Royalty agreement

What should be known about a royalty agreement?

The royalty agreement is concluded between the employer and the employee. It provides for a certain special state social insurance contribution. Why is it beneficial and have there been any other options, such as artists who work for so-called “pieces of work”?

The royalty agreement is a safe and recognized way of paying for the work done with employees who are recruited for a certain period of time and in accordance with the rules. For example, musicians are hired to provide evening music for five hours. However, if a royalty agreement is the only way to record income, it may come as the income reaches a certain amount that is subject to a higher tax. In this situation, a royalty agreement will not be the best and most favorable form of settlement. At a time when the income has reached 430 euros and no one of the employers has established a long-term employment relationship, which results in the conclusion of a reciprocal, legitimate co-operation agreement for an indefinite period, it will only be necessary to go to the SRS building and register as a self-employed person who is required to perform quarterly compulsory contributions to the Treasury of 32.15% of the freely selected part of the revenue, which is not less than the minimum wage – 430 euros.

How do you calculate royalties?

The royalty tax treaty in 2018 has undergone significant changes. On January 1, a progressive personal income tax (INN) rate was introduced. This means that at the end of the year, when the authors submit an annual income declaration, the SRS will recalculate the tax, taking into account the total income received annually.

  •         Before concluding a royalty agreement, checking that the proposed version of the contract is not distorted. An example of royalty agreement can be found on the emontessori.lv website among many other sample documents.
  •        To know how much the state will have to pay for your income over a year, a royalty calculator is used, which can be found on the major Latvian banking websites. The remuneration calculator also allows you to calculate the effect of legislative changes both on payers and beneficiaries of royalties.
  •       The law on royalty agreements can be found on the website of likumi.lv. Be safe on your income!

When you become the recipient of the …

When you become an author who receives a royalty-based remuneration, you should remember a few important factors that can affect the tax rate at different conditions.

While the counts of a month do not exceed the minimum wage, the authors are “safe”, which means that the INN is paid by the employer. Substantial changes will be experienced by those whose annual income exceeds 20 004 euros and whose monthly income exceeds 430 euros.

The advanced rate of INN provides for the following interest repayment arrangements:

  • 20% – annual income up to 20,004 euros
  • 23% – for annual income from 20 004 EUR to 55 000 EUR
  • 31.4% – for annual income exceeding 55,000 euros

When the author submits an annual income statement at the end of the year, the SRS will calculate the minimum tax exemption, which depends on the annual income.

The change to the 2018 law stipulates that those authors who are employees and at the same time receive royalties and monthly income exceeding 430 euros do not have to pay State social insurance contributions as self-employed. It is done by the employer.

However, if the recipient of the royalties is not a worker and his monthly income does not exceed 430 euros, he must make a National Social Security contribution of a freely chosen portion of income not less than 430 euros. It is important to remember that if you have not received more royalties in the month than EUR 430, then you do not need to pay National Social Insurance contributions.