On 1 January 2013, significant changes to the Law on Taxes and Fees will come into force. We would like to draw particular attention to the changes to Section 30(1) of the said Law, which will provide as follows taxpayers, except natural persons who are not sole traders, shall declare each month by the 15th of each month, in accordance with the procedure established by the Cabinet of Ministers, all cash transactions (regardless of whether the transaction takes place in one operation or in several operations), the amount of which exceeds LVL 1 000, carried out between them during the previous month. Taxpayers, except natural persons who are not sole traders, shall not be allowed to carry out cash transactions in excess of LVL 5 000 (regardless of whether the transaction takes place in one operation or in several operations).
Until 31 December 2012, the above-mentioned provision of the law requires taxpayers to declare the amount exceeding LVL 3 000 and does not allow cash transactions exceeding LVL 10 000. The responsible officials who proposed this legislative change point out that Article 30 of the Law on Taxes and Duties is a special provision regulating the restrictions on the use of cash in order to prevent money laundering. Non-compliance with this provision jeopardises the interests of the State in such a way that non-compliance with the State-imposed restrictions on the use of cash increases the possibility of using the financial system of the Republic of Latvia for money laundering. Consequently, by introducing stricter control mechanisms, it will be easier for the SRS to control cash transactions of taxpayers and, consequently, to impose sanctions on taxpayers for breaches of the restrictions on the use of cash.
I have answered the question of whether the cash restrictions have been breached in the article „Have the cash rules been breached?”, 27 August 2012, Source: www.ifinanses.lv.
In this article, I will focus on the specifics of the use of cash in payments to suppliers and buyers of goods, providers and recipients of services, the issue and receipt of cash from employees of the enterprise (advance payment persons) for settlement of payments in the course of business activities, etc.
Before I start analysing the different cases, I would like to refresh your memory on the definition of a taxpayer, which is defined in the Law on Taxes and Duties„ Article 1(4) taxpayers are natural and legal persons of the Republic of Latvia or of foreign countries and groups of such persons or their representatives established on the basis of a contract or agreement, who carry out taxable activities or are guaranteed future income. The object of a particular tax and the range of taxpayers shall be determined by the law of each particular tax. For the purposes of this Law and the specific tax laws, persons liable to value added tax and persons, groups or representatives of groups who withhold or are required to withhold tax from payments to other persons, groups or representatives of groups shall also be regarded as taxable persons.
1. Is it allowed to use cash to pay suppliers/buyers of goods and recipients/providers of services?
The law does not give us a clear answer to this question. However, according to Section 30 (1) and (1.1) of the Law „On Taxes and Fees”, taxpayers are required to declare by the 15th of each month, in accordance with the procedure established by the Cabinet of Ministers, all transactions made in cash with each other during the previous month, the total amount of which exceeds LVL 3,000 in the previous month. Transactions of the taxpayer with natural persons who are not sole traders and have not registered with the SRS as economic activity performers need not be declared. I would like to add here that a company should take into account that cash transactions of LVL 3 000 are attributable to one counterparty, not to all counterparties together.
Taxpayers are not allowed to carry out cash transactions exceeding LVL 10 000 (regardless of whether the transaction takes place in one or more transactions). The prohibition on cash transactions exceeding LVL 10 000 applies to all taxpayers, regardless of the counterparty. As I mentioned at the beginning of this article, I have already written about the cash restrictions in my article of 27 August 2012. Therefore, to be clear whether or not the cash limits have been breached, I recommend to refer to the above article.
So, as a summary of the first point, it could be. The obligation to declare cash shall apply to one or more transactions carried out by the taxpayer, the amount of which exceeds LVL 3 000 (from 1 January 2013 - LVL 1 000) and which are carried out within one month with one counterparty (the taxpayer). However, the prohibition to carry out a transaction in cash, the amount of which exceeds LVL 10 000 (from 1 January 2013 - LVL 5 000), is to be assessed according to the concluded agreement and the economic substance contained therein.
