Cash Transactions – Routine or Risk!?

In practice, it has been observed that, particularly due to the impact of the economic crisis caused by COVID-19, many entrepreneurs utilize cash circulation in their business activities without considering the restrictions and consequences that such imprudence can cause.

Section 30 of the Republic of Latvia Law “On Taxes and Duties” establishes restrictions on cash circulation, and its first paragraph states:

 Taxpayers, excluding natural persons who are not individual merchants, shall, by the 15th of each month and in accordance with the procedures established by the Cabinet of Ministers, declare all mutual cash transactions conducted during the previous month (regardless of whether the transaction occurs in a single operation or multiple operations) where the total amount exceeds 1,500 euros. Taxpayers, excluding natural persons who are not individual merchants, are not permitted to conduct cash transactions where the total amount exceeds 7,200  euros (regardless of whether the transaction occurs in a single operation or multiple operations).

In practice, significant administrative liability is prescribed for non-compliance with these restrictions, and it also constitutes a substantial AML risk.

The most significant business operations where cash circulation regulations are not followed, or which lead to non-compliance regarding AML issues, are as follows:

• Receiving loans from shareholders in cash;
• Repaying loans to shareholders in cash;
• Paying dividends to shareholders in cash;
• Significant purchases made via cash advances;
• Increasing share capital with cash contributions;

To mitigate risks, we encourage entrepreneurs to organize their business activities in a way that minimizes cash circulation, unless it is a routine part of the business—such as in retail trade.

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