The most controversial legislative development in Latvia in recent months, according to Klavins Ellex Managing Partner Filips Klavins, is the so-called “Solidarity Tax” that went into effect in January 2016.
The tax applies to individuals with the highest income in the country — estimated as affecting only those with incomes in the top .5%. Many people are complaining it’s unjust, Klavins reports, as it represents an unreasonable reach into the pockets of those who, acting honestly, are already paying the most tax, instead of those who have, by participating in the so-called shadow economy, avoided paying tax altogether. A challenge to the tax was just filed in the Constitutional Court last week, Klavins reports.
The Solidarity Tax is not creating much billables for lawyers in the market yet, though Klavins reports that executives of clients “are raising questions about it.” Attorneys are paying close attention to and discussing the issue, as in Latvia, “by quirk of law,” they are considered sole proprietorships and self-employed. As a result it’s not clear yet whether they will be effected by the new tax or not.
Another “hot topic”, according to Klavins, is the recent legislative proposal to expand the rights of notaries by requiring all Real Estate conveyances to be performed under Notarial Act, based in part under the assumption that notaries would be able to evaluate the pricing of transactions to ensure they’re not set artificially low to avoid accompanying taxes. Klavins described the notary association in Latvia as being well-organized and good at lobbying, but said the proposal “just didn’t make sense,” especially for the more complicated transactions with multiple moving parts. Although the debate over it was heated for the first six months of the year, the proposal is fading now, Klavins believes.
In general business is good in Latvia, following several years of 4% growth. The Brexit has put everything on hold for a couple of weeks while people try to evaluate its consequences, but he expects things to pick back up soon. M&A is not as strong this year as it was last year, but finance work and regulatory work are up. The process for Latvia’s May 2016 accession to the Organization of Economic Cooperation and Development has resulted in the levying of fines against some Latvian banks which hadn’t been paying full attention to their AML obligations, providing a source of work for banking lawyers in the country. Real Estate is strong as well, with shopping malls and construction developments underway. “Things are good,” Klavins reports, while also pointing out that his firm’s dispute resolution team is active, with cross-border work both in the form of arbitrations and in Latvian enforcement of foreign judgments keeping them busy.
As for the Latvian legal market itself, Klavins believes more consolidation is likely later this year, from smaller firms joining forces to increase their ability to compete with the major players. It’s time-consuming to grow organically in the country, Klavins reports, and there’s not that much lateral movement, so significant expansion is likely to come in the form of mergers and consolidation.