2. Is it compulsory to use electronic payment recording devices when receiving cash for the supply of goods or services (if the taxable person intends to settle in cash both at the permanent establishment and at the customer's premises when supplying the goods or services)?
Para 1 of the Cabinet of Ministers Regulation No 282 of 2 May 2007 „Procedure for the Use of Electronic Devices and Equipment for Recording Taxes and Other Payments” (hereinafter - Cabinet Regulation No 282 of 2 May 2007) stipulates that these rules shall provide:
- procedures for the use of electronic devices and equipment for recording taxes and other payments;
- users of electronic devices and equipment for recording taxes and other payments;
- the types and particulars of documents evidencing transactions;
- the responsibilities of users and service providers of electronic devices and equipment for recording taxes and other payments;
- the procedure for registration of electronic devices and equipment, their users and service providers in the unified database (register) of the State Revenue Service (the unified database of the State Revenue Service is a component of the Tax Information System and the State Revenue Service is its administrator);
- procedures for the supervision and control of the use, users and service providers of electronic devices and equipment for recording taxes and other payments.
In accordance with Paragraph 2 of the Cabinet of Ministers Regulation No 282 of 2 May 2007, to ensure the registration of taxes and other payments, taxpayers shall register payments received for transactions in cash, by payment cards or other proof of payment (gift cards, cheques, vouchers and similar proofs that a transaction has been settled) using electronic devices and equipment for recording taxes and other payments - cash registers, cash systems, specialised devices and equipment.
Paragraph 54 of Regulation No 282 of the Cabinet of Ministers of 2 May 2007 stipulates that taxpayers shall certify the payment received for transactions by a document confirming the transaction - by a cash receipt or, in accordance with the procedure referred to in Paragraphs 70, 71, 72 and 73 of these Regulations, by a numbered receipt registered with the State Revenue Service (hereinafter - registered receipt) or by a numbered ticket registered with the State Revenue Service (hereinafter - registered ticket), or by another document confirming the payment specified in these Regulations.
Taxpayers who may not use cash registers, cash systems, specialised devices or equipment for recording taxes and other payments are defined in Paragraphs 70, 71 and 72 of Cabinet of Ministers Regulation No 282 of 2 May 2007.
In accordance with Sub-paragraph 70.1.1 of the Cabinet of Ministers Regulation No 282 of 2 May 2007 taxable persons may not use cash registers, cash systems, specialised devices or equipment to record taxes and other payments when receiving payment for transactions in cash. Paragraph 61 a registered receipt for services rendered outside the place of permanent establishment (establishment), in the manner prescribed above, if payment is received at the place where the services are rendered.
Sub-paragraph 70.1.3 of Cabinet of Ministers Regulation No 282 of 2 May 2007 stipulates that taxable persons may not use cash registers, cash systems, specialised devices or equipment to record taxes and other payments when receiving payment for transactions in cash. Paragraph 61 a registered receipt for services rendered at the permanent establishment (unit), made out in accordance with the above procedure, if the average monthly cash receipts do not exceed six monthly minimum wages. The average monthly cash receipts shall be calculated by dividing the total of the cash receipts in the three preceding calendar months by three. If the average monthly cash receipts exceed six minimum monthly wages for two consecutive months, the cash register, cash system, specialised device or equipment shall be put into operation within the following month.
Accordingly, the taxable person must record the cash payment received for the supply of goods or services by means of payment cards or other proof of payment in a cash register, cash system, specialised device or equipment. A cash register, cash system, specialised device or equipment may be dispensed with in the case of a transaction evidenced by a receipt numbered and registered with the State Revenue Service in accordance with the procedure referred to in Paragraph 61 of Cabinet of Ministers Regulation No 282 of 2 May 2007, for services rendered outside the permanent establishment, if the payment is received at the place where the services are rendered and for services rendered at the permanent establishment, if the average monthly cash receipts do not exceed six minimum wages.
Given the wide range of uncertainties surrounding the use of cash, it is not possible to describe all the options. I will therefore answer other questions in the following articles.
Avots: www.ifinanses.lv
