Our employees have great experience in providing accounting and tax compliance services for branches of foreign companies and permanent establishments.
In accordance with the Latvian Accountancy Act, accounting should be conducted in the Latvian language and kept in the territory of Latvia. As of 1 January 2014 accounting should be done in euro. Accounting documents must be provided to the State Revenue Service on request, for example, in case of audit.
Basically, branches and permanent establishments have to meet the same accounting requirements as local enterprises. However, branches and permanent establishments do not have to prepare full annual report instead it is necessary to make the balance sheet and profit and loss account for the needs of corporate income tax.
Detailed information regarding the registration of a permanent representation and order of tax payments is provided below.
How a permanent establishment is formed?
According to the “On Taxes and Duties” law it is considered that a non-resident (a foreign merchant) has a permanent establishment in Latvia if the following conditions are met:
- Non-resident (a foreign merchant) uses a specific place to make business in Latvia
- The place is used to perform economic activity
Regardless of above mentioned conditions it considered that non-resident (a foreign merchant) has a permanent establishment is Latvia, if a non-resident (a foreign merchant) performs in Latvia at least one of the following activities:
- Uses a construction site or constructing buildings, assembly or installation works or performs related to the construction site advisory work
- Uses a special equipment or technology to perform research activities or mining of natural resources, uses drilling platforms or performs related advisory work
- In the period of time which in total does exceed 30 days in any of six-month period provides services, such as consulting, management or technical services, by using his employees or specially attracted staff
- Uses activity of legal, individual or other person in his own interests, if the mentioned person regularly (more than once in a taxation period) uses the authority to conclude an agreement on the name of a non-resident (a foreign merchant)
A person is considered as a taxpayer, if a person regularly (more than once in a taxation period) uses the authority to conclude an agreement on the name of a legal, individual or other person, which is established in:
- Tax-free or lox-tax countries or territories
- States with which the Republic of Latvia has not concluded and has not entered into force a treaty on double taxation and prevention of tax evasion (except EU countries)
Application of the Convention on double taxation and prevention of tax evasion
Convention usually narrows the concept of permanent establishment, arguing that the term “permanent establishment” shall not include:
- Using of equipment, which is used only to storage goods, for demonstrations or deliveries
- A storage of goods and products, which belong to enterprise and only are used for storage, demonstrations or deliveries
- A storage of goods and products, which belong to enterprise and are intended for processing in another enterprise
- Permanent place of business, which is used only for the purchase of goods and products or for collecting information
- Permanent place of business, which is used only for performing support work for company
Registration of permanent establishment
Permanent establishments are being registered in the State Revenue Office in accordance with the Cabinet of Ministers Regulations of 27 March 2007 Nr. 150 ” Regulations regarding the Registration of Taxpayers’ and Taxpayer Units with the State Revenue Service”.
What should be taken into account while providing permanent establishment accounting?
In Latvia accounting is regulated by “On accounting” Act of 14 November 1992, with amendments. In accordance with the Latvian Accountancy Act, accounting displays all the economic activities of enterprise, as well as every fact or event which arise changes in the state of property companies. Provided information should be truthful, clear and complete. Accounting should limit incomes and outcomes in taxation periods.
The manager of a company is responsible for all accounting documents, copies and images. In case of branch or permanent establishment, the manager is a person, who is authorized to represent the activities of the foreign merchant (non-resident), the branch of a foreign company or a permanent establishment.
As of 1 January 2014 accounting should be done in euro. Accounting should be conducted in the Latvian language and kept in the territory of Latvia, but in case of branch or permanent establishment it is possible to use another language in addition to Latvian. If accounts use codes, symbols or single letters it is necessary to provide explanation of them.