New legal developments in real property and tax areas

Valters Gencs Advocate

Riga, April 7, 2005

Buying land in rural areas

Land book register– how to avoid fraud;

Latvian company (SIA (LLC) or AS (JSC)) in which;

capital > 50% of citizens of Latvia;capital > 50% of individuals or legal entities of the Netherlands;capital > 50% of above mentioned persons jointly;

Public joint-stock company.

Riga, April 7, 2005

The transitional period from the 1st May 2004 till 1st May 2011

Citizens from EU as self employed farmers; live in Latvia 3 years and active agricultural activities in Latvia for 3

years. Citizens and legal entities from EU, except

agricultural and forest land; After the transitional period no restrictions

to citizens and legal entities from EU – period may be prolonged for 3 years.

Riga, April 7, 2005

Buying land in city areas

Citizens of Latvia and EU Latvian (SIA (LLC) or AS (JSC)) company or EU

capital > 50% of citizens from Latvia or EU; capital > 50% of individuals or legal entities

from Netherlands; capital > 50% of before mentioned persons

jointly;Buying of building Land book register (no limitations).

Riga, April 7, 2005

Rights of first refusal by municipality

20 days from the receiving of the purchase agreement;

do not apply to the industrial objects;

do not apply, if an undivided share is purchased.

Owner X Owner x Owner y Owner Y

Sells ½ to y

Sells ½ to y on the next day

Riga, April 7, 2005

Joint ownership – rights of first refusal

2 months from the receiving of the purchase agreement

if X sells his part, Y have pre-emption rights

if Y sells his part, X have pre-emption rights

Owner x Owner y

Riga, April 7, 2005

Land owners pre-emption rights

Land and building owners pre-emption rightsif X sells his house, Y have pre-emption

rightsif Y sells his land, X have pre-emption

rights

Owner X

Owner Y

Riga, April 7, 2005

Specific requirements for ports The term of lease agreements may

not exceed 30 years; In sublease agreement rights to

build a property a separate item; Consent from creditors (bank) to

register warehouse in the land book; Port can encumber the land of the

port owned by legal or natural persons with the necessary easements.

Riga, April 7, 2005

Stamp duty & taxes

Sale of shares – no fee; Stamp duty 2 % from the highest value; Fee for moveable fixtures; 9 LVL for the Land book certificate; Costs for the notary public about 10-15

LVL; Costs for several statements 15-50 LVL; Till December 31, 2006 – 1,5% of balance

value.

Riga, April 7, 2005

Checklist

Check, if the property registered with the Land book register, who is the owner, is the property not pledged or otherwise encumbered;

Check, if there are any illegal constructions on the building;

To conclude the deposit agreement (if the seller will breach from the contract, he/she has to pay the deposit back in double amount, but if the buyer will breach from the contract – he/she will loose the deposit);

Riga, April 7, 2005

Checklist

To conclude the purchase agreement and submit it to the persons who have the pre-emption rights;

To sign the registration request by the notary public;

To pay the purchase price in the escrow account or to submit the bank guarantee to the seller;

To register the title of the property with the Land book register;

The bank transfers the money to the account of the seller after receiving the certificate of the Land book with the title of the property on the name of the buyer.

Riga, April 7, 2005

Sale of real property

Payer Offshore/onshore

Tax free income

Sale of real property hold for more than 12 monthLatvian

resident - individual

LV or foreign property

Riga, April 7, 2005

Capital gain

Payer Offshore/

onshore

Tax free income

Sale of shares

Latvian resident - individual

LV or foreign property

Riga, April 7, 2005

Tax free dividends

Dividends

(EU or LV)

- no tax exemptions current or prior year;

- no partnerships.

Latvian resident – tax free

15% corporate tax (LV)

Riga, April 7, 2005

Suspect transactions Cash LVL 40000 (except salary, pension

and social fee); Cash LVL 1000 change of small nominal; Cash LVL 10000 traveler checks purchases; Currency exchange more than LVL 5000; Transfers for LVL 40000 without opening

account or taking from account.

