WORLD TRADE
ORGANIZATIONG/SCM/N/38/LVA
16 March 1999
(99-1044)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
New and Full Notifications Pursuant to Article XVI:1 of
the GATT 1994 and Article 25 of the SCM Agreement
LATVIA
The following communication, dated 4 March 1999, has been received from the Permanent
Mission of Latvia.
_______________
NOTIFICATION ON PUBLIC AIDS IN LATVIA: YEAR 1997
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 to
its 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 and local governments, though it is obvious that public aid measures are mostly performed at
the national level.
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 one to presume that respective measure will not distortinternational competition, only general information is provided.
This notification under Article XVI(1) of the GATT 1994 and  Article 25 of the Agreement
on Subsidies and Countervailing Measures is comprehensive in order to contribute to transparency of
public aids of all kinds.  Measures reported here are not necessarily subsidies according to the criteriaof the Agreement on Subsidies and Countervailing Measures.G/SCM/N/38/LVA
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PUBLIC 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
(agricultural enterprises did not suffer as much, and they were privatized much more quickly; the
service sector was not well developed at the beginning of the transition period).
In the area of privatization, companies can receive the following types of support linked to
taxation:
- 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 fines1 (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/
- 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 for capitalization may be
capitalized). Along with capitalization of the tax debt (the principal debt and the sum
of the increase of the principal debt2), previously calculated late fines and punitive
fines calculated during an audit can be written off.
1. Tax extensions for the period up to three years for  enterprises under privatization and
privatized enterprises
Level of government: Central government
Policy objective:  3-year tax extensions are applied as a one-off measure to help enterprises
overcome consequences of the former economic system.
Legal basis : Law On Taxes and Duties, Cabinet of Ministers Regulations No. 81 dated from
31 March, 1995.
Form of the subsidy:  tax extensions
Mechanism:  The Commission for tax debt payment deferment formed by the Cabinet of
Ministers3 has a right to take a decision to defer tax debt payment for the period up to three years, not
                                                     
1   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.
2   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.
3 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.G/SCM/N/38/LVA
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calculating the percentage of the fines 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 (a payment schedule), the enterprise commits an offence in the area of
taxation, or the increase of debt to the st ate 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 Bank of Latvia).For the year 1997 NSE of tax extensions measure for privatized companies and for companies
that are up for privatization is SDR 144,200 (data concern extensions of the term for tax payment that
were granted in 1997). The effect in 1997 of tax extensions awarded in earlier years has not been
calculated yet.
2. Tax debt capitalization for enterprises under privatization and privatized  enterprises
(thereafter - eligible enterprises).
Level of government:  Central government
Policy objective:  Debt capitalization is realized as a one-off measure to assist eligible
enterprises to overcome consequences of the former economic system.
Form of the subsidy:  tax debt capitalization
Legal basis:  Tax debt capitalization is governed by the Law on Taxes and Duties, Cabinet of
Ministers Regulations No.265 of 16 July 1996. On June 1997, the regulations were replaced by the
Cabinet of Ministers Regulations No.200 of 3 June 1997.
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 momentof 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 instituti on which conducts the capitalization becomes the owner
of the respective capital shares.  This gives the state a realistic opportunity to recoup its investment by
selling the capital shares on the open market.G/SCM/N/38/LVA
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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 than
10 per cent.
The decision on capitalization of debt is respectively taken by the Ministry of Agriculture or
Privatization Agency (i.e. institution which performs/performed privatization of the enterprise).
In 1997 the tax debt of privatized companies and companies that are up for privatization was
capitalized at a total sum of SDR 5.7  million
3. Reduction of  previously calculated late fines (up to 100 per cent) for privatized companies
and companies up for privatization
Level of government:  Central government
Policy objective:  fine write-offs are applied as a one-off measure to assist eligible enterprises
to overcome consequences of the former economic system.
