WORLD TRADE
ORGANIZATIONG/SCM/N/48/LVA
11 February 2000
(00-0531)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Updating Notification Pursuant to Article XVI:1 of
the GATT 1994 and Article 25 of the SCM Agreement
LATVIA
The following communication, dated 4 February 2000, has been received from the Permanent
Mission of Latvia.
_______________
TABLE OF CONTENTS
Page
INTRODUCT ION................................................................................................................... ...............2
STATE AID TO  INDUS TRY .......................................................................................................... .....3
I. AIDS FOR PRIVATIZATION................................................................................................3
1. Tax debt capitalization for enterprises under privatization and privatized
enterprises (thereafter - el igible ent erprises)..........................................................................3
2. Tax extensions for the period up to three years for enterprises under
privatization and privat ized enterp rises.................................................................................4
3. Reduction of previously calculated late fines (up to 100 per cent) for privatized
companies and companies up for privatization......................................................................5
II. STATE GUARANTEE S FOR LO ANS ..................................................................................6
III. STATE CREDITS  (GRANTED OUT OF FOREIGN LOANS OF THE
REPUBLIC OF LATVIA ) .......................................................................................................7
IV. SUPPORT TO SANATION PROCESS FROM PRIVATIZATION FUND
RESOURCES – AD HOC ST ATE AID CASES ....................................................................7
STATE AID TO AGRICULTU RE ......................................................................................................8
I. FINANCING TO GENE RAL SERVI CES.............................................................................8
II. DOMESTIC AID ................................................................................................................ ......9
1. Aid for specific products .................................................................................................... ......9
2. Subsidies not linked to concrete forms of agricultural output............................................11G/SCM/N/48/LVA
Page 2
/g167 TAX RELIEF ..............................................................................................................................1 1
1. The excise tax ............................................................................................................... ...........11
2. The enterprise income tax.................................................................................................... ..12
3. The personal income tax...................................................................................................... ...12
4. The value added tax.......................................................................................................... ......12
5. The property tax ............................................................................................................. ........13
6. The real estate tax (land tax)............................................................................................... ...13
/g167 INVESTMENT SUBSIDIES ............................................................................................................13
/g167 CREDIT GUARANTIES ...............................................................................................................14
/g167 CREDITS ............................................................................................................................... ....14
III. EXPORT SUBSIDIES........................................................................................................... .15
CROSS – SECTOR PU BLIC AIDS ...................................................................................................15
I. REGIONAL  AIDS ................................................................................................................ ..15
II. AIDS FOR SMALL AND MEDIUM-SIZED ENTERPRISES (ENTERPRISE
INCOME TAX RELIEF).......................................................................................................16
III. EXPORT FINANCING AND GUARANTE EING ..............................................................17
1. The operations of the state stoc k company " Latvijas eksportkred īts".............................17
2. Aid for participation in in ternational exhibitions................................................................17
IV. AIDS FOR EXCEPT IONAL OCCURRE NCES .................................................................18
V. AIDS TO COMPANIES WITH FOREIGN CAPITA L PARTICIPATION.....................19
INTRODUCTION
Due to financial constraints and liberal approach to economic policies (the policy of minimum
intervention in business activities), the Republic of Latvia provides very limited financial support toits business sector even for internationally accepted goals of regional development, environmental
protection, research and development.  Therefore the possibility of distortion of competition as a
result of state aids is minimum.
This survey covers all the assistance to the industry and agriculture.  Public expenditures,
credit programmes or tax measures are included in this survey without prejudging whether the subsidy
measure is specific or whether it can be qualified as a general policy measure.
This survey includes financial measures provided at the national level by the Republic of
Latvia.  In cases where aid amounts are very small to have an impact on international trade of goods
and services or where the nature of aid allows to presume that respective measure can’t have
distortive consequences in terms of international competition, only general information is provided.G/SCM/N/48/LVA
Page 3
STATE AID TO INDUSTRY
I. AIDS FOR PRIVATIZATION
General remarks:  With respect to privatization, it must be said that state aid to privatization
can in most respects be compared to aid to industry, because the possibilities which are available
(extension of the term for tax payment by a period of up to three years, capitalization of tax debt) are
mostly used by industrial companies.  That is because it was precisely industrial firms which incurred
major debt in connection with the transformation of the Latvian economy to market principles.
In the area of privatization, companies can receive the following types of support linked to
taxation:
• Capitalization of tax debt.  Privatized companies can capitalize the tax debt that was incurred
prior to privatization (for companies which are put up for privatization, the tax debt which
occurred prior to the filing of the application fo r capitalization may be capitalized).  Along with
capitalization of the tax debt (the principal debt and the sum of the increase of the principal debt1),
previously calculated late fines and punitive fines calculated during an audit can be written off.
