The taxation of companies in Latvia is quite advantageous for both domestic and foreign businesses. While Latvian companies are levied the corporate tax on their worldwide income, foreign companies are taxed for the incomes they make in the country. One of the benefits of the taxation system in Latvia is that companies are allowed the possibility to choose the taxation period and its length that do not necessarily have to be 12 months. The taxable income for companies in Latvia is calculated on the profit adjusted according to the Corporate Income Tax Act. The normal tax rate for companies is 15%.
Starting January 2013, dividends are no longer taxed in Latvia, if some requirements are met. One of these requirements refer to the fact that a Latvian company must send the dividends to a foreign country that is not registered in a tax haven.
Also, dividends received from a company registered in a country that is not considered a tax haven will be exempt from taxation. Among the countries considered tax havens, according to the Ministry Regulation No. 276/2001, are: Andorra, the United Kingdom, the British Virgin Islands, the United Arab Emirates, Belize, Bahamas, the Dominican Republic, Hong Kong, Liechtenstein, Monaco, Panama and Gibraltar.
Until 2013, only countries in the European Union and in the European Economic Area were exempt from the withholding tax applied to dividends, but foreign companies sending dividends in non-EU and non-EEA countries were subject to a 10% or 15% withholding tax rate.
Starting 2013, the taxation of dividends sent to companies incorporated in low-tax or no-tax countries will be subject to a withholding tax of 15% instead of the 10% tax rate. The tax rate for dividends paid to non-resident shareholders is 10%.
Companies are also applied other withholding taxes in Latvia beside the dividend tax. Withholding taxes apply on interests, capital gains and royalties. Individuals are applied tax rates of 10% on interests, while royalties are taxed at rates that range between 15% and 40%. Companies are levied withholding taxes that range from 5% to 10% on interests and 5% to 15% on royalties.
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