The corporate tax rate is 15%. Permanent establishments operating in Latvia for no more than 12 months may use simplified tax regime, under which tax imposed on 20% of turnover.
There are four regions in Latvia called Special Economic Zones (SEZ). Companies operating in these zones are granted a rebate of up to 80% of corporate income, these benefits have been extended through 2035. This rebate is compatible with the EU state aid rules. Micro-enterprises with no more than 5 employees, having only individual shareholders and a turnover below EUR 100,000 are taxed at a maximum rate of 15% on turnover over EUR 7,000 up to turnover of EUR100,000. For turnover at or below EUR 7,000 the tax rate is 12%.
TPG can be used for purpose of application of transfer pricing method. Current and planned legislation (which will come into force from 01.01.2018) contains discretion to use TPG for application of TP methods prescribed in national legislation. The principle of supremacy of law does not provide application of TPG directly. however, Latvia is following recommendation of Council of OECD [C(95) 126/Final] which was a base when drafting current and planned legislation. Transfer pricing in Latvia is governed by the following legislation:
•The Taxes and Duties Act (Section 23 and amendments of Section 152).
•The CIT Act (Section 12).
•The Commercial Code (Section 182).
•The Cabinet of Ministers’ 4 July 2006 Rule 556, Application of the CIT Act.
Latvian law requires that foreign-related party transactions meet the arm’s-length standard. Furthermore, the CIT Act requires transfer pricing adjustments for a noncompliant transaction between two Latvian companies that belong to the same group (i.e. direct or indirect ownership of at least 90% is required). In addition, any transaction with a company located in a low-tax jurisdiction is regarded as a related party transaction and has to meet the arm’s-length standard.