Personal taxation in Riga
Effective personal income tax rate
Teleport city rankings for personal income tax
Resident individuals are taxed on worldwide income; nonresidents are taxed only on Latvian-source income.
An individual is resident in Latvia if his/her permanent place of residence is in Latvia or if he/she is present in Latvia for 183 days or more in any 12-month period, starting from the date of arrival in Latvia.
Each individual must file a return; joint filing for spouses is not permitted.
The rate is 23% on employment and business income, 15% on capital gains and 10% on other income from capital.
Deductions and allowances
Minor deductions and allowances are granted.
Taxable income includes income from employment, income from the exercise of a business and investment income.
Gains on the sale of an individual’s capital assets (real estate, shares, etc.) are subject to a 15% tax. Gains on the sale of a private residence may be exempt. A 2% tax must be withheld by a Latvian legal entity from the sales price of real property and shares of a real estate company if the seller is a nonresident individual.
Other taxes on individuals
Real property tax
The local authorities levy a real estate property tax equal to 1.5% of the cadastral value of land and buildings. The rate on residential property not used for commercial purposes ranges from 0.2% to 0.6%. A 3% tax is levied on unused agricultural land.
A 10.5% social security tax is withheld from employment income; the rate for self-employed persons is 30.58% (with the minimum base being EUR 360 per month). A nonresident individual employed by a nonresident employer for more than 183 days in a 12-month period (where the EU social regulation does not apply) and who does not permanently reside in Latvia is subject to social security contributions at a rate of 31.46%.
A stamp duty of 2% is levied on the higher of the sales price or the cadastral value when real property is registered in the land register, capped at EUR 42,686 for nonresidential real property. Stamp duty also is levied on the registration of a mortgage.
Compliance for individuals
Interest of 0.05% is imposed daily on late payments. Fines may be charged as the result of a tax audit, in the range of 120%-300% of the tax due.
Filing and payment
The annual income tax return is due by 1 June following the tax year. The tax is due within 15 days after the tax return is submitted, but the actual tax payment may be divided into three installments. Tax on capital gains is paid on a monthly and quarterly basis. Wage tax, social security contributions and some of the tax on income from capital is withheld at source by the employer.
Corporate taxation in Riga
Teleport city rankings for corporate income tax
Residents are taxed on worldwide income. Nonresidents are taxed only on Latvian-source income. Permanent establishments of foreign companies are taxed in the same way as resident companies, although certain restrictions apply to payments made to a head office.
Taxation of dividends
Dividends are exempt from tax, irrespective of whether the source state is within the EU/EEA or is a third country. The exemption does not apply, however, to dividends received from companies located in black list jurisdictions.
A company is considered tax resident if it is incorporated in Latvia (i.e. registered with the Company Register).
Losses arising in or after 2008 may be carried forward indefinitely. The carryback of losses is not permitted.
A rebate of up to 80% of tax is available for licensed entities located in special economic zones and free ports. The rebate has been approved as compatible with the EU state aid rules.
The general rate is 15%. Permanent establishments operating in Latvia for no more than 12 months may use a simplified tax regime, under which tax is imposed on 20% of the turnover.
Dividends received from a nonresident company are exempt from tax if the nonresident payer is not resident in a black list country. If the nonresident payer is resident in a black list country, dividends are subject to a 15% withholding tax. (See also under “Holding company regime.”)
Foreign tax credit
A foreign tax credit is available for tax paid abroad, but the credit is limited to the lower of the foreign tax paid or the Latvian tax attributable to the foreign income before the credit.
Corporate income tax is imposed on the annual accounting profits, adjusted in accordance with the tax law. General business expenses incurred are deductible in computing taxable income.
Capital gains on the sale of property are calculated as the difference between the net tax value of property and the sales price. Such gains are subject to tax at the standard corporate rate of 15%. Capital gains from the sale of shares are exempt from tax (see under “Holding company regime,” below), and sales proceeds from public bonds also may be exempt (see under “Taxable income,” above).