• Extension of the term for payment of principal tax debt (as incurred prior to the moment of
privatization) by as much as three years.  Late fines2 (up to 100 per cent) and punitive fines which
have been calculated as the result of an audit can also be reduced in connection with these
extensions (normally this type of state aids is used if enterprise cannot apply for tax debt
capitalization for objective reasons). /this is described below/
1. Tax debt capitalization for enterprises under privatization and privatized enterprises
(thereafter - eligible enterprises).
1. Level of government
Central government
2. Policy objective
Debt capitalization is realized as a one-off measure to assist eligible enterprises to overcome
consequences of the former economic system.
3. Form of the subsidy
Tax debt capitalization
4. Legal basis
Tax debt capitalization is governed by the Law on Taxes and Duties, Cabinet of Ministers
Regulations no.200 of 3 June, 1997.
                                                     
1 The sum of delayed taxes and other payments, including punitive fines, (principal debt) is increased
in concert with the refinancing rate specified by the Bank of Latvia for the period of delay
2 Taxpayers who fail to pay their taxes on time are charged a late fine   --  0.5% of the delayed principal
tax sum for each day that the payment is delayed.G/SCM/N/48/LVA
Page 4
5. Mechanism
For eligible enterprises tax debts (including  interest due calculated according to the
refinancing rate of the Bank of Latvia), accrued till the moment of privatization or  till the moment of
submission of capitalization application (depending on the status of eligible enterprise) are being
capitalized.  For private companies, where state share previously exceeded 50 per cent only debts
accrued when state had a control over enterprise are capitalized.
The following tax debts can be capitalized: VAT, Corporate income tax, excise tax debts as
well as social tax debts if accrued till year 1996.
Capitalization can not be done repeatedly. No capitalization of debts can take place if the
decision on liquidation of the company is taken.
As a result of capitalization, the equity capital of the respective company is increased by the sum of
the capitalized taxes, and the institution which conducts the capitalization becomes the owner of the
respective capital shares.  This gives the state a realistic opportunity to recoup its investment byselling the capital shares on the open market.
The debts are capitalized if the value of assets of enterprise exceeds value of liabilities (except
for capitalized tax debts) and company’s liquidity  coefficient is not less than 1.0, and own funds
coverage is not less than 0.1.
Only audited financial statements are used for the purposes of tax capitalization.In case of privatized enterprises the capitalization of debts is refused if during the period
between privatization and submission of capitalization application tax debts increased by more than10 per cent.
In 1998 tax debt (the principal debt and the increase in the principal debt
3) of privatized
companies and companies that are up for privatization was capitalized at a total sum of
SDR 7.35 million
2. Tax extensions for the period up to three years for enterprises under privatization and
privatized enterprises
1. Level of government
Central government
2. Policy objective
3-year tax extensions are applied as a one-off measure to help enterprises overcome
consequences of the former economic system.
                                                     
3 The sum of taxes, as well as other delayed fees that are to be paid into the budget (the principal debt),
are increased in accordance with the refinancing rate that is set by the Bank of Latvia during the period when the
payments were delayed.G/SCM/N/48/LVA
Page 5
3. Legal basis
Law On Taxes and Duties, Cabinet of Ministers regulations no. 81 dated from
31 March 1995.  On 31 March 1998, the regulations were replaced by the Cabinet of Ministers
Regulations No 113.
4. Form of the subsidy :
Tax extensions
5. Mechanism
The Commission for tax debt payment deferment formed by the Cabinet of Ministers4 has a
right to take a decision to defer tax debt payment for the period up to 3 years, not calculating fine per
cent as well as reducing previously calculated fines up to 100 per cent (see point 3).
Applicant enterprises have to submit audited financial statements, information on creditors
and debtors, current number of employees as well as planned changes in the number of employed,
strategic development plan, proposed tax debt payment schedule, etc.
If the enterprise, which was granted tax extension, doesn’t fulfill commitments in respect to payment
of deferred taxes  (payment schedule), the enterprise commits an offence in the area of taxation, or theincrease of debt to the state budget is observed, Commission takes a decision cancelling tax
deferment, and all due fines are calculated.
Net subsidy equivalent for this state aid measure is calculated as for a soft loan, i.e.
refinancing rate of the Bank of Latvia is compared  to the market interest rate (average commercial
bank lending rate in Latvia).
NSE = sum of principal debt x (commercial interest - refinancing rate of the BoL).
Extensions of up to three years can be applied to the turnover tax, the value added tax, the
profits/enterprise income tax
5, and the social tax debt.
For the year 1998 NSE of tax extensions measure for privatized companies and for companies
that are up for privatization is SDR 873,453.
