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LATVIA

 

COMPANY FORMATION
TAXATION IN LATVIA
GENERAL OVERVIEW

 

LATVIA – SCOPE OF INCOME TAX
Taxable entities are resident companies (but not partnerships) and non-resident entities as well as permanent establishments of non-residents that derive income from a Latvian source.

The criterion for establishing a company's residence for tax purposes is its incorporation in Latvia, or that it legally should have been incorporated in Latvia.

Latvia does not have an effective place of management test of residence. Corporate income tax is applied to all Latvian-registered enterprises and permanent representative offices of foreign companies registered in Latvia.

For companies not registered in Latvia (non-residents), corporate income tax is based on income earned in Latvia. The corporate income tax is levied on payments that Latvian-registered companies and permanent representative offices render to non-residents if personal income tax has not already been withheld from such payments. See below for the rates of withholding tax.


 

LATVIA INCOME TAXES
Last updated, January 2006

- An individual's income is taxable, as at 2006, at the rate of 25%.
- Exemptions are granted to taxpayers with specific types of income.
- The standard rate of tax for a corporation in 2006 is 15%.

INCOME TAX FOR NA INDIVIDUAL
- An individual in Latvia is liable for tax on his income as an employee and on income as a self-employed person.
In the case of an individual who answers the test of a "permanent resident" of Latvia, tax will be calculated on his income earned in Latvia and overseas.

A foreign resident pays tax only on his income in Latvia.

- To be considered a Latvian resident, an individual must meet the requirement of residence in Latvia for at least 183 consecutive days in a 12 month period that begins or ends in the calendar tax year. Occasionally, an individual will be considered a Latvian resident even if he is resident in Latvia for less than 183 days if he/she owns a home in Latvia that is his/her permanent residence.
- An employer is obligated to deduct, immediately, each month, the amount of income tax and national insurance due from a salaried worker.
- Certain payments are deducted from taxable income, as will be specified further.

CORPORATE TAX IN LATVIA
- The standard rate of corporate tax in 2006 in Latvia is 15%.
- Tax in 2001 was 25%, 22% in 2002 and 19% in 2003.
- A new company may ask for its first financial statements to be submitted for a period of up to 18 months from the date on which the company was founded.

CAPITAL GAINS
- Foreign, non-resident, companies that sell real estate in Latvia, must deduct a final tax of 2% from the proceeds of the sale.
- An individual who sells real estate is exempt from tax on the condition that he has held the property for at least 12 months.
- Capital gains in Latvia are added to regular income.

REPORTING DATES AND PAYMENT
- The tax year in Latvia ends on December 31, however companies may select a special tax period.
- A limited company submits its annual return up until 4 months from the end of the tax year. Large companies may submit their annual reports up to 7 months from the end of the tax year.
- The tax due must be paid within 15 days of submission of the annual return.

DEDUCTION OF TAX AT SOURCE

Taxation of Employees
- As regards salaried employees, the employer is obligated to deduct tax at source from the salaried employee and to make additional contributions to social security.
- In 2006, the employer's contribution to national insurance is 24.09% and that of the employee - 9%.
- A Latvian resident who is employed in Latvia by a non-Latvian company pays national insurance at the rate of 33%.

Tax must be deducted at source for foreign residents on the following basis:
Other deductions (from the year 2004):

- Dividend - the usual deduction is 10%.
- Interest - for associated parties - the deduction at source - 10%.
- Royalties - deduction at source of 5% -15%.
- Payments to company managers and directors - 10% deduction at source.
- Receipts from the sale of real estate in Latvia - 2% deduction at source
(when the relevant company has no permanent institution in Latvia).
- Real estate rental - 5%.
Comments
- Deduction at source for payments to foreign residents is subject to the Double Taxation Prevention Treaty.
- In most cases, there is an exemption for deduction at source on a dividend paid to shareholders who are residents of the EU.
- In most cases, payments to foreign residents that are defined as a "tax haven" must have tax deducted at source at the standard rate of corporation tax in Latvia.

SOCIAL SECURITY, 2006
- Employer - 24.09%.
- Employee - 9%.

LATVIA TAX EXEMPT INCOME
Some forms of income in Latvia are tax-exempt as follows:
- Proceeds from the sale of a residential apartment that has been held for at least 12 months.
- A dividend paid by a Latvian company (other than if the recipient is not a Latvian resident).
- Profit on the sale of securities, even when they have been held for less than 12 months.
- Interest received by an individual on deposits with a local commercial bank.
- Receipts from a private pension fund.
- Prizes from lotteries and games of chance to the maximum defined in law.
- Income from government and municipal bonds.
- Travel expenses to the place of work, subject to the conditions specified.
- Receipts from religious institutions on condition that they do not exceed the minimum taxable income.

