EMCC European Monitoring Centre on Change

Latvia: ERM comparative analytical report on Public support instruments to support self-employment and job creation in one-person and micro enterprises

  • Observatory: EMCC
  • Topic:
  • Published on: 12 January 2012



About
Country:
Latvia
Author:
Raita Karnite
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

Public support to self-employed and micro enterprises increased after 2008. Before 2008, self-employment enjoyed reduced personal income tax and special terms for social insurance payment. Micro enterprises could benefit from support instruments for SMEs, including EU Structural Fund’s programmes. On 23 October 2009, the government adopted Conception on measures for supporting micro enterprises. Implementation of envisaged measures began in 2009. Amendments were made in business legislation aimed at making it favourable for micro business. However, also several unfavourable changes were introduced in the general business environment at the same time, thus making operation of micro enterprises difficult.

QUESTIONNAIRE

Part 1: Overall policy context

1. General policy approach in the area of self-employment, one-person and micro enterprises at the national level


1.1. Has there been a policy focus/debate on the specific challenges facing entrepreneurship as tool for job creation before the global recession? If so, since when and for how long?Methodological note:

Adjusting to the Latvian situation, in the tables below ‘hiring the first employee’ is understood as creation of a new enterprise, and ‘hiring additional employees’ is understood as development of existing enterprises.

Criteria for micro enterprise in Latvia: 1-9 employees, turnover not more than € 2 million, balance sheet value not more than € 2 million, as defined in the Law On control of aid for commercial activity, Regulation of the Cabinet of Ministers of 25 November 2008 Regulation on the order how commercial enterprises may declare themselves for small (micro) and medium-sized commercial activity, and EC Directive 800/2008.

Different standards are used for identification of micro enterprises for the support programmes, as described below.

In terms of Latvian business legislation ‘for profit’ enterprises are named ‘merchants’. According to the Commercial Law:

‘A merchant is a natural person (individual merchant) or a commercial company (partnership and capital company) registered with the Commercial Register.

Commercial activity is an open economic activity, which is performed by merchants in their name for the purposes of gaining a profit. Commercial activity is one of the types of entrepreneurial activity.

Economic activities are any systematic, independent activities for remuneration.’

Table 1: Presence of policy focus/debate on entrepreneurship as facilitation for job creation before the crisis
 

Yes, continuously since 1990? (Please indicate year)

Yes, on and off in the last 10 years

(Please indicate ‘X’ where it applies)

Yes, has been in focus, but since xx it is no longer part of the policy focus (Please indicate year)

No, it has never had policy focus before the recession

(Please indicate ‘X’ where it applies)

Self-employment

Since 2005.

     
Hiring the first employee

Since 1995.

     
Hiring additional employees/creating additional jobs in micro enterprises

Since 1995.

     


1.2. What is the main focus in policy documents or strategies in relation to public or social partner based support instruments for fostering self-employment or job creation in one-person and micro enterprises? (Please indicate ‘X’, multiple answers possible)

Table 2: Main focus in the policy documents or strategies
 

Entrepreneurship (Business development in general)

Job creation (Employment)

Growth (Competitiveness)

Others (please specify)

Self-employment

X

X

   
Hiring the first employee

X

X

   
Hiring additional employees/creating additional jobs in micro enterprises

X

X

X

 

1.3. Please elaborate on the answer given above (with a focus on those developments aimed at employment creation and growth) and indicate if the financial recession has caused a change of focus:

Debate on the development of SMEs is active since 1990. SMEs were considered as main structural part of the national economy. The majority of promoting economic policy measures have targeted SMEs. In 1995, the first development programme for small and medium-sized businesses was drafted. Since 2003, the state support is regulated by the Law On Control of aid for commercial activity. Legislation developments have permanently been on the agenda, yet a general approach was used in these programmes. Recently emphasis has increased on the micro enterprises. A comprehensive Conception on measures for supporting micro enterprises was adopted on 30 October 2009.

SMEs and also micro enterprises are seen as major employer in towns and rural locations. Expectations regarding job creation by self-employment and micro businesses increased in end of 2008 and 2009, when unemployment level reached 20%.

Economic growth and increasing competitiveness is also discussed, but there is no evidence that more micro firms would improve growth.

Information on support programmes for self-employment and micro enterprises is available in internet:


Table 3: The policy content and significance of the financial recession
Self-employment
Elaboration of content (please describe and also indicate whether it is treated explicitly/implicitly)

Measures developed by the Ministry of Economics (administered by LIAA) in framework of EU funds (recent - EU Social Fund (ESF) programme Support for starting self-employment and entrepreneurship), on the basis of Micro loans programme developed by LHZB (Department of Support programs ALTUM, see more in http://www.altum.lv/public/)):

Training, consultation and financial support for starting self-employment and commercial activity (from 09.05.2006 to 31.10.2008 - expired) – first stage,

Support to persons who start entrepreneurship or self- employment. (Starting Programme, ESF) – second stage ((See in EEO Review: Self-employment, 2010. Latvia and LHZB web site).

Special support programme Measures for starting commercial activities or self-employment for unemployed persons, provided by NVA on the basis of European Social Fund, ESF) - includes assistance in elaboration of business plans and first grant for the best business plans.

Special features in tax regime (licence fee, special terms for social security contributions) and privileged bookkeeping for self-employed (also lower personal income tax until 2009).

Support programmes from other financial institutions: Atspēriens (Swedbank and Riga City Council), providing starting capital for beginners in Riga, Brigāde, providing funding for implementation of creative ideas and formation of the Contemporary Art Centre in Riga.

The problem is treated implicitly (self-employment and SME business together, except special taxation terms and bookkeeping norms).

