The Latvian taxation system is made up of direct and indirect taxes. These taxes apply at national and regional level and they are based on the Law On Taxes and Duties and the Law On Corporate Income Tax. Other direct taxes that apply are regulated by the European Union.
Latvian companies are levied the corporate tax on their worldwide incomes, but the corporate tax applies to foreign companies conducting business operations also. However, the corporate tax levied on foreign companies applies to the incomes made in Latvia only, while foreign companies making business profits through permanent establishments in Latvia are taxed for the income they make inside and outside the country.
Microenterprises in Latvia are also subject to taxation but at lower rates. The corporate tax for microenterprises was created to replace the social contributions and the business risk state charge. Starting 2013, Latvia adopted the holding regime meaning a different but a more advantageous taxation system applied to holding companies.
The Latvian corporate tax rate is 15%. Branches of foreign companies undertaking business activities in Latvia are subject to the same tax rate of 15%. Microenterprises, however, benefit from a reduced rate of 9%.
The taxable income is calculated based on the profit and losses a company makes throughout the fiscal year adjusted for the nondeductible and nontaxable incomes stated in the Latvian Tax Law. According to the double tax treaties Latvia signed with other countries, tax reliefs and deductions apply on certain incomes made by corporations.
Companies in Latvia are subject also to other taxes. The value added tax is one of them and it is levied at a 21% rate. Other taxes are: the real estate tax levied at different rates ranging from 0.2%, then 0.4% and 0.6% depending on the property’s value. Social insurances are levied at 34.09% on both employers and employees, of which 24.04% is levied on companies and 10% on their employees. Capital gains are taxed at the normal corporate tax rate of 15%, while interests and royalties are subject to rate ranging between 5% and 15%. Dividends benefit from tax exemption in Latvia.
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