Corporate Tax 2010 - BMR Advisors

Klavins & Slaidins LAWIN
Latvia
estate transactions or transactions involving fixed assets, the
acquisition or production value of which reaches or exceeds LVL
50,000 (approx. EUR 69,900).
In addition persons who have not registered as VAT payers, are
entitled to input tax deductions for deliveries of new motor vehicles
to a person from another Member State, and under certain
circumstances a person is entitled to deduct as input tax the amounts
which are related to the expenses incurred by such person prior to
its registration with the VAT Register.
2.5 Are there any other transaction taxes
No, however, in some cases there may be a requirement to pay state
(stamp) duties for a transaction. For more detailed information
regarding state (stamp) duties, please see the answer to question 2.1
above.
2.6 Are there any other indirect taxes of which we should be
aware
Other indirect taxes in Latvia include excise tax, customs duty and
natural resources tax.
3 Cross-border Payments
3.1 Is any withholding tax imposed on dividends paid by a
locally resident company to a non-resident
Dividends paid to a non-resident are subject to 10% withholding tax
under domestic law. Dividends paid to an EU or EEA resident
company are not subject to withholding tax provided the recipient
is subject to corporate or a similar tax in its jurisdiction.
purposes. Taxable income is adjusted by the amount that exceeds
the larger amount as determined by one of the following two
calculations.
(i) The amount of interest allowable is determined by multiplying
the principal amount outstanding during the year by 1.2 times the
average short-term interest rate for the last month of the taxation
period as determined by the Latvian Statistics Commission. This is
then compared to the actual interest paid.
(ii) Taxable income is to be increased for interest paid by an amount
that is proportional to the amount by which the average amount of
the principal payable during the year exceeds a multiple of 4 times
the company’s equity as stated in its annual accounts at the
beginning of the year, which is then reduced by any amounts that
are long term investment revaluation reserves or other reserves that
are not reflected in the profit and loss statement.
The above restrictions are not applicable to credit institutions and
insurance companies, as well as to interest payments for credits,
leasing services and loans, issued by credit institutions registered in
the Republic of Latvia or in another Member State of the European
Union, the Latvian Treasury, the Nordic Investment Bank or from
World Bank group, as well as from residents of Latvia. It is
anticipated that the law will be amended soon to remove the
discriminatory aspect of the rules exempting interest from debt to
Latvian residents from the limitations.
3.5 If so, is there a “safe harbour” by reference to which tax
relief is assured
There are no specific safe harbour rules applicable.
3.6 Would any such “thin capitalisation” rules extend to debt
advanced by a third party but guaranteed by a parent
company
Latvia
3.2 Would there be any withholding tax on royalties paid by a
local company to a non-resident
Withholding tax is charged on royalty payments made to nonresidents
at a rate of 5% or 15%.
Withholding tax on royalties paid to EU resident associated
companies is charged at 5% and from 1 July 2013 these payments
will be exempt.
Yes, subject to the exemptions described in question 3.4.
3.7 Are there any restrictions on tax relief for interest
payments by a local company to a non-resident in addition
to any thin capitalisation rules mentioned in questions
3.4-3.6 above
No there are no additional restrictions.
3.3 Would there be any withholding tax on interest paid by a
local company to a non-resident
Withholding tax applies to interest payments from a Latvian source
to related party non-residents at 10% (5% for banks).
For qualifying EU-resident companies from 1 July 2009 the rate is
reduced to 5% and from 1 July 2013 no withholding tax will apply.
A qualifying EU resident company is:
tax resident in its jurisdiction;
subject to a similar corporate income tax in its jurisdiction;
and
has a 25% capital or voting interest in the borrower.
3.4 Would relief for interest so paid be restricted by reference
to “thin capitalisation” rules
3.8 Does Latvia have transfer pricing rules
Latvian tax law requires transactions between related parties to be
carried out at market rates. If market value is not applied taxpayers
may be required to adjust their taxable income by the difference
between the market value and the transaction value.
4 Tax on Business Operations: General
4.1 What is the headline rate of tax on corporate profits
Latvian tax law provides for a flat corporate tax rate which is
currently 15%.
4.2 When is that tax generally payable
Latvia has thin capitalisation rules in place. Thin capitalisation
rules limit the amount of interest and other economically similar
borrowing costs that can be deducted for corporate income tax
ICLG TO: CORPORATE TAX 2010
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