Change due to the financial recession

Please tick:

Yes: ☑

No: □

If ‘Yes’, please elaborate:

More expectations on employment effects.

Hiring the first employee
Elaboration of content (please describe and also indicate whether it is treated explicitly/implicitly)

Relevant target in Latvia – promoting starting business activities.

Conception on measures for supporting micro enterprises (See in EEO Review: Self-employment, 2010. Latvia and Ministry of Economics web site).Main direction of activities regarding the first employee: to lower costs of starting commercial activity in micro enterprise. In 2010, state duty for registration in the Commercial Register was reduced by 50%, minimum equity capital normative was reduced from € 2,846 (LVL 2,000) to € 1.42 (LVL 1). The problem is treated explicitly (aimed at micro enterprises only).

Programmes, developed by LIAA (operating under Ministry of Economics):

Informing on starting of entrepreneurship and business environment in Latvia – one of LIAA core functions,

Business incubators (funded from ERDF and on the basis of loans programme Support for increasing competitiveness of merchants of the LHZB) (See more in EEO Review: Self-employment, 2010. Latvia and LIAA web site), aimed at creation of nine privately operated business incubators.

Measures developed by the Ministry of Economics (administered by LIAA) in framework of EU funds (recent - EU Social Fund (ESF) programme Support for starting self-employment and entrepreneurship), on the basis of Micro loans program developed by LHZB (Department of Support programs ALTUM, see more in http://www.altum.lv/public/)):

Training, consultation and financial support for starting self-employment and commercial activity (from 9 May 2006 to 31 October 2008 - expired) – first stage,

Support to persons who start entrepreneurship or self- employment. (Starting Programme, ESF) – second stage (See in EEO Review: Self-employment, 2010. Latvia; and LHZB web site).

Special support programme Measures for starting commercial activities or self-employment for unemployed persons, provided by the NVA (operating under Ministry of Welfare) on the basis of European Social Fund, ESF) - includes assistance in elaboration of business plans and first grant for the best business plans.

Other measures – guarantees, mentoring, seed and starting money etc. available in general order (see more in LIAA web site).

The problem is treated implicitly (self-employment and SME business together).

Change due to the financial recession

Please tick:

Yes: ☑

No: □

If ‘Yes’, please elaborate:

More expectations on job creation and employment effects, main measures introduced in 2010.

Hiring additional employees/creating additional jobs in micro enterprises
Elaboration of content (please describe and also indicate whether it is treated explicitly/implicitly)

Relevant target in Latvia – promoting development of business activities.

Conception on measures for supporting micro enterprises (See in EEO Review: Self-employment, 2010. Latvia and Ministry of Economics web site).Main directions of activities regarding performance of micro enterprises: to introduce a micro enterprises’ friendlier tax policy, to enable micro enterprises to do bookkeeping by their own resources (simplified income statements, access to accounting computer software), to ensure access to funding for micro enterprises, to ensure sound access to information.The problem is treated explicitly (aimed at micro enterprises only).

Programme for promotion of competitiveness of entrepreneurship and innovation for 2007 – 2013 (adopted on 28 June 2007), aimed at increasing competitiveness, innovation and development of industry; describes planned measures for 7 years’ period (see more in: http://www.likumi.lv/doc.php?id=159798).

Loans programmes, developed by LHZB (Department of Support programmes ALTUM, See more in http://www.altum.lv/public/). Actual programmes are:

Support programme for improving of merchants’ competitiveness (cofinanced by ERAF), started in May 2008,

Micro loans programme:

Support for starting self-employment or commercial activity, tied to the ERAF programme Support for starting self-employment or entrepreneurship (administered by LIAA, see above),

Micro loans programme for small and medium-sized enterprises,

SMEs growth loans programme tied to the Regulation of the Cabined of Ministers on Loans for promoting of development of micro, small and medium-sized enterprise and agriculture service cooperatives,

Micro loans programme in frameworks of cooperation programme between Latvia and Switzerland (starts in Q3 2011 for four years).

Support measures provided by LIAA (operating under Ministry of Economics):

Support for incentives to rise motivation for innovation and entrepreneurship (ERDF) (Ministry of Economics, See in EEO Review: Self-employment, 2010. Latvia and LIAA web site), includes measures to improve business education in schools, support for mentoring programmes for entrepreneurs, competition of business ideas’ Biznesa kauss (three best idea’s receive prizes € 1,423 – € 7,114 (LVL 1,000 – LVL 5,000) ranged according the score),

Support for investment in micro, small and medium-sized enterprises in specially supported territories (see in LIAA web site).

Other measures – guarantees, risk capital, export promotion measures (external marketing) available in general order (see more in LIAA web site).

The problem is treated implicitly (self-employment and SME business together, development and competitiveness in general, is not focused specifically on expansion and job creation).

Change due to the financial recession

Please tick:

Yes: ☑

No: □

If ‘Yes’, please elaborate:

Increasing attention to micro enterprises, yet more focus on establishing of micro enterprise, less on factors creating favourable conditions for operation of micro enterprises (markets, consumers demand, costs of resources and infrastructure).

2. Disincentives for self-employment and job creation


2.1 Have public measures (e.g. with the aim to increase public revenue or cut public spending) led to disincentives for self-employment or job creation in one-person or micro enterprises before the financial recession? (Please briefly describe the major developments/initiatives (max. 300 words)

Before the financial recession, less attention was paid explicitly to the self-employment and one-person or micro enterprises. As described above, SMEs have been a permanent subject of economic policies. Micro enterprises were tackled implicitly as a part of the totality of SMEs. Self-employment was desirable but not specifically promoted. Instead, some improvements were introduced in general economic environment (ex. reduced company income tax).

