The Acts and regulations of Latvian tax system are subject to rather frequent changes and amendments. Accordingly, businesses and individuals are required to keep up and comply with all the effective changes.
This booklet is intended to be a guide to the Latvian tax system providing general tax facts and rates as of 1 January 2014.
Please note that customs duties, excise tax, natural resource tax, electricity tax, lottery and gambling tax and motor vehicle operating tax are not covered in this booklet.
Corporate Income Tax
Tax rate and base
For residents the taxable object is the taxable income received in the taxation year in Latvia as well as abroad. The general corporate income tax rate applied on taxable income is 15%
If a non-resident conducts economic activity in Latvia, including trade and services, using existing permanent establishment in Latvia, then non-residents income, which are derived by that permanent establishment are subject to CIT of 15% rate. In this case, permanent establishment would be considered as a separate taxpayer within the meaning of CIT act.
Non-residents which do not constitute a permanent establishment in Latvia, will not pay CIT by themselves, however, tax may be charged to the paying agent – Latvian company, for certain types of costs, taking the rate from (please refer to Withholding Tax).
Taxation period is a financial year of a tax payer, which may not correspond with the calendar year.
Tax payer’s taxable profit is the amount of profit or loss before taxation specified in the Company’s annual report, which is respectively increased or decreased, according to CIT act.
Expenses not related to economic activities
Expenses that are not related to operating activities of the company are not deductible for CIT purposes and a coefficient of 1.5 shall be applied (certain exemptions applies as provided below).
For example (the list provided is not definitive):
- expenses that could not be personalised and are incurred for the benefit of taxpayer’s owners and employees (e.g. trips, entertainment events, trips using company car for non – business purposes);
- donations and gifts, as well as other payments in cash or other to owners or employees, that cannot be considered as payment for work, which is not connected with the internal activities of the company or permanent establishment;
- donations and gifts to other persons;
- costs of guarantees paid under guarantee agreement;
- maintenance costs of luxury cars (without applying a coefficient of 1.5).
Due to amendments in other regulation, Article 5 of the Corporate Income Tax CIT Act is changed, allowing as a deduction loans which have been equated to income subject to personal income tax.
As of 1 June 2014 an extraordinary dividends are considered as non-economic activity costs, if the taxpayer formed losses after the fiscal year. This amendment is designed in accordance with the amendments to the Commercial Law, which states that dividends can be identified and also calculated from the profit that is generated before the end of the previous period. It is expected that extraordinary dividends will be paid at a rate not exceeding 85% of the profit, which is obtained in this period, to reserve charge of the corporate income tax.
Expenses that are associated with economic activity include the cost of operating the vehicle in months, in which tax is paid for using this company’s vehicle regardless of whether the appropriate vehicle is used only for the business purposes or not. In months, in which tax is paid for using this company’s vehicle, expenditure on the purchase of fuel for this transport include the economic activities costs based on the actual number of kilometres driven by each month in accordance with the established norm of consumption of fuel per 100 kilometres, which does not exceed the specified rate of consumption of the urban cycle greater than 20%.
Depreciation of fixed assets
Determining taxable income, depreciation of the fixed assets used in the economic activity is determined in the following order:
|Category||Depreciation rate||Type of fixed assets|
|1||10%||Buildings, structures and perennial plants|
|2||20%||Railway rolling stock and technological equipment, marine and river fleet vehicles, fleet and port technological equipment and energy equipment|
|3||70%||Computing facilities and their equipment, including printers, information systems, computer software products, as well as data storage and communication equipment, photocopiers and their facilities|
|4||40%||Other fixed assets except those mentioned below|
|5||15%||Oil exploration and extraction platforms together with facilities necessary for functioning and oil exploration and extraction vessels|
Depreciation value of the taxable period is calculated from the residual value of each class of fixed assets before depreciation, taking to the appropriate category of fixed assets the appropriate depreciation rate. In turn, for cars, motorcycles, marine and river vehicles and aircraft that were purchased after 11 June 2007 (except for emergency vehicles, special vehicles, etc.) depreciation is calculated for each asset separately, taking the rate of 30 %.
For biological assets and new technological equipment, which are intended for the production, there are specific principles of calculating depreciation for tax purposes. Intangible contributions for concessions, patents, licences and trademarks are deducted systematically, using the linear method. Intangible contributions value is deducted in the following way:
- for concessions—10 years,
- for patents, licenses, trademarks —5 years.
