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Financing of Churches

Development of the financing system of religious communities

here is no specific law in Latvia dealing with taxation as regards the churches. The financial and tax issues of the churches are dealt with in many laws and regulations. The development of the (...)

here is no specific law in Latvia dealing with taxation as regards the churches. The financial and tax issues of the churches are dealt with in many laws and regulations. The development of the financing system of religious organisations started first of all in 1998 after the adoption of amendments of Article 6 (Religious organisations and education) of the Law on Religious Organisations, by adding section 5: "(5) The teaching of Christian religion and ethics shall be financed out of the state budget."
Secondly, a certain amount of money was granted to the religious organisations after the Parliament elections in 2002 when "First Party" (Pirma partija) entered the Parliament, becoming a partner of the government coalition. The First Party is doing its utmost to support traditional and other religious organisations. In 2004, the First Party ensured that 1,481,176 lats from the State budget were allocated to the development of the infrastructure of tourism in holy places. Under the aegis of the Party, the churches have received almost 2 million euros from the state and regional budgets. Bigger or smaller sums have been allocated to more than 160 religious organisations (mostly to Lutheran, Catholic, Orthodox, Seven Day Adventist and Old-believer parishes). The allocated funds have been mostly spent for renovation, painting, as well as for installation of sewerage and heating systems in churches.

D 27 September 2012    ARingolds Balodis

Equal treatment and financing of Islam

According to Article 99 of the Constitution of the Republic of Latvia, the state and church are separate. Consequently, state funds should be separate from church financing. There is no uniform (...)

According to Article 99 of the Constitution of the Republic of Latvia, the state and church are separate. Consequently, state funds should be separate from church financing. There is no uniform law in Latvia stipulating the procedure for the payment of church taxes. In Latvia there are no differences as regards the financial policy of the religious communities, regardless of their respective country of origin. So speaking about Latvia we can not notice any difference with muslim religious organisations. Islam enjoys the same mechanisms of financing as other main religions.

D 27 September 2012    ARingolds Balodis

Tax relief for religious organisations

Latvia has a type of indirect financing, e.g. tax-exemption. According to the tax legislation of the Republic of Latvia, religious organisations registered in Latvia in conformity with the (...)

Latvia has a type of indirect financing, e.g. tax-exemption. According to the tax legislation of the Republic of Latvia, religious organisations registered in Latvia in conformity with the applicable legislation have tax allowances when paying real property, value added and company’s income taxes. This can be defined as indirect financing, e.g. tax-exemption model without preference to any specific religious organisation. The main condition is the registration of religious organisations to the Board of Religious Affairs of the Ministry of Justice of the Republic of Latvia.

Real property tax

The real estate of religious organisations (land plots, buildings, and structures) is real property tax-exempt provided it is not used by religious organisation for economic activities (item 4, section 2, chapter 1 of the law On real estate property tax). The use of the real property for charity purposes and for social care is not considered an economic activity; the same refers to the functioning of registered educational institutions preparing theological staff. According to the Regulation No. 131, item 7 of the Cabinet of Ministers, dated April 4, 2000 : "Application instructions of norms specified in the Law On the real property tax", the tax relief is applied only to the estates of religious organisations that are registered in accordance with the Law on Religious Organisations.

Company’s income tax

Religious organisations are not the company’s income tax payers. It is specified in the Law On company’s income tax, chapter 2, section 2, item 7.

Value added tax

In accordance with the Law On value added tax the charitable contribution payments and gratis goods and services (donated) are exempted from the value added tax. When receiving goods or services that have been paid up from foreign financial aid funds, religious organisations are entitled to the preference of the value added tax in accordance with the regulations No.651 of the Cabinet of Ministers, dated August 30, 2005: "The Procedure of application of the value added tax to the import of goods, delivery of goods and procurement of goods in the territory of the European Union and to the services paid from the foreign financial aid funds".
Religious organisations shall account its taxable transactions and the relief from the value added tax is not applicable when religious organisations are performing any kind of economic activity, for example, leasing out premises and receiving charge, providing public catering services for charge, executing commercial trade or performing other taxable transactions. If the total value of taxable goods and services delivered or provided within the last 12 months reaches or exceeds 10,000 lats, the religious organisations, at the latest within 30 days after reaching or exceeding this amount, shall register with the State Revenue Service Registry of the value added tax payers in accordance with Section five of Chapter 3 of the Law. Starting from the registration date, the value added tax related to the economic activities of the religious organisations shall be applied, collected and deposited in the state budget according to the applied legislation. At the same time, the organisation is entitled to receive the deduction of pre-tax as it is stipulated in Chapter 10 of the Law.
Religious organisations registered in Latvia are released from value added tax related to the provision of religious and ritual services (wedding, wedding jubilees, baptism, funeral and other rites). In accordance with the item 19.12 of the Regulations #534 of the Cabinet of Ministers dated July 2005: "The Procedures of application of the norms of the Law On value added tax" the norms of the Law On value added tax are not applied to the religious organisations. When religious organisations procure goods for provision of religious services (for example, candles, ornamental ribbons, etc.) the full price of such goods (including value added tax, that has been already included in the price) shall be paid to the seller or the value added tax shall be paid to the state budget after the importation and putting into free circulation of such goods. The Law does not envisage refunding this tax to religious organisations not registered to the State Revenue Service (SRS) Registry of value added tax payers.