Fast economic development since 2004 provided increasing budget income, austerity measures were not on agenda. However, adopted support measures for SMEs were only partly implemented (see: EEO Review: Self-employment, 2010. Latvia). Some of them were incorporated in EU Structural Funds programmes, yet this framework caused some conditionality. Amid the pressure of employers’ organisations, personal income tax rate was reduced to 15% compared to normal rate 25% and favourable terms for social security contributions were introduced for self-employed.

Restrictive measures were not applied either. Disincentives for self-employment or job creation in one-person or micro enterprises could arise from lack of resources and economic stability; and eventual preference of one or other kind of activity (wage work or own business) for each single individual.

Privatisation, fast development of service and financial sectors, improving market capacity together with support measures for SMEs promoted transition from large scale enterprises to SMEs and self-employment in some professions (construction, creative industries, and business services).


Statistical note

Official statistical data on company structure in 2010 is not yet available. In 2009, there were almost 115,000 micro enterprises in Latvia or 90% of all market companies. 7.9% of the total number of market companies were small companies and 1.6% were average sized companies. This way 99.7% of the total number of market companies were SMEs in 2009 (99.5% in 2007). Only 0.3% or 351 companies were large (source: Central Statistical Bureau of Latvia, Company register).

The Ministry of Economics inform, that there were around 71,000 economically active individual merchants and companies in 2009 (farmers’ and fishers’ enterprises and self-employed are excluded). Of these 99.5% met SMEs criteria. Of the totality of economically active merchants, 82.6% were micro enterprises, 14% small enterprises, 2.9% medium-sized enterprises and only 0.5% were large (source: Report of economic development of Latvia. Ministry of Economics, Riga, December 2010, p.116 (in Latvian)).


2.2 Have public measures (e.g. with the aim to increase public revenue or cut public spending) led to disincentives for self-employment or job creation in one-person or micro enterprises as a result of the financial recession? (Please describe – max. 300 words)

Since autumn 2008, when the government asked the International Monetary Fund and the European Commission for help in stabilising its financial system, a stringent austerity programme is being rapidly implemented (LV1101019I). The consolidation measures were implemented in the national budget twice in 2009 – by € 71 million and by € 711 million; by € 711 million (4.2% of GDP) in 2010 and by € 426 million (more than 2% of GDP) in 2011. In the first two years, a decrease in the budget deficit was achieved mainly by reducing expenditures, whereas in 2011 two thirds of the deficit reduction are planned to be achieved by raising taxes. A decline in consumption combined with higher taxes has created a sharp economic decline from which the state has not yet recovered.

Compared with 2008, almost all important taxes are higher in 2011. The government introduced a new company car tax and revised the tax advantage of self-employment – personal income tax was raised from 15% to the normal rate 26% in 2009. Tax regulations were changed several times per year, and changes are envisaged in future. Instability of economic environment has progressed within recent years. State owned companies are used for revenue creation of the state budget what leads to growing prices of public services and inflation. Energy prices and transport costs, as well as infrastructure costs also increased.

Public sector reforms have facilitated declined consumption. Several schools and hospitals were closed and wages decreased by more than 20% on average. People lost jobs and income, emigration increased.

These reforms have made operation of micro enterprises difficult; nevertheless micro enterprises were intensively created after adoption of the promotion programme in 2009. It remains to see how these enterprises will be after some years.


Statistical note

Changes in main tax rates in 2010 compared to 2008: VAT from 18% to 22%, personal income tax from 25% to 26% and then down to 25%, the employers’ share of the social security contributions from 9% to 11% and the total contribution from 33.09 to 35.09%.

3. Representation of/lobbying for self-employed and micro enterprises


Are self-employed and micro enterprises in your national context explicitly or implicitly (e.g. entrepreneurs or SMEs in general) represented by the following types of organisations (e.g. for lobbying, defending their interest etc.)?

Table 4: Representation of self-employed and micro enterprises
 

Self-employed

Micro enterprises

Employers’ organisations

No.

Yes, implicitly (Latvian Employers’ Confederation (Latvijas Darba Devēju konfederācija, LDDK))

Employees’ organisation

Yes, implicitly (the Free Trade Union Confederation of Latvia (Latvijas Brīvo Arodbiedrību savienība, LBAS), sector or branch level and independent trade unions.

Yes, implicitly (LBAS, sector or branch level and independent trade unions).

Not-for-profit organisations

No.

Yes, explicitly (Confederation of Small and Medium-Sized Enterprises (Latvijas mazo un vidējo uzņēmumu konfederācija, LMVUK)).

Others

No.

No.

Part 2: Identification and description of relevant recent support instruments

1. Selection of region(s) when total coverage of the entire regional and local level is too comprehensive

Table 5: Administrative level/region(s) covered for the following research (max. 50 words per region)

Administrative level relevant for the rest of the questionnaire

National level (includes measure that is implemented regionally).

If a specific regional/local are is selected, please provide the following information

Name of region

 
Motivation for selecting this region

Facts about the region e.g.

- Geographic location

- No. of inhabitants

- Business structure (sector, size)

- Labour market

- Specific characteristics if applicable

 

2. Brief overview of recent instruments to foster self-employment or job creation in one-person and micro enterprises


2.1. Please provide a brief description (max. 800 words) of public or social partner based instruments recently initiated (2008 onwards) to support self-employment and job creation in one-person or micro enterprises.

Table 6: List of recent instruments

Title

Koncepcija par mikrouzņēmumu atbalsta pasākumiem

Conception on measures for supporting micro enterprises

Aim/objective

To create conditions necessary for facilitating people who have lost jobs to start business, to create favourable conditions for development of micro enterprises, to reduce unemployment, to develop entrepreneurs’ skills, thus increasing share of entrepreneurs among population.

