- 20%Tax rate
- 3 weeksTime of establishment of the company
- 2800€Minimum capital
Latvia, with its capital in Riga, is a European country on the eastern coast of the Baltic Sea. It is one of the three Baltic republics. It borders with Lithuania in the south and Estonia in the north. It has been a member of the European Union since 1 May 2004. Suggested activities include: intra-Community import/export, road transport of goods, employment or construction work.
What to keep in mind
Apart from Estonia and Georgia, Latvia is one of the few countries in the world which apply a CIT tax deferment until the moment of payment of funds from the company to the assets of the shareholders. This has such an effect that conducting business under the assumption of no payments to shareholder’s private assets is not subject to tax.
Company registration procedure
Registration of the company:
- Preparation of articles of association and the company’s statute
- Establishment of company bodies
- Opening of a temporary company bank account to which the capital should be paid in and obtaining confirmation of payment from the bank.
- Submission of an application for registration together with documents to the Commercial Register.
- After the registration of the company, the account type must be changed from temporary to permanent.
No restrictions on the maximum number of shareholders, however, a minimum of one shareholder is required to establish a company. Foreign shareholders are allowed.
The company is managed by a manager or a management board. Only the board management has the right to represent the company externally.
The supervisory board is not required, but if appointed, it must have a minimum of 3 members and a maximum of 20.
The company must have a registration address in the country.
Time to set up a company:
The time to establish a company is about 3 weeks.
The minimum capital is EUR 2800, half of which must be paid up at the time of registration of the company and the rest within a year. It is also possible to establish a company with minimum capital. In this case, the capital is EUR 1, the number of shareholders may not exceed 5, the shareholders are the management board and may not be shareholders in another company with minimum capital.
Taxes and finances
Tax residence of the company
A company is resident if it is registered in Latvia. Residents pay tax on income from both domestic and non-resident activities. Non-residents only pay tax on income earned in Latvia. CIT is not paid until the profits are distributed.
20% Depreciation and amortisation may be carried out using the degressive method (decreasing balance). Depreciation rate is: for buildings, structures and long-term plantations – 10%; power and technology installations, railways, fleet – 20%; computer and electronic equipment, software – 70%; passenger cars, motorcycles, air transport – 30%; other fixed assets – 40%. Take-offs can be deducted for a maximum of 5 years and can only reduce 50% of the distributed profits. Capital gains from the sale of shares are not taxable.
Counteracting tax avoidance
Latvia’s transfer pricing rules largely follow the guidelines issued by the OECD. Documentation is mandatory if the annual turnover exceeds 1.43 million Euros and the value of transactions between the parties is 14300 Euros. The arm’s length principle applies. According to the thin capitalization rules, interest payments will be included in taxation if the debt to equity ratio is greater than 4:1 and the value of interest exceeds one million Euros and 30% of income.
Tax year is a calendar year. A different model of the year may be adopted, but it must always be 12 months. Tax returns are filed and tax is paid monthly (in some cases quarterly) by the 20th day of the following month. The limitation period is 3 years.
Dividends, Interest, Royalties – only residents of tax havens pay 20% tax.
The standard rate is 21% (reduced by 12%, 5%, 0%). Entrepreneurs with an annual turnover in exceeding €40000 are obliged to register. Non-residents supplying taxable products and services are also required to register. The tax return is filed and paid monthly by the 20th day of the following month. In the case of companies with lower turnover, it is possible to submit a quarterly tax return.
- Real estate tax – 1.5% of the cadastral value of the property.
- Stamp duty is levied on the purchase of real estate. The rate is 2% of the sale price or value of the property (maximum 42686 Euro).
- Customs duty is levied on products originating outside the EU. Excise duty is levied on oil and its derivatives, alcohol and alcoholic beverages, tobacco products, coffee, gas.
Latvia is on a par with Estonia – these two Baltic states offer investors the possibility of doing business without taxes as long as the company does not pay its profits to its shareholders. Is this a model to follow?