Latvia Tax Rates
Latvian residents are liable to personal income tax at a flat rate of 26% on their worldwide income. This includes all income after deductions such as social insurance contributions paid by employee and allowances unless specifically exempt. Non-residents are liable to personal income tax at a flat rate of 26% on their Latvian source income.
The tax year is the same as the calendar year. From 1 January 2008 till 31 December 2009 an income tax rate of 15% applied to the business income of individuals. From 1 January 2010 the income tax rate on trading income is 26%. All residents are entitled to a monthly non-taxable personal allowance, which in 2009 (from 1 July) and 2010 amounts to LVL 35, and an allowance for each dependent LVL 63.
Tax in respect of salaries, bonuses and most other types of payments made by Latvian companies is withheld at source and remitted to the tax authorities. If the recipient of income is registered as a sole trader, he/she is responsible for calculating and paying income tax.
From 1 January 2010 amendments to the Personal Income Tax Act take effect with respect to income from capital. According to these amendments, tax is withheld at source from interest and dividends at a rate of 10%. Bank interest and dividends from Latvian and EU registered companies were previously tax exempt. Dividend income is deemed to be earned when the dividend distribution decision is made (except in respect of dividends of public listed companies). The withholding tax must be paid to the tax authorities by the 5th day of the following month.
From 2010 tax will be charged on capital gains at 15%. A capital gain is the difference between the selling price and acquisition cost of a capital asset, or the difference between any surplus assets received on a company's liquidation and the original investment, or the down payment on a sale that is not completed. Capital assets include shares, investments in partnerships, and other financial instruments, investment fund certificates, debt instruments, real estate, intellectual property.
Non-resident individuals shall pay tax on income (capital gain) from selling real estate and other capital assets, except financial instruments. However, a disposal of shares in a company is deemed to be a disposal of real estate (and thus subject to 15% tax) when real estate comprises more than 50% of the company's total assets either during the year of disposal or in the previous year. The proportion of real estate is calculated at the beginning of the year.
From 2010 a set of rules has been introduced for taxing benefits from private use of company vehicles. For tax purposes a benefit from a company vehicle is gained if it is used for purposes unrelated to employment responsibilities or business. The benefit value depends on the engine capacity and ranges from LVL 40 to LVL 150 per month.
SOCIAL INSURANCE CONTRIBUTIONS
Social insurance contributions are paid by both the employer and employee. The total rate for resident employees is 33.09% of gross employment income (including salary, bonuses, benefits in kind etc.), 9% of which is paid by the individual (withheld from gross salary) and 24.09% by the employer. Special rules apply to Latvian residents employed by foreign companies, foreign nationals employed by foreign companies (performing work in Latvia) and self-employed individuals.
Residence - An individual is resident in Latvia if his/her permanent place of residence is in Latvia or if he/she is present in Latvia for 183 days or more in any 12-month period starting from the date of arrival in Latvia.
Capital gains - A tax of 10% is levied on dividends, interest payments and income from pension and life insurance funds. A 15% tax is levied on gains derived from the sale of capital assets (e.g. real estate, shares, etc.). A 2% tax must be withheld by a Latvian legal entity from the sales price of real property and shares of a real estate company if the seller is a nonresident individual.
Real property tax - The local authorities levy a real property tax equal to 1.5% of the cadastral value of land and buildings. The tax rate for residential property not used for commercial purposes ranges from 0.1% to 0.3%. A 3% tax is levied on agricultural land not in use.
Stamp duty - A stamp duty of 2% is levied on the higher of the sales price or cadastral value when real property is registered in the land register, but capped at LVL 30,000. Stamp duty is also levied on the registration of a mortgage.
Capital acquisitions tax - No
Inheritance/estate tax - No
Net wealth/net worth tax - No
Filing and payment - The annual income tax return is due by 1 April following the tax year. The tax is due within 15 days after the tax return is submitted, but the actual tax payment may be divided into 3 monthly instalments. Tax on capital gains is paid on a monthly and quarterly basis. Wage tax, social security contributions and some of the tax on income from capital is withheld at source by the company.
Tax Penalties - Interest of 0.05% is imposed daily on late payments. Tax fines may be charged as the result of a tax audit of up to 100% of the tax due.
