To Reduce the Shadow Economy in the Construction Sector: Expanded Use of the Electronic Work Time Tracking System (EDLUS) from January 1, 2025

To enhance control over employee work hours and records, including on smaller construction sites, broader application of the Electronic Work Time Tracking System (EDLUS) in the construction sector is planned from January 1, 2025. The system will be mandatory for all construction sites where the construction work value is at least EUR 170,000 (currently, EDLUS is required for projects worth at least EUR 350,000). The new regulation will apply to construction projects for which a record of meeting the conditions for commencing construction work has been made or an explanatory memorandum has been accepted after January 1, 2025.

This change follows the amendments to the Law on Taxes and Fees, approved in the final reading by the Saeima on December 5 this year. The amendments aim to make it more difficult to conceal unregistered employees or undeclared working hours, thus reducing the practice of paying wages in cash ("envelope wages"). These legislative changes align with measures included in the Shadow Economy Reduction Plan for 2024–2027.

The EDLUS system was introduced on construction sites in 2019 and has already proven effective in larger projects, where the number of violations detected by the State Revenue Service (VID) has decreased, and the amount of declared income has increased. This promotes legal employment, boosts state tax revenues, and ensures better social security guarantees for workers. Since 2017, the share of the shadow economy has declined by 10%.

When drafting the Shadow Economy Reduction Plan, it was found that effective measures to combat the shadow economy were lacking in "small projects"—including residential construction, minor renovations, or refurbishments in public and industrial buildings. Consequently, specific actions have been outlined to reduce the shadow economy in smaller construction projects. It is estimated that lowering the EDLUS threshold will not create an excessive burden, as maintaining EDLUS on construction sites costs between EUR 100 and EUR 200 per month per project.

Additionally, it is important to note that alongside these legislative amendments, the permissible discrepancy between an employee's work hours recorded in the State Revenue Service's (VID) Electronic Declaration System (EDS) and those registered in EDLUS has been reduced to 15%. This provision will take effect on January 1, 2026.