Company income tax
Company formation and accounting in Latvia
Last updated: 2018-03-03
Company income tax (CIT) - it is a direct tax, levied on profit (in most cases) of enterprises, as well as certain payments from Latvian enterprises and the use of ships in international transportation and activities associated with transportation.

Payers of the CIT.

Taxpayers are:
  • Commercial companies (LLC, JSC), cooperative societies and other legal persons of private law, which are established and registered or should have been established and registered under the laws of the Republic of Latvia.
    For example, a limited liability company registered in Latvia, is the payer of the CIT.
  • Certain institutions that are financed from the state or the municipal budget.
  • In certain cases, foreign commercial companies, individuals and other entities (non-residents).
    For example, a partnership, registered in Latvia pays to a foreign enterprise or to private persona income, which is received from the participation in the partnership. In such case, the payer - Latvian partnership in general withholds the CIT at the rate of 15% (starting from 1st January, 2018 actual tax rate increases to 25%).
  • Permanent representation of non-residents. In certain cases, a foreign commercial company must pay the CIT in Latvia. For example, if non-resident permanently uses a specific location (eg office) for economic activities .

The tonnage tax payer is Latvian enterprise, to which the State Revenue Service has assigned the status of the payer and if the tax payer:
  • uses own (property, co-ownership or bareboat contract) vessel in international shipping and activities related with international shipping and
  • in Latvia performs certain functions for strategic, commercial, technical or crew management.

The CIT do not need to pay, for example:
  • Latvian private persons,
  • associations and foundations, if the aim of the institution is not making a profit and capital gains for members,
  • religious organizations, trade unions and political parties.

According to legislation that is in force until 31st December, 2017, partnerships also by themselves do not pay the CIT. Corresponding taxes (IT or CIT) must pay partners of a partnership.
According to legislation that is in force from 1st January, 2018, partnerships must withhold tax in case of payment (part) of profit.

Taxable object. For what to pay the CIT?

Starting from Year, 2018 legislation is changed with aim that tax must be paid at the moment of distribution of profit, not at the moment when profit is earned. So if company does not distribute profit, no obligation to pay tax.

Multiple taxable objects:
  • Distributed profit which includes:
    • Calculated dividends, also extraordinary dividends.
    • Payments, related to dividends. For example, in most cases, if a partnership (personal society) pays part of profit to partners. Also if permanent representation of a non-resident pays to the non-resident and such payments are not necessary for activities of the permanent representation.
  • Conditional dividends. Profit (part of profit), for which increase contribution in equity capital. For example, company decided to increase equity capital for (part of) profit. But company must not pay tax when equity capital is increased. For conditional dividends company has obligation to pay tax in following cases:
    • if equity capital is decreased (at first increased, using profit, then decreased);
    • liquidation of the company is finished;
    • the company has received status of a payer of the micro - enterprise tax.
  • Conditionally distributed profit, which includes:
    • Expenses, that are not related with economic activities.
    • Bad and lost debts.
    • In certain cases interest payments.
    • In certain cases loans to affiliated persons.
    • Not received income and incurred expenses in transactions between affiliated persons if price in transactions is not a market price.
    • Benefits, granted by non resident to employees or members of a board (council), if these benefits are related with activities of permanent representation in Latvia.
    • Liquidation quota.
For period, that ends on 31st December, 2017.

Tax rates.

Tax rate is zero, if company does not distribute profit and company does not create conditional dividends and company has no conditionally distributed profit.
Otherwise, according to legislation, general tax rate is 20% from calculated taxable basis, that is divided with 0.8 (so actual tax rate is 25%).
For example, company has profit 100 euro and owner of company decided to pay these 100 as dividends. In such case, to calculate tax, at first 100 must divide with 0.8 (result 125). Then result (125) multiply with 20% and get tax amount 25 euro.

If Latvian company from non-resident buys immovable property, located in Latvia, then Latvian company must pay to Latvian government 3% from purchase price (remuneration).

For period, that ends on 31st December, 2017.

When it is necessary to submit reports and pay tax?

In general taxation period is one calendar month. For some categories of taxpayers (for example, payers of a micro-enterprise tax) taxation period is one quarter.
If a taxpayer has no taxable object, then then the taxpayer has rights not to submit the tax declaration. One exception: must submit declaration for the last month of a year (for December).
If a taxpayer has taxable object, then the taxpayer must submit declaration until 20th day of month following taxation period (month or quarter).

If a taxpayer pays certain payments to non-residents and the taxpayer must withhold CIT from such payments, then the taxpayer must submit declaration until 20th day of month following a month when the payment is made.

A taxpayer must pay calculated tax until 20th day of month following a taxation period (month or a quarter).

For period, that ends on 31st December, 2017.

Privileges.

The taxpayer has the right to reduce the CIT for an amount that is equal to the tax paid in another country. In such case need confirmation document, issued by the tax authority of the foreign country.

A taxpayer in certain cases, has the right to benefits (15% -25%) for the long-term investments made within the scope of a supported investment project.

The legislation also provides the benefit to taxpayers engaged in agricultural activities.

Under certain conditions, the taxpayer is entitled to reduce the CIT in the case of donations.



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