Legal basis:  Law On Taxes and Duties, Cabinet of Ministers Regulations No. 81 dated from
31 March,1995 and Cabinet of Ministers Regulations No.265 of 16 July, 1996. On June 1997, theregulations were replaced by the Cabinet of Ministers Regulations No.200 of 3 June 1997.
Mechanism : Tax-related fines are being written off simultaneously with 3 year tax extensions
and tax capitalization.
For the year 1997 reduction of previously calculated fines in connection with tax extensions is
SDR 2,289.0 thousand.
Reduction of previously calculated fines in connection with tax debt capitalization is
SDR 4,254.6 thousand.
II. STATE GUARANTEES FOR LOANS
Level of government:  Central government
Policy objective : alleviation of access to financing for enterprises
Form of the subsidy:  loan guarantees
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 investment programme). No additional guarantees  could be given without amending  annual
Law on State Budget. The Minister of Finance is enti tled to sign guarantee agreements on the side of
the government.
Normally no premium payments were requested for state guarantees.G/SCM/N/38/LVA
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Statistical: At the end of 1997, state guarantees in the industrial sector covered credits worth
SDR 5,150.3 thousand.  State aid in the form of guarantees in 1997 amounted to SDR 276.0  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 remainin g credit payment in the specific quarter)4.  Also, state
guarantees covered one payment in 1997 in place of the recipient of the credit – a payment of SDR1,143.3 thousand in place of the state stock company Dauteks .  It should be noted, however, that in
1998 Dauteks  has already begun to repay the sum, and on 23 December of this year it had already
repaid SDR 899.8 thousand.
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)
Policy objective:  To alleviate access to financing to companies
Form of subsidy:  Preferential loans
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).
Statistical: Most of the credits which have been issued with easier terms (meaning a reduced
interest rate – between 6 and 10  per cent ) have been supplied to industry through loans from foreign
entities, mostly the World Bank, the IMF and the European Community.  The total sum of outstanding
credits to industry was SDR 28.7 million at the end of 1997. The element of state aid in 1997amounted to SDR 2.09  million. Of course, it must be remembered that this is the maximum
theoretical aid figure, because when the net aid equivalent was calculated, it was not possible to
determine the interest rates charged to end users of the credits, because credits in Latvia are
distributed via a number of channels.  The calculation is based on interest rates which are paid by the
state or the initial recipient of the credit (usually th e bank that is servicing the credit line).  The credits
were given to such areas of industry as the pharmaceutical industry, wood processing and the food
production industry.
In general it has to be mentioned that industry is not a priority area in business sector
crediting (in contrast – mostly for enterprises of st rategically important infrastructure spheres - energy
sector, transport network).
IV. MUNICIPAL CREDITS
Level of government:  local governments
Policy objective : to alleviate access to financing to enterprises of local importance
Form of subsidy:  preferential loans
Legal basis: Municipal ordinances
Statistical: Credits with reduced interest rates were also given by local government
privatization funds – a total sum of SDR 76,000, with net aid of only SDR 9,800 .  These credits
                                                     
4   Guarantee premiums were not required.G/SCM/N/38/LVA
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usually go to companies of local importance (publishers, apparel and footwear manufacturers, the
food industry, wood processing and, to a very limited extent, machinery construction).  The sums
issued by local governments are much lower than t hose of credits issued from foreign loans – between
SDR 375 and SDR 20,000.  All of these, in other words, are de minimis  credits.
V. SUPPORT TO RESTRUCTURING PROCESS FROM PRIVATIZATION FUND
RESOURCES – AD HOC STATE AID CASES
Legal basis:  Decision of the Cabinet of Ministers No. 585 ‘’On the programme of
expenditures from State Privatization Fund’’ dated from 30.04.97.
Statistical: This is not a common form of aid in Latvia.  Last year this type of aid was given
only by the State Privatization Fund, the result of which was a payment of SDR 52,500 for therestructuring of the stock company Stružānu kūdras fabrika , SDR 226,300 went toward the
restructuring of the state stock company (up for privatization)  VEF , and SDR 1,007.8 thousand was
used for the restructuring of the state stock company (up for privatization) VEF-KT .
