Taxation

GENERAL PRINCIPLES

The Taxes and Duties Act, as amended, determines Latvia’s general taxation principles. Specific taxes are assessed according to one of the special tax laws, such as the VAT Act or the Corporate Income Tax Act. If there is a conflict between the general principles and special rules, the latter prevail.

Under the Taxes and Duties Act, duties are imposed by either the state or municipalities. The state is entitled to impose duties on a number of different items, including vehicles, court applications, notary applications, gambling, changes to identification data, reservation of land in rural areas, dealings in vouchers and bills of exchange, immigration services, business licences/permits, registration of security interests, applications for patents, trademarks, or plant protection certificates. Municipalities have the right to apply reliefs in respect of payments which are payable to local government budgets, in line with business-support principles, including to real estate tax*.

*Having regard to the provisions of COMMISSION REGULATION (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid.

STATE TAXES

  1. Company car tax
  2. Corporate income tax
  3. Customs tax
  4. Electricity tax
  5. Excise
  6. Lottery and gambling tax
  7. Microbusiness tax
  8. Natural resource tax
  9. Personal income tax
  10. Real estate tax
  11. Social insurance contributions
  12. Solidarity tax
  13. Stamp duty
  14. Value-added tax
  15. Vehicle operation tax
  16. Withholding tax (part of corporate income tax law)

On 1 January 2017, a separate law was implemented for startup companies. The following state aid programmes are determined by this law:

  • a fixed social tax charge with the employee’s consent;
  • a support programme for attracting highly qualified workers; and
  • a corporate income tax credit and a corporate income tax rebate.

More information about tax rates at State Revenue Service (SRS) website here.

MAIN BUSINESS TAXES IN LATVIA

Personal Income taxDifferential 20%, 23% and 31.4%
Employer’s national social insurance contributions24.09%
Employee’s national social insurance contributions11%
VATThe standard rate of VAT is 21%.
 The reduced rate is 12%.

VAT REGISTRATION

VAT is charged on all transactions made in the course of business. Individuals or entities registered in Latvia with total supplies of goods and services exceeding € 50 000 in a 12-month period are liable to register for Latvian VAT. This total excludes the value of any capital or intangible assets supplied once in the subsequent 12 months. However, companies may register for VAT and charge VAT on supplies made before the threshold is exceeded. Moreover, non-taxable legal entities and individuals registered in Latvia who carry out economic activities are liable to register for VAT if they make intra-Community acquisitions of goods or provide services and the total value of transactions exceeds € 10 000 during the calendar year. Tax can be paid either monthly or quarterly depending on the taxpayer’s specific criteria.

CORPORATE INCOME TAX

As from 2018 a 0% CIT rate is applied to reinvested profit or, in other words, CIT will be paid only when a company pays dividends or other payments with the aim of actual profit distribution (conditionally distributed profit). CIT at the rate of 20% will only have to be paid from the profit share which will be distributed or disbursed as dividends, or used for purposes not directly related to business development.

No other taxes are charged on corporate income by the state or municipalities. Resident companies are taxed on their worldwide income.

Non-resident companies are taxed on their Latvian-source income through a permanent establishment (PE) at the standard rate of CIT. In the absence of a PE, non-residents may be subject to 0–15% withholding tax on qualifying payments (such as management fees and payments to tax havens).

PERSONAL INCOME TAX

Latvian residents are liable to income tax on their worldwide income. Non-residents are liable to income tax on their Latvian-sourced income. Personal income tax is charged at 20%, 23% and 31.4% differential tax rate from January 2018 on employment and other income, with the exception of capital gains.

Dividends, interest and income from life insurance contracts and private pension funds are taxed at 10%. Capital gains on the disposal of capital assets (such as real estate, shares and bonds) are taxed at 20%.

In its annual overview Paying Taxes 2018, PricewaterhouseCoopers has ranked Latvia 1st among Baltic countries with relatively low total tax rates. This means that your company will spend a smaller proportion of its profits on Latvian taxes than it would in most other countries around the world.

Additional information at:
State Revenue Service: www.vid.gov.lv
Ministry of Finance of the Republic of Latvia: www.mfa.gov.lv