvia

Linda Kamola, Senior Advisor in Tax, KPMG in Latvia

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