PUBLIC AIDS TO AGRICULTURE
The purpose of state aid to the agricultural sector is to promote supply to the market with
high-quality, domestically produced food products, to promote the competitiveness of Latvian
products in the domestic market, to stimulate the strengthening of farmers and to encourage a move
from extensive production processes to intensive ones, to improve the scientific aspects of livestock
breeding and grain farming, to make credit resources available, and to promote employment in rural
regions.
In Latvia, as in the countries of the European Union, agriculture is one of the most
extensively supported sectors.  Information about state aid to agriculture is grouped according to the
effect which various support programmes have on international competition.  Data are first presented
about those support programmes with the least effect on the terms of competition. Generalized
services which are offered in the agriculture sector – control of disease, certification and informative
services, agro-chemical programmes, etc, influence  competition the least.
I. GENERAL SERVICES
Level of government: Central government
Legal basis: Law on 1997 State budget and Decree of the Ministry of Agriculture No. 13,
dated from 16 January 1997 – Decree on utilization of State subsidy fund for development ofagriculture in 1997.G/SCM/N/38/LVA
Page 7
Programme type Description Cost in 1997
(,000 SDR)Source of financing
“General
services”Disease control programme in the livestock sector;
support for livestock breeders in order to maintain
healthy and high-quality herds, to house younganimals in proper conditions, to register herds, toprotect local genetic resources, to vaccinate animals
against leicosis, to pr omote hybridization and
crossing in pig farming, and to improve quality and
effectiveness.4,043.8 Budget
Diagnostic examination of infectious disease in
animals and food product testing services2,496.5 Budget
State investments to preserve land cultivation
programmes; agro-chemical programmes1,943.9 Budget
Research programmes for specific agricultural
needs931.4 Budget
Financing for the Latvian Agricultural Consultation
Center460.4 Budget
State investments in the development of rural
infrastructure:  land cultivation, road construction,electricity supplies400.2 Budget
State support for preservation, restoration and
supplementation of hybrid grain381.4 Budget
Anti-epiziootic programmes 250.1 Budget
An information establishment programme, state
support to farms which implement their ownbookkeeping and submit data to the State StatisticalCommittee162.6 Budget
Market information, consultation and support for
specific products118.2 Budget
Assistance to farmers to implement appropriate
land use methods, crop rotation, agrotechnology94.2 Budget
Support for establishment of the state company
“State Pedigree Information Data Processing
Center”73.7 Budget
Publication of training materials and consultational
publications in support of sector development31.9 Sugar Production
Development Fund
Compensation for
victims of natural
disastersCompensation for damage caused by natural
disasters to crop plantings and agricultural
production objects95.0 Budget
TOTAL 11,483.1
II. LOCAL SUPPORT
In second place in terms of the influence on competition is so-called local support for
agricultural production.  Local support is support which is given to all producers of agricultural
products in Latvia who meet certain requirements and satisfy specific criteria.
SUBSIDIES FOR THE PRODUCTION OF SPECIFIC AGRICULTURAL PRODUCTS
Level of government: Central government
Legal basis: Decree of the Ministry of Agriculture No.13, dated from 16 January 1997 –
Decree on utilization of State subsidy fund for development of agriculture in 1997.
Subsidies were budgeted for the following types of production: flax, cereals, barley, seed
material, cattle, potatoes, sugar beets and wheat.G/SCM/N/38/LVA
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1. Flax: In 1997 payments were made of SDR 112.5 per ton of dew, retied flax stems with a
quality index No. 1.0 and 1.25, and SDR 118.8 per ton if the quality index was 1.5 or above.