Until 2020 additional relief will be applied for new manufacturing process equipment setting that the purchase price or the formation price of each new technological equipment in the tax period is increased by multiplying by 1.5.
Taxpayer has rights to reduce taxable income of corporate income tax by taking increasing coefficient 3 for following expenses:
- For research staff costs or personnel, which are directly related to the research activities;
- For the amount of compensation for research services provided by scientific and research institutions, which are registered in the Ministry of education, and similar institutions in the EU or the European Economic Area state with which Latvia has concluded a double taxation treaty, if research services are directly related to the conducted by a taxpayer research and development activity;
- For the amount of compensation for accredited certification of testing agencies for the services of testing, certification and calibration which are necessary for the development of new product and technology, and are available at the national accreditation institution or similar institution in member state of the EU or EEA or in a country Latvia has concluded a tax convention with.
Interest payments are deducted in a limited amount. Since 2014, non-deductible interest payments, if formed, are determined as follows:
- Taxable income is increased by interest payments which exceeds the amount of interest payments that is defined by taking into account the weighted average interest rate of loans to non-financial enterprises in local taxation period increased by 1.57. Weighted average interest rate of loans to non-financial enterprises in local taxation period which is calculated by using statistical indicators of monetary financial institutions, the Bank of Latvia publishes on its web site within one month after the end of the taxation period. In 2013 the weighted average interest rate was 4.48% and maximum rate would have been 7.03%, but the average rate for 2014 is currently unknown.
- Taxable income is increased by interest payments in proportion to the extent to which the average amount of obligations in the taxation period exceeds an amount equal taxpayer equity, specified in the annual report of the Company (at the beginning of the taxable period), and which is reduced to a revaluation reserve of long-term investments and other reserves, formed as a result of profit sharing. multiplied by four.
If taxable income should be increased according to both criteria, then it is increased by largest of amounts. These restrictions for interest deduction do not apply to loans, which are obtained in credit institutions registered in Latvia and credit institutions of the EU and EEA, as well as in countries Latvia has concluded a tax convention with.
Gains on the disposal of shares are exempt from corporate income tax. If loss is incurred upon sale, it will not be deductible. To apply exemption, there are no restrictions on minimal holding period or shareholding. The exemption, however, does not apply on gain from sale of shares in entities located in tax haven countries. The latter gains are subject to regular corporate income tax rate at 15%.
Similarly, gains on disposal of securities quoted on the regulated markets of the EU or EEA countries and investment certificates in EU and EEA open-end investment funds are exempt from taxation in Latvia. Thus Latvian company could be used for trading of such securities as profit from such activities will be exempt from taxation in Latvia.
Gains on the disposal of other investments (like real estate properties) are taxed at regular corporate income tax rate of 15%. Thus it is recommended that such assets are disposed via sale of shares.
Bad and doubtful debts
Taxable income may be reduced by the amount of bad debts if conditions provided by CIT Act are met, and by the reduced amount of estimated savings for the debt, compared to previous taxation period, if all requirements specified Corporate Income Tax Act are met.
Taxable income of the taxpayer should be increased by 60% from the amount of representation costs used. Under CIT Act the representation costs are costs for establishing and maintaining the prestige of the company at the level of publicly accepted standards. These include public conferences, receptions and meals with clients, and expenses for acquiring small value items representing the company.
As of taxation period 2014 a tax payer should specify in the declaration the amount of 50 EUR of tax, which companies should transfer to the budget, if companies income tax before cover losses is not formed at all, or is less than 50 EUR (22.a.2.1.p. of CIT Act).
These rules do not apply if:
- In the tax period the company was registered in the Register of Enterprises;
- In the tax period was finished the process of company’s liquidation;
- Taxpayer in taxation period contributed corporate income tax or mandatory state social insurance contributions for employee.
The purpose of this rule is to compensate for state administrative costs that are associated with the existence of such enterprises that are registered, but do not carry tax payments.
Loss carry forward
Tax losses incurred till the year 2008 can be carried forward up to 8 years. Losses incurred starting from the year 2008 can be carried forward for unlimited period of time.
As of 1 January 2014 Group relief was excluded (Article 14.1).
