Tax Stories

Janis Zelmenis (BDO) - The Latvian taxation 100 years ago and now

Episode Summary

Janis Zelmenis is a Chairman of Management Board & Equity Partner at BDO Latvia, and one of the most prominent tax experts in Latvia. Having the conversation exactly on his 50th birthday we look back at his achievements and aims, leadership style, his book about the post-USSR privatisation in Latvia and offshores used for that (the interview was recorded just before the Pandora Papers were released), Latvia's tax history during the 1st independence (1918-1940) and the lessons we can learn from it now, as well as his Top 3 highlights of the current tax system in Latvia.

Episode Notes

Janis Zelmenis is a Chairman of Management Board & Equity Partner at BDO Latvia, and one of the most prominent tax experts in Latvia. The Chambers Europe wrote: “Janis Zelmanis absolute knowledge of local and international legislation makes him one of the most frequently quoted personality in media widely. Janis is also an author of the book “Pendulum of Wealth” published in Latvian and Russian languages in December 2015 that is devoted to international tax planning and privatization of Ventspils Nafta in Latvia.” 

50 on the day of the recording

We started our chat with Janis looking back at his achievements, as at the day of the recording Janis celebrated his 50th birthday. His own milestones are closely related to the strategy of the companies he was working for. And some of the best ways to switch off from work are while hunting where there is no internet coverage. 

Privatisation

The more juicy part starts when we switch to his book about the privatisation when Latvia re-gained its independence from the USSR in 1990s. Some may call ir re-distribution of wealth, but Janis calls it stealing in a daylight, untaxed. Janis also gave an example of technicalities – how exactly this was happening. 

Spies

From the literature and movies Janis is into a theme of spies right now, so he has highlighted A Bridge of Spies with Tom Hanks as one of his favourite. Currently Janis reads memoire by Pavel Sudoplatov who was a hitman who killed Leon Trotsky, one of the architects of the Russian Revolution. NY Times wrote about Sudoplatov: “He was a master of the art of ''silent'' elimination of enemies of the Soviet state..”[1]

Carriage with 3-4 horses

One of Janis achievements is to lead an audit firm while being a lawyer. He enjoys having a broader perspective at the clients’ problems. Also for steady cash-flow reasons he prefers audit and bookkeeping service lines to support tax and law. Janis compared his leadership style to an example from the nature where male lions do the hardest work - hunt at night & protect the territory and for that get the juiciest part of the meal. 

Latvia 1st independence (1918-1940) tax history

Janis recalls that at that time men had to pay a higher tax than women, especially, if they were single and childless. There was a lower rate of real estate tax in Latgale (S-E region of Latvia nearby Russian border that was less developed). Farms below 17ha were real estate tax exempt. Quite a considerable amount of income was tax-exempt also from the personal income tax (Ls 2000, which by a wild guess would equal EUR ~15k now). 

Lessons to be learned from the history

So at that time politicians understood a simple truth – do not bather to regulate people who take care of themselves. Right now he sees the beginning of improving the tax system with setting the country’s priorities and combining the Ministry of Finance with the Ministry of Economics, especially because they are in the hands of two different coalition parties. Responsibility for the economic development cannot be separated from collecting the taxes function. However, the minimum untaxed salary in Sweden equals to an average salary in Latvia, so it cannot be untaxed. The deep roots of our problems come from the old, pre-WWII constitution and the weakness of the power institutions, and thus – from the law on parties and their elections. 

The current Latvian tax system highlights

Janis believes the Latvian startup tax benefits with almost no taxation on salaries for the first 12-24 months of operation and a rather broad definition of a startup (where only some innovation has to be demonstrated) stands out even globally. In a combination with no corporate taxation until distribution of profits it may prove to be a winning combination for developing this sector rapidly. A relatively moderate taxation of high net-worth individuals would conclude his Top 3 tax benefits of the country, that might facilitate moving of owners and managers of high-tech/IT companies towards Latvia, especially from Belarus IT hub. 

[1] A NY Times article about Sudoplatov: https://www.nytimes.com/1996/09/28/world/pavel-sudoplatov-89-dies-top-soviet-spy-who-accused-oppenheimer.html