In the face of the day-to-day acute needs of entrepreneurs in financial accounting and annual reporting, we have found that, especially in situations where the public needs additional external funding, such as Altum funding to cope with a Covid-19 pandemic crisis or a bank loan, or even to receive a lease for the purchase of new production equipment or a car, it is refused mainly, but not exclusively, for the following reasons:

• There are problems with capital adequacy;
• There are problems with obtaining sufficient funding;
• There are problems with providing liquidity;
• There are problems with the fact that the company has a profit, but there are no free funds to carry out the co-financing set by the creditor;
• There are opportunities to receive various EU funds and state-supported funding programs, but this is denied due to various obstacles;
• Management wants to make certain investments to acquire new fixed assets, but cannot make a decision because it does not understand their payback period;
• There is a constant lack of funds to cover creditors’ debts;
• The annual report has been prepared and submitted without taking into account the above and other issues;

The reasons can be different and depending on the specific situation. We are a qualified team of specialists and ready to delve into any financial reporting situation to find opportunities to improve them, simply by sometimes preparing them correctly, transparently and understandably, so that our clients with such reports can receive the necessary external financing for business operations and development.

Apply to us here – on our website and receive advantageous offers for cooperation and solutions to your accounting and financial accounting and reporting issues!

Faced with an urgent need of businesses for daily financial accounting and preparation of annual reports, we found that, especially in situations where companies need to attract additional external financing, such as obtaining a bank loan, increasing an existing credit line or leasing a new car, it is denied mainly, but not exclusively, for the following reasons:

• Problems with capital adequacy;
• Problems with obtaining sufficient funding;
• Problems with provision of liquidity;
• Problems caused by the fact that the company has profit, but there is no free funds to implement the co-financing established by the lender;
• There are opportunities to receive funding from various EU funds and government programs, but it is refused for various obstacles;
• The management wants to make certain investments for the acquisition of new fixed assets, but cannot make a decision since they do not understand the payback period;
• There is a constant shortage of funds to pay off debts to creditors.

The reasons can be different and depend on the specific situation. We are a qualified team of professionals, ready to study any situation with financial reporting in order to find ways to improve it, simply by preparing it correctly, transparently and clearly, helping our clients to obtain external financing necessary to support and develop their business.

Contact us here – on our website and receive advantageous offers on cooperation and solving your issues of accounting and financial reporting!

From the point of view of tax calculation, what is the most seamless way to apply for a loan for a business owner?

It may seem strange, but it is less beneficial to apply for a loan at a rate of 0% than at an interest rate higher than zero. How come?

This is because an interest-free loan from a company is now subject to income tax under the law.

It is one thing to calculate the interest on the loan, quite another to actually pay it. Here, it is desirable to draw up the Loan Agreement so that the interest should be paid at the time when the entire loan is repaid.

It should be remembered that in related party transactions there are significant restrictions on deadline extensions – a loan issued in 2018 and later may not exceed 12 months. And it would be best to repay it at the end of the year in order to reissue early next year – practically creating a kind of credit line. If this principle is not followed, then the so-called “dividend-equivalent costs” will arise and the corporate income tax will have to be paid on the loan amount. Businessmen often forget about it.

P.S. Next time, we will find out how to desirably establish cooperation with the SRS during its audit.

Much has been written about cases where a sworn bailiff’s order is used to block a bank account for individuals. However, due to various violations or even before seemingly suspicious transactions, a company’s account can also be blocked.

For example, if you have not paid your taxes on time, the SRS can ensure that your account is blocked to retain the incoming amounts by sending a collection order to the bank in the amount of a specific unpaid amount of taxes.

You may be subject to recovery from sworn bailiffs, as a result of which your account may be blocked to retain incoming amounts or account balances.

In the meantime, the company has no way to make its daily transfers. It is also not possible to open a new account in other Latvian banks.

Definitely, problems can be solved in the short term by opening an account in other countries, preferably in the European Economic Area. However, the basic problems will have to be solved in any case.

It’s another matter if the account is closed by the bank without explanation.

In our experience, it doesn’t really make sense to ask or pray for explanations, since there are so many other banks both in Latvia and in other European countries!

Banks are trying to “get rid” of the slightest suspicion, because what else to do under the FCMC’s magnifying glass? Thus bankers are slowly becoming tax inspectors here.

What cases do banks find risky? When does your company look like a “shell company” to close?

1 No tax payments

Taxes are paid for a relatively small share of turnover or are not paid through banks at all.