Description of support

Five directions of activities:


  1. to decrease costs of starting commercial activity in micro enterprise - in 2010, state duty for registration in the Commercial Register was reduced by 50%, minimum equity capital normative was reduced from € 2,846 (LVL 2,000) to € 1.42 (LVL 1).
  2. to introduce a micro enterprises’ friendlier tax policy – micro enterprise tax and licence fee were introduced in 2010,
  3. to enable micro enterprises to do bookkeeping by their own resources - simplified income statements, access to accounting computer software,
  4. to ensure access to funding for micro enterprises – specific loans programme was opened,
  5. to ensure sound access to information.

Target group

Micro enterprise, as defined in the ‘Conception on measures for supporting micro enterprises’ and ‘Micro-enterprise tax law’: an individual merchant, an individual undertaking, a farm or fishing enterprise, as well as a natural person registered as a performer of economic activity at the State Revenue Service, or a limited liability company, which conform to the following criteria:


  • the participants (if any) are natural persons. The participants of a limited liability company – the natural persons – are also concurrently members of the board,
  • the turnover does not exceed € 99.600 (LVL 70,000) in a calendar year,
  • the number of employees does not exceed five at any time. Absent employees or employees suspended from work shall not be included in the number of employees.

Initiator and other actors involved

Ministry of Economics, LIAA;

LMVUK, supported by social partners - LDDK and LBAS;

Discussion Forum on Small and Medium Size Enterprises;

State Revenue Service (under Ministry of Finance);

State Social Insurance Board (under Ministry of Welfare);

Commercial Register (under Ministry of Justice);

Duration (please also indicate whether the measures has been initiated due to the recession)

Adopted on 30 October 2009. Short-term and middle term proposals, financial calculations for 2010 – 2012, precise duration is not established.

Recession has fostered introduction of measures proposed in the Conception.

Title

Atbalsts pašnodarbinātības un uzņēmējdarbības uzsākšanai

Support for starting self-employment and entrepreneurship

Aim/objective

To increase economic activity by developing knowledge and skills of entrepreneurs in economic activity and providing financial support for starting business.

Description of support

Total funding – € 32.7 million. The programme is tied to the Micro loans programme of the Mortgage and Land Bank of Latvia (Latvijas Hipotēku un Zemes banka, LHZB).

Support includes:


  • loan (90% of the total value of the project) – maximum € 76.800
  • grant for supporting of economic activity – 35% of the loan value, but not more than € 5,122 (after two years of operation),
  • grant for pay off of the loan – 20% of total value of the loan but not more than € 2,845 (after two years of operation),
  • training and consultation (in the course of elaboration and implementation of a business plan) – training according to modules’ principles, 20-80 hours courses, consultations on request will be provided by LHZB).

Target group

Individuals (at least 18 years old) who wish to start entrepreneurship, or have started business within last three years, or existing entrepreneurs who wish to establish a new factory in order to develop new direction in their business

It was planned to provide training for 1,200 participants, and financial support to 600 projects. In May 2011, support for 404 business projects was approved.

Initiator and other actors involved

Ministry of Economics;

LMVUK, supported by social partners - LDDK and LBAS;

LIAA;

LHZB, Department of Support programs ALTUM;

Training companies;

Supported by European Social Fund.

Duration (please also indicate whether the measures has been initiated due to the recession)

From 21 August 2009 to 30 June 2015.

‘Micro loans programme’ of LHZB was started before recession, but intensified and focused more on micro enterprises due to the recession.

Title

Biznesa inkubatori

Business incubators

Aim/objective

To facilitate creation of micro, small and medium-sized businesses, to promote the formation of new, sustainable and competitive enterprises in all regions of Latvia.

Description of support

To create nine privately operated business incubators in order to provide newly established enterprises with favorable business environment and consultation. Enterprises may operate in premises of the business incubator or use its services and facilities.

Target group

New business, not older than two years after the moment when it was registered in the Commercial Register. Services in the business incubator should be available not longer than two years.

Support is not available for certain sectors: agriculture, fishing and aquaculture, coal-mining industry, ships’ building; financial intermediation, trade, commercial services, transport, production of alcoholic drinks and tobacco products, gaming.

Initiator and other actors involved

Ministry of Economics;

LMVUK;

LIAA;

owners and managers of business incubators in regions (higher education institutions, local governments), supported by social partners - LDDK and LBAS;

Tripartite cooperation, including merchant, LHZB and business incubators is being promoted;

Supported by ERDF.

Duration (please also indicate whether the measures has been initiated due to the recession)

From 27 February 2009 to 31 October 2014.

Measure was envisaged before recession but introduction was delayed.

Title

Inovatīvās uzņēmējdarbības motivācijas programma.

Support for incentives to raise motivation for innovation and entrepreneurship.

Aim/objective

To inform and to encourage as large as possible part of population to start entrepreneurship, to raise prestige of entrepreneurship in society, to facilitate understanding about the role and significance of innovation in increasing competition, to inform society about national innovation potential thus encouraging them to focus on innovation.

Description of support

Includes measures to improve business education in schools, intensive training courses, creative days, support for mentoring programmes for entrepreneurs, competition of business ideas’ Biznesa kauss (three best idea’s receive prizes € 1,423 – € 7,114 (LVL 1,000 – LVL 5,000) ranged according the score) and several other measures.

Target group

Students at all levels of general education, vocational education, higher education, potential beginners of entrepreneurship, NGO, people employed in local governments and state institutions and entire society.

Initiator and other actors involved

Ministry of Economics;

LIAA;

Education institutions;

Supported by ERDF;

Duration (please also indicate whether the measures has been initiated due to the recession)

From 3 July 2009 to 31 December 2014.

