Latvia

Corporate taxation

The corporate tax rate (on distributed corporate profits) is

2013 15.00%
2014 15.00%
2015 15.00%
2016 15.00%
2017 15.00%
2018 20.00%
2019 20.00%
2020 20.00%
2021 20.00%
2022 20.00%
2023 20.00%

Since 2018, all undistributed corporate profits have been exempt from taxation. This exemption covers both active (e.g. trading) and passive (e.g. dividends, interest, royalties) types of income.

The taxation of corporate profits is postponed until those profits are distributed as dividends or deemed to be distributed.

The CIT rate is 20%. However, before applying the statutory rate, the taxable base should be divided by a coefficient of 0.8. As the taxable base is increased by the coefficient, the effective CIT rate is 25%.

Corporate tax incentives

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.

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%.

Transfer pricing

The principle of supremacy of law does not provide application of OECD TPG directly. However, Latvia’s transfer pricing legislation is based on the guidance provided in the OECD TPG.

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, 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.

Links

Transfer Pricing Case Law

Case NameDescriptionDateCountryKeywords