Latvia Corporate Tax
Latvia company tax rate is a flat 15%.
A company is resident in Latvia if it is registered, or required to be registered, in Latvia. Resident taxpayers are subject to corporate income tax on their worldwide income. Foreign entities are subject to tax on income earned in Latvia. Branches of foreign entities are subject to tax on worldwide income attributable to the branch.
Companies may choose the accounting and taxation period which does not necessarily have to be the calendar year and the length of the taxation (accounting) period is 12 months. Only the first accounting period can be longer than 12 months (subject to a maximum of 18 months). Taxable income is based on accounting profit which is adjusted according to the provisions of the Corporate Income Tax Act. Tax is charged on profits at the rate of 15%. Companies are required to make advance payments of tax based on the prior year tax amount.
Shipping companies may alternatively apply tonnage tax.
CAPITAL GAINS TAX
Capital gains are treated as ordinary income and taxed accordingly (see company tax). Gains are tax exempt if derived from the sale of securities quoted on a recognised stock exchange in Latvia or another EEA country.
BRANCH PROFITS TAX
Branch offices are treated as domestic companies. Branches of foreign entities are subject to tax on worldwide income attributable to the branch.
FRINGE BENEFITS TAX
Most fringe benefits granted to employees are subject to payroll taxes. A few benefits are tax exempt. These include health and accident insurance premiums paid on agreements concluded by employers on behalf of their employees; and contributions to private pension funds or life insurance premiums on the employee's behalf. Health and Life insurance premiums and contributions to private pension plans that are no higher than 20% are not subject to payroll taxes. Certain conditions need to be met and health and accident insurance premiums may not exceed LVL 300.
LOCAL TAXES
Local authorities are permitted to levy stamp duties. They may be levied on the following: obtaining a building permit; placements of advertisements at public locations; organising public trading events etc.
REAL ESTATE TAX
Real estate tax is paid by Latvian and foreign companies and individuals that have title (registered with the Land Registry) or legal possession of real estate in Latvia i.e. land, buildings and engineering structures - roads, bridges, pipelines, communication lines, power station structures, fences etc.
THE STANDARD RATE OF REAL ESTATE TAX IS 1.5%
Tax is calculated on the cadastral value of land, buildings, and engineering structures. Engineering structures were exempt of tax in the period from 1 January 2007 till 31 December 2009. Some classes of real estate remain exempt of tax, such as state or municipal real estate used for performing certain functions.
Newly built or reconstructed buildings used for business purposes qualify for a one year tax relief from the date that the construction is completed.
From 1 January 2010 residential houses and apartments not used in businesses are also subject to real estate tax.
Progressive rate has been set for residential houses, and any parts of non-residential buildings that are functionally used for living and not used in a trade or business:
- 0.1% of cadastral values up to 40,000 lats;
- 0.2% of cadastral values exceeding 40,000 but not exceeding 75,000 lats; and
- 0.3% of cadastral values exceeding 75,000 lats.
A double rate of 3% applies to uncultivated land capable of agricultural use.
OTHER TAXES
Stamp duty is payable on registration of title to real estate with the Land Book at 2% of purchase price (or cadastral value if higher), up to a maximum of LVL 30,000.
DETERMINATION OF TAXABLE INCOME
Taxable income includes income from all activities of the company and capital gains. The accounting profit before tax (as per the income statement) is adjusted in accordance with the corporate income tax rules.
DEPRECIATION
For tax purposes, tangible fixed assets used in a business should be depreciated using the reduced balance method. The rates are as follows:
Type of assets Rate (%)
Buildings, structures and perennial plantings 10
Technology and energy installations, fleet, railway 20
Computer hardware and software 70
Oil exploration and extraction platforms 15
Aircraft, light motor vehicles in general 30
Other fixed assets 40
Starting from year 2006, there is an incentive for the acquisition of new production technological equipment. For tax depreciation purposes, the amount to be depreciated is the cost of equipment multiplied by a coefficient.
The coefficient to be applied in respect of equipment acquired in 2009 to 2013 is 1.5. Such equipment may not be sold within the next five years from acquisition in order to benefit from the enhanced allowances.
