Tax benefits for foreign companies in Latvia
Financial year in Latvia starts with the registration of the company to Commercial Register regardless the date and ends on December 31. Income tax is valid for all resident companies and is defined by reported economic result. The corporate income tax rate is 15% and for micro-companies it is 9%.
Since 2013 companies do not pay taxes from dividends, sales of stocks or company shares. Furthermore, since 2014 companies are exempt from paying taxes from licensing, royalties and interests. Latvia, while implementing these rules into its legal system, was inspired by regulations of Cyprus, Malta and other jurisdictions with low tax burden.
The company shall have at least one employee that is being paid. Compulsory social contributions (social tax) together are 34,09%. Employees contribution is 10,50 % and employers 23,59 %. Employer is responsible for payment of social taxes. Companies which are not registered in Latvia (non-residents) have a tax rate that is set according to the profit gained in Latvia and special rates of dividends are stipulated – 10%, management and consulting services – 10%, interests – 10% (commercial banks – 5%), intellectual property rights – 5% (literary and art works, movies, audio and video records – 15%), leasing of property in Latvia – 5%.
While applying special tax rates for foreign investors, the rate according to the Double taxation avoidance agreement shall prevail.
VAT applies to supply of goods, services etc. VAT payer shall be a registered subject whose income exceeds 50 000 EUR in a taxation period. It is possible to be registered as a payer voluntary. Once the registration is done, the payer is obliged to submit tax declaration. By the end of the calendar year tax period for the next year is set (the sum of taxable transactions lower than ca. 14 200 EUR – once per six months; the sum of taxable transactions between 14 200 EUR and 50 000 EUR– once per quarter; the sum of taxable transactions higher than 50 000 EUR or when the company deals with companies from other EU countries – monthly).
The standard tax rate is 21%, reduced rate is 12%, which applies to supplies of gas, heat, wood, medical products, public transport, books, newspaper and accommodation services.
Regarding accounting and audit, companies must keep accounts and have a legal obligation to submit to the Latvian revenue authority annual report, balance sheet and profit and loss account.
Since 2015 in Latvia applies a new procedure of using of benefits resulting from Double taxation avoidance agreements. Non-residents recipients of income resulting from Latvian resource have to deliver a permission about their residence before submitting relevant tax return. Earlier taxpayers had to submit the confirmation while making a payment.
To find out more about tax benefits for foreign companies especially in the Baltics (Estonia, Latvia, Lithuania), please contact our lawyers at email@example.com.
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