To avoid suspicion, we recommend submitting agreements with cooperation partners to the bank.

2 There are no transfers related to administrative expenses

We recommend that you transfer rent, communications and utilities through the same account through which your actual operating millions pass.

3 Cash withdrawals

This looks like participating in a money laundering scheme, especially if all the money you have just received is withdrawn at once.

We recommend making payments by transfers or payment cards, almost refusing cash transactions

4 Minimum wages

Wages are paid in the minimum amount set by the state or even less.

If you have a valid reason for such wages, warn the responsible bank employee in advance. However, it will certainly not exclude the SRS’s interest in this case, since the shadow economy in our country unfortunately occupies a high level.

5 Doubtful partners

Banks have their own “blacklists” of shell companies and their board members. It will be the safest way to consult with your bank about the reputation of the next cooperation partner in the bank’s circles.

6 Sudden transfer of a large amount

In our practice, there was a case when one of the Latvian banks froze half a million received by a client for real estate for 9 months. It was later unlocked, of course, without explanation.

Therefore, we recommend that you consult your bank before making an unusually large transfer.

For example, a Latvian company received money from a US resident of Delaware in the amount of approximately 5 million EUR as a prepayment for another order, but the bank was not notified. So the money was frozen for 11 months without any explanation. It is clear that the company has become insolvent in the meantime …

Therefore, once again – warn your bank and submit documents proving the origin of money in time!

Think about the sources of money on a daily basis and at every step.

P.S. And next time we will consider with practical examples which tax is more economically advantageous for you: CIT or MET!

Experience has shown that any person who, in the opinion of the inspectors, may be aware of any suspicious transactions, including your current or former employees, may be summoned to the Financial Police as a witness to the auditors or, if criminal proceedings have been instituted, to provide evidence from memory of the specific conditions, partners and course of your company’s business transactions.

Of course, the director and chief accountant are summoned first. Witnesses are summoned to appear or provide explanations during the audit. All evidence is recorded in the minutes.

Some suggestions on what to do when you receive an invitation to visit the SRS or the Financial Police…

1 The summon should not be ignored

Often absenteeism is interpreted almost as proof of guilt. The SRS will start to wonder if your company does operate at all.

And yes… You can also be held administratively liable for not appearing without good reason.

2 Prepare for questions

Most likely, the purpose of the conversation will be to gather evidence of violations with your help. For example, VAT evasion or possible fictitious transactions. Therefore, such questions are most often asked:

How and why did you get acquainted with your cooperation partner?

Who signed the contracts and bills of lading?

How was the product or service delivered?

Where was the product stored?

What are your responsibilities in the company?

What are the sources of funding?

3 Be relaxed

Inspectors or investigators tend to use various psychological tricks to achieve the desired answers. Even intimidate with giant penalties, since for such blackmail they are not held accountable.

You must negotiate with the firm belief that all transactions are in accordance with legal requirements. No violation. No panic.

4 Answer concisely and convincingly

Of course, it is not possible to predict all the questions in advance. In addition, investigators often ask the same question, hoping that you will become contradictory in your imagination. So first of all – don’t rush with the answers. Think carefully. Try not to talk unnecessarily. Every superfluous word may be treated as necessary by the inspectors to the detriment of you.

It is advisable to answer something vague and general rather than to give broad and therefore contradictory evidence. However, it is humane not to remember this … Here will be useful phrases such as:

As far as I remember …

It’s possible that …

Most likely that …

If I remember correctly, …

If I’m not mistaken, …

Remember that you have the right to consult your lawyer before each answer, as well as to request a transcript of the minutes. Your lawyer may take part in any such conversation. If you understand that the case is probably serious, be sure to come to the interview with the lawyer.

5 Check the minutes

Carefully read the minutes so that SRS officers do not have the opportunity to interpret the inspector’s writing at their own discretion later. Delete easy to misunderstand phrases.

If possible, have the minutes read by the lawyer before signing. He won’t be as worried as you.

Before going to the SRS, we recommend discussing the desired answers to the interrogator’s questions with employees or suppliers, as well as discussing potential risk topics with your accountants and lawyer.

P.S. And next time we will talk about the most dangerous tax reduction schemes that should be avoided, since there is completely legitimate methods!

There are six important things to every employee – whether you are an entrepreneur, a civil servant or a teacher… If you do not follow them, you are likely to become a tax debtor to the state!

#1
In the Electronic Declaration System (EDS) you can view the projected monthly non-taxable minimum, as well as find the Personal Income Tax and social contributions paid by a particular person by month.