3. Reduction of previously calculated late fines (up to 100 per cent) for privatized
companies and companies up for privatization
1. Level of government
Central government
2. Policy objective
Fine write-offs are applied as a one-off measure to assist eligible enterprises to overcome
consequences of the former economic system.
                                                     
4 Commission includes representative of the Ministry of Finance, Ministry of Economy, Ministry of
Agriculture, Ministry of Transport, Ministry of Welfare, State Revenue Service and Privatization Agency.
Division of tax payments application (Ministry of Finance) supports the work of the Commission.
5 In 1995 the profits tax was replaced by the enterprise income tax.G/SCM/N/48/LVA
Page 6
3. Legal basis
Law On Taxes and Duties, Cabinet of Ministers regulations no. No.200 of 3 June 1997.  On
March 1998, the regulations were replaced by the Cabinet of Ministers Regulations No 113 of
31 March 1998.
4. Mechanism
Tax-related fines are being written off simultaneously with 3-year tax extensions and tax
capitalization.
For the year 1998 reduction of previously calculated fines in connection with tax extensions is
SDR 3,930.0 thousand.
Reduction of previously calculated fines in connection with tax debt capitalization is
SDR 1,128.3 thousand.
II. STATE GUARANTEES FOR LOANS
1. Level of government
Central government
2. Policy objective
Alleviation of access to financing for enterprises
3. Form of the subsidy
Loan guarantees
4. Legal basis/Mechanism
Planned amount of state guarantees as well as beneficiary companies are included in the
annual Law on State Budget (normally these are guarantees included in public investmentprogramme). No additional guarantees could be gi ven without amending annual Law on State Budget.
The Minister of Finance is entitled to sign guarantee agreements on the side of the government.
Normally no premium payments were requested for state guarantees.
All of the guaranteed credits in the industrial sector are foreign credits with an interest rate of
4.8–8 per cent a year.  These are guarantees that were issued in 1993, and since that time new
guarantees have not been issued in the industrial sector.
At the end of 1998, state guarantees in the industrial sector covered credits worth
SDR 3,424.8 thousand.  State aid in the form of guarantees in 1998 amounted to SDR 131.5  thousand
(calculated as the difference between the commercial in terest rate and the interest rate that is being
paid, multiplied by the sum of the remaining credit sum in the specific quarter)
6.
The only guarantee agreement under the auspices of which the government had to make
payments in place of an enterprise was a 1993 guarantee agreement with the state stock company
                                                     
6   Guarantee premiums were not required.G/SCM/N/48/LVA
Page 7
“Dauteks”.  In 1998 the state made one payment worth SDR 1,024.6 thousand in place of the recipient
of the credit – the former stock company “Dauteks” (as the result of privatization it became “Tolaram
Fibers”).  It must be added, however, that in 1998 the state stock company “Dauteks” repaid part of
this sum - SDR 933,975.  This means that in fact the state paid only SDR 90,659 in place of the
former state stock company “Dauteks.”
It is important to note that foreign credits and guarantees alike have been extended to
implement various viable investment projects.  The point has not been to offer assistance to
companies, which are in a crisis situation.
III. STATE CREDITS  (GRANTED OUT OF FOREIGN LOANS OF THE REPUBLIC OF
LATVIA)
1. Policy objective
To alleviate access to financing to companies
2. Form of subsidy
Preferential loans
3. Legal basis/Mechanism
Planned amount of state credits as well as beneficiary projects are included in the annual Law
on State Budget (normally these are projects included in the Public investment programme).
4. Statistical
Most of the aid to the industrial sector has come in the form of government credits (which the
state borrows from foreign institutions).  The agreements with the foreign entities were signed
between 1993 and 1995.  In 1998, on the basis of previously concluded agreements, the industrial
sector received new credits of approximately SDR 210,079.  All of these are long-term credits at an
interest rate of 7-9 per cent per year.  At the end of 1998, the outstanding credit sums amounted to
SDR 9.9 million. The state aid element in 1998 amounted to SDR 404,902.  It must be remembered,
of course, that this is the maximum theoretical aid, because when the net aid equivalent wascalculated, it was not possible to determine the intere st rates that were set for final beneficiaries.  That
is because the credits were distributed via several different channels.  For this reason interest rates that
were paid by the state or by the initial recipient of  the credit (usually the bank that is servicing the
credit line) were used in the calculations.  The credits went to such industrial sectors as the
pharmaceutical industry, wood processing and food processing.
IV. SUPPORT TO SANATION PROCESS FROM PRIVATIZATION FUND
RESOURCES – AD HOC STATE AID CASES
1. Legal basis
Decision of the Cabinet of Ministers no. 421 ‘’On the programme of expenditures from State
Privatization Fund’’ dated from 24.08.98.
