A holding company is a legal entity that does not engage in specific business or commercial activities but holds stock in other existing companies. It can be seen as a parent company with enough stock percentage to have voting rights in other corporations. This is a guide on how to open a holding company in Latvia prepared by our team of company incorporation agents.
| Quick Facts | |
|---|---|
| Legal entities used |
– Limited liability company, – Public limited liability company, – Joint Stock Company, – Representative office (for non-business or preparatory activities) |
|
Incorporation method |
– Relatively simple process, – No need to have a specific number of founders or certain share capital, – Company director can be a non-resident |
|
Incorporation time |
Approximately one week |
| Advantages |
– There is no withholding tax on dividends paid to foreign entities; – There is no withholding tax on interest payments made to foreign entities; – Relatively simple process |
| Precautions |
– Carefully analyze the current and future needs of the company; – Take a holistic approach while choosing location of the company; – Keep in view the commercial and financial aspects. |
| Shareholding structure |
Owning minimum 51% shares of a subsidiary can create a holding company. |
| Minimum Capital |
EUR 2,800 |
| Taxation | 20% corporate tax rate |
| Control |
Central Control |
| Accounting and Reporting |
National standards following IAS and IFRS. Financial statements must be prepared annually. |
| Number of double taxation treaties | 64 |
Table of Contents
Function of a Latvian holding company
The holding company can be seen as creating a legal entity to administer other existing companies effectively. It can provide financial support for subsidiaries, attract loan capital and optimize the financial management in the existing controlled companies.
A holding structure in Latvia unites several other companies or a group of companies to increase the market value of the said group. This can be a preferred strategy for investors interested in company incorporation in Latvia. Furthermore, if you need accounting services for your holding company, the services of our Latvian accountants are at your disposal. A company’s investors will also benefit from proper accounting, in addition to the business itself. For every investor to be able to make an informed decision on whether or not to participate in the company, the firm must be transparent and disclose accurate and trustworthy information about its financial condition.
Conditions for opening a holding company in Latvia
To open a holding companyin Latvia is a relatively simple process, and there is no need to have a specific number of founders or certain share capital. The company director can be a non-resident, making this structure appropriate for foreign investors interested in establishing their holding in the country because of the tax advantages. Another advantage is that the company can be incorporated in approximately one week.
A holding company’s legal structure
The aim and objective of your holding company will determine the applicability of a particular legal structure. The majority of holding firms are organized as corporations. If you want to use your holding company for things like segregating different business assets, activities, or units, fundraising, providing financing, or leveraging tax planning strategies, it is best to use a corporation, which is a limited-by-shares and taxable entity that can take advantage of corporate tax benefits from international tax treaties while also having a stricter governance and management structure.
Suppose the goal of your holding business is to provide a layer of protection and limit liability on certain assets such as real estate, cash, gold, and other financial assets. In that case, an LLC form may be appropriate. An LLC’s capital is divided into membership interests, which may or may not be freely transferable. Corporations have more operational requirements and formalities, while LLCs are more basic, flexible, and have fewer functional requirements and formalities.
How is a holding company taxed in Latvia?
Latvia is preferred to establish a holding company in Europe because of the existing advantageous taxation regime for these structures. There is no withholding tax on the dividend payments made to foreign companies, and there is no income tax applicable to the sale of shares and the dividends received by a company. There is no stamp duty on share transfers. Latvia is a good choice for foreign investors interested in opening a holding company because of the tax regime and its location in Europe.
Revisions to the Latvian corporate income law
Dividends will no longer be taxable income as of January 1, 2013, and Latvia will recognize the holding corporate structure. Residents, non-residents, natural individuals, and legal entities not registered in low-tax states and territories are eligible for the exemption. It is expected to carry out business with Latvian enterprises easier while restricting dealings with offshore companies.
The revisions to the corporate income law specify that beginning January 1, 2013, income derived from share transfers and dividends will not be taxable, regardless of whether the individual is a resident or a non-resident. The regulations, however, do not apply to states and territories on the list of offshores (also called tax heaven).
Advantages for foreigners in Latvia
Please find below the benefits that foreigners can get if they open a holding company in Latvia.
Dividends are given out once a year based on the profit decision of the shareholders, according to Latvian company law. Maintaining a holding regime is a typical practice throughout Europe. The new developments will aid Latvia in attracting investors and improving the economic climate. In the context of holding corporations, the regularity with which dividends are distributed, the length of time that shares are held, and the number of shares may all play a significant effect. There are no restrictions in this regard in Latvian legislation. The Latvian corporate income tax law does not specify a time limit or a maximum number of shares held. As a result, Latvian law has the edge over Cyprus, Germany, and Malta. Another benefit is that there are no specific criteria for overseas business people. For example, there are no barriers or restrictions in foreigners becoming directors or shareholders, as citizenship or residency is not required. Also, there is no necessity to utilize a Latvian bank account; foreign bank accounts are acceptable.
If you need more information regarding the Latvian Company Law, you can get in touch with our company formation agents in this regard. They can assist you to open a holding company in Latvia.
What are the benefits of forming a holding company in Latvia?
Latvia can be a suitable location for a holding company due to the traits discussed above, the availability of advanced rulings and advanced pricing agreements, and low maintenance expenses. Latvia is not a well-known destination for holding companies may be viewed as an advantage in some situations since it may result in less scrutiny by tax officials in other jurisdictions. For the following activities, the Latvian holding company regime can be advantageous:
- – To own shares in a firm that will be sold without being taxed;
- – As a platform for future investments, multiple investors are involved with minority shareholdings, each with their own holding company;
- – Management and back-office services should be centralized to take advantage of the new corporate income tax regime, which offers a 0% tax rate on undistributed profit;
- – As tax-free trading or investment platform for listed securities traded on stock exchanges in the European Union or the European Economic Area.
If you want to learn more about the benefits you can get if you open a holding company in Latvia, you can rely on our company incorporation experts. They will provide you with complete assistance in this matter. Furthermore, if your business is involved in import/export activities, then setting up a company in Latvia may be a suitable option for you. Latvia is listed as a member state by the EU. The World Trade Organization and the Organization for Economic Cooperation and Development are both organizations of which Latvia is a member. Members of these international organizations, therefore, enjoy a wide range of trade opportunities and incentives for both imports and exports.
The corporate income tax rate in Latvia (2018)
The payment of the corporate tax in Latvia must be paid with the State Revenue Service which also provides for the following:
- – As of January 1, 2018, Latvian companies will apply a conceptually new Latvian corporate income tax. The new Latvian corporate income tax is payable upon the distribution of profits only;
- – Until the Latvian company keeps the profits, 0% tax is payable. In other words, the Latvian company does not pay tax on the annual earnings until it distributes dividends.
You can get more information from our company incorporation consultants in Latvia; please do not hesitate to contact our agents. We can help answer your questions and open a holding company in Latvia.