2. Cereals: Payments were made in order to ensure the production of grain at the necessary level
and to equalize differences in grain production conditions.  Resources were distributed in regions
where the natural conditions for cereal plantings are worse than in other parts of the country (for
spring plantings – SDR 11.25 per hectare, for winter grains – SDR 7.5 per hectare in 1997).  Of the
26 districts of the state, six – the Al ūksne, Balvi, Daugavpils, Ludza, Prei ļi and Rēzekne districts –
qualified for aid.
3. Barley: Direct payments for barley amounted to SDR 37.5 for each sold ton if the grain met
quality standards.4. Seed material: Payments were made to producers for each ton of high-quality seed that was
produced and sold.  The support was meant to promote the production of high-quality seed and to
increase the use of proper planting schemes. The support was available to almost all arable crops inLatvia, including cereals, legumes, buckwheat, perennial grass, potatoes, sugar beets, flax, fruit and
vegetables.
5. Cattle: Support was given for cattle intended for slaughtering, according to weight (between
SDR 50 and 150.1 for an animal with a live weight of between 401 and 465 kg, and SDR 68.8 to
162.6 for an animal with a live weight of more than 465 kg).  The differential in payments was
intended so as to stimulate the breeding of pure breed animals.
6. Potatoes: Support was given in the amount of SDR 2.5 for each ton of sold potatoes, provided
that the starch content was at least 15  per cent .  The payment could be increased if the starch content
was even higher, and potatoes had to meet specific quality requirements.
7. Sugar beets: Sugar beet growers could receive SDR 37.5 per hectare if they used agro-
technology (their fields were free of weeds and di seases, and there was proper fertilization and water
management).  The producer could receive additional payments of up to 70  per cent  of the basic
subsidy if he grew and sold to sugar processing plants no less than 25 tons of sugar beets per hectare.
8. Wheat: Aid was given to processing plants so that they could repay part of the interest rate on
credits which they had earlier taken to purchase food grains (no more than one-tenth of the interest
rate on the credits).
Product Support in 1997 (000
SDR)Source of financing
Flax 384.88 Budget
Cereals 886.93 Grain Production
Regional Equalization
Fund
Barley 115.07 Budget
Seed material 3,013.42 Budget
Cattle 407.77 Budget
Potatoes 150.82 Budget
Sugar beets 418.03 Budget
Wheat 112.23 Budget
TOTAL 5,489.15
Share of GDP 0.14%
SUBSIDIES NOT LINKED TO SPECIFIC FORMS OF AGRICULTURAL PRODUCTION:G/SCM/N/38/LVA
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Level of government: Central government
Legal basis: Decree of the Ministry of Agriculture No.13, dated from 16 January 1997 –
Decree on utilization of State subsidy fund for development of agriculture in 1997.
Type of aid Amount of aid in 1997 (,000
SDR)Source of financing
State aid to the purchase of new and
efficient machinery and  equipment (21%
of the used credit /leasing/ sum)968.15 Budget
Support for purchase of breed animals
and sperm material (bioproducts) from
abroad*198.91 Budget
TOTAL 1,167.06
* Budget resources were distributed on a tender basis according to previously specified conditions. A
special commission was established of different representatives from science, administration andother associations for each type of animals. Th e commission took decisions what kind of breed should
be purchased in order to improve the quality of national herd, what kind of crossing and selection
would be needed, and where the best genetic resources could be obtained.  In order to receive aid,
producers had to fulfill so-called “breed keeping farm” requirements.
In 1998 there are plans to award credit subsidies amounting to SDR 7.5 million.  The
subsidies will basically go toward promotion of agricultural production and technical modernization.
The credit subsidies are calculated on a percentage basis from the sum of resources that have been
utilized, observing specific criteria (e.g., the average cadastral sample value of land in the respective
parish, the age of the owner of the farm, et c.).  Credit subsidies can cover up to 35  per cent  of the
credit sum of utilized resources, but it must be noted that the total volume of resources used in
programmes toward which credit subsidies are available in 1998 could not exceed SDR 125,000 per
year per aid recipient.
Local governments, it must be said, have not offe red anything in the way of actual subsidy aid
to agriculture.
