Latvian parliament passed a new law that will create a tax regime designed to lighten the burden of the biggest cost at any startup: employee wages.
The new law creates a flat monthly tax of €252 per employee for startups, regardless of the salary, something that is unprecedented in any EU legislation. Also, for highly qualified employees (those with a PhD or masters degree or 5+ years of experience) a special clause where all their social and personal taxes are covered by the state, and they receive full social benefits.
Because the biggest chunk of costs for startups are salaries, this is amazing news. The total tax burden on those employees is almost equivalent to their net salary cost so this tax regime will result in doubling the runway that a startup has.
To be able to qualify, a startup must meet some criteria: they must have 30,000 Euros or more in early-stage venture capital funding, they have to be less than 5 years old, and less than 200k in earnings in their first 2 years of existence. The requirement of having some early stage investment would be a great way to make sure only those companies that seem good business opportunity by a private investor would get the special tax regime, so that the law will truly help just promising startups.
The law that passed with unanimous support in parliament and will enter into action from 1st January 2017. This is seen an attempt by the Latvian authorities to make the country Latvia an attractive base for startups and making sure that it will become an innovation hub. Latvian authorities are also working on new legislation to legalise ridesharing, proving that they understand that innovative technology startups have the potential to create outstanding economic growth.
If we look at this progress in Latvia, Startup Visa program in Lithuania and the amazing financial support for startups in Poland, one has to wonder, when will authorities in other CEE countries decide to take action to create an environment that fosters innovation and keeps talented people in their countries. Maybe it’s about time we wake them up!