Luminor reminder for solidarity tax payers

The solidarity tax applies to socially secured persons – employees and self-employed people, whose yearly gross income exceeds 55 000 Euro or the average amount of 4 583 euro per month. Yearly incomes above 55 000 are no more subject to the mandatory state social insurance contributions.

As of this year, one part of the solidarity tax, which is 6% of gross income exceeding 55 000 euro paid by the taxpayers, who applied for II Pillar pension (state funded pension scheme), will be transferred to the chosen II Pillar pension plan. In its turn, another part of 4% will be contributed to the chosen III Pillar pension plan (private pension funds). If a client has no II Pillar pension, all 10% for the amount of annual income exceeding 55 000 euro will be transferred to the client’s chosen III Pillar pension plan.

Make sure you get the most out of it:

​Visit www.latvija.lv to find out, on which of the II Pillar pension plans your saving are currently accumulated and make sure if the actual choice is the best suitable for you.

• Choosing a plan within II Pillar pension, it is advisable to consider the suitability of its investment policy for your age – for clients up to 44 years, active plans with investments in equity up to 75% are usually the most suitable. For clients aged 44 to 54, active plans are also good, but with the investment in equity up to 50%. In its turn, for those who will retire in 10 years or less, we recommend to choose the balanced or the conservative plan.
• You can apply or change your II Pillar pension plan at www.latvija.lv. Learn more on II Pillar pension actual data.

 Chose a plan within III Pillar pension, where the State Social Insurance Agency (SSIA) will transfer 4% of gross income exceeding 55 000 euro:

• The payers of the solidarity tax will have to sign an agreement with a private pension fund, therefore you should carefully choose a bank that you trust and find the most appropriate plan within III Pillar pension with the help of a financial consultant. More information on III Pillar pension.
• The choice must be made no later than within eight months after SSIA has sent a notice to a solidarity tax payer, informing about the necessity to choose a plan within III Pillar pension. In case if no choice is made, the respective part of the solidarity tax will be transferred to the special budget.

III Pillar pension is a private capital, which you can withdraw in full in cash upon reaching the age of 55, as well as you can transfer it to other pension fund, including those outside Latvia. III Pillar pension capital may be inherited.

The administrator of the II Pillar pension can be changed once a year. Upon retirement, this capital may be used purchase life annuity with the most suitable conditions. Moreover, the issue of inheritability of the II Pillar pension capital is actively discussed at the moment. It is planned that the Parliament (Saeima) may adopt the respective law amendments during the third reading, which will make the II Pillar pension capital inheritable as of 2020. Therefore, proper management of your solidarity tax today is a good possibility to ensure welfare in future.

Recently data published by the State Revenue Service show that during the 1^st quarter of this year, 1 138 people achieved one fourth of the 50 000 Euro threshold. According to preliminary estimates, at the end of this year, there might be 4 to 5 thousands solidarity tax payers in Latvia and their average yearly salary may be close to 90 thousand Euro. The average yearly contributions made by these taxpayers additionally to pension insurance capitals will reach 3 500 Euro.