Under Corporate Income Tax Act an executive car is described as a passenger car with up to eight seats excluding the driver’s seat, the value of which exceeds EUR 50,000, and which is not an operational means of transport or a special passenger car (ambulance, caravan or hearse), or a passenger car which is specially equipped in order to transport disabled persons in wheelchairs or a new passenger car, which is utilised as a demonstration car for an authorised car dealer.
Following restrictions are imposed under the CIT Act on executive car:
- No tax depreciation is calculated;
- Any costs (maintenance, leasing, etc.) incurred must be added back to taxable income for Corporate Income Tax purposes (without coefficient of 1.5 applied).
Please note that there is different taxation rules stipulated to taxpayers whose operations are related to car rental.
Related party transactions
Transactions with related non-resident parties and associated Latvian entities forming the group (direct and indirect 90% ownership) must comply with arm’s length principle. In case due to related party transactions (with price different from market) taxable profit is reduced or even a loss increased, taxable profit of Latvian entity shall be adjusted in compliance with market prices considering the actual difference.
Penalties and fines
Taxable income of the taxpayer should be increased by fines, contractual penalties and fines, as well as money for the delay and other penalties, calculated according „Taxes and Fees” Act.
Tax return submission and tax payment
Corporate Income tax return is submitted together with annual report within a month after its approval but not later than 4 months after the reporting year end.
The submission period of annual report and CIT return for large companies (as stipulated by Act on Annual Reports, i.e. balance sheet value – 1,400,000 euro, turnover – 3,400,000 euro, average number of employees – 250) or parent companies which have to prepare consolidated annual report according to Act on Consolidated Annual Report, is seven months after the reporting year end.
The Corporate Income Tax is due within 15 days after the submission of tax return.
Newly established companies may make advance CIT payments in first reporting year or for the period till submission of the annual report on a voluntary basis. In any other case, the advance payments have to be made on or before 15th date of each month. Advance payment is calculated according to Corporate Income Tax liability of previous reporting year. Any reliefs are not taken into account for advance payment determination purposes.
In case turnover has decreased significantly and it is expected to continue to decrease during the financial year, taxpayer may submit an application to State Revenue Service in order to reduce the advance payment.
Taxpayer is entitled to make quarterly advance payments on or before 15th day of month following quarter if in previous financial year monthly advance payments did not exceed 711.44 EUR.
Under the withholding tax usually is considered corporate income tax, which is charged from payments to non-residents, or charged from non-resident’s payments to Latvian resident.
Currently, Latvia has concluded 56 double tax treaties (DTT), which provide favourable withholding tax rates on payments made by entities also outside EU. Most of the DTT ensures that withholding tax levied by the subsidiary does not exceed 5% on dividend payments provided that Latvian company owns at least 25% of capital of another company. The withholding tax rate on interest payments made to Latvian company shall not exceed 10% based on provisions of DTT, while withholding tax on royalties are limited to 10%
As from 1 January 2013, no withholding tax is levied on dividends paid by Latvian company to non-residents. However, this rule does not apply for dividend payments to companies established in tax havens; these dividends would be taxed with Corporate Income Tax of 15% rate.
Interest and royalties
As of 1 January 2014, withholding tax would not be applied for Latvian company’s interest and royalties paid to abroad companies, excluding those, which are made in tax haven territory.
Management and consulting fees
Withholding tax of 10% is levied on management and consulting fees. It is possible to obtain exemption from 10% withholding tax under the provisions of DTTs, provided that certain administrative procedure is complied with before making the payment.
Payment for the use of property in Latvia
If not provided differently under DTT, 5% withholding tax is levied on payments for the use of property (both movable and immovable) situated in Latvia.
Gains on disposal of real estate
2% WHT is levied on proceeds to a non-resident from disposal of real estate located in Latvia. Latvian company is obliged to deduct WHT, meanwhile no WHT should be applied on disposal of real estate when both contracting parties are non-residents.
Under CIT Act if real estate constitutes more than 50% of company’s assets (at the beginning of the financial year) then it is considered as the disposal of real estate property and therefore attracts 2% WHT.
Payments to tax havens
Historically Latvia has established a list of tax-haven countries and territories which now comprises 64 locations and include most of tax haven countries and locations with certain exceptions. The payments to residents located in these countries and locations are subject to 15% WHT. WHT however does not apply, if specific permission is granted by the tax authorities or if goods of origin of tax haven country have been purchased. Full list of tax havens is prescribed by the Cabinet of Ministers Regulations of 26 June 2001 No. 276.
