Tax minimization in Latvia
, sometimes referred to as tax optimization, encompasses a set of lawful practices aiming to reduce the overall tax burden for a company. An important distinction is made between tax minimization and tax evasion as the latter is an illegal practice that is based on avoiding the payment of the due taxes.
Companies in Latvia can benefit to a great extent from implementing a set of strategies that will allow for a general tax burden reduction. A lower tax liability can mean more resources for growth and investment in technologies and other company essentials. In most cases, the first step in tax planning is to select the business form that will suit both the needs of the company (by taking into consideration the present and future needs) and also the tax principles for the selected business form as they can vary to a high degree.
Investors who open a Latvian company
can work with our team of tax experts from the very beginning, in order to clearly understand their tax liabilities in the country as well as the strategies they can employ for efficient tax minimization.
Strategies for reducing the tax burden in Latvia
The strategies presented below are four examples of tax minimization actions that can be implemented by Latvia companies:
Double taxation treaties: Latvia has signed a number of double tax treaties that can include important tax reduction advantages for investors who come from a certain country, the other signatory state to the treaty; these agreements reduce the tax burden and can be used when composing the overall tax strategy in Latvia for foreign subsidiaries.
Accountancy proficiency: working with a reliable accountant and a tax consultant is a key step for creating a reliable and efficient tax minimization strategy; the tax calculation process should be considered from two points of view: a legal and a mathematical one and a tax planner will be able to provide the solutions that will suit the company particulars and needs.
Tax deduction: some types of businesses can deduct certain categories of expenses that are relevant to their core business activities; purchasing assets before the end of the tax year can be an option for tax minimization.
Donations: this is a form of relief available in the case of donations made to Latvian benefit organizations or their equivalent in an EU/EEA country.
Another key strategy for minimizing the tax liability for a company is to choose a suitable business form, if possible, the one that benefits from the lowest taxation threshold. In Latvia, a micro-enterprise is taxed at a lower rate of 15% for a turnover of a maximum of 40,000 euros. Investors who open a company in Latvia can qualify as a micro-enterprise in one of the following situations:
- individual merchant;
- individual undertaking;
- farm or fishing enterprise;
- limited liability company;
- a natural person registered with the State Revenue Services for the purpose of performing economic activities.
Before deciding to open a legal entity, it is worth checking if the new company will qualify for one of these criteria. This way, you can minimize the overall corporate tax rate if the company is considered a micro-enterprise and remains within the annual turnover requirements. One of our agents who specialize in company registration in Latvia
can give you more information about the available business forms, especially the widely-used limited liability company.
An additional manner to take advantages of the available incentives for companies is to explore the benefits offered by the special economic free zones in Latvia where a preferential tax regime applies.
We recommend consulting with a tax expert before implementing these types of strategies as they may not be suitable for all types of businesses in Latvia.
The tax system in Latvia
The corporate income tax is the main tax applicable to companies that derive income from Latvia. The governing law is the Corporate Income Tax Law. As of 2018, the corporate inform tax rate is 20%, payable from the distributed profits (dividends, payments treated as dividends) as well as deemed profit distributions.
Tax consulting is a specialized area of services offered by our team of company formation agents in Latvia. We can help local and foreign investors optimize their tax management, by both observing the accounting and reporting requirements and at the same time implementing the possible tax minimization strategies. Together with our agents, you will be able to handle any tax issues, including cross-border tax issues for foreign investors who run both a Latvian and a foreign operation.
for more information about the services we offer for those who open a company in Latvia