#2
Information on the income of a natural person for a calendar year can be found in the EDS “Statements” section by selecting the option “Prepare a new statement” / “Statement of income of a natural person” and indicating the year for which information is required.

You can ask your accountant for advice, but objectively, the employer’s accountant will not always know the full amount of income a natural person had during the year, as there may already be several sources of income.

#3
According to the established procedure, the SRS forecast monthly non-taxable minimum for each of us is calculated twice for a calendar year – in December of the pre-tax year and in July of the current year. Accordingly, the calculation made in July also provides for the recalculation of the non-taxable minimum, which corresponds to the current situation of a natural person.

# 4
Starting from 1 October 2018, the SRS shall ensure the calculation of the income of natural persons and, upon establishing that the threshold has been exceeded, shall automatically make a note regarding the non-application of the non-taxable minimum by 31 December of the calendar year.

# 5
The aim of the functionality introduced in the EDS is to provide an opportunity for any of us as taxpayers to make a note on non-application of the non-taxable minimum, if income has already reached or will reach the amount above the annual differentiated non-taxable minimum, i.e. in 2020 – 12,000 thousand EUR.

#6
If it is known that the monthly income during a calendar year will exceed 1000 EUR, then it is recommended for any of us to make a note in the SRS EDS system about non-application of the non-taxable minimum in order not to create a tax debt in the future. The main principle to remember is that the lower the income, the higher the non-taxable minimum!

P.S. Next time we’ll talk again on what is useful to you. But now – I invite you to fill in the questionnaire so that we can finally talk about the situation of your company and possible risks from the point of view of accounting! The questionnaire can be found here.

This time, six steps that will be useful for you as a businessman in practical work with buyers (debtors) to prevent the situation when debts are not recoverable and become the object of your company’s corporate income tax.

1 Make contracts beneficial for you

Develop a form of contract acceptable to you and enter into written purchase and sale agreements with regular customers – regardless of other circumstances!

On a rainy day, they will help you understand the basic conditions of the transaction, namely, identify the transaction partner, record contact details, authorised persons, determine the structure of the transaction and, most importantly, the conditions for receiving money and penalties for late payments.

Motivate the buyer! Anticipate the conditions, if the buyer pays within 1-3 days after the transaction, give him at least a symbolic payment discount (usually 2-3%). This will greatly increase the buyer’s willingness to cooperate with you in larger volumes.

By the way, supermarkets that enjoy their position tend to charge 3% if you want to receive payment from them in less than 90 days. It also happens…

If there is a contract and there is a dispute with the buyer over the payment of the debt, any lawyer you hire to help recover the debt will be grateful to you.

2 Offer advance payment terms

When working with one-time buyers and customers, do not allow post-payment conditions! Always write an advance invoice before the transaction and wait for it to be paid, making sure yourself. Check your bank account before issuing a bill of lading for a product or service and issuing the product or service, respectively.

3 Remind about the payment deadline

As the payment deadline specified in the contract approaches, make sure that the sales manager sends a kind reminder to the buyer that the payment deadline is approaching – usually to the responsible person via SMS or e-mail.

4 Send words of gratitude

If the buyer has paid on time, make sure the sales manager sends him a true gratitude! This is especially important, at least at the beginning of the collaboration, because it creates a psychologically pleasant background and a sense that this buyer is valued.

5 Remind of the delay

If the buyer slightly delays the payment deadlines specified in the contract (usually 3-5 days), make sure that the sales manager sends a slightly more direct reminder to the buyer about the late payment, giving an additional 2-3 days to repay the debt without any penalties. This works because, as a result of such a reminder, such debtors usually pay their invoices immediately in 90% of cases.

6 Kindly threaten with collection

If none of the above methods of debt monitoring work and the delay is already more than a month, then consider cooperating with a collection company – preferably with one of the local ones, as they are more flexible in their approach. If the delay in payment lasts for more than 2 to 3 months, the chances of recovering such a debt are usually drastically reduced …

Businessman, please be responsible in working with your debtors! This will contribute to the sustainability of your business.

By the way … Understanding that the real power of businessmen is making deal, we offer our customers the monitoring of these debts as an additional service.

P.S. Next time, you will find out how your doubtful receivables affect the Corporate Income Tax payable to the state budget.

We are often asked how to really assess the reliability of business partners so that they do not “interfere” with VAT surcharges on the part of the SRS. How to protect your business from accidental cooperation with scam firms?