In order to apply the provisions of the tax treaty and avoid/reduce WHT, there should be evidence that the tax treaty provisions may be applied. In particular, non-resident has to obtain a valid residence certificate prior Latvian company makes the payment. If that is not done (i.e. there is no residence certificate at the Latvian company’s disposal), Latvian company has to apply WHT from the total amount of payment to non-resident. Nevertheless this tax may later be recovered by non-resident by submitting a special request.
The residence certificate is valid for five years from the date when the Latvian State Revenue Service approves it. In practice there are cases when foreign tax authorities refuse to approve Latvian residence certificate form and issue the certificate in their own format. Such residence certificate would be valid only for one year and also certain minimum information is required.
Value Added Tax
New Value Added Tax Act has been introduced as from 1 January 2013.
Standard rate – 21%, reduced rate – 12%.
Domestic taxpayer may not register in the State Revenue Service as a VAT taxpayer, if the total value of taxable goods and services rendered during the previous 12 months does not exceed 50,000 EUR. Unregistered taxpayer threshold for the purchase of goods within the country is 10,000 EUR. If however taxpayer renders services to customers outside Latvia or receives services from parties outside Latvia and the place of supply of services is deemed to be country where the customer has established its business then Latvian taxpayer should register for VAT purposes before rendering /receiving such services.
Standard rate (21%) applies for the following transactions:
- supply of goods and related transactions within the country;
- provision of services and related transactions within the country;
- supply of goods within EU;
- import of goods, if not provided otherwise in the law;
- purchase of new vehicle made by any person within EU territory;
- regularly conducted vehicle deliveries, if the supplier, the recipient or a third party on behalf of the supplier or recipient sends or conveys a new vehicle to the recipient within the European Union.
Reduced rate (12%) applies for the following types of goods and transactions:
- pharmaceuticals and medical devices (and their component parts, redundant parts and accessories);
- supplies of specialized food products intended for infants;
- transportation services of passenger and luggage in Latvia;
- learning literature and original literature;
- newspapers, journals and other periodicals (as well as certain applications to journals in the CD form that are attached to the journal at no additional charge and are an integral part of it), newsletters and other periodicals that published not less than once every three months, and whose disposable circulation exceeds 100 copies;
- accommodation services for tourists;
- supply of thermal energy to inhabitants for household consumption.
The following transactions are being exempt with credit (entitling to recover input tax):
- Supply of goods and services for which the place of supply is deemed to be outside Latvia and if such supplies have been subject to VAT if taken place in Latvia.
Zero-rated transactions are as follows:
- export of goods and supplies of goods that are not released for free circulation within the customs warehouses and free zones;
- distribution of goods to fiscal representative for further export;
- supplies of goods to taxable recipient of other member state provided that goods are delivered to another EU member state;
- supply of new vehicle to any person of other member state;
- acquisition of goods for further export by fiscal representative within the EU;
- services provided in Latvia and which:
- directly relates to exports of goods, including such whose customs procedure started in another member state;
- directly relates to transit traffic;
- services in free zones and customs warehouses related to goods, that imported into the European Union from third countries or third territories and are not released for free circulation;
- international passenger traffic, as well as passengers traffic to other member states, if passenger crosses the border of the Republic of Latvia, as well as luggage transportation, which the passenger carries with him, and transportation of the vehicle with which he travels.
- ship and aircraft supplies, goods supplied to ships and aircraft and supplies associated with these services.
Following transactions are exempt from VAT (without entitlement to recover input tax):
- postal services, which are provided by the universal postal service provider;
- medical services, using medical technologies that are provided in a certain order in the regulations;
- mandatory health checks; social welfare, occupational and social rehabilitation, social assistance and social work services;
- dental care services, services provided by dental technicians and dental hygienists;
- cultural events (theatre and circus, concerts, exhibitions for children, art events and charity events, visits to state-recognized museums, libraries, zoo and exhibitions);
- insurance and reinsurance services under the “On Insurance Companies and Supervision” Act, as well as insurance and reinsurance intermediary services under the “Activities of Insurance and Reinsurance Intermediaries Law”;
- financial transactions (lending and loans; deals with loan guarantees; services related to deposits and current accounts, and the involvement of other repayable funds, cash and non-cash payments; services related to the issuance and service of money, and other)
- gambling and lotteries;
- sale of used immovable property, excluding sale of unused immovable property.
