The Trade Council The Ministry of Foreign Affairs of Denmark
Tax Guide for Doing Business in Latvia 2014
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Corporate Income Tax (CIT) • The standard CIT rate is 15%. There is a reduced rate of 9% (2015: 11%, 2016: 13%, and 2017: 15%) of the annual turnover that applies to registered micro-enterprises (income below app. EUR 100,000, less than 5 employees, and the shareholders must be individuals).
• Latvia has taxation treaties with more than 50 countries.
• There is an accelerated depreciation (10-70%) of fixed assets using the declining-balance method, except for concessions, patent licenses (will be abolished in 2015) and trademarks (will be abolished in 2015), using the straight-line method over 5 or 10 years. Until 2020, the depreciation relief for acquisition of new manufacturing equipment has a coefficient of 1.5.
• Threshold when TP documentation is mandatory and must be submitted to SRS within 1 month of the request: turnover over app. EUR 1.43 million and transaction with a related party over app. EUR 14,300. Advanced pricing agreements are also possible
• Withholding taxes: Interest and royalty payments are not subject to withholding taxes (unless it is paid to offshore). • On dividends: 0% mostly to EU, the European Economic Area (EEA), and Latvian residents; 10% in other cases, and 0% to any jurisdiction except offshore. • On interests: 0% on payments to unrelated parties; 10% for related parties (5% for EU and EEA entities and 0% to any jurisdiction except offshore); 10% to management and consulting fees (can be reduced to 0% under a tax treaty); 15% in royalties on literature or art; 5% in other cases; 0% to any jurisdiction except offshores; 5% if usage of property located in Latvia; 2% of the sales price
• Transfer pricing (TP) methods are in use: comparable uncontrolled price, resale price, cost-plus, and two profitbased methods (transactional net margin method and profit split method).
. • Gains from a disposal of fixed assets are not taxable if the assets are substituted by similar new ones within 12 months. There is 0% on gains from sale of shares in subsidiaries in any jurisdiction except offshores. • Liberal participation exemption for distribution of dividends received (there is no particular shareholding required if dividends are received from the EU or EEA) relating to all jurisdictions except offshores. Elsewhere, participation is 25%. Value Added Tax (VAT) • The standard VAT rate is 21%. There is a reduced rate of 12% for pharmaceuticals, infant foods, tourism, hotel services, book printing, and heat supply for inhabitants.
Ministry of Foreign Affairs The Trade Council
Real Estate Tax (RET) (For real estate owned by companies) • There is a 1.5% RET rate for business-owned residential property, if the property is not registered in the Land Book (to make sure that residential property is used as a residence and not for business purposes). • Residential property (registered in the Land Book) is taxed between 0.2-0.6%: 0.2% for cadastral value not exceeding app. EUR 57,000, 0.4% for cadastral value from app. EUR 106,700, and 0.6% for cadastral value exceeding app. EUR 106,700. There will be 3% RET on new buildings that are not officially commissioned for use (nodots ekspluatacija – this inspection must be carried out to lower the tax). RET is abolished for the first year’s use of new/reconstructed real estate (from 2015) as well as from cultural monuments, if they are not properly maintained. Business Incentives in Latvia • In Latvia’s four “Special Economic Zones” (SEZ) in Rezekne and at the freeports in Riga, Liepaja and Ventspils, discounts can be obtained (after investing in production for exports) on: property tax (80% to 100%), CIT (80%), and VAT (0%). • There is a special tonnage tax for Latvian shipping companies and reliefs for sailors. • Reduction of CIT payable equal to 25% of the amount invested in large projects in specified industry categories between EUR 10 million and app. EUR 50 million.
• The reduction of tax payable equals to 15% of the amount invested. Allowable tax savings must be claimed within a 16 year period. For further information, please see the POLARIS Process Program. Personal Income Tax (PIT) • The general PIT rate is 24% (2015: 23% and 2016: 22%), which also includes self-employed. A 10% tax now applies to dividend, interest and rental income and 15% to capital gains. Social Security Contributions (SSC) • The employee rate is 10.5% of the gross salary. The employer rate is 23.59% on top of the gross salary. The SSC income cap of EUR 46,400 has been reintroduced in 2014. Natural Resources Tax (NRT) • Imposed on use of natural resources, pollution, and packaging materials. Tax Audits • Tax audits can normally be performed going back 3 years, except for transfer pricing (TP), where it is possible to go back 5 years. Advanced (binding) rulings possible at no charge: With only 7 payments necessary to pay all taxes, Latvia is ranked 46 out of 189 countries in “Paying Taxes 2014: The global picture” issued by Doing Business (Estonia is ranked 32 and Lithuania is ranked 56). Doing business ranks Latvia among countries with a relatively low total tax rate. This means that a company in Latvia will spend a smaller proportion of its profits on taxes than in many other countries around the world.