Tax relief Agricultural Products
Latvia’s tax laws provide various types of relief aimed at promoting agricultural production.
They are the following:
1. The Excise tax
Level of government:  Central government
Legal basis/mechanism:  According to the Law On Excise tax, Article 8 farmers can receive
repayment of the excise tax on diesel fuel that is used in the agricultural process.  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 1997 this aid programme cost SDR 6.75 million.
2. The enterprise income tax.G/SCM/N/38/LVA
Page 10
Level of government:  Central government
Legal basis/mechanism:  The law on the enterprise income tax (Article 18) states that
agricultural enterprises can receive tax relief of SDR 12.5 per hectare of land that is used inagricultural 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 enterprises which pay the enterprise income tax are managing
approximately 1.1 million hectares of land that can be used for agricultural purposes.  This means that
the maximum reduction of income from the enterprise income tax due to the tax relief given toagricultural enterprises could be SDR 12.5 million.  In truth, of course, the loss of income is much
lesser, so when the share which state aid represents in added value in agriculture, this estimate is not
taken into account.
3. The personal income tax
Level of government:   Central/local government
Legal basis/mechanism:  According to the Law On personal income tax, the owners of
personal subsidiary farms, household plots, and farms and fisheries which have not been incorporatedas 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 a study done by the State Statistical Committee, the amount of personal income
tax that is not received from farms each year is between SDR 0.25 and 0.63 million.
4. The value added tax
Level of government:   Central government
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 local 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
provided services in the last 12 months has not exceeded SDR 37,500, the farm is exempt fromregistering 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.
The value added tax is also not applied to services which are provided by joint associations
for the processing and sale of agricultural and fishery output, by associations created for the joint use
of agricultural machinery, equipment and tools, or by cooperatives, provided that the services are
given to producers of agricultural output who are not payers of the value added tax.
5. The property tax
Level of government:  Central, localG/SCM/N/38/LVA
Page 11
Legal basis/mechanism:  According to the Law on property tax, 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.
6. The land tax
Level of government:  local governments
Legal basis:  On the basis of Cabinet of Ministers Regulation No. 82 (25 February 1997),
“Regulations concerning the calculation of the land tax and the application of tax relief”, which was
issued in concert with the law “On the land tax”, local governments can apply land tax relief byapplying differentiated coefficients to the land tax at a rate between 0.1 and 1.0.  In fact, however, this
opportunity is not being used, and the reported sum of land tax relief in 1997 was negligible – only
SDR 20,260.
7. Agriculture credit guarantees
Level of government: Central government
Legal basis: Decree of the Ministry of Agriculture no 13, dated from 16 January,1997 –
Decree on utilization of State subsidy fund for development of agriculture in 1997.
Mechanism : Credit guarantees can be awarded to farmers at an amount of up to 50  per cent  of
the credit sum that is taken to purchase machinery, technological equipment or buildings.
Statistical:  In 1997, the state provided SDR 562,700 for the credit guarantee fund, and in
1998, of the subsidies awarded by the Ministry of Agriculture, SDR 1,005.4 thousand is intended for
an expansion of the credit guarantee fund – SDR 705,260 for producers of agricultural output and
SDR 300,110 to restore the Baltic Sea fishing fleet.
8. Credits
Level of government: Central/local government
Legal basis:(i) 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 Publicinvestment programme).
(ii) Municipal ordinancesIn 1997 credits for agricultural development were given from local and foreign financial
resources.  The total sum of outstanding foreign credits to agriculture was SDR 40.2 million. The net
amount of state aid provided to agriculture from foreign loans in 1997 was SDR 2.88 million (this
includes also "aid element" of loans distributed before 1997.  Of course, it must be remembered that
this is  the maximum theoretical figure, because when the net aid equivalent was calculated, it was not
possible to determine the interest rates charged to end users of the credits, because credits in Latviaare distributed via a number of channels.  The calculation is based on interest rates which are paid by
the state or the initial recipient of the credit (usually the bank that is servicing the credit line).