- When taxable transactions exceed the value of 50,000 EUR during the pre-taxation year or the taxation year, or
- When goods are supplied within the EU territory, for which apply 0 percent interest rate, according to VAT act; or
- if the person provides services in the other country of the EU; or
- For VAT group and fiscal representative.
- for registered taxpayer in the taxable year, if previous criteria are not met, when the reporting period is month
- for taxable person if the value of taxable transactions during the pre-taxation year exceeds 14,228.72 EUR, but does not exceed 50,000 EUR, and if previous criteria are not met, when the reporting period is month.
- for taxable person if the value of taxable transactions during the pre-taxation year does not exceeds 14,228.72 EUR, and if previous criteria are not met, when the reporting period is month or quarter.
VAT returns and its appendices must be filed within 20 days after the end of the tax period using the Electronic Declaration System. VAT is payable within 20 days after the end of the tax period.
Personal Income Tax
Tax rate and base
Individual – resident for tax purposes in Latvia – is taxed on his worldwide income. Certain educational and medical expenses, as well as social security contributions, personal allowance (As of 1 January 2014 – 75 EUR monthly), and allowance on dependents (165 EUR for each registered dependent) may be deducted from taxable income.
Non-resident is taxed on his Latvian-source income and is not entitled to any deductions or allowances, except when he/she (resident of EU/EEA member state) has derived more than 75% of his total income in Latvia in the tax year. Deduction may be applied if similar relief has not been applied in his/her residence country.
The following PIT rates are levied on provided sources of income:
- In 2015 salary -23%, calculated and paid by the employer; and starting from 2016 -22%;
- Income on commercial activities – 23%;
- Income on capital gains (e.g. sale of shares, real estate) – 15%;
- Income on capital (e.g. dividends, interest) – 10%;
- Monthly patent fees on specific economic activities depending on location – EUR 43 – 100;
- Business income from taxpayer registered as micro taxpayer – 9% оn total turnover (part of the tax paid includes PIT payment);
- Fixed income tax from certain business activities – 5 %. It was decided to abandon the fixed income tax regime, which to some extent overlaps with microbusiness tax regime. As of 1 January 2014 new fixed-income taxpayers will no longer be registered, providing a transitional period of two years for individuals that are already registered. Amendments to PIT law are stating that this regime will no longer be applied starting from 1 January 2016;
- Minimum payments to pensioners – 17 EUR per year or 9 EUR per half a year (residents, who receives state pension according to age and which revenues do not exceed 3000 EUR per year);
- The minimum income tax on income from business activities – EUR 50 (actually the minimum PIT will need to start paying in 2015).
Tax payer registration only in one status
As of 1 January 2014 new tax avoidance provisions were introduced, ensuring that tax payer can only register himself in only one status – register business in regular order, or register himself as a Microenterprise tax payer. However, there are certain exceptions to which these rules do not apply.
Pensions treated as income
As of 1 January 2014 the same Personal Income Tax will be applied either for old age pension paid by State Social Insurance Contribution Agency, as well as the lifetime pensions paid by the insurance company.
Pensions treated as incomes, which is paid as insurance compensation in accordance with insurance contract, will be taxed by PIT of 24% (in 2014). The tax is withheld by payer of income – the insurance company with which person has entered insurance contract.
Incomes from life annuity insurance contract, which is defined as income from capital, but is not a capital gain, will be taxed of 10% rate. The tax is withheld by payer of income – the insurance company with which person has entered into life annuity insurance contract.
‘’Suggested‘’ income of board member taxation by Personal Income Tax
As of 1 January 2014 there will be need to pay PIT of „suggested” income of board member (including minimum salary of 320 EUR), if all following criteria are met:
- In previous taxation period the company had no employee or board member with a monthly salary lower than the minimum salary, turnover has exceeded stated in Act amount of 12 minimum monthly salary multiplied by a factor of 3.3 (which is 12,672 EUR in 2014);
- In relevant fiscal month of taxation period the company had no employee or board member who receives compensation at least at amount of minimum monthly salary, and in fiscal month of the year the company has a turnover.
