BDO TAX

Latvia

Tax Facts 2014

Corporate 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

Taxes on income

Corporate income tax

All resident companies

1 2013 2014

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

Dividends from a Latvian company 0%3 0%

Interim dividends - 0%

Dividends from another EU or EEA

company 0% 0%

Dividends from another company in a third

country 0% / 15% 0% / 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 is

established 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 From 2013 income or loss from the sale of shares has no effect on the company’s 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. From 2013

dividends are not taxable.

4

From 2013 dividends received from a non-resident company are not taxed unless the

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

2013 2014

General rate 15% 15%

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

Interim dividends - 0/30%7

Sale of shares in a company 0%

3/2%

4

(of disposal proceeds)

0%3/2%

4

(of disposal proceeds)

Interest income from debt obligations

owed by an affiliated person 0%/5%/10%

5,6 0%/5%

5,6

Interest payable by banks registered in

Latvia to an associated person 0%/5%

5,6 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 are not 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

From 2013 income or loss from the sale of shares has no effect on the company’s 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%). 4

The 2% rate applies where more than 50% of the company’s or other entity’s assets consists

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

the EU or EEA are exempt.

5 As from 1 July 2013 the rate of 10% (for third-country recipient) applied to interest income

from debt obligations owed by affiliated company was reduced to 0%. 6

Starting from 2014 zero the rate applies to third-country recipients unless the recipient

company is 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%) or 5% if the interest payment is made by a credit

institution registered in Latvia). 7

Starting from 2014 it is allowed for companies to distribute interim dividends, Withholding

tax at a rate of 30% is applied to dividends distributed to companies located in a country or territory

recognized by Latvia as a low-tax or tax-free country.

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 which

meet certain criteria to build a transfer price documentation file.

Thin capitalization rules

That part of the interest which exceeds 1.57 times the average annual short-term credit rate is not tax

deductible.

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 has

concluded a convention or a double tax treaty;

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

authority.

Withholding Taxes Cross-border – corporate recipients

Type of payment EU or EEA recipient Third-country recipient

Dividends 0% 15%1

Interim dividends 0% 30%2

Interest 0% 5%/15%3

Royalties 0% 15%4

Rent 5% 5%/15%5

Goods 0% 15%6

Securities 0% 0%/15%7

Remittances of partnership

profits 15%/24%

8 15%/24%

8

Management and consultancy 10%9 10%/15%

9

fees

Proceeds from the alienation

of Latvian immovable

property10

2% 2%

1 Dividends paid to a non-resident company located in a country or territory recognized by

Latvia as a low-tax or tax-free territory will be subject to withholding tax at a rate of 15%. 2

Starting from 2014 it is allowed for companies to distribute interim dividends, Withholding

tax at a rate 30% is applied to dividends distributed to the recipient company located in a country

or territory recognized by Latvia as a low-tax or tax-free territory.

3 Starting from 2014 the zero rate applies for a third-country recipient unless the recipient

company is 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%) or 5% if the interest payment is made by a credit

institution registered in Latvia). 4

As from 1 January 2014 the rate is zero 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%). 5

Tax at a rate of 15% from payments to the recipient company located in a country or territory

recognized by Latvia as a low-tax or tax-free territory shall be withheld. 6

Tax at a rate of 15% from payments to the recipient company located in a country or territory

recognized by Latvia as a low-tax or tax-free territory shall be withheld in case the goods are not

acquired at market price. 7

No tax shall be withheld on securities traded in the EU or EEA from payments to the recipient

company located in a country or territory recognized by Latvia as a low-tax or tax-free territory , in

case the securities have been acquired at market price. Tax at a rate of 15% from payments to the

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

territory shall be withheld in case the securities are not acquired at market price. 8

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

partner is a private individual. 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 has confirmed that the

transaction has not been entered into with the purpose of avoiding Latvian tax. 9

Nontaxable when stipulated in a tax treaty. If paid to a recipient in a territory that Latvia

recognizes as a low- tax or tax-free territory the applicable tax rate is 15%. 10

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. If

paid to a recipient in a territory that Latvia recognizes as a low- tax or tax-free territory the

applicable tax rate is 15%.

Cross-border – individual recipients

Type 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.

Calculating the taxable base

Capital gains Latvia 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

has no effect on the company’s taxable income 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%).

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 estate property are not taxable:

provided he/she owned the property for more than 60 months (from the day when the relevant

immovable property was registered in the Land Registry) and has been his/her declared only

place of residence for at least 12 consecutive months until the day of entering into the

alienation contract;

provided the income is from the alienation of immovable property gained in connection with

the division of property in divorce proceedings if, for at least 12 months before the date of the

alienation, it has been the declared the principal address of both spouses;

when a single property is replaced with a functionally similar property, the income may not be

taxed if investment is made within 12 months from the alienation of the immovable property

or prior to its alienation.;

provided the property has been the personal property for more than 60 months and during the

last 60 months has been person's sole real estate;

income from the alienation of immovable property in accordance with the procedures

specified in the Law On Alienation of Immovable Property for the Public Needs, if he/she

owned the property for more than 60 months (from the day when the relevant immovable

property was registered in the Land Registry) or is invested in a functionally similar property

with 12 months from the alienation of the immovable property.

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 taxes

Latvia has no gift or inheritance taxes. However, gifts received by private individuals from non-

relatives amounting to more than EUR 1425 are subject to the 24 % tax.

Wealth tax There is no wealth tax in Latvia.

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 EUR 50 000

Foreign Nil2

1 21% is into force from 1st of July 2012.

2 Foreign taxable persons not established in Latvia must register if they are engaged in

taxable 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 Taxes

The 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

m², garages (rate varies), land, commercial buildings, technical buildings, toll parking lots (rate 1,5%)

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

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

Less than EUR 56 915 – 0,2%

EUR 56 915 – EUR 106 715 – 0,4%

More than EUR 106 715 – 0,6%

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

for mortgage purposes. As of 1 January 2014 the limitation of the maximum amount of duty to be paid

has been abolished with respect to a certain type of entries regarding real estate. Henceforth no

limitation is foreseen with respect to the land and real estate objects for living. The limitation has been

retained with respect to commercial property – buildings (not intended for living) and land related to

buildings. The maximum duty for commercial property is EUR 42 686,15.

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.