On July 20, 2016, a law on the Latgale Special Economic Zone (Latgale SEZ) came into force, through which territories with special tax regime were increased significantly. It is stressed in the annotation of the bill that in Latgale SEZ is an adequate solution for the improvement of the economic situation of the region. Up to 5% of the territory of the Latgale region (which is 72 750 ha) can be given the status of SEZ.
The law on the Latgale Special Economic Zone does not include a list of municipalities the territories of which must be given the status of SEZ as the Cabinet of Ministers should set the territory of Latgale SEZ directly.
The territory of Latgale SEZ will consist of the territories owned by public persons and privately owned territories.
The administration of Latgale SEZ will be centralized, with the mediation of the Latgale planning region, which means that the Development Council of the Latgale planning region approves the provisions of Latgale SEZ Supervisory Council, which is elaborated in accordance with the management functions set in the law, as well as approves, cancels and makes changes in the structure of Supervisory Council.
In cases when the entrepreneur wants to receive the direct tax relief in accordance with the law on the Application of Taxes in Free Ports and Special Economic Zones, a contract must be signed with the administration of Latgale SEZ.
In case the entrepreneur is operating in the territory Latgale SEZ before it gets the status of SEZ, then he can sign a contract with the administration of LSEZ if he plans to invest and receive the tax relief. In other cases the entrepreneur does not have to sign a contract in order to perform commercial activities within the territory of Latgale SEZ. It is also established that the entrepreneurs must be located and must perform commercial activities within the territory of Latgale SEZ, however, that does not exclude the possibility of the entrepreneurs’ legal address being elsewhere.
The application of direct tax relief in SEZ
In accordance with the Commission Regulation (EU) No 651/2014 and the law on Application of Taxes in Free Ports and Special Economic Zones, the direct taxes are the property tax and the corporate income tax. LSEZ companies will receive the direct tax relief from the accumulated amount of investment by applying the maximum allowed support intensity:
- 35% – when the company corresponds to category – large company;
- 45% – when the company corresponds to category – medium company;
- 55% – when the company corresponds to category – small or micro company.
The support rate (35%, 45% or 55%) is applied to the property tax relief and the total sum of the corporate income tax.
The companies that will receive the status of LSEZ company have the right to the following direct tax reliefs:
- 80% relief for company income tax
- 80% relief for property tax
What kinds of investment are accepted
In accordance with the law on Application of Taxes in Free Ports and Special Economic Zones, the following are supported:
- “tangible assets” – land, buildings and factories, equipment;
- “intangible assets” – assets, that do not have a certain physical or financial form, for example
- conform to the definition of initial investment and is an investment in tangible and intangible assets related to the creation of a new place of business, improvement of the capacity of an existing place of business, diversification with products that have not been produced in this place of business before, or significant changes to the process of production in an existing place of business
- bought assets are new (applies to large companies).
Law also determines other requirements for the supported investments when applying for SEZ direct tax relief.
Time limit to making the supported investment
A SEZ company or a licensed company receives a right to apply the direct tax relief starting with the taxation period during which the permission to apply tax reliefs was received and a contract about making investments is signed.
The taxation period for SEZ company or a licensed company for the property tax and the corporate income tax is a calendar year.
Combining the tax reliefs with the initial investment of other support measures
If the Latgale SEZ company or a licensed company in addition to the support provided by Latgale SEZ receives or plans to receive some other support for initial investment for the same costs, then the received support cumulates and maximum amount of support is corrected.