2. Statistical
It can be said that there are virtually no aid projects for specific businesses.  Last year ad hoc
support of this kind was offered only from the resources of the State Privatization Fund – SDR 62,523G/SCM/N/48/LVA
Page 8
went to the stock company “Elektra” to preserve production output and to restructure the company
(rescue and restructuring aid).
STATE AID TO AGRICULTURE
The purpose of state aid in the agricultural sector is to promote the competitiveness of
Latvian-produced agricultural goods, to stimulate the technological modernization of farms, to
encourage a move from extensive production to intensive production, to increase the level of skills
and knowledge among farmers, to improve the scientific system that underpins livestock breeding and
grain farming in Latvia, and to maintain a certain price level for agricultural products (grain).
In Latvia, as is the case throughout the European Union, agriculture is one of the sectors that
receives the greatest volume of government aid.  Information about state aid to agriculture in Latvia
has been prepared on the basis of data from the Ministry of Agriculture, and the various types of aid
have been grouped in concert with the extent to which they have an impact on internationalcompetition.  Data are first presented about those state aid programmes with the least effect on
competition conditions.
I. FINANCING TO GENERAL SERVICES
1. Level of government:
Central government
2. Legal basis
Law on 1998 State budget and Decree of the Ministry of Agriculture no. 398, dated from
24 December 1997.
Procedure Costs in 1998 (,000
SDR), gov. budget
Research programmes financed by state on specific needs related to
agriculture – pedigree work; maintenance of genetic fund and seedbreeding; development of science (technical equipment); centre of
comparing plant sorts, etc.4,968.2
Pest control and disease control related to agro-chemical issues;
improvements of activities in plant protection stations and the State Grain
Inspection389.8
Training and consultation services for farmers; upgrading of training and
methodological work at educational institutions; activities for the EU
integration; etc.1,262.0
Inspection services with respect to seed, food quality, sanitary border
inspection, veterinary medicine; establishment of a unified livestock
register3,330.4
Culture-technical and agro-technological improvement of soils;
maintenance of melioration system; hydrometry and a cadastre for
melioration.3,573.8G/SCM/N/48/LVA
Page 9
Aid in exceptional occurrences when as the result of natural disasters there
is a loss of livestock resources (including veterinary treatment costs for
livestock), land or other production factors125.0
Artificial renovation of private forestry land and forestation of non-
agriculture land 131.3
Support for alternative and non-traditional farming activities;
improvement of hygiene standards in the dairy sector 1,050.4
Total 14,830.9
II. DOMESTIC AID
In second place in terms of the influence on competition is so-called local support for
agricultural production.  Domestic support is suppo rt, which is given to all producers of agricultural
products in Latvia who meet certain requirements and satisfy specific criteria. Although the overall
level of such aid in the Latvian agricultural sector increased in 1998, the government’s policies in thisarea did not change significantly.
1. Aid for specific products
• Subsidies for the production of specific agricultural products
1. Level of government
Central government
2. Legal basis
Decree of the Ministry of Agriculture no. 398, dated from 24 December 1997.Subsidies were given to the following spheres: flax, barley, production of certified seed
breeding material, cattle breeding for meat, potatoes,  sugar beets, protein crops, storage of grain and
vegetables on covered land.
Product Aid in 1998 (,000 SDR), govt.
budget
Flax 337.6
Barley 150.1
Production of certified seed breedingmaterial2,119.5
Potatoes 150.1
Protein crops 237.6
Storage of grain 125.0
Breeding of young animals for meat 725.3
Vegetables on covered land 125.0
TOTAL 3,970.2G/SCM/N/48/LVA
Page 10
3. Support for flax
In 1998 payments of SDR 62.5 per ton of retied flax of quality index No. 0.75, SDR 106.3 per
ton of retied flax of quality index No. 1.0, SDR 112.5 per ton of retied flax of quality index No. 1.25,
and SDR 118.8 per ton of retied flax of quality index No. 1.5 and higher.
4. Support for beer barley
Direct payments for beer barley up to SDR 31.3 per sold ton if the growers of the barley have
produced no less than 30 tons of beer barley of certain quality to processing enterprises.
5. Support for seed material
Payments were made to producers for each ton of high-quality seed that was produced and
sold.  The purpose of the aid was to promote the production of high-quality seed and to improve the
way in which land is used.  This programme was applied to nearly all cultures that were grown in
Latvia, including cereals, legumes, buckwheat, perennial grasses, potatoes, sugar beets, flax, fruit andvegetables.
6. Support for potatoes
Support of SDR 2.5 per ton of sold potatoes with a starch content of at least 15 per cent.  The
payment could be increased if the starch content was higher.  Potatoes had to meet specific general
quality requirements.
