Ultimate Guide to Tax in Latvia

This ultimate guide to tax in Latvia combines all the necessary tax aspects to consider for Latvian company owners or individuals willing to establish Latvian company in 2021.

Estimated reading time: 8 minutes

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Latvia country profile 2021

European Union: Yes.

Economy & forms of business: In terms of the Doing Business initiative, Latvia was ranked 19th by the OECD in 2020, with an 80.3 score compared to the other 190 countries in the OECD high income category. Latvia’s main types of businesses include investment in finance, real estate, agriculture, woodwork and manufacturing.

Company in Latvia creates an opportunity to trade with both European companies and the companies in the Eastern markets (CIS countries). Latvia’s major ports operate as tax-free zones or special economic zones (SEZ).

The most popular type of company to be registered in Latvia is limited liability company (Latvian SIA) or joint-stock company (Latvian AS). Latvia company could be 100% foreign-owned. The management board has to have at least one board member who can be a non-resident in Latvia, as well.

Limited liability company in Latvia has two types (LLC):

• Low-capital limited liability company: minimum share capital EUR 1.
• Standard limited liability company: minimum share capital EUR 2,800.

Joint Stock Company (JSC) in Latvia: minimum share capital: EUR 35,000.

Latvia company registration usually takes 1-3 days in average, after submission of all documents to the Register.

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Double Tax treaties of Latvia:

Albania	Czech Rep.	North Macedonia	Luxembourg	Spain
Georgia	Kazakhstan	Turkey	Singapore	Moldova
Armenia	Portugal	China	Malta	Belarus
Germany	UK	Israel	Slovakia	Hungary
Greece	Denmark	Norway	Austria	Montenegro
Mexico	Rep. of Korea	Croatia	Hong Kong SAR	Sweden
Azerbaijan	Quatar	Turkmenistan	Slovenia	Belgium
Iceland	Estonia	Italy	Morocco	Switzerland
Bulgaria	Ukraine	Poland	India	Netherlands
Tajikistan	Kuwait	United Arab Emirates	Canada	Ireland
Romania	US	Finland	Russia	Kyrgyzstan
Uzbekistan	France	Lithuania	Serbia	Vietnam

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Tax residency in Latvia

For the purpose of tax laws, a taxpayer who is not a natural person shall be considered a tax resident if it was
established and registered or if it should have been established and registered in accordance with the laws of
the Republic of Latvia. (Article 14(4) of the Law On Taxes and Fees of the Republic of Latvia)

In other words, tax residency in Latvia is based only on the incorporation principle. All entities established and registered or entities which should have been established and registered in Latvia are considered to be tax residents. This rule has no exceptions.

Resident companies in Latvia are generally taxed on their worldwide income. Non-resident companies however are taxed only on their Latvian source income. Both resident and non-resident companies are taxed when a taxable event occurs.

A taxable event is when a tax liability is created, e.g. any action or transaction of the company that may result in taxes owed to the government. For example, payment of interest and dividends, withdrawal of money for non-business expenses etc.

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Key tax in Latvia for companies: CIT and VAT

Corporate income tax: Latvian corporate income tax (CIT) follows the cash flow principle. Until then, Latvian company keeps the profits and 0% tax is payable. The corporate income tax rate is applied on distributed gross dividends, deemed dividends or notional profit.

In order to calculate the gross amount the net dividends the tax rate of 20% should be divided by 0,8. The effective tax rate in Latvia payable to net dividend amount is 25%. Thus the company established in Latvia would pay 25% CIT.

Value added tax: Latvian standard value added tax (VAT) is 21%. VAT in Latvia also is reduced for some units from 0-12%.

VAT in Latvia shall be applied for when the total value of transactions taxable with VAT carried out by it during the previous twelve months exceeds EUR 40 000. There may be individual cases when the application for VAT shall be done before surpassing the threshold.

If you need to appoint a fiscal representative in Latvia, please contact us directly via email.

Trading within the European Union would mean that Latvian trading company is registered straightforward as VAT payer required for intra-community supplies, sale of goods to the EU is subject to zero-rated VAT, input VAT paid is fully recoverable for the Latvian company. A special VAT regime is applied to the import of the goods from the third countries, thus VAT on import is self-accounted (not paid), therefore providing cash flow savings.

