Taxation of Foreign Companies in Latvia
Taxation of Foreign Companies in LatviaUpdated on Friday 21st August 2015
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According to the taxation laws in Latvia, taxes are applied at national and local level. Companies are subject to the corporate tax that applies on the worldwide income of Latvian companies and on the source-income for foreign companies. A foreign company will be taxed on its source-based income only if it has no permanent establishment in Latvia. In 2013, Latvia enabled a new tax regime for holding companies that provides exemptions to certain incomes.
Withholding taxes applied to foreign companies in Latvia
Starting 2013, dividends paid to foreign companies will no longer be subject to the withholding tax in Latvia, unless they are sent to a foreign company in a country that was designated a low tax zone. Dividends are subject to the withholding tax of 10%, if they are distributed to individuals, and 15% if they are paid to foreign companies in countries designated as low tax areas.
In Latvia, interests paid to foreign companies are subject to a 10% withholding tax and 5% if paid by a bank. Foreign companies within the European Union are exempt from paying withholding taxes on interests. Also, starting 2014, interest payments will no longer be subject to withholding taxes unless they are sent to a foreign company in a country designated a low tax zone.
Capital gains earned by foreign companies in Latvia will be levied a withholding tax on the sale of real estate properties located in the country. The tax rate is 2%, if the buyer is a Latvian taxpayer.
Royalties are subject to a withholding tax that depends on the type of intellectual property. The tax rates are 15% or 5%, accoding to the case. For foreign companies registered in EU countries, the withholding tax applied was levied at a 5% rate, but starting 2014 this tax is no longer levied.
Other taxation changes in Latvia
According to the Corporate Income Tax (CIT) in Latvia, until recently profits made from publicly traded shares, bonds and other types of investments by foreign companies located in EEA (European Economic Area) countries were not taxed compared to the same securities bringing profits to foreign companies in other countries. This provision, however, will be modified allowing profits made from securities, other than shares, to become taxable and losses deductible no matter the country the foreign company is registered in. This way, Latvia is trying to keep up with the Maltese and Cypriot special tax regimes applied to holdings and thus attracts more foreign investments.
For details about the new provisions of the Corporate Income Tax, you can contact our lawyers in Latvia.