7. Support for protein cultures
Subsidies were given to the growers of peas, vetches and their mixtures, livestock feed beans,
livestock feed lupines, rape, turnip-rape (for 00 varieties) provided that certain conditions were met.
The amount of the subsidy was up to SDR 25 per hectare for growers of peas and vetch mixtures; up
to SDR 37.5 per hectare for growers of peas, vetche s, rape and turnip-rape; and up to SDR 43.8 per
hectare for growers of livestock feed beans, livestock feed lupines  and Goat’s rue.
8. Support for the storage of grains
Subsidies were available to all cereal grow ers who stored food cereals that they grew
themselves and that were stored on the property of the growers (or on someone else’s property on the
basis of a contractual agreement).  The subsidy amounted to SDR 1.25 per month per ton (after the
sale of the food cereals), between October and December.
9. Support for cattle breeding for meat
Payments were made for extra-class and first-class cattle (between SDR 37.5 and SDR 150
per animal if the live weight was between 401 and 465 kg, and between SDR 56.3 and SDR 162.5 if
the live weight was above 465 kg).  The differential in subsidies was intended so as to stimulate the
breeding of pure breed animals.G/SCM/N/48/LVA
Page 11
10. Support for vegetables on covered land
Subsidies were available to legal persons with covered land of no less than one hectare and
sold vegetable output of no less than 50 tons per hectare.  The subsidy was SDR 0.63 for each square
meter.
• INTERVENTION PROGRAMME
1. Level of government
Central government
2. Legal basis
Cabinet of Ministers Regulations No.305 of 11 August 1998 .
The market intervention programmes were implemented through the state’s buying grain that
met specific quality requirements from Latvian cereal producers (both natural and legal persons) forset prices.
The intervention price for a ton of grain of proper quality was, in 1998:For wheat – SDR 85, after September 18, 1998 – SDR 92.5;
For rye – SDR 78.8 and SDR 86.3 respectively.
The total amount of money paid out in 1998 from the State Property Privatization Fund was
SDR 2.63 million. However, because the Cereal Trade Agency has the right to sell the grain that is
purchased through intervention mechanism, the actual sum of state aid is much lower.
2. Subsidies not linked to concrete forms of agricultural output
/g167 T
AX RELIEF
In order to promote agricultural production in Latvia, there are various forms of tax relief
stipulated by tax laws:
1. The excise tax
1. Level of government
Central government
2. Legal basis/mechanism
According to the Law On Excise tax, farmers can receive repayment of the excise tax on
diesel fuel that is used in the agriculture.  In order to avoid fraud, the government has specified that
the excise tax repayment can be applied to no more than 120 litres of fuel per year for each hectare of
land on which the farm has ownership, permanent use or leasing rights.  The land measurements must
be affirmed by the chairperson or deputy chairperson of the relevant local government.  In 1998 the
programme cost SDR 12.7 million.G/SCM/N/48/LVA
Page 12
2. The enterprise income tax
1. Level of government
Central government
2. Legal basis/mechanism
The law on the enterprise income tax states that agricultural enterprises can receive tax relief
of SDR 12.5 for each hectare of land that is used in agricultural production.  Of course, the
significance of this tax relief is largely dependent on the income, which the respective producer earns.
If profits are negligible or non-existent, this assistance is of no importance at all.
At this time, agricultural companies that pay the enterprise income tax are using
approximately 1.1 million hectares of land that can be used for agricultural purposes.  This means thatthe maximum reduction of income from the enterprise income tax due to the tax relief given to
agricultural enterprises could be SDR 12.5 million.  In truth, of course, the loss of income is much
lesser.
3. The personal income tax
1. Level of government
Central/ local government
2. Legal basis/mechanism
According to the Law On personal income tax, the owners of farms, household plots, and
farms and fisheries which have not been incorporated as legal persons are exempted from paying the
personal income tax on income which comes from  agricultural production, provided that the income
does not exceed SDR 3,751 a year. “Agricultural production” in this case means crop growing,
livestock breeding, fishing on domestic waters, and gardening production.
According to information from a study by the State Statistical Committee, the lost tax income
may represent between SDR 250,000 and SDR 630,000 a year.
4. The value added tax
1. Level of government
Central government
2. Legal basis/mechanism
According to the Law On value added tax, producers of agricultural output have the right to
receive value added tax relief.  If the value of products produced at the farm for sale or for self
consumption over the previous 12 months has amounted to at least 90 per cent of the total value of
supplied goods and provided services, and if the value of taxable supplied goods and providedservices in the last 12 months has not exceeded SDR 37 500, the farm is exempt from registering as a
payer of the value added tax.  In fact this tax relief is significant only if the products which are
produced are sold to a person who is not a payer of the value added tax.  Otherwise the products are
marked up by 18 per cent before they get to the final consumer and the sale of agricultural products is
not facilitated.G/SCM/N/48/LVA
Page 13
It has been calculated that the national budget in 1998 lost approximately SDR 6 million as the result
of this form of tax relief.
