Company formation and accounting in Latvia
Last updated: 2017-11-28
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?

For period, that ends on 31st December, 2017.
Latvian companies and permanent representations of foreign enterprises in Latvia must pay the tax for whole received taxable income.
In the income statement (annual report), the company calculates a profit or loss before taxes.
Then, based on the calculated amount of profit or loss, the company fills out the company income tax declaration.
In the declaration, the amount of profit or loss increases or decreases according to legislation. The resulting final amount is subject to the CIT.

Tonnage tax payers pays the CIT from profit and also the CIT for the use of ships in international shipping and for specific actions (functions) related with the use of ships.

Companies that are registered as payers of the micro-enterprise tax pay the micro-enterprise tax from the income from economic activities (usually, from net turnover). A part (4.9%) of the paid micro-enterprise tax is used to pay the CIT.

If Latvian residents and permanent representations pay certain (below mentioned) payments to non-residents, then Latvian residents and permanent representations must withhold the CIT from the entire amount of the payment, if from the payment not withheld the personal income tax. The payments are following:
  • Income from participation in a partnership.
  • Certain payments (for example, profit) from cooperative societies.
  • Payment for management and consultation services.
  • The remuneration for the use of real estate and other property, which is located in Latvia. There is an exception and no obligation to withhold the CIT, if Latvian person pays to a non-resident for the lease of an aircraft, which is used in international transportation. And also do not need to withhold the CIT from the payments for the rights to use or for the use of industrial, commercial or scientific equipment.

The nuance in relation to payment for the management and consultation services and compensation for the use of the property, which is located in Latvia.
A resident of the European Union or country with which Latvia has entered into "tax convention" has the right to submit to Latvian State revenue service corresponding calculations and documents and to pay the CIT in the amount of 15% from the difference between the received payment and the costs associated with received payment.

If Latvian residents and permanent representations pay to persons that are established or located in the low tax or no tax countries or territories, then Latvia persons in most cases, must withhold the CIT.
The exceptions, when the the CIT do not need to withhold, are payment for delivery (purchase) of goods and the purchase of certain securities if the securities are purchased at market prices.

Starting from 1st January, 2018.

Tax rates.

For period, that ends on 31st December, 2017.
General rate of the CIT is 15%

But some of the payments are subject to a different tax rate.
30%
Payment of the extraordinary dividends to person located or incorporated in the low tax or no tax country / territory.
10%
Payment to non-resident for management and consultation services.
5%
  • Payments to non-residents for the use of the property, which is located in Latvia.
  • Payments interest to a person located or registered in the low tax or no tax country / territory, if the interest is paid by credit institutions registered in Latvia.
2%
Payments to non-residents for the alienation of property, which is located in Latvia.

Starting from 1st January, 2018.

When it is necessary to submit reports and pay tax?

For period, that ends on 31st December, 2017.
According to the basic rate taxpayers pay the CIT once a year and in some cases once a month pay advance payments.

Taxpayers during 4 ("large" taxpayers during 7) months after the end of the tax year prepare and submit an annual declaration of the CIT. Within 15 days after the filing of the annual declaration, a taxpayer pays the the CIT, specified the declaration.
For example, if the taxation year ends on 31st December, then until 30th April (in most cases) a taxpayer must submit the annual declaration of the CIT. If a taxpayer has submitted the declaration on 30th April, then tax must be paid until 15th May.

If according to the CIT declaration the taxpayer must pay the CIT, then the taxpayer also must prepare and submit the calculation of advance payments (deadline the same as for the CIT declaration).
The CIT specified in the calculation of advance payments, must pay each month, until 15th day of a month.

If the taxpayer must withhold the CIT from certain payments, then the withholding tax must be paid to the state budget until 15th day of the next month. Also, until 15th day of the next month the taxpayer must submit the appropriate report.

Starting from 1st January, 2018.

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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