The volume of aid provided from local governme nt resources is insignificant (the net subsidy
equivalent in 1997 was only SDR 13,100).G/SCM/N/38/LVA
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III. EXPORT SUBSIDIES
Level of government: Central government
Legal basis: Decree of the Ministry of Agriculture No 13 dated from 16 January 1997 –
Decree on utilization of State subsidy fund for development of agriculture in 1997.
In 1997 the export of dairy products (evaporated milk with and without sugar, fat cheese, dry
skim milk, casein and butter).  The total volume of subsidies amounted to SDR 628,900.
Product Year 1997
Direct subs.
(000 SDR)Volume of subsidized
export (tons)
TOTAL 629.0
Evaporated milk with sugar 31.1 2,275
Sterilized evaporated milk without
sugar 4.5 353
Fat cheese 126.2 1,940
Dry skim milk 167.4 2,213
Casein 132.0 603
Butter with water content to 16%
98.9 763
Butter with water content to 25%
68.9 602
* the sum will be distributed among different dairy products
CROSS – SECTOR PUBLIC AIDS
I. AIDS FOR SMALL AND MEDIUM-SIZED ENTERPRISES
Policy objective:  alleviation of tax burden for SMEs
Legal basis : Law on Corporate Income Tax
Form of the subsidy : tax rebate
Mechanism : It is important to note here that under the terms of the law “On the enterprise
tax”, support can in fact be received only by micro-companies – those in which the average number ofemployees 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.
In 1997, the sum of corporate income tax reduction reached 3,706.0  thousand. SDR
II. EXPORT FINANCING AND GUARANTEEING
Legal basis : cabinet of Ministers Regulations No.354 of 17 September 1996 - Regulations on
state aid to guaranteeing and financing export and import operations
Form of the subsidy : loan guarantees, creditsG/SCM/N/38/LVA
Page 13
Policy objective: to alleviate access to financing to companies
State aid to export is channelled through the state stock company Latvijas Eksportkred īts.
This 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.
When we talk about guarantees, we must make note of the positive fact that Latvijas
Eksportkred īts in 1997, as in previous years, did not have to make any payments in place of
exporters.
The stock company Latvijas Eksportkred īts has offered the following types of guarantees:
Type of guarantee Sum of guarantee obligations as of 31 December 1997
(000 SDR)
Import payment guarantee* 894.8
Import financing guarantee* 199.9
Guarantee of performance of obligations 41.1
Financing guarantee 194.8
Export financing guarantee 582.0
Total 1,912.6
*these are indirectly linked to export as only import of raw materials or equipment are guaranteed and
credited
Import financing guarantees can be extended to foreign suppliers to cover the supply of goods
or services, with post-payment.
Import financing guarantees are given to banks and other financial institutions in Latvia or
abroad which finance import transactions to Latvia.
Import guarantees are offered for the import of goods which fall into one of the following categories:
raw materials and parts, production equipment.
A guarantee of the performance of obligations is issued in order to ensure that obligations are
met even if the provider of services does not meet the obligations which have been undertaken.
Finance guarantees are issued in order to ensure the completion of specific projects (these
include both import and export financing guarantees).
Export financing guarantees are issued to banks and other financial institutions in Latvia and
other countries which finance export transactions.  The guarantee covers the principal sums that are
specified in the credit agreement concluded by th e loaner and the bank, as well as the interest
payments and other payments.  The guarantee does not cover the risk that is associated with the buyer
or the buyer’s country.
Guarantees are usually short-term or medium-term guarantees.  The interest rate on short-term
guarantees ranges from 2 to 3  per cent  per year, while the rate on medium-term guarantees is
specified for the entire term of the relevant tran saction, and the rate depends on the volume of the
transaction; the annual rate can be anywhere between 1 and 2 per cent .