5. The property tax
1. Level of government
Central/local government
2. Legal basis/mechanism
According to the property tax law, property which is used for agricultural operations or which
is intended for such use is not taxed with the property tax.  Budget income from the property tax is
reduced by approximately SDR 0.63 million because of this provision.  Because the law “On the real
estate tax” (which took effect on 1 January 1998) regulates land tax payments till 31 December 2000,then in the transition period two laws are in effect: the old law on the property tax, which regulates
taxation of buildings and structures, and the new law “On the real estate tax”, which regulates land tax
payments.
6. The real estate tax (land tax)
1. Level of government
Local government
2. Legal basis/mechanism
The law “On the real estate tax” provides that local governments can provide tax relief of
25 per cent, 50 per cent and even 90 per cent of the real estate tax sum to specific categories of
taxpayers.  This opportunity was not used very much in 1998, and the total amount of tax relief
provided under this provision in 1998 amounted only to SDR 24,500.
/g167 INVESTMENT SUBSIDIES
1. Level of government
Central government
2. Legal basis
The Ministry of Agriculture, Directive No.398 of 21 December 1997.
3. Mechanism/ statistical
SDR 7.25 million from the budget for the provision of credit subsidies in 1998.
On fulfilling certain requirements, farms received investment refund on average 30 per cent
of the invested amounts in 1998. The amount of subsidies was fixed on the basis of an average
cadastral sample value in a county where the farm was registered. Farmers below 35 of age benefited
from subsidies by 5 per cent of the invested amounts. The amount of subsidies SDR 7.25 million was
distributed among five programmes:G/SCM/N/48/LVA
Page 14
1. Restoration and modernization of fleet of agricultural machinery;
2. Purchase of agricultural land;
3. Construction of buildings for agricultural;
4. Purchase of breeding animals;
5. Laying out of productive animals.
Entitled to subsidies were investments below SDR 125 thousand per one beneficiary per year.
/g167 CREDIT GUARANTIES
1. Level of government
Central government
2. Legal basis
Decree of the Ministry of Agriculture no. 398, dated from 24 December,1997.
3. Mechanism
The total sum of credit guarantees for one recipient of credits who was taking the money to
ensure the production of commodities with export potential could not exceed SDR 87,500, while in
other instances the guarantee could not exceed SDR 62,500.  Guarantees were awarded to farmers forcredits that were intended to purchase equipment, t echnologies or valuable breeding animals, and for
the planting of productive perennials, or the purchase of buildings.
4. Statistical
The Latvian Credit Guarantee Fund (KGF in the Latvian acronym) began operations in 1997.
The responsible legal person for the KGF is the state stock company “Lauku att īstības fonds” (Rural
Development Fund).  In 1998, financing of SDR 1,008.8 thousand was provided from the budget to
supplement the credit guarantee fund.  Of this sum, SDR 705,264 went to producers of agricultural
output, and SDR 300,112 went to the restoration of the Baltic Sea fishing fleet.
In 1998, the state stock company “Lauku att īstības fonds” guaranteed credits for 108 farms,
with a total volume of SDR 1,582,968.   It should be noted that the fund did not have to make a single
payment on behalf of the companies.  In 1999 the Ministry of agriculture has awarded subsidies of
SDR 962,861 which are to go toward supplementation of the credit guarantee fund.  Of this money,
SDR 87,533 is to be devoted to the implementation of the project that is known as the “European
Union experiment project for 1999”.
/g167 CREDITS
1. Level of government
Central
2. Legal basis
Planned amount of state credits as well as beneficiary projects are included in the annual Law
on State Budget (normally these are projects included in the Public investment programme).G/SCM/N/48/LVA
Page 15
Support for agriculture has also been provided  via state credits (which the government, in
turn, borrowed from foreign countries).  Agreements with respect to these credits were signed
between 1992 and 1994.
Net state aid to agriculture from foreign loans amounted to SDR 1.75 million in 1998.  It
must, of course, be taken into account that this is only theoretical aid, because when the net aid
equivalent was calculated, it was not possible to acquire information on the final interest rates that
were set for final users of the credits.  That is because the credits have been distributed via several
different channels.  For this reason interest rates that were paid by the state or by the initial recipient
of the credit (usually the bank that is servicing the credit line) were used in calculations.
