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LATVIA
Tax facts 2012
Corporate income tax • Withholding taxes
• Value added tax • Customs and excise duties
• Capital gains • Natural resources tax
• Property taxes and property transfer taxes
• Tax on lotteries and games of chance
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Taxes on incomeCorporate income tax
Latvia
Tax facts 2012
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 Starting from 2013 income or loss from the sale of shares will have 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.4 The zero rate applies if the distributing company is of a type listed in Annex 1 to the EC
Mergers Directive (90/434/EEC) or liable to a tax similar to Latvia’s corporate income tax
and is not also resident in a third country.5 The zero rate applies if the recipient company owns at least 25% of the share capital of the
distributing company and the latter is not resident in a country or territory considered by
Latvia to be a low-tax or tax-free jurisdiction. Starting from 2013 dividends received from a
non-resident company will not be 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%).
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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 will have 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 consistsdirectly or indirectly of immovable property situated in Latvia. However, shares publicly
quoted in the EU or EEA are exempt.5 The 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 Latvia’s derogation from the EC Interest and Royalties Directive (2003/49/EC).
Taxes on incomeCorporate income tax
Latvia
Tax facts 2012
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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 within a transaction between related parties are sold below or boughtabove market price.
Thin capitalization rules
That part of the interest which exceeds 1.2 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 com-
panies, 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 Develop-
ment, 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 finan-
cial 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.
It is likely that a transfer price documentation law will be voted in 2012,
obliging all international companies which meet certain criteria to build a
transfer price documentation file.
Taxes on incomeTransfer Pricing rules
Latvia
Tax facts 2012
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1 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%).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 Latvia’s 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 2013.6 The 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 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.8 In case the partner is a legal entity, the withholding tax amounts to 15%; the rate is 25% 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 with-
holding 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.
Withholding TaxesCross-border – corporate recipients
Latvia
Tax facts 2012
Employment income
Professional income
Income of artists,sportspeople and trainers
Directors’ remuneration
10%10%
0%/5%/10%20%/5%2,3
15%65%5
5%5%
Dividends 5%5%
Type of payment
Interest
Capital gains
10%10%
2%2%
Income from alienation
of immovable property15%/25%815%/25%8
EU or EEArecipient
Third-countryrecipient
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1 The 10% rate applies to the owners of the forest whereas the income of intermediaries is
taxed as business income.
Withholding TaxesCross-border – individual recipients
Latvia
Tax facts 2012
Dividends
Interest
Literary or artistic royalties4
Other royalties
25%
25%
25%
25%
Rent 10%
Type of income or payment
Management and consultancy fees
Proceeds from the alienation
of Latvian immovable property7
10%
15%
Remittances of partnership profits 2%
Income from the sale
of forest and timber
10%1
Other taxable income 25%
Rate of withholding tax (%)
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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 anEU 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
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 property: 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 owned the property for more than 60 months (from the
day when the relevant immovable property was registered in the Land Regis-
try) 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 tax-
able at a 2% on the alienation proceeds.
Taxes on capitalGift and inheritance taxes
Latvia has no gift or inheritance taxes.
Wealth tax
There is no wealth tax in Latvia.
Calculating the taxable baseCapital gains
Latvia
Tax facts 2012
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1 Foreign taxable persons not established in Latvia must register if they are engaged intaxable transactions; no threshold applies in such situations.
Other TaxesValue Added Tax
Latvia
Tax facts 2012
Standard
Reduced
Zero
22%
Certain medicines and medical equipment,
infant food, internal public transport,
supplies of domestic heating, natural gas,
books, magazines and newspapers1.
12%
International passenger traffic, import and
transit goods, export-related transport etc.0%
Rate Applied to
Domestic
Foreign
LVL 35 000
nil1
Type of income or payment Rate of withholding tax (%)
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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 LVL 5 (EUR 7,1) per object.
The rate applied to apartments and buildings depends on the cadastral value
of the object:
less than 40’000 LVL – 0,2%
40’001 – 75’000 LVL – 0,4%
more than 75’001 LVL – 0,6%
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.
Other TaxesCustoms and Excise Duties
Latvia
Tax facts 2012