Hungary

CORRESPONDENT OF
MAZARS IN LATVIA

SIA TAXLINK BALTIC
Duntes iela 6-312,
Riga, Latvia, LV-1013

Phone:
(371) 67379031

www.taxlink.lv

Andris JAUNZEMIS

Tax Partner

Mobile:
+371 29635522

E-mail:
andris@taxlink.lv

LATVIA

Corporate taxes and other direct taxes

The general corporate income tax rate is 15%. The tax base is the pre-tax (accounting) profit modified by several increasing and decreasing items. In Latvia the losses can be carried forward for an unlimited number of years. The taxable income of taxation period can be covered with losses in amount not exceeding 75% of taxable income. Loss carry-back is not allowed. Latvia applies thin capitalization rules. There is a wide range of tax allowances for new investments, as well as for R&D.

Starting from 2014 Latvia provides a tax exemption on holding structures: capital gains on shares or other type of public securities are tax-free regardless of the holding period of shares or the share proportion owned.

Latvian companies are obliged to document the arm’s length character of intra-group transactions. If the turnover of a Latvian company exceeds 1.4 million euros and the amount of its intra-group transactions exceeds 14 thousand euros, the structure of the transfer pricing documentation needs to be to in compliance with the recommendations of the OECD Guidelines.

There is no withholding tax on dividends, interest and royalty paid by Latvian companies to foreign companies. A withholding tax of 10% is applied on management and consulting services paid by Latvian companies to foreign companies. A 5% withholding tax is applied on rent paid for real estate located in Latvia, and a 2% tax is applied on consideration for real estate located in Latvia paid by a Latvian company to a foreign company. However, under the active international treaty network consisting of more than 54 double tax treaties, the withholding tax might be avoided. A withholding tax of 15% is applied on all payments to offshore companies.

Transfer pricing in Latvia
Arm’s length principle since 2005
Documentation liability since 2013
APA since 2013
Penalty
Lack of documentation ~ EUR 1,000 administrative penalty
Tax shortage 20% on tax underpayment
+ late payment interest
Related parties 20% < direct control for foreign companies
or common managing director
  50% < indirect control for foreign companies
or common managing director
  90% < direct or indirect control for local companies
or common managing director
Safe harbours  

Level of attention paid by Tax Authority

8/10

VAT and other indirect taxes

The general rate is 21% for the sale of goods and services.  A reduced rate of 12% is used, for example, for medical goods, periodicals, accommodation services, and thermal energy supplied for private individuals. Basically, a 0% rate is applicable for the export of goods. Exemptions are in place for postal services, medical and health services, certain financial services, etc. Entrepreneurs with annual sales below EUR 50,000 are exempted from VAT obligations. Monthly returns are electronically recorded. The options/limits based on the EU Directive are determined in the VAT Act.

Other indirect tax types in Latvia are excise and customs duties. Also some transactions related to public administrative actions (e.g. submitting application forms, issuing certificates, granting permissions, etc.) are subject to stamp duty.

VAT Options in Latvia Applicable / limits Remarks
Distance selling EUR 35,000/year  
Call-off stock  
VAT group registration*  
Cash accounting - yearly amount in EUR (approx.) EUR 500,000/year  
Import VAT deferment if conditions are met
Local reverse charge construction works and deals with the scrap metal, timber and related services, electronic goods (computers, mobile phones)
Option for taxation
- letting of real estate  
- supply of used real estate  
VAT registration threshold** 50,000/year voluntary registration is possible

Personal income tax / Social security system

There is a flat rate of PIT, which is 23%, and it is generally applicable to active (e.g. employment, assignment fee) income. Each employee is entitled to a monthly standard tax allowance in the amount of EUR 60, as well additional monthly tax allowance in the amount of EUR 175 for each dependent (e.g. child). Both tax allowances are deducted from employee’s taxable income before PIT is applied. In addition those employees whose annual income is less than EUR 12 000 can apply for additional tax allowance in the amount of up to 25 EUR a month. Income from capital (e.g. dividends and interest) is taxed at 10%, while the personal income tax for capital gains is 15%.

Active incomes fall under the scope of the SSC system: individual social contributions equal altogether 34.09% out of which employer’s contribution is 23.59% and employee’s contribution is 10.50%. Benefits in kind are taxed with PIT and SSC at standard rates. The examples below show the cost of the employer and employee in case of minimum wage level and the average wage in the private sector.

Wage-related taxes in Latvia Minimum wage Average wage in private sector
Exchange rate HUF/ EUR 310 in EUR   in EUR  
  370   800  
TOTAL WAGE COST 457 123,59% 989 123,59%
Social contribution tax 87 23,59% 189 23,59%
GROSS SALARY 370 100,00% 800 100,00%
Personal income tax* 59 23,00% 147 23,00%
Employees' contributions 39 10,50% 84 10,50%
NET SALARY 272 73,58% 569 71,07%

* PIT base is calculated as gross salary-employees' contributions

 
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