At the end of 1998, the volume of outstanding credits amounted to SDR 30.72 million.Finally, it must be noted that on 9 September 1998, a loan agreement was signed between the
International Bank for Reconstruction and Development and the Republic of Latvia on the basis of
which the bank agreed to issue Latvia a loan of SDR 7,907,965 to underpin various rural development
projects.  This money is to be used to award agricultural credits for the purchase of tractors andlivestock, to make investments in small companies, and to provide training for farmers, among other
things.
III. EXPORT SUBSIDIES
1. Level of government
Central government
2. Legal basis
Decree of the Ministry of Agriculture no. 398, dated from 24 December,1997.In 1998 SDR 1,081.7 thousand were used for subsidizing dairy product exports.
CROSS – SECTOR PUBLIC AIDS
I. REGIONAL AIDS
Regions which receive special support
1. Policy objective
To promote development of less – favoured regions
2. Legal basis
Law "On specially assisted regions"
3. Form of the subsidy/ mechanism
Status of a region requiring special support is granted to regions on the basis of specific
criteria (economic and social development, infrastructure indicators, etc.), as well as on the basis of
development plans which are prepared by the regions  and which are evaluated by an inter-ministerialG/SCM/N/48/LVA
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commission.  Right now the maximum number of residents in a region which receives special support
can, according to the law, be no higher than 15 per cent of the total population of the country.
In order to provide real financial support to the regions that receive special support, a
Regional Fund was set up in March 1998, and in that year the fund received SDR 1.25 million for itsoperations.
State aid of SDR 841,816 from the Regional Fund went to cover part of credit interest rates
up to 75 per cent of the average bank credit interest rates in the previous quarter.  In those regions
where the unemployment rate exceeds 20 per cent, or where per capita income tax receipts are below
SDR 31,3 compensation of up to 18 percentage points could be done from the Regional Fund.
Funding of SDR 63,649 went toward economic education programmes, while another SDR
37,500 went toward investments in the equity capital of companies, SDR 8,750 went toward financing
of infrastructure development, and SDR 7,500 was granted to local government programmes aimed at
promotion of business activities.  In total, SDR 959,235  of the Regional Fund’s money was spent in
1998.  Given that these resources were used for more than 80 projects, we see that the actuallyreceived aid was de minimis .
It is planned that in 1999 the Regional Fund will receive SDR 1,244,216 from the
Privatization Fund.
II. AIDS FOR SMALL AND MEDIUM-SIZED ENTERPRISES (ENTERPRISE INCOME
TAX RELIEF)
1. Policy objective
Alleviation of tax burden for SMEs
2. Legal basis
Law on Corporate Income Tax
2. Form of the subsidy
Tax rebate
3. Mechanism:
The tax relief is in the form of a 20 per cent discount on the calculated tax as set out in the
law “On the enterprise income tax”. It is important  to note here that according to that law, only
microenterprises – those in which the average number of employees does not exceed 25 people, the
value of equity resources does not exceed SDR 87,532 and net turnover does not exceed
SDR 250,094– can receive the discount.
In 1998 such aid was granted to 12,7 thousand enterprises worth of SDR 4.25 million.G/SCM/N/48/LVA
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III. EXPORT FINANCING AND GUARANTEEING
1. The operations of the state stock company " Latvijas eksportkred īts"
1. Legal basis
Cabinet of Ministers Regulations no.354 of 17 September, 1996 - Regulations on state aid to
guaranteeing and financing export and import operations
2. Form of the subsidy
Loan guarantees, credits
2. Policy objective
To alleviate access to financing to companiesState aid to export is channelled through the state stock company Latvijas Eksportkred īts.
That institution offers guarantees and credits which can be classified as part of the state’s export aidprogramme.  It should be added that the services which Latvijas Eksportkred īts provides satisfy the
criteria which are set out by the OECD.
In 1998 J.S. company  "Latvijas eksportkred īts" issued credit guarantees for export and
import. The total sum of guaranteed credits outstanding at the end of 1998 was SDR 2.59 millions.
Import guarantees, it should be noted, are provided only for the import of goods that are
classified in one of the following categories: raw materials and spare parts, production equipment.
Guarantees that are issued are usually short-term or medium-term.  In 1998 the premium interest rate
ranged around 2-3 per cent per year.  In short-term guarantee projects the premium rate is applied asan annual rate, while in medium-term guarantee projects the premium is calculated on the basis of the
guaranteed volume.
In concert with guarantee agreements, compensation amounting to SDR 7,639,115 was paid
in 1998, and all of the money was recouped in full.
The credit obligations balance of “Latvijas eksportkred īts” at the end of 1998 amounted to
SDR 466,300, while the state aid equivalent was SDR 1,075.4 thousand.  Mostly these were short-
term credits that have been issued for a period of up to one year, and depending on the term, the credit
interest rates ranged from 11-16 per cent per year.