Riga, April 7, 2005

Tax free deposits

Bank Deposits

(EU or LV)

- all foreign (EU) tax is creditable in LV

Latvian resident – tax free

Riga, April 7, 2005

EU Savings Directive

EU will introduce it’s EU Savings Tax Directive on July 1st, 2005.

All EU members (except Belgium, Luxembourg and Austria) will introduce a system of automatic information exchange!

Riga, April 7, 2005

Switzerland -Switzerland’s agreement with the EU

in no way compromises client confidentiality

“termed EU-withholding” for individual clients having an account with a Swiss domiciled Bank, or domiciled in one of the above mentioned three countries.

Riga, April 7, 2005

Withholding tax rates

Such an individual client has the option of voluntary disclosure in order to avoid the following withholding rates:

starting from July 1st, 2005 - 15%; starting from July 1st, 2008 - 20%; and finally from July 1st, 2011 - 35% .

Riga, April 7, 2005

Who is affected?

Account in Switzerland, Liechtenstein, Monaco, Andorra and San Marino and you are domiciled (the country of domicile not the nationality!) in an EU country.

Riga, April 7, 2005

Exceptions

Applies to: Cross-border interest payments to

individuals who are residents in one of the above mentioned countries;

Not applies to : Investment income (dividends); Public and organizations or institutional

investors; To legal entities.

Riga, April 7, 2005

Withholding taxes Dividends 10% or 0% (2 year holding period with 20%

required); Participation in partnership – 15%; Consulting fee – 10%; Interest to related party – 10%; Copyright royalty – 15%; Other royalty – 10%; Use of property – 5%; Sale of real property – 2%; Low tax country 15%, except:

Dividends Interest from bank Supply of goods; Tax clearance received.

Riga, April 7, 2005

List of Low Tax CountriesAndorra Grenada Turks and Caicos IslandsAnguilla Guatemala TongaAntigua & Barbuda Hong Kong UruguayNetherlands Antilles Jamaica VanuatuUnited Arab EmiratesNew Caledonia VenezuelaBahamas Jordan KenyaBahrain Cayman Islands MontserratBarbados Cyprus St.Peter and MichaelBelize Cook Islands SeychellesBermuda Kampione St.Kitts and NevisKuwait Nauru LiberiaPanama Libya San MarinoBritish Virgin Islands Madeira and St.Maria Island BruneyMacao Dominical Republic Republic of MaldivesJersey Marshall Islands St.Vincent and GrenadaEcuador Island of Men St.HelensGuernsey Monaco Tahiti (French Polynesia)Gibraltar Costa Rica

Riga, April 7, 2005

Dutch taxes Progressive Dutch personal income tax rate on labour income amounts to:

1st bracket  (<EUR 16.893) 34,40% (including 32,6% national insurance contribution);

2nd bracket (<EUR 30.357) 41,95% (including 32,6% national insurance contribution);

3rd bracket (<EUR 51.762) 42%; 4th bracket (>EUR 51.762) 52%; Latvian tax 25% - saving from 9,4% to

27%.

Riga, April 7, 2005

E 101 certificate

Sent for 12 month – pay in home country:

Register for social fee in home country;

12 month may be extended to 5 years; Home country company shall send; Close connection to the employer.

Riga, April 7, 2005

Government proposal to abolish Dutch capital tax Contributions to the share capital of Dutch

resident corporate entities are subject to Dutch capital tax at a rate of 0.55%;

On 24 March 2005, the Dutch government announced to issue a proposal to abolish the Dutch capital tax as per 1 January 2006;

The main reason for the proposal is to improve the competitive position of Dutch investment funds as opposed to foreign investment funds.

Riga, April 7, 2005

Thank you for your attention!

For additional information please contact: Valters GencsLaw offices of Valters GencsRiga, Valdemara Center, 3rd floor, Kr.

Valdemara street 21, Republic of Latvia, LV - 1010

Phone: +371 7240090Fax: +371 7240091E - mail: valters.gencs@gencs.lv

www.gencs.lv