Significant changes were made to Latvian law On Income Tax from Enterprises. Effective from 2013, Latvia introduced certain tax relief, which were aimed at stimulating inflow of capital, particularly from CIS countries.
Here are the most important changes:
Tax on dividends
Latvia has signed and is successfully applying tax agreement with more than 50 countries. Before the new legislation passed, dividends that had been paid out to non-residents by Latvian companies had been subject to taxation at the rate of 10%; a 5% reduced rate had been applicable in case of satisfying certain condition and enforcing statutes of tax agreements. Apart from that, dividends received from or paid to a EU/ETA company had been exempt from taxation.
Since 2013, courtesy of changes to legislation, all the dividends received from or paid to Latvian non-residents, who reside in countries other than those with low or zero tax rate, will be exempt from taxation. Moreover, the condition of owing at least 25% shares of non-resident company to qualify for exemption was abolished.
Profit from selling shares
Since 2013, profit made by a Latvian company from selling shares is exempt from taxation, unless a company, whose shares are being sold, is a resident of a country or a territory with low or zero tax rate. It is worth mentioning, that list of such countries and territories is decided by the Council of Ministers on the basis of the current normative acts.
Tax on interest
Before 2014, Latvian companies that had been paying interest on loan, received from an associated non-resident company, had been obliged to pay tax at 5% rate, subject to the effects of tax agreement between countries in force.
The amendments to the law On Income Tax from Enterprises simplify the matter significantly. Starting from 2014, interest payments from Latvian companies to non-resident companies are exempt from taxation, unless a recipient company is a resident of a country or a territory with low or zero tax rate.
Tax on royalties
Starting from 2014, payments for intellectual property from Latvian companies to non-resident companies are exempt from taxation in Latvia, unless a recipient company is a resident of a country or a territory with low or zero tax rate.
Therefore, Latvian companies, registered in convenient and relatively cheap jurisdiction with transparent reputation of a European state, can be successfully used as holding companies, along with "classical" Cyprus, UK, Austria, Netherlands, Luxembourg etc.
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