The law “On the state budget for 1999” provides that the state stock company “Latvijas
eksportkred īts” is to receive SDR 212,579 toward its equity capital.  The legislation also specifies that
in order to cover its obligations, the company will be able to borrow up to SDR 7.25 million from the
national budget.
2. Aid for participation in international exhibitions
1. Legal basis
Decision of the Cabinet of Ministers no. 421 ‘’On  the programme of expenditures from State
Privatization Fund’’ dated from 24.08.98.G/SCM/N/48/LVA
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2. Form of the subsidy
Grants
3. Policy objective/mechanism
In order to allow Latvia to participate in international exhibitions in 1998, resources of
SDR 584,219 were awarded from the State Property Privatization Fund.  Of this sum, SDR 402,338
was granted on the basis of a contractual agreement to the Latvian Chamber of Trade and Commerce
for the organization of Latvia’s participation in the global “EXPO ‘98” exhibition.  The main goal of
participating in this exhibition was to help form Latvia’s image and to provide information about the
country.
Another contractual agreement provided SDR 181,880 to the Latvian Development Agency
as state aid for the participation of Latvian companies in various international exhibitions and trade
missions.  Real support was not obtained from this money in 1998, because time was needed in order
to elaborate the mechanism for this kind of state aid.  The programme conforms to the requirements ofArticle 5 of the law “On control of the state and local government aid to entrepreneurial activity”.
That article says that the intensity of state aid in the participation of companies (enterprises) in
international exhibitions and fairs may not exceed 30 per cent of the respective costs.
IV. AIDS FOR EXCEPTIONAL OCCURRENCES
1. Level of government
Central government
2. Policy objective
To alleviate tax pressure for enterprises in case of exceptional occurrences
3. Legal basis
Law on taxes and duties, Cabinet of Ministers regulations no. 113 dated from
31. March, 1998;
4. Form of the subsidy
1-year tax deferment plus late fees (up to 50 per cent) on delayed tax payments (by
municipalities).
Mechanism :  Enterprises in exceptional circumstances ⎯ in case of fire, natural disasters, thefts, etc.
- are eligible for tax deferrals for the period up to one year and reduction of previously calculated tax
fines (up to 50 per cent).
In 1998 this kind of aid was provided to companies that suffered under exceptional
conditions:
Late fees were reduced by as much as 50 per cent at a total of SDR 328,873;The state aid equivalent on tax extensions of up to one year amounted to SDR 33,012.G/SCM/N/48/LVA
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Despite the economic difficulties that arose in the context of the financial crisis in Russia, the
amount of aid offered in the form of tax relief did not increase significantly.
 It must be said that this particular kind of aid is not of much significance in Latvia.
V. AIDS TO COMPANIES WITH FOREIGN CAPITAL PARTICIPATION
1. Level of government
Central government
2. Legal basis/Mechanism.
Companies with foreign investment can receive tax relief on the enterprise income tax of
between 50 per cent and 100 per cent, in concert with the procedure that was once set out in the law
“On foreign investments in the Republic of Latvia” (since 1 April 1995, no new enterprise income tax
relief has been awarded to companies with foreign investment).
The enterprise income tax relief was intended to  cover a period of four to eight years, starting
with the first year that a company earned a profit.  The tax relief conditions are differentiated on the
basis of whether the company was registered before 12 March 1993 or between 12 March 1993, and
1 April 1995, as well as on the basis of the share of foreign capital in the equity capital of the
company.  The foreign capital share must amount to at least 30 per cent of the company’s equitycapital.
In 1998 138 companies with participation of foreign capital received tax reliefs worth of
SDR 17.1 million.
 The following companies with participation of foreign capital received the greatest amount of aid inthe form of tax reliefs:
 
 Name of the company  Aid (,000 SDR)
 Ltd. "Lattelekom"  9431.5
 Ltd . "Procter&Gembel Marketing Latvia Ltd"  941.9
 Ltd. "Hanza L īzings"  715.4
 JS company "Parekss-Banka"  641.4
 Ltd. "Laiko"  612.6
 JS company "Parekss apdrošin āšanas komp ānija"  519.7
 Ltd. "Gamma-A"  380.1
 Bank "Parit āte"  327.2
 JS company "Aldaris"  325.2
 Ltd. "Fortex"  317.1
 Ltd. "Varner Baltija"  305.5
 Ltd. "Rīgas Catering Service"  223.5
 JS company "Hanzas uz ņēmējs"  190.1
 Ltd. "Alcatel Baltics"  185.6
 Ltd ."Interserviss Group"  172.9
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