Measure was envisaged before recession but introduction was delayed.

Title

Latvijas Hipotēku un zemes bankas kreditēšanas programmas.

Loans programmes developed by the Mortgage and Land Bank of Latvia (except the programme on ‘Support to persons who start entrepreneurship or self- employment (Starting Programme)’, described above).

Aim/objective

To improve access to finance for SMEs. Provides implementation of the relevant programmes of the Ministry of Economics.

Description of support

Actual programmes are:


  1. Support programme for improving of merchants’ competitiveness (cofinanced by ERAF), started in May 2008, target group – small, medium and large enterprises, loans provided for investment (up to € 7 million), and working capital (up to € 3.5 million), not more than € 10.8 million for one applicant;
  2. Micro loans programme:
    1. micro loans programme for small and medium-sized enterprises (approved in December 2008): loans up to € 4,268 (all territory) for 5 years, 5-8% interest, reduced commissions, collateral is not requested (140 loans are awarded, € 4,228 on average, total € 592,000, total available amount is € 804,000 – the programme is finished but crediting continues on the basis of repaid resources.
    2. micro loans for promoting of development of micro, small and medium-sized enterprises and agriculture service cooperatives (started in February 2010 tied to the SMEs growth loans program of the LHZB) – loans up to € 427,000 (€ 285,000) for working capital) for 10 years (5 for working capital), 3% + EIRIBOR interest rate, available for production, construction and accommodation activities, 25% cofinancing from applicant, guaranties from EIF (50%) for up to 5 years old micro and small enterprises, pledge 120%.
  3. loans programme in frameworks of cooperation programme between Latvia and Switzerland (starts in Q3 2011 for four years).

Target group

Existing and new enterprises, depending on target groups of support program.

Initiator and other actors involved

Ministry of Economics;

LIAA;

LHZB, Department of Support programs ALTUM;

Duration (please also indicate whether the measures has been initiated due to the recession)

Micro loans programme for small and medium-sized enterprises was opened before recession but intensified due to the recession

Micro loans programme for promoting of development of micro, small and medium-sized enterprises and agriculture service cooperatives was opened in February 2010. Micro business is seen as the way for reducing unemployment that was intensified by crisis and recession.

Title

Atbalsts ieguldījumiem mikro, maziem un vidējiem komersantiem īpaši atbalstāmajās teritorijās.

Support for investment in micro, small and medium-sized enterprises in specially supported territories.

Aim/objective

A specially supported territory, as defined by the Regional Development Law, is a territory where negative trends of economic and social development or one of such trends persist long-term and to which the status of a specially supported territory has been granted by law. The objective of the instrument is to promote economic activity in such territories thus reducing development gaps between regions and territories. Territories for special support are identified on the basis of calculation and a list of such territories for certain time period is approved by the Cabinet of Ministers.

Description of support

The instrument is a measure of the ERDF work programme Entrepreneurship and innovation priority 2.3. Promotion of entrepreneurship measure 2.3.2. Infrastructure and its improvement. The support is long term loans for investment based on the following conditions:


  1. the loan does not exceed 55% of the total project value,
  2. the loan does not exceed € 213,000 for one project,
  3. the applicant should provide cofinancing not less than 25% of the total project value, this sum can not be covered by any other support programme.

The loan should be used for long-term investment into equity and non-material investment.

Target group

Micro, small and medium-sized enterprises in territories for special support.

Initiator and other actors involved

Ministry of Economics;

LIAA;

Local governments;

Supported by ERDF;

Duration (please also indicate whether the measures has been initiated due to the recession)

Until 2013.

Title

Pasākumi komercdarbības vai pašnodarbinātības uzsākšanai.

Measures for starting commercial activities or self-employment for unemployed persons.

Aim/objective

To provide consulting and financial support to enable unemployed to develop his/her own enterprise and thus create new jobs for the unemployed.

Description of support

Consultations (a total of 20 hours over 6 weeks) and assistance in elaboration of business plans in the first-step activities, consultations (another 20 hours) and first grant for implementation of the best business plans (approximately € 2,850), monthly supportive grant in amount of minimum wage for operation of business during the first six months.

Target group

Unemployed people who already have professional higher education or other formal or informal business related education.

Initiator and other actors involved

NVA (under Ministry of Welfare);

Consultants companies;

Supported by European Social Fund;

Duration (please also indicate whether the measures has been initiated due to the recession)

2009, 2010.

The measure has been initiated due to the recession.


2.2. In-depth description of ‘Good Practices’

Table 7: Description of ‘Good Practice’ examples of recent support instruments

Name of the programme/instrument

Komercdarbības uzsākšanas izmaksu samazināšana.

Decreasing costs of starting micro enterprises (first direction of activities of the Conception on measures for supporting micro enterprises).

Is the instrument explicitly addressing any of the following:

Self-employment

Hiring the first employee

Hiring additional employees/creating additional jobs in micro enterprises

Please ‘X’ and/or describe if relevant

 

X

 

Operational level

Local

Regional

National

Please ‘X’ and/or describe if relevant

   

X

Rationale/motivation for the instrument

(please describe)

The conception establishes the target group of the support measures, and this includes limited liability companies. Before implementation of the measure the minimum equity capital of limited liability companies was € 2,845 (LVL 2,000), of which at least 50% should be paid at the moment of registration. State duty for registration was € 142 (LVL 100), and additional € 7.83 (LVL 5.5) should be paid for authorisation of signature. Establishing of enterprise and substantial changes in its equity capital and ownership should be promulgated in official newspaper for charge.

These costs might be obstacles for starting enterprise.