No capital allowances are available on investment property accounted for at fair value.
From June 2007 a representative vehicle (car) worth more than (cost exceeds) LVL 25,424 excluding VAT may not be depreciated for tax purposes and all costs associated with their usage and maintenance shall be treated as non-deductible expenses for income tax purposes.
From 2010 there are incentives for shareholders to reinvest profits in companies.
Businesses will be able to reduce their taxable income by a notional amount of interest that a taxpayer would have to pay on a loan equal to his prior-year undistributed profit. This adjustment is calculated by multiplying the annual weighted average rate of interest on loans in lats issued to non financial Latvian businesses as determined by the Bank of Latvia for the tax period, and undistributed profits from previous periods beginning after 31 December 2008.
Intangible assets should be depreciated on a straight-line basis over the following period:
Type of intangible assets Years
Concessions 10
Patents, licenses and trademarks 5
Research and development costs 1
Any other intangible assets, which are not included in the above categories, cannot be depreciated for tax purposes.
STOCK/INVENTORY
Inventories are generally valued at the lower of cost and market value. Cost may be determined on the basis of FIFO or weighted average cost (as per accounting rules). Unrealised loss (amount of write-down to market value) is not deductible for income tax purposes.
CAPITAL GAINS AND LOSSES
Capital gains are, in general, taxable as ordinary income. However, gains derived from the sale of publicly traded securities are exempt from tax. Capital losses on taxable securities (other than publicly traded securities) may only be set off against gains on other taxable securities. Net capital losses on securities of a tax year may be carried forward for eight years to be set off against gains on other taxable securities. However, losses from the sale of securities are deductible in the current year if the company has held these securities for at least 12 months and there has been only one such transaction in the taxation period.
From 2009, payment of tax on profits arising on the sale of an asset may be deferred if the company acquires a functionally similar asset within 12 months before or after the old equipment is disposed of. The gain is rolled over into the base cost of the new asset and becomes chargeable when the new equipment is sold. This provision does not apply to works of art, antiques, jewellery, investment properties, long term investments held for sale; motorcycles, watercraft, aircraft, and light passenger vehicles. Capital losses on other assets are deductible from ordinary income.
DIVIDENDS
Dividends received from resident companies are not taxed in the hand of resident corporations and individuals. Dividends earned by foreign shareholders are subject to a 10% withholding tax in Latvia unless a reduced rate is allowed under a particular double tax treaty. Tax is withheld at the time of dividend payment. Dividends paid by Latvian companies to EU-resident companies are exempt from withholding tax.
INTEREST DEDUCTIONS
There are thin capitalisation rules for interest deductions. Interest charges exceeding statutory limits are not deductible for tax purposes. There are two restrictions on interest deduction with which the company should comply (if taxable income requires adjustments under both criteria, it should be adjusted only for the larger amount):
- interest paid is disallowed to the extent that it exceeds the amount of the relevant loan multiplied by 1.2 times the average short-term bank interest rate for the last month of the taxable period, as determined by the Central Statistics Board
- taxable income should be adjusted where the associated liabilities exceed four times the shareholders' equity at the beginning of the tax year, less any revaluation reserve and any other reserves not made as a result of profit. The restriction does not apply to interest paid to credit institutions, including EU registered credit institutions. During 2007 - 2009 interest paid to residents of Latvia was fully deductible.
From 1 January 2010 the following interest payments will be fully deductible:
- Interest paid on borrowings from credit institutions in Latvia, other Member States, EEA member states or countries with which Latvia has an effective double tax treaty (DDT);
- Interest paid on borrowings, leases from a financial institution which 1) is a resident of Latvia, EU Member State, EEA or a country with which Latvia has a DDT;
2) provides lending services or finance leases and is monitored by the particular country's bodies formed to supervise credit institutions or the financial sector;
- Interest paid on debt securities in public trading.
Any amount exceeding the allowed interest for the tax period cannot be carried forward.
LOSSES
Tax losses generally can be carried forward for eight years. A loss on disposal of shares (except shares of public listed companies) may only be set off against gains on other taxable securities. The loss can be carried forward for eight years in chronological order and set against profits from the sale of other shares (except shares of public listed companies which are treated separately). However, if shares have been held for more than 12 months and the company does not make regular sales of shares (no more than once a year), any loss can be treated as deductible for income tax purposes.
