Tax planning means the use of different strategies in order to reduce tax burden. In comparison to tax evasion, tax planning means the reduction of tax payments in a legal way. The main advantage of a company establishment in Latvia is a relatively low corporate income tax rate (15%) which makes Latvia an attractive country for business. As of 1 January 2018 the retained profits are taxed with 0% corporate income tax (the distributed profit – dividends at 20% rate)
In general, Latvian jurisdiction has the following advantages for the purpose of tax optimization:
- One of the lowest corporate income tax rates in Europe – 15%, 0% as of 2018 on retained profits
- Low rates of other taxes (for example, for dividends – 0%)
- Knowledge of the Russian language allows to do business with the CIS countries
- Membership in the European Union allows to do business with other EU countries and to use EU funds
- Latvia is not included in the offshore zones list
- Well-developed banking system
- Quick registration of a company
Unlike other European countries, the holding regime in Latvia does not include additional conditions regarding participation in subsidiary shares, type of activity, taxation in the country of the subsidiary, etc. while other countries impose such restrictions. The only restriction may be considered is the taxation of income received and paid to offshore countries.
Latvian offshore zones list consists of 64 countries and territories. Payments to residents of such countries will be taxable up to 15%. However, it is possible to avoid this tax if the relevant authorization has been granted by the tax authorities.
The geographical position of Latvia along with the knowledge of the Russian language and, in most cases, English language, as well as with the membership in EU, allows to perform business operations in CIS and EU countries. These advantages could be beneficial in order to optimize taxes, as EU advantages are opening to residents of other countries. It also should be mentioned that Latvian law is more favourable in relation to the controlled foreign companies.
Considering that the well-known jurisdictions for a tax optimization, such as Cyprus, are experiencing economic difficulties and are actively involved in the offshore zones lists, as well as are subjects to supervision by the tax authorities, Latvia may be a reasonable alternative to other jurisdictions in order to reduce taxes. Due to potential new laws in Russia in relation to the controlled foreign companies, existing tax optimization schemes may not work in the future. As a result, Latvia can become as an important part in the structure of the controlled foreign companies.
Also, a holding company in Latvia can be used as part of a shared service centre, for example as accounting services company. Considering low tax rates on businesses, as well as a developed system of micro-enterprises (rate 9%), it is possible to significantly reduce tax burden.
Our company can provide consulting and other assistance regarding tax optimization, which would be held in accordance with the legislation, as well as we can provide assistance in company establishment in Latvia.