Double tax treaties in Latvia
allow for the reduction of the tax burden for individuals who derive income from both Latvia and another county with which such a treaty is in place. The double tax avoidance is possible through the offset of tax paid in one of the countries against tax payable in the other signatory jurisdiction.
Latvia has signed almost seventy such treaties and foreign companies can have certain tax benefits when deriving income from Latvia and their county of residence. Our team of agents who specialize in company registration in Latvia
can give you more information.
Avoidance of double taxation in Latvia
Companies and individuals who derive income both from Latvia and from another jurisdiction benefit from double taxation relief via the agreements signed between Latvia and other countries for the purpose of avoiding double taxation on income and capital.
When a double tax treaty (DTA) is in place, the taxes payable in Latvia can be reduced by the amount of income tax paid in the other jurisdiction. This is subject to certain conditions both for individual income and for business income. Branches in Latvia
may benefit from this and form a special withholding tax rate if they meet the general requirements.
In general, a double tax treaty or a convention for the avoidance of double taxation will include references to the following types of taxes:
- the profits tax in Latvia: the 20% corporate income tax rate applicable to companies deriving income from the country.
- the personal income tax in Latvia: the tax rates for individuals who derive income from Latvia, usually from employment, are progressive and are between 20% and 31.4% according to the amount of yearly income.
- the property tax in Latvia: levied at a local level, the real estate property tax is equal to 1.5% of the cadastral value of a given building.
- the corporate tax and the personal income tax in the other signatory state: here the other jurisdiction will include its own taxes, as defined by that state’s internal tax laws.
The double tax treaty also applies to any similar taxes or to those imposed in place of or in addition to the ones listed above after the signature date of the treaty (or as stated in the actual treaty text).
For the purpose of a double tax treaty, a company or an individual includes those natural persons or legal entities that are treated as residents for tax purposes in a given jurisdiction. This tax liability based on residence can be due to the fact that the individual or company has its place of management or incorporation in the country or that he is domiciled there. For companies, the double tax treaties also have an article that defines the term “permanent establishment”. For taxation purposes, this is a fixed place of business through which the company performs its business activities. This can be:
- a place of management for the business based on one or both of the signatory states;
- a branch;
- an office;
- a factory or workshop;
- a mine, gas well, quarry or other establishment for the extraction of natural resources;
- a building or construction site as well as an installation project.
Please note that these terms are subject to change as they can be redefined in a given double tax treaty signed by Latvia and another country.
As far as the types of income discussed and covered in a double tax treaty are concerned, some examples included in many of the DTAs signed by Latvia include the following:
- income from immovable property: including the income derived from agriculture or forestry in some cases; immovable property is a term that is defined by the state in which the said immovable property is situated and it is treated as per the laws in that country.
- business profits: included here are those profits derived by a permanent establishment or those derived from the sale of goods or merchandise through a said establishment. The main feature of a double tax treaty is that it allows these business profits to be taxed solely in the state where the permanent establishment derives the profits in question (thus abolishing taxation in both states for the same profit amount).
- income from shipping and air transport: profits derived from engaging in this type of transport or from operating aircrafts in international traffic.
- dividends: as far as these are concerned, Latvia does not levy a withholding tax on dividends, nor on interest and royalties (exceptions include those payable to black-list jurisdictions which are then subject to a 20% tax rate).
- income from independent and dependent personal services;
- director’s fees;
- income derived by artists and sportsmen;
- pensions or similar remuneration.
Investors and individuals should remember that the basis for the elimination of double taxation is a deduction of the income derived from one jurisdiction in the other jurisdiction, in an equal amount. For example, Latvia can allow a deduction from the income tax for a resident who is subject to a DTA, or a deduction from the tax on the capital of a certain resident.
Most double tax agreements also include special articles that refer to the exchange of information between two signatory states, as needed to carry out the provisions of the treaty. Moreover, the two signatory states will also agree to assist one another in collecting the due taxes. When a request for tax collection assistance is made, it should be accompanied by a certificate that states the taxes owed by the taxpayer in question.
Some agreements for the avoidance of double taxation can include a mention of excluded companies. These can refer to income derived from certain activities. For more information, we recommend talking to one of our taxation lawyers in Latvia.
Recent double tax treaty updates in Latvia
Below is a list of recent double tax treaty updates between Latvia and other countries:
One of our agents who specialize in company formation in Latvia
can give you more details about the Protocols and Amendments and how the changes can affect your business if it is a resident of the signatory jurisdictions mentioned above.
for complete information about taxation in Latvia and how the double tax treaties influence business and individual taxation.