| Latvia Income Tax Personal income tax in Latvia has 2 flat rates for 2009. The tax rate is:
- 23% for employment income, and
- 15% for economic activities income.
The taxation period is one calendar month (provided there are employment relations) or one calendar year (in other cases).
Taxable basis is 1) employment income, 2) income from economic activities, 3) other income in accordance with the Paragraph 3 of the law on Latvian 'Personal Income Tax'.
Resident individuals are taxed on employment income and any other worldwide income; nonresidents are taxed only on income sourced in Latvia. Each individual must file a tax return separately, joint filing for spouses is not permitted.
Social insurance contributions: The rate of mandatory contributions, if an employee is insured against all types of social insurance is 33.09% of which 24.09% are paid by an employer and 9% - by an employee. The 28.30% mandatory contributions rate for persons eligible to age pension, of which 20.60% are paid by an employer and 7.70% - by an employee. Other rates in accordance by the law 'On State Social Insurance'. Taxable basis is Income gained by an employee from which one deducts personal income tax and income of a self-employed person.
Capital gains tax: A tax of 23% is levied on gains derived from the sale of a real property (if not treated as 'property used as a habitual residence for personal purposes') and shares in a real property company. The tax rate is 15% if the individual is registered as an entrepreneur and a 2% tax must be withheld by a Latvian legal entity from the sales price of the real property, if the seller is a nonresident individual. Minor tax deductions and tax allowance are granted.
Tax year: Tax year is the calendar year.
Capital Acquisitions tax: There is no Capital Acquisitions tax in Latvia.
Real Property Tax: Local authorities levy a real property tax equal to 1% of the cadastral value of land and buildings. From 1 January 2007, structures are exempt from tax. Newly built or reconstructed buildings used for business purposes qualify for a one year tax relief from the date that the construction is completed. The taxation period is the calendar year. Residential houses and apartments not used in business are exempt from real estate tax.
Inheritance tax / Estate tax: There is no Inheritance tax / Estate tax in Latvia.
Net wealth / net worth tax: There is no Net wealth / net worth tax in Latvia.
Latvia Corporate TaxLatvia has a flat 15% tax rate for corporate income:
- 15% of the taxable income for residents
- 2% - 15% for non-residents
Taxable income of a taxpayer is the profit from economic activities deducting the economic activities related expenditure.
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.
Taxation of Dividends: Dividends are exempt from tax if received from domestic subsidiaries or EEA countries. Dividends received from nonresidents in third countries also are tax exempt if the Latvian recipient holds more than 25% of the capital and voting power of the payer and the payer is not located in a 'black list country'. Other dividends are taxed at a 15% rate, with a credit for foreign tax withheld.
Capital Gains Tax: 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 five 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.
Capital losses on other assets are deductible from ordinary income.
Losses may be carried forward for 8 years. The carryback of losses is not permitted. 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 8 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.
Foreign Tax Credit: A foreign tax credit is available for tax paid abroad, but the tax credit is limited to the lower of the foreign tax paid and the Latvian tax attributable to the foreign income before credit.
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.
Withholding taxWithholding tax is levied on the following payments made by Latvian residents to non-residents:
- Dividends: 10%
- 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 located in Latvia): 5%
- 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.
Sales tax / Value Added Tax (VAT) in LatviaThe general rate of VAT is 21%. A reduced rate of 10% is applied to certain products and services, also a 'Zero rate VAT' with the right to deduct VAT is applied on certain conditions.
Standard VAT rate of 21% applies to:
1) supply of goods, also self supply;
2) supply of services, also self-supply;
3) any import of goods from places outside the European Union;
4) acquisition of goods within the territory of the European Union;
5) acquisition of new means of transport by any non-taxable person in the territory of European Union.
Reduced VAT rate of 10% applies to:
1) medicaments, medical devices and goods, specialized products intended for infants. According to the list approved by the Cabinet;
2) newspapers, journals, bulletins and other periodicals (Until 31.12.2009.);
3) domestic public transport services;
4) supply of heat, electricity and natural gas to inhabitants. Zero VAT rate (with the right to deduct VAT) applies to:
1) export and supplies of goods not released for free circulation;
2) services, related to import of goods, export, transit conveyances;
3) services the place of supply is not inland;
4) refueling of ships and supply of goods intended for provision;
5) international carriages of passengers;
6) import of electricity or import of natural gas;
7) supply of goods within the territory of European Union to the taxable customer.
VAT Exemptions (without the right to deduct VAT):
1) social care, rehabilitation and social support services;
2) education services;
3) fees pre-school institutions;
4) entry fees for theatre, circus performances, concerts, exhibitions, Museums,
5) library services,
6) insurance services;
7) postal services provided by Latvijas pasts;
7) payments of inhabitants for rent of living facilities;
8) financial Services.
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