Latvijas Eksportkred īts also issued credits in amount of SDR 1,739.7  thousand.  Credits are
issued for a time period of up to one year, and depending on the term, the interest rate ranges between
10 and 16 per cent per year.  For a comparison, we can note that the average interest rate on short-
term domestic government obligations in 1997 ranged from 8.9 per cent to 11.6 per cent at theG/SCM/N/38/LVA
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beginning of the year and from 3.5 per cent to 7.5 per cent at the end of the year, depending on the
type of security that was involved (the average weighted interest rate in 1997 was 8,5 per cent).  It
should be added also that the volume of credits issued to export has been very low – only 0.14 per
cent of the total value of exported goods.
Because the financing available to Latvijas Eksportkred īts is fairly modest, it should be said
that guarantees and crediting done by Latvijas Eksportkred īts did not cover even 1 per cent of Latvian
exports (1997 data), which means that the influence of the institution on export development has been
quite marginal.
With respects to state guarantees for the operations of Latvijas Eksportkred īts, the
government undertakes liability for the institution’ s operations at a total sum of no more than SDR
12,5 million.
III. AIDS FOR EXCEPTIONAL OCCURRENCES
Level of government:  Central government
Policy objective:  to alleviate tax pressure for enterprises in case of exceptional occurrences
Legal basis : Law on taxes and duties (Article 24), Cabinet of Ministers Regulations No. 81
dated from 31 March 1995;
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 1997, the following aid was given to companies suffering exceptional conditions:
Late fees (up to 50 per cent) on delayed tax payments were reduced in 1997 at a total sum of
SDR 220.9 thousand.
State support in the form of extending the term for tax payment by up to one year amounted
to SDR 29,900 (data concern extensions of the term for tax payment that were granted in 1997).  Theeffect in 1997 of tax extensions awarded in earlier years has not been calculated yet.
In general, it must be said that with respect to the state’s policy on aid to companies which
suffer losses under exceptional situations is not of pa rticular significance in Latvia.  All the aid cases
are de minimis .
IV. AIDS  TO COMPANIES WITH FOREIGN INVESTMENT
Level of government: Central government
Legal basis/Mechanism:  Pursuant to the law "On Foreign Investment in  the Republic of
Latvia" if the enterprise was registered till the 12
  March 1993 and the foreign investment comprises
more than 30 per cent of the capital, the enterprise is entitled to pay 0 per cent corporate income tax
for the time period of 2 - 3 years (depending on the kind of activity) and during the following 2 years
the enterprise receives 50 per cent rebate on the payable corporate income tax.G/SCM/N/38/LVA
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If the enterprise was registered from the 12 March 1993 till the 1 April 1995 and the foreign
investment comprises more than 30 per cent of the capital, but not less than 50 000$, the enterprise is
entitled to pay 0 per cent corporate income tax for the time period of 2 - 3 years (depending on the
kind of activity) and during the following 2 years the enterprise receives 50 per cent rebate on the
payable corporate income tax.
If the enterprise was registered till the 1 April 1995 and the foreign investment comprises
more than 50 per cent of the capital, but not less than $1,000,000, the enterprise is entitled to pay
0 per cent corporate income tax for 3 years, for the following 5 years it receives 50 per cent rebate on
the payable corporate income tax.
If the enterprise with foreign investment has been registered  after the 1 April 1995 the
law "On Foreign Investment in the Republic of Latvia" provides for the application of the
national laws, which means that no special ta x exemptions are applied to foreign investors.
Corporate income tax relief was granted for time periods of up to eight years, beginning with
the first year of profit.
It should be added that this aid was meant to promote output in the following areas of
industry: the production of paper and cellulose, the production of construction materials, the
production of agricultural machines, tractors, agricultural and food machinery and spare parts, the
production of flax and wool, the food and pharmaceutical industry, the production of electricalequipment and furniture, and the production of medical equipment.
Unfortunately so far it wasn't possible to gather statistics on state aid sums granted through
this state aid programme.
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