Introducing a bank profits tax in Latvia, effective from the upcoming year
In a significant move aimed at bolstering national security funding, 80 MPs have voted in favour of a new law in its second final reading. This legislation introduces a solidarity contribution or excess profits tax for credit institutions.
The contribution rate for this tax will be 60% of the net interest income for the payment period. However, a discount system is in place to encourage credit growth. If the credit growth rate reaches or exceeds the GDP growth rate multiplied by 2, a 50% discount will be applied. A lower discount of 25% is offered if the credit growth rate meets the GDP growth rate multiplied by 1.75. The maximum rebate for the solidarity contribution is 100% if the credit institution's lending growth rate during the payment period meets or exceeds the GDP growth rate multiplied by 2.5.
The solidarity contribution will apply to credit institutions whose interest income exceeds by more than 50% the average of such income for the 5 financial years from January 1 2018 to December 31 2022. This tax is expected to generate more than €85 million per year in the next two years, with an estimated €93 million in budget revenue expected in 2025 alone.
The solidarity contributions to the budget are still intended to fund growing national security needs in the coming years. The exact use of the tax proceeds and the designated thresholds for excess profits remain to be officially announced.
While general knowledge suggests that such a tax typically involves imposing a special tax on financial institutions’ profits exceeding a normal or historical baseline, further official government or financial regulatory sources will be needed for precise details on these specifics.
This move demonstrates a growing trend towards leveraging tax policy for national security purposes, although the focus of recent legislation has been on restricting tax credits for foreign entities in clean energy or other sectors.
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- The new law, aiming to boost national security funding, introduces a solidarity contribution for excess profits tax, primarily affecting credit institutions in the banking-and-insurance industry.
- The tax rate for credit institutions exceeding the average interest income from 2018 to 2022 is 60% of net interest income, with potential discounts of up to 100% for significant credit growth, as per the new legislation.
- Expected to generate over €85 million annually in the next two years, the solidarity contribution is intended to fund growing national security needs, proving a shift in tax policies towards securing national interests, as seen in the LSM (Legislative, Executive, and Judicial) industry and finance business sectors.