Purpose and aims for the instrument (please describe)

Initiator
Please ‘X’  
Other stakeholders actively involved in implementation (please name them and describe their roles)

Ministry of Economics;

LMVUK, supported by social partners - LDDK and LBAS;

Discussion Forum on Small and Medium Size Enterprises;

Commercial Register;

Target groups        
Please describe the target groups (sector, age, level of education, gender)

Micro enterprise, as defined in the Micro enterprise tax law – an individual merchant, an individual undertaking, a farm or fishing enterprise, as well as a natural person registered as a performer of economic activity at the State Revenue Service, or a limited liability company, which conform to the following criteria:


  • the participants (if any) are natural persons. The participants of a limited liability company – the natural persons – are also currently members of the board,
  • the turnover does not exceed € 99.600 (LVL 70 thousand) in a calendar year,
  • the number of employees does not exceed five at any time. Absent employees or employees suspended from work shall not be included in the number of employees.

Micro enterprise owner is defined as a participant of a limited liability company conforming to the criteria of the micro enterprise, an owner of an individual undertaking, farm or fishing enterprise, an individual merchant or another natural person registered as a performer of economic activity at the State Revenue Service.

Micro enterprise employee is defined as a natural person employed by a micro enterprise on the basis of an employment contract and the micro enterprise owner.

Funding        
Please describe the funding of the instrument/programme (national and European sources, budget available)

Special funding is not envisaged. Approximately € 104,000 will be necessary for implementation of the measure and the expected decrease in revenues of the Commercial Register is € 560,000) (Source: Conception on measures for supporting micro enterprises).

Activities    
Please describe the activities of the programme or institutional initiative as detailed as possible

The Conception envisages several measures:


  • to establish minimum level of the equity capital for limited liability companies equal to € 142.29 (LVL 100) (amendments in the Commercial Law);
  • to establish the state duty for registration in the Commercial Register equal to € 71.14 (LVL 50);
  • to reduce the state duty for authorisation of signature by 50%;
  • to adjust the term ‘economic activity’ in the law On personal income tax and to simplify registration, reporting and income declaration for persons, who perform irregular economic activity and whose income from the economic activity within the year do not exceed 12 minimum wages.

During the implementation phase, these proposals were specified in the Commercial Law. It is established that the minimum amount of equity capital of a limited liability company shall be € 2,846 (LVL 2,000).

However, Section 185.1 Special provisions in relation the amount of the equity capital sets forth that the equity capital of a company may be less than € 2,846 (LVL 2,000), if the company conforms to all of the following signs:


  1. the founders of the company are natural persons, and there are not more than five of them;
  2. the shareholders of the company are natural persons, and there are not more than five of them;
  3. the board of directors of the company consists of one or several members, and they all are shareholders of the company; and
  4. each shareholder of the company is a shareholder of only one such company, the equity capital of which is less than € 2,846 (LVL 2,000).

The law also sets forth special requirements: if the equity capital of a company is less than € 2,846 (LVL 2,000), the company shall, each year, establish a mandatory reserve, making a deduction in the amount of at least 25% from the net profit of the accounting year.

If the equity capital of a company is less € 2,846 (LVL 2,000), the company may disburse in dividends the part from the net profit, which remains after deductions in the mandatory reserve.

If the equity capital of a company is less than € 2,846 (LVL 2,000) and the company does not conform to any sign referred to above, the company has a duty to increase the equity capital up to € 2,846 (LVL 2,000) within three months from the time when the non-conformity with the relevant sign occurs.

When registering such a limited liability company:


  1. the state duty for record in the Commercial Register was established € 21 (LVL 15) and payment for promulgation in official newspaper € 17.9 (LVL 12.6),
  2. it shall be released from payment for registration of increasing equity capital and promulgation of such information and records, which are related to the increase in the equity capital.

Results (Effectiveness)      
Please describe the results e.g. number of beneficiaries, advised enterprises

The Conception on measures for supporting micro enterprises will concern:


  • 32.200 limited liability companies with: total turnover € 593 million, average turnover € 18.400, total number of employed 65,000 people, average number of employed – 2 people,
  • 83,000 individual merchants with total turnover € 526 million (source: Conception on measures for supporting micro enterprises).

Challenges in order to reach the objectives e.g. for the organisation offering the instrument, the entrepreneurs (Please describe); and if available how these have been overcome

Decreased minimum equity capital may encourage the registration of a large number of new enterprises that may become insolvent 3-6 months after establishing due to lack of resources for further operation.

Registration of fictitious and ‘empty’ limited liability companies and creation of networks of such companies is possible, and these networks may be used for tax cheating.

Solutions for these challenges are not envisaged.

Assessments of the effectiveness e.g. investments made in order to reach the objectives of the programme (outcome vs. investment) (Please base this assessment on evaluations when possible)

Effectiveness is not assessed.

Specific investment was not made.

Expected effectiveness – facilitating of entrepreneurship by the condition that less starting capital is needed, administrative burden and costs of starting of business are less for micro enterprises.

Outcomes (Efficiency)  
Increasing self-employment, growth and employment e.g. number of start-up and/or jobs created etc. (please describe, preferably based on evaluations, otherwise on experts’ assessment)

From May 2010 to October 2010, 3,203 enterprises with reduced equity or 52% of total number of limited liability companies were registered in the Commercial Register (source: Report of economic development of Latvia. Ministry of Economics, Riga, December 2010, p.116 (in Latvian)).

Up to the end of 2010, The Commercial Register has registered 4,145 companies with reduced equity capital (the limit is € 1.42 (LVL 1) or 40% of total number of limited liability companies that were registered in 2010. 1,800 new companies appeared after September 2010, when new rule of micro enterprises taxation went into force. (Source: interview published in http://nekrize.lv/maza-biznesa-uzplaukuma-gads/).