D 27 September 2012    ARingolds Balodis

Religious organisations as a public beneficiary

In accordance with the Chapter 4 of the Law On Public beneficiary organisations, the public beneficiary organisations (PBO) are entitled to receive tax relief specified by the applicable (...)

In accordance with the Chapter 4 of the Law On Public beneficiary organisations, the public beneficiary organisations (PBO) are entitled to receive tax relief specified by the applicable legislation. According to the Chapter 3 of the aforesaid law the PBO’s are associations and foundations having the goal of public beneficiary activities (that is specified either in their articles of association, constitution or regulations), as well as religious organisations and their institutions that are performing public beneficiary activities provided that these associations, foundations and religious organisations have been granted the status of PBO.
The status of PBO is granted by the Ministry of Finance based on the statement of the Public beneficiary commission. According to the information provided at the official website of the Ministry of Finance in 2005, the PBO’s status has been granted to 47 religious organisations. In its turn at the end of 2005, 1,171 religious organisations have been registered with the Registry of religious organisations of the Board of Religious Affairs. The religious organisations that have been granted the status of PBO, in compliance with the Chapter 20 of the Law On company’s income tax can receive donations allowing the donators to be entitled to apply the reduction of the company’s income tax. The aforesaid provision of the Law envisages that the tax payer is entitled to reduce this tax for 85% of the sum donated to PBO but the aforesaid tax deduction for the donator cannot exceed 20% of the total sum of the company’s income tax. The payers of the company’s income tax that have tax debts for previous taxation periods cannot apply the tax deduction relating to the donators having donated to ROs, that have obtained the status of PBO. It should be mentioned that the PBO system does not work very well in connection with religious organisation.

On 2006-07-20, 1,174 religious organisations were registered in Latvia. In accordance with the public information provided by the SRS, the religious organisations have received in 2005 donations reaching the amount of 6,7 million lats. From the aforesaid sum, 2,76 million lats have been donated by anonymous donators and grantors. Last year, the legal persons registered in Latvia donated to religious organizations 1,49 million lats, but foreign legal persons 1,32 million lats. The individuals residing in Latvia donated 594,790 lats, but individuals – non-residents donated 128,420 lats. (Source: "Last year religious organizations received donations of 6,7 million lats" / LETA, May 2, 2006). According to the officially circulating information in 2005 the religious organizations disposed of 7,03 million lats of donations and charitable contributions. The donations indicated for unrestricted utilisation were disposed of the amount of 4,28 million lats, for restricted utilisation – within the amount of 574,090 lats, but 2,18 million lats of donations were used for the purposes they have been donated for. The religious organizations have declared that at the end of 2004, 1,91 million lats have not been spent, but at the end of 2005, 1,58 million lats were not yet disposed.

D 27 September 2012    ARingolds Balodis

Religious organisations release from customs duty on imports

After joining the European Union, the Republic of Latvia has harmonized its national legislation with the European legislative acts. Taking into account the aforesaid, on May 1, 2004 the Law On (...)

After joining the European Union, the Republic of Latvia has harmonized its national legislation with the European legislative acts. Taking into account the aforesaid, on May 1, 2004 the Law On humanitarian aid consignments and the Regulations #64 of the Cabinet of Ministers dated February 23, 1999:"Procedures of issuing and voiding the permissions granted to religious and public organisations (funds) to receive humanitarian aid consignments" have become invalid. Instead of the abolished regulations the new regulations of Cabinet of Ministers #957 dated December 20, 2005: "Procedures of release from customs duty on imports of goods performed by the state budget institutions and public beneficiary organisations" became effective. The aforesaid regulations specify the procedures for the goods imported by the public beneficiary organisations released from the customs duty on imports. In accordance with the item 4 of these regulations, in order to receive the release from customs duty on imports, the religious organisations submits the application related to the every particular consignment and the copies of regulatory documents of the organisation (presenting the originals) to the customs supervision; and in turn the item 7 prescribes that the customs supervision institution adopts the resolution on permission to import goods for charity purposes or for philanthropic reasons by applying the release from the customs duty on imports.

D 27 September 2012    ARingolds Balodis

Religious organisations and the residents’ income tax

In accordance with the item 3 of the section 1 of the Chapter 10 of the Law On residents’ income tax, the justified expenses that are deducted from the annual taxable amount before the taxation (...)

In accordance with the item 3 of the section 1 of the Chapter 10 of the Law On residents’ income tax, the justified expenses that are deducted from the annual taxable amount before the taxation are the sums granted in the form of donation or charitable contribution to the religious organisations having the status of PBO. These amounts cannot exceed 20% of the amount of taxable income. In its turn, the donation for the purpose of this Law is considered to be cash or other items, that the individual – the tax payer – hands over for gratis to public beneficiary organisation, provided that the receiver has no counter-obligations to perform activities deemed to remuneration.

D 27 September 2012    ARingolds Balodis

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