BDO TAX

Latvia Tax Facts 2013

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 companies1 Taxable profit, except as specified below Dividends from a Latvian company Dividends from another EU or EEA company Dividends from another company in a third country
1

2012 15%
2

2013 0, 15%2 0%3 0% 0%5 / 15%

0%3 0% 04/15%

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; nonresident 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 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. 5 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%).

Corporate tax rates (non- residents) 1 General rate Dividends from a Latvian company Sale of shares in a company Interest income from debt obligations owed by an affiliated person Interest payable by banks registered in Latvia to an associated person
1 2

2012 15% 10% 2%4 (of disposal proceeds) 5%/10%5 5%

2013 15% 0% / 15%2 0%3 / 2%4 (of disposal proceeds) 0%/5%/10%5,6 0%/5%5,6

Lower rates may apply to dividends, interest and royalties where stipulated by a tax treaty. 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 a low-tax or tax-free territory (in such case the applicable tax rate is 15%).

The 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. 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 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 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%). 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 1.2 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 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 Dividends Interest Literary or artistic royalties4 Other royalties Rent Management and consultancy fees Proceeds from the alienation of Latvian immovable property 8 EU or EEA recipient 0% 0%/5%2,3 5%5 5%5 5% 10%7 Third-country recipient 0%/15%1 0%/5%/10%2 0%/15%6 5%6 5% 10%8

2%

2%

Remittances of partnership profits

1

15%/24%9

15%/24%9

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 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. 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 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-border individual recipients

Type of income or payment Employment income Professional income Income of artists, sportspeople and trainers Directors remuneration Dividends Interest Capital gains Income from alienation of immovable property Income from the sale of forest and timber Other taxable income
1

Rate of withholding tax (%) 24% 24% 24% 24% 10% 10% 15% 2% 10%1 24%

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 will have no effect on the companys 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 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 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 taxes
Latvia has no gift or inheritance taxes. However, gifts received from non-relatives with amount more than LVL 1000 is applicable with 24%.

Wealth tax
There is no wealth tax in Latvia.

Other taxes
Value Added Tax
Rate Standard 21%1 Certain medicines and medical equipment, infant food, internal public transport, supplies of domestic heating, natural gas, books, magazines and newspapers1. International passenger traffic, import and transit goods, export-related transport etc. Applied to

Reduced

12%

Zero

0%

Location of Business Domestic Foreign

1

Registration threshold LVL 35 000 Nil2

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 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%

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.