Latvia tax system: audit, reporting and optimization of taxation of Latvian companies and individuals: VAT, income tax and capital gains

Basic taxes (briefly)

Personal tax 20-31%
Corporate tax (in detail) Income tax rate is 20%
Capital gains tax. Details included into the corporate tax base
VAT. Details The standard VAT rate is 21%. Reduced rates of 12% and 5% apply to some goods and services
Other taxes Social contributions, Real estate tax
Government fee No
Stamp duty 2% (registration of property)

International tax agreement

Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, Croatia, Czech Republic, Cyprus, Denmark, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Kazakhstan, Korea (Republic of), Kuwait, Kyrgyzstan, Lithuania, Luxembourg, Malta, Mexico, Moldova (Republic of), Montenegro, Morocco, Netherlands, Norway, Poland, Portugal, Qatar, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Viet Nam
   
Guernsey, Jersey


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Personal Income Tax

Tax residents of Latvia pay tax on their worldwide income, non-residents – on income from sources in Latvia.

The income tax rate is:

  • 20% for income up to EUR 20,004;
  • 23% for income between EUR 20,004 and 78,100 and
  • 31% for income over EUR 78,100.

Gains from the sale of assets, interest income, and dividends are taxed at the rate of 20%.

No tax is paid on dividends if dividends are distributed out of profit already subjected to corporate income tax and the distributing company is not from a low-tax jurisdiction.

Income from significant participation in foreign controlled companies located in low-tax jurisdictions is included in taxable income at progressive tax rates. Control arises when holding at least 25% capital or voting rights in the company, or otherwise exercising control over it, or having a right to substantial profit of the company.

There are exemptions for ownership through companies listed on the EU / EEA exchanges.

Corporate Income Tax

The corporate income tax rate is 20%.

No tax is paid until dividends are distributed. For this purpose, deemed distribution of dividends includes non-business expenses, interest payments exceeding certain limits, transfer pricing adjustments, assets transferred abroad, etc.

Gains from the sale of assets are included in the general tax base. Profit from the sale of shares may be exempt provided they have been held for at least 36 months.

Received dividends can be excluded from the tax base, except for dividends received from blacklisted countries.

CFC Rules

A Latvian company that owns, directly or indirectly, solely or jointly with related parties, more than 50% of shares, voting rights or rights to profit of a foreign company must include the corresponding portion of the CFC's profits in its tax base if the foreign company is used in an artificial arrangement aimed at reducing the corporate income tax, whereas significant functions are carried out in Latvia.

CFC’s profits are exempt from tax if they do not exceed EUR 750,000 and passive income does not exceed EUR 75,000. This exemption does not apply to CFCs from blacklisted countries.

Withholding Tax

Payment of dividends, interest, and royalties is not subject to withholding tax unless such payment is to a blacklisted country. In this case, the tax is withheld at the rate of 20%.

VAT

The standard VAT rate is 21%.

Some goods and services are subject to the reduced rates of 12% and 5%.

Social Security Contributions

Generally, social security contributions are 23.59% for the employer and 10.5% for the employee. No contribution is payable on remuneration exceeding EUR 78,100.

Any remuneration exceeding EUR 78,100 is subject to solidarity tax throughout the year at the same rates as set for social security contributions. However, the general rate is 25%, and the excess tax paid is refunded after the end of the year.

Immovable Property Tax

Immovable property tax is paid on land, buildings, and engineering structures.

Municipalities can set tax rates from 0.2% to 3%.

An additional 1.5% tax may be imposed on uncultivated land.

Stamp Duty

Stamp duty applies to certain legal services, lawsuits, licences, immovable property registrations, and more.

Stamp duty on the sale of immovable property is 2% of the sale price or cadastral value, whichever is higher.

Double tax agreements

The Czech Republic has entered a number of double tax and tax information exchange mechanisms:

61 DTCs: Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, Croatia, Czech Republic, Cyprus, Denmark, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Kazakhstan, Korea (Republic of), Kuwait, Kyrgyzstan, Lithuania, Luxembourg, Malta, Mexico, Moldova (Republic of), Montenegro, Morocco, Netherlands, Norway, Poland, Portugal, Qatar, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Viet Nam.

2 TIEAs: Guernsey, Jersey.

Exchange Control

Foreign exchange transactions can generally be made without restrictions.

    Taxes of Latvia

    Min. rate for corporate tax 20%
    Capital gains tax Regular rate
    VAT 21%
    Withholding tax 0%/0%/0%
    Exchange control No
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