Employee motivation and taxes
Employee motivation and taxes
Currently, amendments to the law "On personal income tax" have been submitted to the Saeima, with which it is planned to raise the already very outdated threshold of insurance premiums, and other benefits applicable to employees have also been revised.
Let's take a look at these and other employee motivation tools - what justification documents are needed to justify expenses and in which cases are there tax consequences?
Before applying tax benefits to short-term employee motivation tools, it is important to determine the nature of short-term tools, their economic benefit and purpose, which form the tax object or the taxable base.
Short-term employee motivation tools
The employee's short-term motivation tools can be personalized or intended for a collective of employees, so it must first be understood whether the short-term motivation tool will be personalized for a specific employee (natural person) or will be offered collectively to all staff.
The employee's short-term motivation tool can form the burden of personal income tax (IIN) and mandatory state insurance social contributions (VSAOI) or corporate income tax (CIT).
Short-term employee motivation tools are benefits offered by the employer that can be used within a 12-month period, most often in one financial year. Short-term motivation tools for employees can be, for example, insurance policies, meals, paid expenses of various kinds - benefits.
Personalized benefits and taxes
Short-term employee motivation tools are subject to the burden of IIN and VSAOI if these tools are personalized, that is, intended for a specific employee (natural person).
According to Article 8, Part 2 of the Law "On Personal Income Tax" (the Law on Personal Income Tax), the salary, bonuses, one-time and systematic bonus and other income received by the employee in the employment relationship are added to the income for which the payment of Personal Income Tax and VSAOI must be made. as a result from the employer.
According to Article 8, Part 15 of the Law on IIN, from the income for which payroll tax is paid, the employee's catering and medical expenses paid by the employer in the collective agreement are excluded, if they do not exceed 480 euros per year (on average 40 euros per month) and the employer fulfills the following conditions :
the catering and medical expenses of all employees paid by the employer in the collective labor agreement do not exceed 5% of the employer's annual gross salary fund;
the employer employs at least six employees;
the employer has no tax debts, the total amount of which does not exceed 150 euros;
the employer has not been given a court decision that cannot be appealed, it has not been found guilty of a violation - for illegal employment of employees, as well as for illegal employment of citizens who are not citizens of the European Union, an accident at work, if the employee suffered serious health problems as a result disorders or death;
the employer performs economic activity for at least one full calendar year before starting the application of the exemption;
the employer has not been declared bankrupt and the economic activity has not been suspended, or it is not being liquidated.
If the total amount of life insurance (without accumulation of funds), health insurance, accident insurance or bonus payments made by the employer did not exceed 10% of the employee's gross salary, but is greater than 426.86 euros per year, then the excess part is included in the employee's taxable income , which is subject to labor taxes. From 2024, this threshold is expected to be raised to 750 euros per year. In addition, it is planned that with the year 2024, the compensation for performing remote work will increase from 30 to 40 euros per month, which will not be subject to the labor tax burden.
As well as in Article 8, Part 15 of the Law on Personal Income Tax, it is determined that labor taxes are not payable for:
benefits granted by the employer and payments related to expenses incurred by the employee in connection with the performance of work duties, as well as payments made by the employer to compensate the employee's expenses, if they are considered business expenses;
for the expenses paid by the employer for the training of the employee in order to acquire, improve or expand the skills and knowledge necessary for work, profession, position or trade, with the exception of higher education (starting from 2024, the law envisages changes that provide for an exemption from labor tax if the employer pays the employee tuition fees for obtaining higher education and studies related to the acquisition of skills needed by the employer);
expenses covered by the employer for increasing the professional training of the employee in courses and seminars;
expenses related to entertainment events, travel, medical treatment, education, employer's scholarships, meals and the purchase of refreshments, if the relevant expenses are not apportionable to personnel and are included in the employer's taxable income;
a gift from the employer that does not exceed 15 euros per tax year;
benefits from the use of a passenger car belonging to the employer or at the disposal of the employer a foreigner can contact a foreigner, asking to provide information on whether he has already been granted Latvian resident status. Even after receiving an affirmative answer from a foreigner, the employer is recommended to check the accuracy of the given answer by asking the foreigner to present a letter from the SRS indicating the granted Latvian resident status, or enter the section "Periods of residence in Latvia" in the SRS EDS (if the person has authorization tools) reports, where it is indicated whether or not a Latvian resident is present. However, the employer cannot ascertain the residence status of the foreigner without the involvement of the foreigner before starting the employment relationship. When hiring a foreigner and registering in the SRS EDS, the employer has the right to ask the SRS to check whether the given person is a resident of Latvia. This is important so that the employer can correctly submit all declarations and statements about the foreigner. Determining the residence status of a foreigner is a very important aspect, because depending on whether a Ukrainian citizen is a resident of Latvia or not, the calculation of tax payments and remuneration for the work performed differ. It should also be remembered that if the Ukrainian citizen is a non-resident, the employer must take into account the special rules for the application of personal income tax to Ukrainian citizens, as well as other aspects that are mentioned in the Law on the Support of Ukrainian Civilians.