If all criteria are met it is considered that in the month that the company has turnover, board member has received taxable by PIT income in amount of minimum salary, which is 320 EUR.
Loans treated as income
As of 1 January 2014 loans treated as incomes will be taxed with PIT. The purpose of these rules is to prevent situations, when the legal form of the loan is used to pay long-term individual income that is not subject of Personal Income Tax. At the same time, the purpose of this regulation is to prevent the use of other schemes for tax optimization. Also in included tax law adjustment for microenterprise loans states that regulations included in PIT are applicable for these loans.
Under domestic rules, individual is considered Latvian tax residents if he has a permanent residence in Latvia or if he stays in Latvia for 183 days or more in any 12-month period.
Tax treaty rules applies to determine tax residence of individual in case Latvia has an effective tax treaty with that country and individual is considered tax resident in both countries.
Tax return submission and tax payment
The taxation period of Personal Income Tax is the calendar year. Both resident and non-resident individuals should file their PIT return between 1 March and 1 June following the year in which their income has been gained. The tax assessed should be paid on or before 16 June. If the tax due exceeds EUR 640, it is possible to divide payment into three instalments due on or before 16 June, 16 July and 16 August.
A non-resident individual who performs employment in Latvia and receives income from an employer that is not resident in Latvia and does not have a permanent establishment in Latvia, is required to submit Personal Income Tax return. Personal Income Tax Act provides specific criteria for cases when non-resident is required to submit of Personal Income Tax return.
If capital gains exceed EUR 711.44 a month, then a capital gains tax return must be filed on a monthly basis by the 15th day of the following month. If monthly capital gains are from EUR 142.30 up to EUR 711.44, a capital gains tax return must be filed on a quarterly basis by the 15th day of the following month. If monthly capital gains are from EUR 142.29 or less, a capital gains tax return must be filed on annual basis by the 15th day of the following tax year.
Changes in Personal Income Tax application for agricultural workers
Similar as before, in 2014, 2015 and 2016 payments received from the state or EU to support the development of agriculture will be exempt from PIT. However, starting from 2017 such payments will be included in the taxable income of the payer (as Personal income tax and Corporate income tax).
In case of agricultural land expropriation is determined that income from the alienation of agricultural land will not be taxed by PIT in cases, where at least at one taxation period of last three months, more than half of persons economic activity incomes (but not less than 2845.74 EUR per year), are incomes from agricultural activities, or that persons, as new agricultural worker, receives payments from the state or EU support for agriculture development.
In the case of agricultural land seller, to apply exemption from personal income tax, certain criteria will not be applied from 1 July 2014 up to 1 July 2016.
Social Security Contributions
As of 1 January 2014 minimum monthly wage is 320 EUR. The minimum hourly rate for employees is 1.933 EUR; for teenagers and high-risk workers – 2.209 EUR. The monthly non-taxable income is 75 EUR, The non-taxable minimum for persons who have been granted a pension 235 EUR per month. Tax allowance for dependents is 165 EUR per month for each. The maximum amount of social insurance contributions for socially insured people is 46,400 EUR per year.
Social security contributions are levied on gross employment income and remitted to the Treasury on a monthly basis. Tax rate applied differs depending on the category of the taxpayer (e.g. disabled, at retirement age, self-employed). Social security contributions are deductible for PIT purposes.
As of 1 January 2014, total standard SSC at a rate of 34.09% are divided between employer (23.59%) and employee (10.50%). Different rates and paying procedures applies if the person is employed by an employer registered outside the EU/EEA or is self-employed. The following categories shall pay Social security contributions in Latvia:
- residents and foreigners employed in Latvia by a Latvian or an EU/EEA employer in case employee does not hold an A1 (E101) certificate;
- residents and foreign nationals employed in Latvia by companies registered outside the EU/EEA;
- self-employed individuals.
If the employer is registered in an EU/EEA country (except Switzerland), employer shall register and pay SSC (34.09%) in Latvia. If the employer is a company registered outside the EU/EEA or in a country that has not concluded tax treaty with Latvia, the employee is fully responsible for compliance and paying taxes in Latvia.