Holding company regime
The holding company regime provides an exemption from corporate income tax on dividend and capital gains income, and abolished the withholding tax on dividend payments to corporate shareholders.
Other taxes on corporations
Real property tax
The local authorities levy a real estate property tax, in an amount equal to 1.5% of the cadastral value of land and buildings. A 3% tax is levied on agricultural land not in use.
Employers must make social security contributions at a rate of 34.09% of an employee’s salary (23.59% as the employer's portion, and 10.5% from the employee’s salary). The contributions must be paid to the budget on a monthly basis, and reporting requirements apply. Nonresident employers must register with the tax authorities or authorize employees to register and settle payments on behalf of the foreign employer. The amount of annual income subject to social security contributions is capped at EUR 51,900. See under “Other,” below, for the solidarity tax.
If an employee’s salary exceeds EUR 51,900, the excess amount is subject to solidarity tax, which is applied at the same rates and principles as for social security contributions.
Stamp duty is levied on the registration of real property by a legal entity. The rate is 2% of the higher of the sales price or the cadastral value, capped at EUR 42,686 for nonresidential real property. Different rules apply for reorganizations and contributions in kind.
Compliance for corporations
Interest of 0.05% per day is imposed for the late payment of tax. Fines may be charged as a result of a tax audit, in the range of 20%-300% of the tax due.
Advance rulings and advance pricing agreements may be obtained from the tax authorities to ascertain their opinion on the application of tax and transfer pricing rules.
The tax return must be filed within four months after the end of the financial year. For large companies, the tax return must be filed within seven months after the end of the financial year. The tax is due on the 15th day after the relevant period. However, companies must make monthly advance payments based on profits of the previous year.
Other taxation in Riga
Value added tax
Filing and payment
The taxable period generally is the calendar month, although it may be a quarter or a six-month period in certain cases. Returns must be submitted and tax paid by the 20th day of the month following the taxable period.
The standard rate is 21%, with a reduced rate of 12% applying to certain goods/services. Some items are zero-rated, and others are exempt (e.g. financial and insurance services).
VAT is charged on supplies of goods and services, intra-Community acquisitions of goods and services and the importation of goods and services.
Persons whose taxable supply (excluding imports) exceeds EUR 50,000 in a 12-month period must register for VAT purposes. A foreign person engaged in business in Latvia is required to register on the date there is a taxable supply.
Under the thin capitalization rules, an interest deduction will be disallowed to the extent that: (1) average liabilities multiplied by 1.57 times the short-term interest rate exceed interest expensed to the profit and loss account; or (2) the debt-to-equity ratio exceeds 4:1. Taxable income is increased by the larger amount resulting from these calculations. The thin capitalization rules do not
Latvia's transfer pricing rules generally follow the OECD guidelines, and transactions between related parties must be set at market prices. Special reporting requirements apply for taxpayers with turnover exceeding EUR 1.43 million, and when the amount of the transaction exceeds EUR 14,300. A taxpayer must retain documentation substantiating the arm’s length nature of a transaction for five years, and the documentation must be provided to the tax administration within one month following a request.
A 15% withholding tax is imposed on payments to entities located in black list offshore jurisdictions (see under “Withholding tax,” above).
Latvia does not levy withholding tax on dividends, except for dividends payable to persons resident in black list jurisdictions, which are subject to a 15% withholding tax.
Consulting and management fees paid to a nonresident company are subject to a 10% withholding tax, unless the rate is reduced under a tax treaty. Rental payments made to a nonresident for the use of property in Latvia are subject to a 5% withholding tax, except for the use of airplanes and commercial, manufacturing or scientific equipment. Remuneration received from participation in Latvian partnerships also is subject to withholding tax, at 15%.
Technical service fees
Latvia does not levy withholding tax on technical service fees.
Latvia does not levy withholding tax on interest (whether EU or non-EU), except for interest payable to persons resident in black list jurisdictions, which is subject to a 15% withholding tax (5% for interest paid by Latvian banks).
Latvia does not levy withholding tax on royalties, except for royalties payable to persons resident in black list jurisdictions, which are subject to a 15% withholding tax.
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