8/13/2019 Latvia: Tax Facts 2013

1/7

BDO TAX

LatviaTax Facts 2013Corporate income tax Withholding taxes

Capital gains Value added tax Customs and

excise duties Property taxes and property

transfer taxes Natural resources tax Tax on

lotteries and games of chance

8/13/2019 Latvia: Tax Facts 2013

2/7

Taxes on income

Corporate income tax

All resident companies1 2012 2013

Taxable profit, except as specified below 15%2 0, 15%

2

Dividends from a Latvian company 0%3 0%

3

Dividends from another EU or EEA

company0% 0%

Dividends from another company in a third

country0

4/15% 0%

5/ 15%

1 Includes Latvian companies and permanent establishments of foreign companies and any other

entities deriving business income in Latvia. A company is deemed to be resident in Latvia if it isestablished under Latvian law. Resident companies are taxed on their worldwide income; non-

resident companies are taxed on income and gains arising in Latvia (see table below).

Partnerships and cooperative societies are taxed at the level of their partners or members only. If a

partnership distributes business income to a non-resident partner, it must withhold tax at 15%.2 Starting from 2013 income or loss from the sale of shares will have no effect on the companys

taxable profit unless the subsidiary is located in a country or territory recognised by Latvia as a

low-tax or tax-free territory (in such case the applicable tax rate is 15%).3 Provided the distributing company is not enjoying certain special tax reliefs. Starting from

2013 dividends are not taxable.4 The zero rate applies if the recipient company owns at least 25% of the share capital of thedistributing company and the latter is not resident in a country or territory considered by Latvia to

be a low-tax or tax-free jurisdiction.5 Starting from 2013 dividends received from a non-resident company will not be taxed unlessthe distributing company is located in a country or territory recognised by Latvia as a low-tax or

tax-free territory (in such case the applicable tax rate is 15%).

Corporate tax rates (non- residents)1

2012 2013

General rate 15% 15%

Dividends from a Latvian company 10% 0% / 15%2

Sale of shares in a company2%

4

(of disposal proceeds)

0%3/ 2%

4

(of disposal proceeds)

Interest income from debt obligations

owed by an affiliated person5%/10%

5 0%/5%/10%

5,6

Interest payable by banks registered in

Latvia to an associated person5% 0%/5%

5,6

1 Lower rates may apply to dividends, interest and royalties where stipulated by a tax treaty.

2 The zero rate applies to dividends paid to companies resident in another EU or EEA country.

Starting from 2013 dividends paid to a non-resident company will not be taxed unless the

recipient company is located in a country or territory recognised by Latvia as a low-tax or tax-free

territory (in such case the applicable tax rate is 15%).3 Starting from 2013 income or loss from the sale of shares have no effect on the companys

taxable profit unless the subsidiary is located in a country or territory recognised by Latvia as alow-tax or tax-free territory (in such case the applicable tax rate is 15%).

8/13/2019 Latvia: Tax Facts 2013

3/7

4The 2% rate applies where more than 50% of the companys or other entitys assets consists

directly or indirectly of immovable property situated in Latvia. However, shares publicly quoted

in the EU or EEA are exempt.5The rate is 10% (for third-country recipient) if the recipient company is affiliated. If the recipient

of the interest is an EU or EEA company the rate will be reduced to 0 as from 1 July 2013, under

Latvias derogation from the EC Interest and Royalties Directive (2003/49/EC) .6

Starting from 2014 the zero rate applies for third-country recipient unless the recipient companyis located in a country or territory recognized by Latvia as a low-tax or tax-free territory (in such

case the applicable tax rate is 15%).

Transfer pricing rules

Rules apply to residents and non-residents if they are deemed to be related parties. The tax authorities

can adjust the transfer price to market value if goods (services) within a transaction between related

parties are sold below or bought above market price.

The transfer price documentation law was voted in 2012, obliging all international companies whichmeet certain criteria to build a transfer price documentation file.

Thin capitalization rules

That part of the interest which exceeds 1.2 times the average annual short-term credit rate is not taxdeductible.

If the debt-equity ratio exceeds 4:1, the excess interest is treated as non-deductible. If both restrictions

apply, the non-deductible amount is the greater of the two.

Neither rule applies to interest paid by credit institutions or insurance companies, or to interest on loans

obtained from credit institutions registered in Latvia or in another EU Member State or in a country

with which Latvia has concluded a convention or a double tax treaty, with the Latvian Treasury, the

Nordic Investment Bank, the European Bank for Reconstruction and Development, the European

Investment bank, the World Bank group and the Council of Europe Development Bank.

The second rule does not apply to the interest on loans obtained from financial institutions meeting

both of the requirements listed below:

it is registered in Latvia or in another EU Member State or in a country with which Latvia hasconcluded a convention or a double tax treaty;

it provides credit or financial lease services and is supervised by the financial supervisoryauthority.