Please provide link to evaluation documents if possible

Evaluation documents do not exist.

Example 2:

Name of the programme/instrument

Ieviest mikrouzņēmumiem draudzīgu nodokļu politiku (mikrouzņēmuma nodoklis un patentmaksa)

To implement tax policy that is friendly to micro enterprises (micro enterprises tax and licence fee) (second direction of activities of the Conception on measures for supporting micro enterprises)

Is the instrument explicitly addressing any of the following:

Self-employment

Hiring the first employee

Hiring additional employees/creating additional jobs in micro enterprises

Please ‘X’ and/or describe if relevant

X

X

X

Operational level

Local

Regional

National

Please ‘X’ and/or describe if relevant

   

X

Rationale/motivation for the instrument

(please describe)

Before implementation of the measure tax burden and reporting was high and complicated for micro enterprises. There is opinion that these difficulties might restrain people from establishing micro enterprises, as well as have encouraged them to hide income. In result, the state budget had received little income from micro enterprises. It was expected that establishing special reporting and bookkeeping standards and tax regimes for micro enterprises may improve the situation.

Purpose and aims for the instrument (please describe)

To encourage establishing of micro enterprises and to improve business environment for their operation, simultaneously addressing Principle III of the ES Small Business Act.

Initiator
Please ‘X’  
Other stakeholders actively involved in implementation (please name them and describe their roles)

Ministry of Economics;

LMVUK, supported by social partners - LDDK and LBAS;

State Revenue Service (under Ministry of Finance);

State Social Insurance Agency (under Ministry of Welfare);

Discussion Forum on Small and Medium Size Enterprises;

Target groups        
Please describe the target groups (sector, age, level of education, gender)

Micro enterprise, as defined in the ‘Micro-enterprise tax law’ – an individual merchant, an individual undertaking, a farm or fishing enterprise, as well as a natural person registered as a performer of economic activity at the State Revenue Service, or a limited liability company, which conform to the following criteria:


  • the participants (if any) are natural persons. The participants of a limited liability company – the natural persons –are also concurrently members of the board,
  • the turnover does not exceed € 99.600 (LVL 70 thousand) in a calendar year,
  • the number of employees does not exceed five at any time. Absent employees or employees suspended from work shall not be included in the number of employees.

Funding        
Please describe the funding of the instrument/programme (national and European sources, budget available)

Special funding is not envisaged. Implementation costs in the State Revenue Service are assessed in amount of approximately € 97,000 (Source: Conception on measures for supporting micro enterprises).

Activities    
Please describe the activities of the programme or institutional initiative as detailed as possible

Activities are distinguished in short term and medium term horizons.

The short term plans include amendments in tax and accounting legislation so that to allow:


  1. micro enterprises that are established as limited liability companies may opt for payment of a single tax that includes company income tax, personal income tax, social insurance contribution and risk duty (micro-enterprises tax),
  2. micro enterprises – natural merchants (individuals) who have registered economic activity with the State Revenue Service, perform certain economic activity and do not employ other persons may opt for a single payment – licence fee (includes personal income tax, and social insurance contribution, if they meet certain criteria:
    1. income per year does not exceed VAT threshold (currently € 14.200 (LVL 10,000) per year),
    2. delivers goods and services for final consumption,
    3. other legal acts do not require explicit reporting;
  3. to face simplified registration, accounting and declaration rules for taxation purposes,
  4. to opt for specific tax payment regime (ex. VAT payment once in quarter),
  5. to employ in micro enterprise members of family without work contract so that such work is not classified as wage employment in terms of Labour Law, Law On personal income tax and Law On state social insurance.

Medium term plans include proposals: to increase the threshold for registration as a VAT payer, to introduce reduced VAT rates for locally delivered services (typical field of activity of micro enterprises) (includes coordination with EU regulation), and to simplify VAT payment rules for micro enterprises.

Micro enterprise tax is calculated as 9% of turnover or income from the economic activity and includes:


  • mandatory State social insurance contributions, personal income tax and State fee of the business risk for micro enterprise employees,
  • enterprise income tax, if the micro enterprise conforms to the features of the enterprise income taxpayer,
  • personal income tax of the micro-enterprise owner for the part of the micro-enterprise revenue from the economic activity.

Licence fee is an option for an individual who performs economic activity in determinate professions or activities. Licence fee is final tax payment that includes: personal income tax and mandatory State social insurance contributions. All social guarantees are provided for people who have opted for licence fee.

Results (Effectiveness)      
Please describe the results e.g. number of beneficiaries, advised enterprises

Expected results are: lower administrative burden, less motivation for illegal activities and cheating of taxes, increasing tax revenues, promoting of certain service sectors that face reduced VAT rates.

Licence fee is available for more than 60 professions (chiefly in crafts). It is specified in groups of professions in amount LVL 30 – LVL 70 (€ 43 – € 100) per month.

Challenges in order to reach the objectives e.g. for the organisation offering the instrument, the entrepreneurs (Please describe); and if available how these have been overcome

Reforms should be made in the State Revenue Service and the State Social Insurance Agency.

Larger companies may try to use the instrument for optimisation of their tax payments. Such cases are already known.

Assessments of the effectiveness e.g. investments made in order to reach the objectives of the programme (outcome vs. investment) (Please base this assessment on evaluations when possible)

Special investment was not made.

Implementation of fixed tax will cost € 95,000.

Outcomes (Efficiency)  
Increasing self-employment, growth and employment e.g. number of start-up and/or jobs created etc. (please describe, preferably based on evaluations, otherwise on experts’ assessment)

Evaluation is not made.