One cannot deny that even public authorities have not finally solved it. For example, currently the SRS has developed a computerised reliability assessment of companies, which can be accessed only through each company on its own through the EDS. At least for now, you won’t get such information about others.

Then, as of 1 January 2018, the registration threshold in the SRS VAT Payers’ Register has been set at 40,000 EUR. Such a condition reduces the risk of shell companies registered in the VAT Register, that is to say, those who do not intend to carry on a genuine economic activity from the outset and which would subsequently be used in VAT fraud schemes.

So use your bootstraps. Every businessman is encouraged to carry out their own checks according to a similar checklist:

Explore databases
When starting cooperation with a new business partner, check at least in the public registers (www.vid.gov.lv, www.lursoft.lv vai www.firmas.lv; sankcijas.fid.gov.lv; google.lv; sudzibas.lv) the compliance of the registration data of the new business partner with the information presented to you, the amount of taxes paid by it to the state budget, the number of its employees and the indicators of the submitted annual report.

Often, suspicious firms exist until the first inspection. They submit their annual reports late or not at all.

Pay attention to the size of the share capital – since it is allowed to start a business with a capital of at least 1 EUR, a large number of doubtful partners will have chosen such minimal investments.

Wonder if this partner is still in the VAT Register? You can check it here.

Visit your partner
Feel free to:
Visit the new business partner at its registered office and/or business address,
Make examination of its warehouse,
* Find out the existence of its fixed assets with which it intends to provide you with services.

For example, if you order booklets, does the supplier have a printing machine and does it employ at least one employee? At least himself, if there are no more.

It may be that the partner’s office does not exist in nature at all – it is just a postal address.

Talk to the official of the new cooperation partner, asking him such questions that may be awkward, such as:

“What will you do if the State Revenue Service summons you to explain this transaction? Will you be ready to provide evidence in person at 1 Talejas Street in SRS premises?”

The answer will allow you to understand whether this will not be the case where “I became an official of the company and signed the transaction justification documents at the request of third parties, I have not performed transactions”, when the SRS will not confirm the right to deduct VAT input to any of the companies involved. Yes, even those who did not work directly with this third-party businessman.

It is known that the SRS will not go deeper and will not look for who these persons are, who perform economic activities in the name and for the benefit of a particular company, since these chain companies are usually not audited. Because what can be charged from them!

Check the invoices carefully
Pay very serious and in-depth attention to invoices or documents justifying the transaction.

Does the delivery invoice mention the carrier and its vehicle? Are all the details accurate?

A real and comical example:
During the audit by the SRS, after getting acquainted with the purchase documents of the goods, it became clear that the issuer of the goods, having indicated its address in the invoice (Riga, 380 Brīvības Street), has made a mistake. This longest street in Riga is divided into 3 sections: Brīvības Boulevard, Brīvības Street and Brīvības Avenue. The numbering of buildings in each subsequent stage is continued from the previous one. In the place where the building is assigned the number 380, the name of the street is not “Brīvības Street”, but “Brīvības Avenue”…

It may seem to you that a person may have such errors, but in the opinion of the SRS, this error in the invoice clearly demonstrates that the issuer of the invoice is a fraudster, if he does not already know his legal address. Accordingly, it testifies to the “formal execution of transaction documents for the purpose of making improper use of the right to deduct input tax”. On the other hand, the buyer, who, when receiving the invoice for the goods, really did not know about such Brīvības Street numbering principle, must now prove that the transaction mentioned in the invoice, despite the irresistible conclusions of the SRS, has taken place.

Foreign investor or fraudster?
Experience shows that in situations when a transaction takes place with a company whose board member is a Belarusian citizen, represented by a Latvian by proxy, and who has a bank account with an Estonian credit institution, something will most often be wrong, although in theory such a situation is possible.

Also, the SRS will unequivocally consider where you have a fictitious transaction. For example, you receive a product from an Italian company (VAT payer), but the CMR transport provider has shown that the product came from Germany. In the opinion of the SRS, this is a clear discrepancy with the invoices issued by the supplier and the documents issued by the transport service provider. Such a product, despite the fact that your company will even resell it to buyers, will be considered as not received from the supplier and therefore it was not possible for you to sell it.

Until recently, it seemed suspicious that counterparty’s account was opened not with a Latvian credit institution, but with Lithuanian Paysera, a Polish, Hungarian or other credit institution. Given the recent trend with us to close accounts with banks, it may soon seem doubtful to have a company with an account with a Latvian bank…

In any case, we recommend building relationships with new partners gradually, just as banks do when issuing loans. Start with smaller orders and only after evaluating the received services increase the volumes!