Let's take a look at these and other employee motivation tools - what justification documents are needed to justify expenses and in which cases are there tax consequences?
Before applying tax benefits to short-term employee motivation tools, it is important to determine the nature of short-term tools, their economic benefit and purpose, which form the tax object or the taxable base.
Short-term employee motivation tools
The employee's short-term motivation tools can be personalized or intended for a collective of employees, so it must first be understood whether the short-term motivation tool will be personalized for a specific employee (natural person) or will be offered collectively to all staff.
The employee's short-term motivation tool can form the burden of personal income tax (IIN) and mandatory state insurance social contributions (VSAOI) or corporate income tax (CIT).
Short-term employee motivation tools are benefits offered by the employer that can be used within a 12-month period, most often in one financial year. Short-term motivation tools for employees can be, for example, insurance policies, meals, paid expenses of various kinds - benefits.
Personalized benefits and taxes
Short-term employee motivation tools are subject to the burden of IIN and VSAOI if these tools are personalized, that is, intended for a specific employee (natural person).
According to Article 8, Part 2 of the Law "On Personal Income Tax" (the Law on Personal Income Tax), the salary, bonuses, one-time and systematic bonus and other income received by the employee in the employment relationship are added to the income for which the payment of Personal Income Tax and VSAOI must be made. as a result from the employer.
According to Article 8, Part 15 of the Law on IIN, from the income for which payroll tax is paid, the employee's catering and medical expenses paid by the employer in the collective agreement are excluded, if they do not exceed 480 euros per year (on average 40 euros per month) and the employer fulfills the following conditions :
the catering and medical expenses of all employees paid by the employer in the collective labor agreement do not exceed 5% of the employer's annual gross salary fund;
the employer employs at least six employees;
the employer has no tax debts, the total amount of which does not exceed 150 euros;
the employer has not been given a court decision that cannot be appealed, it has not been found guilty of a violation - for illegal employment of employees, as well as for illegal employment of citizens who are not citizens of the European Union, an accident at work, if the employee suffered serious health problems as a result disorders or death;
the employer performs economic activity for at least one full calendar year before starting the application of the exemption;
the employer has not been declared bankrupt and the economic activity has not been suspended, or it is not being liquidated.
If the total amount of life insurance (without accumulation of funds), health insurance, accident insurance or bonus payments made by the employer did not exceed 10% of the employee's gross salary, but is greater than 426.86 euros per year, then the excess part is included in the employee's taxable income , which is subject to labor taxes. From 2024, this threshold is expected to be raised to 750 euros per year. In addition, it is planned that with the year 2024, the compensation for performing remote work will increase from 30 to 40 euros per month, which will not be subject to the labor tax burden.
As well as in Article 8, Part 15 of the Law on Personal Income Tax, it is determined that labor taxes are not payable for:
benefits granted by the employer and payments related to expenses incurred by the employee in connection with the performance of work duties, as well as payments made by the employer to compensate the employee's expenses, if they are considered business expenses;
for the expenses paid by the employer for the training of the employee in order to acquire, improve or expand the skills and knowledge necessary for work, profession, position or trade, with the exception of higher education (starting from 2024, the law envisages changes that provide for an exemption from labor tax if the employer pays the employee tuition fees for obtaining higher education and studies related to the acquisition of skills needed by the employer);
expenses covered by the employer for increasing the professional training of the employee in courses and seminars;
expenses related to entertainment events, travel, medical treatment, education, employer's scholarships, meals and the purchase of refreshments, if the relevant expenses are not apportionable to personnel and are included in the employer's taxable income;
a gift from the employer that does not exceed 15 euros per tax year;
benefits from the use of a passenger car belonging to the employer or at the disposal of the employer a foreigner can contact a foreigner, asking to provide information on whether he has already been granted Latvian resident status. Even after receiving an affirmative answer from a foreigner, the employer is recommended to check the accuracy of the given answer by asking the foreigner to present a letter from the SRS indicating the granted Latvian resident status, or enter the section "Periods of residence in Latvia" in the SRS EDS (if the person has authorization tools) reports, where it is indicated whether or not a Latvian resident is present. However, the employer cannot ascertain the residence status of the foreigner without the involvement of the foreigner before starting the employment relationship. When hiring a foreigner and registering in the SRS EDS, the employer has the right to ask the SRS to check whether the given person is a resident of Latvia. This is important so that the employer can correctly submit all declarations and statements about the foreigner. Determining the residence status of a foreigner is a very important aspect, because depending on whether a Ukrainian citizen is a resident of Latvia or not, the calculation of tax payments and remuneration for the work performed differ. It should also be remembered that if the Ukrainian citizen is a non-resident, the employer must take into account the special rules for the application of personal income tax to Ukrainian citizens, as well as other aspects that are mentioned in the Law on the Support of Ukrainian Civilians.