FOREIGN SOURCED INCOME
Tax is levied on resident companies on all profits arising from foreign sources in the same way as income from Latvian sources.
INCENTIVES
Research and development costs related to the economic activity of the taxpayer may be written off in the year in which they are incurred. Where the value of a project is not included in the value of fixed assets, research and development costs include costs related to the preparation of technical documentation.
FOREIGN TAX RELIEF
Foreign income tax suffered at source may be credited against the corporate income tax charge calculated for a taxation year. Relief for tax paid abroad is available upon presentation of documents provided by the competent tax authority of the country concerned and evidencing the amount of foreign tax suffered. The amount credited is calculated for each country separately and may not exceed the Latvian tax on such income.
CORPORATE GROUPS
If a number of specific criteria are met, a loss-making resident company within a group can transfer tax losses for the current year to another resident member company generating taxable profits. Each company should file a separate appendix to the income tax return after group relief has been applied. Direct or indirect ownership of at least 90% is a necessary condition for membership of a group. The parent must be a resident individual or legal entity or resident in a country with which Latvia has a double tax treaty. The main conditions that must be met in order to transfer tax losses include:
- the two resident companies involved in the transfer of the tax loss must be members of the same group for the whole taxation year in which the loss has been incurred
- these companies must have the same taxation year end
- the companies must not have tax debts
RELATED PARTY TRANSACTIONS
In respect of related party transactions, the following are not deductible for tax purposes: loss on sale/purchase of goods/fixed assets/services at below/above market price to nonresident related parties or resident related parties enjoying tax holidays. The same applies to transactions between related companies (residents) that form a tax group.
WITHHOLDING TAX
Withholding tax is levied on the following payments made by Latvian residents to non-residents:
Dividends 10% (0% if payments to EU registered companies)
Management and consulting services 10%
Interest payments to related companies (non banks) 10% (if payments to EU related companies - 5% from 1 July 2009)
Bank interest payments to related banks 5%
Copyright 15% (10% if EU registered related company) Other intellectual property 5%
Rental payments (in respect of property 5%
located in Latvia)
Sale of real estate 2% of proceeds of sale (includes also income from sale of shares of companies
where real estate comprises more than 50% of company's total assets)
The rates given above are standard rates. If a double tax treaty exists between Latvia and the relevant country, reduced rates or exemptions may be applied. A Latvian company paying the income to a non-resident company can apply these exemptions / lower tax rates only if the recipient of income has submitted the valid residence certificate stating that the recipient is resident in that country (certificate to be approved by tax authorities) before the actual payment is made.
A residence certificate should be approved by the local State Revenue Service office and is valid for five fiscal years.
Withholding tax is levied at the overall corporate income tax rate (15%) on all payments to entities located in tax havens unless specifically exempt.
Latvia Sales tax / Value Added Tax (VAT)
The general rate of VAT in Latvia is 21%. A reduced rate of 10% is applied to certain products and services such as medical goods (according to the list approved by the Cabinet of Ministers), baby food, supplies of books, mass media, inland public transportation services, supplies to individuals of heating, electricity and natural gas. Exports and related services are zero-rated.
Several types of supplies are VAT exempt. These include sale of land (except development land with building permission issued after 31 December 2009) and used real estate; supply of medical services; rental of apartments to individuals; and most banking and insurance services. Intra-Community supply of goods (to a customer registered as a VAT payer in another Member State) is zero-rated.
A transaction that involves a Latvian taxable person acquiring goods in Latvia from a taxable person registered in another Member State will qualify as an intra-Community acquisition within the meaning of the VAT Act. When the Latvian taxable person receives the goods from a supplier, this person will charge VAT on the acquisition and will recover this amount as input tax in the same month (reverse charge accounting).
26%
15%
21%
Latvia
Income Tax Rate
Latvia
Corporate Tax Rate
Latvia
Sales Tax / VAT Rate
Last Update: Nov 2010
(This page may show previous year's tax rates. Always check last update time)
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