Jānis Endziņš, Chair of the Board of the Latvian Chamber of Commerce and Industry (Latvijas tirdzniecības un rūpniecības kamera, LTRK) has informed in business newspaper Dienas Bizness (on 13 May 2011), that since September 2010 when micro enterprise tax was introduced, about 11,000 payers were registered.

Detailed data will be available after full financial year of functioning.

Please provide link to evaluation documents if possible

Not available.

Example 3:

Name of the programme/instrument

Atbalsts ieguldījumiem mikro, maziem un vidējiem komersantiem īpaši atbalstāmajās teritorijās.

Support for investment in micro, small and medium-sized enterprises in specially supported territories (forth direction of activities of the Conception on measures for supporting micro enterprises)

Is the instrument explicitly addressing any of the following:

Self-employment

Hiring the first employee

Hiring additional employees/creating additional jobs in micro enterprises

Please ‘X’ and/or describe if relevant

 

X

X

Operational level

Local

Regional

National

Please ‘X’ and/or describe if relevant

 

X

X

Rationale/motivation for the instrument

(please describe)

Micro crediting has benefited the development of economic activity. Several loans based support programmes have been developed in Latvia, but the majority of them are not appropriate for small enterprises because of their specific features: high risk level, lack of guaranties and credit history.

In 2009, the Ministry of Economics elaborated a proposal that micro, small and medium-sized enterprises and agriculture cooperatives that have sound business plans but are not appropriate for large scale loans, will be able to receive smaller loans for working capital and investment purposes.

Purpose and aims for the instrument (please describe)

To improve access to financial resources for establishing of small scale entrepreneurship and to facilitate economic development.

Initiator
Please ‘X’      
Other stakeholders actively involved in implementation (please name them and describe their roles)

LIAA;

LHZB;

Local governments;

Target groups        
Please describe the target groups (sector, age, level of education, gender)

Micro, small and medium-sized enterprises and relevant agriculture cooperatives. The activity should be developed in the specially supported territories. Certain sectors and economic activities are not eligible for loans.

An applicant should meet the following criteria: it is merchant registered in Latvia, more than 75% of its equity capital is private, and it meets the criteria of micro, small or medium-sized merchant as set forth in Directive 800/2008 of the European Commission.

Funding        
Please describe the funding of the instrument/programme (national and European sources, budget available)

The programme is financed from ERAF, total funding is € 21.2 million. The implementation is based on loans from LHZB and supported by crediting resources from European Investment bank and other banks.

Activities    
Please describe the activities of the programme or institutional initiative as detailed as possible

The instrument is one of the activities of the ERAF programme Entrepreneurship and innovation. Special regulations of the Cabinet of Ministers determine the terms of the support. These regulations were amended in 2010:


  1. individuals who wish to start entrepreneurship are eligible for loans (before only merchants that are registered in the Commercial Register),
  2. also residents of Riga city are eligible for loans (before only residents outside Riga were eligible).

On the basis of relevant regulation, adopted in the Cabinet of Ministers in September 2010, LHZB started a Growth loans programme for SMEs. It is connected to the activity of the European Structural Funds.

Results (Effectiveness)      
Please describe the results e.g. number of beneficiaries, advised enterprises

The target indicators for the period to 2013 regarding the connected EU Structural Funds activity are:


  • 360 micro and small merchants and 71 medium-sized merchants have received funding,
  • number of economically active merchants per 1,000 population has increased up to 32,
  • up to 2013, private funding for development of commercial activity will reach € 27 million,
  • up to 2013, merchants that were supported by the programme will increase their turnover during two years of their operation by 20%.

Challenges in order to reach the objectives e.g. for the organisation offering the instrument, the entrepreneurs (Please describe); and if available how these have been overcome

Development perspectives after support programme – small markets.

Assessments of the effectiveness e.g. investments made in order to reach the objectives of the programme (outcome vs. investment) (Please base this assessment on evaluations when possible)

In the period May 2008 – March 2010, nine calls for applications have resulted in 194 approved projects. Loans per project vary from € 5,700 to € 890,000.

Outcomes (Efficiency)  
Increasing self-employment, growth and employment e.g. number of start-up and/or jobs created etc. (please describe, preferably based on evaluations, otherwise on experts’ assessment)

Evaluation of efficiency is not made.

Projects envisage the creation of new jobs, opening of new premises and production facilities, consultation services and other economic activities outside Riga.

Please provide link to evaluation documents if possible

Evaluation documents are not available.

Part 3: Annex: Update on recent self-employment study

Table 8: Additional information on specific instruments to the EEO national report on self-employment:

Title of the instrument

 
Additional information

Table 9: Please add any other comments to the EEO national report on self-employment:

One measure from the scope that is described in EEO Review is completed (micro enterprise tax) and one is not described in the report (loans for micro-enterprises in specially supported territories), but these measures do not concern self-employment.

Table 10: Please indicate ‘X’ if you have no additional information to the EEO national report on self-employment:

Please indicate ‘X’ if you have no additional information to provide

X

Commentary

The Government has based its strategic plans for recovery of the Latvian economy on micro business and self-employment. This explains why support programmes, many of which stagnated before crisis, were activated during the recession, despite the austerity regime. Indeed, support programmes helped to switch some part of unemployed into economic activity. Funding from the support programmes for self-employment and micro enterprises (including EU Structural Funds) have accelerated economic activity in recent years and provided income for people who suffered from the crisis. However, the business environment in general is not favourable for micro business. This may hinder development of established businesses and repayment of loans after expiring of support. The shadow economy is high, and risk that liberal administrative setting will be wrong used is high.

RAITA KARNITE, EPC Ltd.



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