I hope you found this information helpful.

P.S. Next time, I’ll show you 5 legal ways to save on Corporate Income Tax. Follow the news in Messenger!

#1 Ethical standards

Your accountant may know too much about you … If you are very lucky, a person chosen for a close relationship meets the high professional and ethical standards of an accountant. If not?

Will your trade secrets remain in your office? But maybe everyone will know about them soon?

#2 Negligence

The Z company owner enjoys life with the confidence that a relative, who has been the company’s accountant for 20 years, is already coping with his/her work just perfectly, until one day there is a summon to visit the SRS audit…

What now? The next day, the accountant resigns, and the businessman urgently seeks help from professionals: “Save me, I only have 3 days!”

It turns out that the accounting is not in accordance with the laws and regulations at all… The boss is in serious trouble, but what responsibility can he claim?

#3 Risk of misappropriation

Food wholesaler L., in full confidence in his wife’s sister, puts her bank code calculator at her disposal and entrusts the company’s daily bank payments. Then one day he receives a call from one, the other, the third business partner – payments to them are delayed or are made in smaller amounts.

The director, without pausing to think, pays a surcharge to these callers and thus does not realise that he is facilitating, so to speak, the unauthorised inflow of his company’s funds into the accountant’s personal pocket …

#4 Non-compliance with discipline

If a close and dear accountant regularly arrives at work with great delay, but leaves well before the end of working hours, having lunch for at least two hours during working hours – well, what can he/she be reprimanded for not ruining the relationship? Not even that the reports are submitted to the SRS with a delay of up to two days…

#5 Lack of confidentiality

When meeting with a supplier in business negotiations, the owner of a restaurant chain suddenly realises that the latter knows better than him about the processes taking place in his company. It turns out that his accountant has been on a joint trip with an accountant from that other company, and the supplier has paid for this trip for her… What will happen to her? The relative will not say anything!
How to influence such processes?

#6 Indifference

As usual, every year on December 28, the government provides another “surprise”, adopts new amendments to the tax legislation, but the accountant doesn’t give a hoot about it – he/she does not attend current tax seminars, because it is boring there. How can the businessman be able to influence his/her (non-) education if he/she is to some extent dependent on this accountant’s father?

P.S. In the next letter you will find out what to do if the director is summoned to the SRS for explanations. See you on the Internet!

For some time now, the State Revenue Service has imposed an obligation on all accountants (who are subjects of the Law on the Prevention of Money Laundering and Terrorist Financing) to “block” the transactions of their clients according to certain signs.

Do you know what these signs are?

#1 The Customer is related to persons with whom cooperation with Latvian banks has been terminated

#2 An individual declares income, revenue, savings, assets or changes in their value of suspicious origin

#3 A person sets up several one-person businesses

#4 Incoming transactions make up many small amounts, but outgoing ones make up for large amounts

#5 Buying real estate at an obviously abnormal price

#6 The transaction has no obvious legitimate intent (or connection with personal or business activities)

#7 In one or more transactions, an individual invests cash in a commercial company, pays, lends or borrows from another individual 40,000 EUR or more

#8 Tax evasion

#9 The customer provides unrealistic, confusing or contradictory explanations about the transactions

#10 Account turnover consists mainly of cash transactions

# 11 Problems with customer identification – the customer does not want to provide the usual identification information or provides it in minimal amounts, or provides fictitious information, difficult or expensive to verify, does not provide copies of identity documents; the declared true beneficiary does not correspond to the real one

#12 The customer performs complex or unusual transactions (for which the economic or legal purpose does not have a clear economic or legal purpose)

#13 The origin of the funds used in the transaction is unclear

#14 The parties to the transaction have one address

#15 Suspicious transaction involving a public organisation, association of public organisations or non-governmental organisation (association or foundation)

As you can see, the signs of suspicious transactions are quite vague and easy to misunderstand …

On the one hand, the need to eradicate the shadow economy and suspicious transactions is understandable.

On the other hand, these requirements are contrary to accounting ethics. We are convinced that over time, an accountant becomes the same trustee for a company manager as his family doctor, lawyer or psychotherapist. The customer must be assured of each of these professionals that they will not disclose confidential information and will not rat out at the first opportunity.

Therefore, it is prudent for those outsourced accountants who carefully evaluate each client from the beginning, so that they can trust each other completely after signing the cooperation agreement.

P.S. Next time, let’s talk about what to do if the company’s account has been blocked. See you on the Internet again!