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Withholding tax in Latvia (to non-resident companies)

Dividends	No WHT, subject to CIT of 25%
Interest paid	No WHT, except if entity is registered in low tax territories
Patent & copyright royalties	No WHT, except if paid to entity registered in listed low tax territories
Rent or lease of real estate located in Latvia	WHT 5% applies
All payments to entities registered in black list territories	WHT 20% applies
Sale of real estate in Latvia	WHT 3% (available to pay 20% tax on profit pursuant to DTT)
Sale of shares of Latvian real estate company	WHT 3% (available to pay 20% tax on profit pursuant to DTT)
Management and consulting fees	WHT 20%

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Holding rules in Latvia

Resident and non-resident subsidiaries’ dividends: if obtained from taxed profits (CIT or WHT), or if the distributing firm is liable to CIT in the country of residency, dividends paid by ‘passing through’ companies are not subject to CIT.

This exemption does not apply to the following items:

• Dividends earned from a corporation based in a jurisdiction with a low or no tax rate;
• Mirco-enterprise taxpayers;
• If the primary objective of a structure or transaction is to take advantage of CIT Law allowances.

Capital gains from resident and non-resident subsidiaries: Gains are treated as ordinary income and are thus taxed when profits are distributed. Apart from shares in a company established in a low or no tax jurisdiction, a real estate company (i.e. more than 50% of the assets are real estate located in Latvia in the financial year of the disposal or the prior year), and shares of investment funds and alternative investment funds, gains on the disposal of shares are tax-free if held for at least 36 months.

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CFC rules in Latvia

Since 2019, Latvia has implemented the EU Anti-Tax Avoidance Directive 2016/1164’s minimum threshold for the Controlled Foreign Company (CFC) requirements. Thus, if a Latvian entity alone or with a related party possesses more than 50% of the shares or voting rights in a foreign entity, or if the Latvian entity alone or with a related party has the right to receive more than 50% of that foreign entity’s profit, or if it is a permanent establishment, it is considered as a CFC.

If the CFC’s profit was derived from an artificial structure designed to gain a tax benefit, it should be taxed at the level of the Latvian entity.

Exemption: if the CFC’s profit does not reach EUR 750,000 and income received from sources other than the sale of products or the provision of services does not exceed EUR 75,000, the CFC is exempt from the CFC laws.

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Other taxes that may be useful

Taxes on imports

Imported items in Latvia are subject to customs duty. Customs duty ranges from 0% to 20% of the value of imported products, depending on their nature and origin. The majority of exports are exempt.

Excise

Excise is a tax levied on certain types of goods, usually in the form of a predetermined sum per unit.*

*excise amount would be different for each product, for precise determination and consultation please consult us.

Real estate tax (RET)

RET applies to:

Engineering constructions such as highways, streets, roads, parking lots, bridges, elevated highways, tunnels, pipelines, communication lines, and power lines, as well as business properties such as land and buildings utilized for economic activity.
Structures that are part of a private housing development (also if owned by a company but not used for living purposes).

The cadastral value of land, buildings, and engineering structures is taxed at a set rate of 1.5 percent.
A progressive rate on dwelling buildings, their parts, and any non-residential building parts that are functionally exploited for living and not for trade or business:

• Up to EUR 56,915, 0.2 percent of cadastral values.
• Between EUR 56,915 to EUR 106,715, 0.4 percent of cadastral values.
• 0.6 percent of cadastral values are higher than EUR 106,715.

If the authorized construction time has elapsed, a 3% RET applies to buildings under construction. The tax is levied until the structure is approved for usage. The rate shall be based on the higher of the cadastral value of the linked land or the cadastral value of the building.

Residential property owned by corporations is eligible for lower rates (0.2 percent to 0.6 percent), but only if it is rented out and tenancy rights are duly recorded in the Latvian Land Register.

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Taxation period & general information

A calendar month is used as the taxation period. Only if a taxable event happens, CIT is due by the 20th calendar date of the next month. With the exception of the last month of the year, if no taxable events occur in a given month, no return is required to be submitted for that month.

Non-business expenses and dividends must be reported monthly, but all other taxable items must be disclosed in the CIT return for the final month of the fiscal year.

Other tax incentives:

1. Free major ports and special economic zones (SEZs) – Riga, Ventspils, Liepaja.
2. Large investment relief (LIR)
3. Donations to public benefit organisations
4. Tax incentive for deductibility of research and development (R&D) costs
5. Foreign tax credit

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Contact our lawyers for tax consulting in Latvia:

E-mail: store@eulawfirm.eu

T. +371 26742086