If a non-resident is employed by a foreign company not registered in Latvia, it is the employee’s duty to pay Social security contributions at a rate of 32%. Mandatory contribution rates by the type of social insurances are as follows:
• pension insurance – 24.39%;
• disability insurance – 3.21%;
• maternity and sickness insurance – 2.46%;
• parents’ insurance – 1.17%.
Latvia has concluded several agreements on social security.
Real Estate Tax
The real estate tax is paid by Latvian and foreign individuals and legal persons and if there is created a group of persons which is based on contract or other agreement, and which have the legal ownership or possession of immovable property. Real estate include physical objects located in Latvia and which cannot be transferred without causing damage, i.e., land, buildings and engineering constructions. Certain property is exempt from RET in Latvia. The taxation period is a calendar year. Municipalities are entitled to set tax rate by issuing binding rules. If not provided otherwise, following RET rates applies:
- 1.5 % of the cadastral value on buildings, land, and engineering constructions;
- for buildings with functional use of living, as well as to groups of premises with similar functionality (garages, parking lots, basements, warehouses and household premises), if they are not used for business operations and auxiliary premises of residential houses and cooperative societies, societies and individual owners of garages (except for garages for heavy machinery and agricultural machinery) provided that they are not used for business operations:
- 0,2% of cadastral value, which does not exceed EUR 56,915;
- 0,4% of the part of cadastral value which exceeds EUR 56,915, but does not exceed EUR 106,715;
- 0,6% от стоимости в земельной книге, которая превышает 106 715 EUR.
- additional 1.5% of the cadastral value on unprocessed agricultural land which area do not exceed one hectare or there are restrictions on agricultural use;
- 3% is levied on buildings degrading the environment and on human security-threatening houses or buildings, applying the cadastral value of the relevant land;
- 3% is levied on buildings, which construction exceeded the legislative requirements of the total duration of the works, if it is determined by the local government in their binding rules, which are published no later than 1 November of pre-taxation period.
Corporate Light Vehicle Tax
Corporate light vehicle tax is payable on a light passenger vehicle that is owned or held by a business and registered for the first time after 1 January 2005. There is a fixed monthly rate applied depending on the engine volume stated in the car registration certificate:
- EUR 27.03 for up to 2,000 cm3;
- EUR 42.79 for 2,001 to 2,500 cm3;
- EUR 56.91 for over 2,500 cm3.
For vehicles registered before 2005, Corporate light vehicle tax is EUR 4.69 a month regardless of their engine volume.
Corporate light vehicle tax is remitted to the Treasury before an annual roadworthiness test for the months elapsed from the beginning of the calendar year including the month in which the test occurs. The balance of tax for the year is payable at next year’s test.
From 1 May 2012 Corporate light vehicle tax is payable also on a car that is used under an employment contract, although company is not registered as holder at the Road Traffic Safety Office.
There different tax (Corporate Income Tax, Personal Income Tax and social contributions) consequences for company and individual (employee) depending on how vehicle is registered with Road Traffic Safety Office and used (contractual) in company’s daily operations.
Latvian entities can opt to pay Microbusiness tax (MBT) and therefore being exempt from Corporate Income Tax, Personal Income Tax and State Social Contributions. In order to become Microbusiness Tax payer, company shall comply with certain criteria:
- participants are individuals;
- turnover up to EUR 100,000;
- number of employees up to 5;
- Shareholders are only individuals and are deemed to be employees of the company;
- salary up to EUR 720.
Microbusiness Tax is calculated at flat rate of
- 9% if turnover does not exceed EUR 7,000;
- 11% if turnover exceeds EUR 7,000;
In case Microbusiness Tax payer fails to comply with requirements it loses is special status as from next year, and is subject to increased MBT rate in current year calculated as follows:
- 2% points are added to standard rate for each additional employee in case Microbusiness Tax payer’s number of employees in a quarter exceeds 5;
- 20% rate is applied on the excess of turnover over EUR 100,000;
- 20% rate is applied on the excess of employees salary over EUR 720.
Microbusiness Tax is remitted to the State Budget on a quarterly basis. Microbusiness Tax return has to be submitted on or before 15th day of month following quarter.
From 1 January 2015 the rate of Microenterprise Tax for turnover to 7,000 EUR will be 9%.It is planned, that the rate of Microenterprise Tax for turnover from 7,000.01 to 100,000 EUR will be:
- 11% rate in 2015;
- 13% rate in 2016;
- 15% rate in 2017.