Withholding TaxesCross-bordercorporate recipients

Type of payment EU or EEA recipient Third-country recipientDividends 0% 0%/15%

1

Interest 0%/5%2,3

0%/5%/10%2

Literary or artistic royalties4 5%

5 0%/15%

6

Other royalties 5%5 5%

6

Rent 5% 5%

Management and consultancyfees

10%7 10%

8

Proceeds from the alienation

of Latvian immovableproperty8 2% 2%

8/13/2019 Latvia: Tax Facts 2013

4/7

Remittances of partnership

profits15%/24%

9 15%/24%

9

1 Starting from 2013 dividends paid to a non-resident company will not be taxed unless therecipient company is located in a country or territory recognised by Latvia as a low-tax or tax-free

territory (in such case the applicable tax rate is 15%).2

The rate is zero if the recipient company is not an affiliate; the rate is 10% (for third-country

recipient) if the recipient company is affiliated, but 5% if the paying company is a bank registered

in Latvia.3

Under Latvias derogation from the EC Interest and Royalties Directive (2003/49/EC), the rate

will be reduced to zero as from 1 July 2013. For affiliated third-country recipients the rate is

reduced to zero in 2014 unless the interest is paid to a recipient in a territory that Latvia

recognises as a low-tax or tax-free territory (in such case the applicable tax rate is 15%).4 Royalties payable in respect of copyrights on works of literature or art, including films, videos

and sound recordings.5 The rate will be reduced to zero as from 1 July 2013.

6The rate is reduced to zero in 2014 unless the royalties are paid to a recipient in a territory that

Latvia recognises as a low- tax or tax-free territory (in such case the applicable tax rate is 15%).7

Nontaxable when stimulated by a tax treaty.8 Includes proceeds from the alienation of shares in a company more than 50% of whose assets

in the current or immediately previous taxable period consist of Latvian immovable property.9

In case the partner is a legal entity, the withholding tax amounts to 15%; the rate is 24% if the

partner is a natural person.

In all cases, if the payments are made to persons resident in a tax haven, the rate of withholding tax

is 15%, unless the State Revenue Service is satisfied that the transaction has not been entered into

with the purpose of avoiding Latvian tax.

Cross-borderindividual recipientsType of income or payment Rate of withholding tax (%)

Employment income 24%

Professional income 24%

Income of artists, sportspeople and trainers 24%

Directors remuneration 24%

Dividends 10%

Interest 10%

Capital gains 15%

Income from alienation of immovable property 2%

Income from the sale of forest and timber 10%1

Other taxable income 24%

1 The 10% rate applies to the owners of the forest whereas the income of intermediaries is taxed

as business income.

8/13/2019 Latvia: Tax Facts 2013

5/7

Calculating the taxable base

Capital gainsLatvia has no separate capital gains tax; where capital gains are taxable, they are subject to the

corporate or individual income tax at the standard rates.

Gains derived from the sale of shares listed on the securities markets of an EU or EEA member state

(including Latvia) are exempt from taxation. Starting from 2013 income or loss from the sale of shares

will have no effect on the companys taxable income unless the subsidiary is located in a country orterritory recognised by Latvia as a low-tax or tax-free territory (in such case the applicable tax rate is

15%).

Taxable capital gains are calculated as the difference between the acquisition and the sales price. The

same principle applies to real estate: the gain is the difference between the acquisition value or the

value at the time the property was developed and the sales price.

In the case of individuals, gains from the alienation of real property are not taxable provided he ownedthe property for more than 60 months (from the day when the relevant immovable property was

registered in the Land Registry) and has been his declared his only place of residence for at least 12

months until the day of entering into the alienation contract.

For non-residents, income from the alienation of Latvian real estate is taxable at a 2% on the alienation

proceeds.

Taxes on capital

Gift and inheritance taxesLatvia has no gift or inheritance taxes. However, gifts received from non-relatives with amount more

than LVL 1000 is applicable with 24%.

Wealth taxThere is no wealth tax in Latvia.

8/13/2019 Latvia: Tax Facts 2013

6/7

Other taxes

Value Added Tax

Rate Applied to

Standard 21%1

Reduced 12%

Certain medicines and medical

equipment, infant food, internal public

transport, supplies of domestic heating,natural gas, books, magazines and

newspapers1.

Zero 0%International passenger traffic, import

and transit goods, export-related

transport etc.

Location of Business Registration threshold

Domestic LVL 35 000

Foreign Nil2

1 21% is into force from 1stof July 2012.2 Foreign taxable persons not established in Latvia must register if they are engaged intaxable transactions; no threshold applies in such situations.

Customs and Excise Duties

Goods imported from non EU countries are subject to customs duties; excise duties apply to certain

products (alcoholic and non-alcoholic beverages, tobacco and oil products). The rates vary with the

type of goods.

Property Taxes & Property Transfer TaxesThe tax is 1,5% of the cadastral value of the immovable property for land and buildings used in a

commercial activity.

Taxable objects are residential apartments and buildings, auxiliary buildings with area exceeding 25

m, garages (rate varies), land, commercial buildings, technical buildings, toll parking lots (rate 1,5%)

uncultivated agricultural land, slums (rate 3%). The minimum tax is LVL 5 (EUR 7,1) per object.

The rate applied to apartments and buildings depends on the cadastral value of the object:

less than 40000 LVL 0,2%

40001 75000 LVL 0,4%

more than 75001 LVL 0,6%

8/13/2019 Latvia: Tax Facts 2013

7/7

The property transfer duty is 2% of the higher of the purchase price, the cadastral value or the valuation

for mortgage purposes. The maximum duty is LVL 30 000.

Natural Resources Tax

Companies engaged in extractive business or which sell resources harmful to the environment

(including plastic packaging etc.) are subject to the natural resources tax.

Tax on lotteries and games of chance

The tax is imposed on enterprises that have a license to organize and run lotteries and games of chance.