Latvia Summary Guide

Taxation of Business People in Latvia

Income Tax is levied at the rate of 26% for income derived from employment and business activity. Self-employed individuals used to pay tax at the Enterprise Income Tax rate of 15%, but from January 2010 they no longer do so, although they are permitted to deduct a number of business-related expenses, in addition to their personal allowances. A personal tax allowance of LVL25 per month applies to all individuals, plus LVL25 per month for each dependant relative.

From January 2010, a new ‘patent fee’ regime (covering personal income tax and social security liability) has been introduced for those in certain professions, including doctors, lawyers and artists, at between LVL30 and LVL120 monthly.

Corporate Income Tax is levied on companies at a flat rate of 15% of the taxable base. Companies can choose the accounting period they wish to use, which does not need to be the calendar year.

Capital gains, where they relate to the sale of shares and other types of securities, bonds, returns from intellectual property, and to real estate, are taxed at a rate of 15%, from January 2010. Where the gains relate to the return of capital (from example dividend and interest income, and income from private pension funds and certain life insurance contracts), a 10% tax is imposed.

Companies may carry forward losses for up to eight years (increased from 5 years, prior to 2010).

Social Security contributions are payable by employers and employees alike. The current rate is 33.09%. An employer pays 24% and an employee 9%. Contributions for pensions are a mandatory 28.3%, of which 20.6% is payable by an employer and 7.7% by an employee.

The standard rate of VAT is 21%, although an increase to 23% is being considered. A reduced rate of 10% applies to certain supplies and services, including medical products and gas and electricity supplies. The government has proposed the extension of this reduced rate to guest accommodation, in a bid to boost the tourist industry.

Supplies or services exempt from VAT include those relating to financial services, educational services, certain real estate transactions, and gambling.

The threshold for VAT registration is a turnover of LVL10,000 in the previous 12-month period.

A Micro-Enterprises Support Program (Mikrouznemumu atbalsta programma) is in the pipeline (with draft legislation approved in March 2010), designed to permit new and existing small businesses with annual turnover of not more than LVL70,000 and less than 5 employees to pay a flat-rate tax of 20% on quarterly business turnover.

This tax will be imposed in place of various other levies, including social security contributions, income tax, corporation tax, for enterprises which choose to be taxed under it.

Under the aforementioned reforms, the VAT registration threshold would – subject to EU approval - be increased to LVL35,000.

Withholding tax is imposed on payments made by Latvian residents to non-residents in respect of dividends, consultancy services and interest payments at the rate of 10% and generally at the rate of 5% for royalties (except where they relate to copyright of works of art or literature, when the rate increases to 15%) and property rental income. Withholding tax of 15% is also imposed in respect of payments made to entities located in so-called tax havens.

Dividend payments face a 10% rate, with payments to connected EU corporate recipients exempt, subject to a 10% minimum shareholding threshold.

Real estate tax on residential property is imposed progressively at 0.1%-0.3%, based on the cadastral value of the property. For land and other buildings, the rate is 1.5% of cadastral value, and for uncultivated land, it increases to 3%. A real estate transfer tax of 2% is levied on the purchase of a property (payable by the purchaser).

Latvia Summary Guide Contents

Latvia Summary

Latvia Summary Chart

Latvia Residence

Taxation of Business People in Latvia

Living and Doing Business in Latvia

Business Forms in Latvia

Latest Comments

Expat Brit

Hi,

I am facing a dilemma and would like to invite any reader to advise me.

I am a Brit who has lived outside UK since 1993- initially in Belgium (5 years) & subsequently in 4 African countries. After a year outside UK, the UK Inland Revenue confirmed my status as ‘non-resident’ for tax purposes and as I have had no income in UK, I have not completed a UK tax return for many years. I visit UK very rarely, normally for one or two weeks per year.

In May 2011, I was made redundent by my employers, who were downsizing. This coincided with a move to retire in the Netherlands, where I now have official residency (my wife is Dutch). I thought that, at 63 years of age, I would be unlikely to find suitable employment; in fact, I have not tried hard and had resigned myself to permanent (but slightly premature) retirement.

However, to my surprise, I have recently been approached (through a mutual acquaintance) by a company that wishes to use my skills on a project in the Isle of Man. The role, if & when confirmed, would see me working for about 10 days a month in Isle of Man, with about 5-7 additional days per month, working from home. Contract will be for about two years. The firm has asked me to confirm if I would prefer to be paid (and therefore be taxed) in Netherlands or Isle of Man, the idea being that I create a self-employment entity for this employment. I have no data on which to base a response. Given Isle of Man's traditional ‘low tax ‘environment, are there any benefits to declaring an income in IOM? Are there any Isle of Man residency implications? Netherlands takes a tax cut on total world wide income, and, as I have never had any contact with the Dutch authorities, I am reluctant to start such a relationship now. Do I have to declare income in both countries, with a breakdown prorata to the time spent in each jurisdiction? Should I declare income to UK Inland revenue?

If anyone has pertinent advice on these points, I’d be grateful to hear them.

TJM @ Eindhoven, NL

T. Dog

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Purchasing investment-link insurance for my staff

Would that count as income tax to my staff? And would that count as expense to my company?Michael

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Irish crisis - effects on small business?

Hi all,

Just wondering if anyone 'on the ground', as it were, might be reading and able to help me...I was considering relocating my hairdressing business from the UK to Ireland before the economy started to go properly belly-up...now, not so much.

Are things as bad as they seem over there, or is it being over-hyped by the media? And is the government still keen to support small business people? Cos if not, I'll look elsewhere...

Thanks,Kate

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Jersey vs. Malta??

Hi, I live in South Africa, and along with 2 business partners (one in South Africa and one in Ireland - all South African citizens though) are setting up a company that designs Smart phone applications. As they will be sold on the various platforms (none of which operate out of South Africa)we have to list our company as operating out of Ireland anyway. As such, we have decided to set up our company in the best tax country and are wanting info on whether Jersey or Malta is best? If anyone has some inside info we would really appreciate it!! Thanks!Mary

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Living in France contracting to Australian company

I am moving full time to France in Jan 2012 where I will be working as a freelance contract engineer to a number of Australian based companies. It is my choice to move to France not a work requirement. I will be renting my house out in Austrlalia and renting a house while I am in France. I hold both EU & Austrlain citizenshiip. I am married with 2 young children. Approx total family income $100k AUD.
Do I pay tax in France or Australia or both ?
Any help or guidance would be much appreciated.France move

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