LATVIA TAX DEDUCTIONS

BUSINESS DEDUCTIONS
In Latvia, in addition to the deductions/credits mentioned above, deductions and business expenses may be claimed as specified below:

- Offset of losses: - A loss may be offset 5 years forward. It is not possible to offset a loss from previous years, Companies that operate in a free economic zone may offset losses 10 years forward.
- Consolidated statements - in Latvia, a loss in one company of a group may not be set against a profit in another company in the group.
- Financing expenses - interest on credit is allowable for tax. Nevertheless, the interest may not exceed 75% of profits, excluding interest.
- Employer's voluntary contributions to pension and health funds are allowable to an amount of LVL 40 per employee per month.
Depreciation of Fixed Assets
- The "double-declining balance" is the method of depreciation adopted in Latvia.
- The rates of depreciation in Latvia:

Class of Asset

Depreciation

Buildings and equipment

10

Computers and peripheral equipment

70

Road infrastructure and transport vehicles

10

Vehicles and ships

20

Goodwill

0

Patents

20 (straight line method)

Oil drilling equipment

15

- Research and development expenses may be deducted entirely in the year of purchase

LATVIA VAT AND OTHER TAXES
Value Added Tax

- The standard rate of VAT in Latvia is 18%. There are reduced rates of 5% and 0%.
- VAT is charged on assets and services provided in Latvia as well as on imports into Latvia.
- Exports from Latvia are not subject to value added tax.
- Income from financial services, such as insurance and banking services are exempt from VAT and legal advice, subject to the conditions in law, is exempt from VAT.
- Any business with a turnover in excess of LVL 10,000 (approximately Euro 17,600) in the previous 12 months is obligated to register with the VAT authorities.
- VAT at the rate of 5% is payable on medications, veterinary medications, special equipment for children, communications services, sewage services and services for the removal of domestic garbage.
- The following operations are exempt from VAT, subject to the definitions:
- Educational services.
- Medical services.
- Cultural services.
- Lotteries and gambling.
- Financial services provided by banks and insurance companies.
- Gifts and donations for humanitarian aims.
Purchase Tax
- Purchase tax is payable in Latvia on real estate, buildings and land, according to their value at the Land Registry Office.
- The tax of 2% is imposed on the buyer.
Property Tax

A tax of 1.5% is imposed when owning real estate.

The tax for buildings is 1.5% of the balance sheet value, the tax for land is 1.5% of the cadastral value.

LATVIA COMPANY FORMATION
Types of Corporations

In Latvia, the following are very acceptable forms of incorporation:

A Private Limited Liability Company (with the suffix SIA)

- The minimum registered share capital is LVL 2,000. (approximately Euro 3,000).
- The company is prohibited from offering its shares to the public or from trading on the Stock Exchange..
- The shareholders' undertaking is limited to the amount of the capital invested only.
- The company does not issue share certificates and registration of the shareholders is recorded in the "Shareholders Register".
- A director must be appointed for the company.
A Public Limited Liability Company (with the suffix AS)
- The minimum registered share capital is LVL 25,000 (approximately Euro 38,000).
- The company may offer its shares to the public.

LATVIA FOREIGN RESIDENT INVESTMENTS
Latvia Investment Incentives

- Latvia attempts to encourage investments from foreign residents. The following are among the reasons that foreign investors are attracted to Latvia:
- Political and economic stability.
- Membership of important bodies such as - IMF and it is expected to join the EU in 2004.
- Significantly lower labour costs than the European norm. The average gross monthly salary in 2002 was 263 dollars.
- Excellent location on the Baltic Sea in the heart of one of the fastest developing areas in Europe that has a potential target population of 600 million purchasers.
- The transport infrastructure is well developed both on land and with three seaports, of which 2 are ice-free throughout the year.
- Thirty-six agreements with various countries to promote and protect foreign investments.
- Low rate of corporation tax, and special benefits for investors.
- According to data of the Baltic Development Agency, the total investments of overseas residents in 2002 amounted to 2.85 billion dollars. Most investments in the years 1992 - 2002 were from Sweden and Germany, with each investing some 370 million dollars, with some 342 dollars from Denmark and 228 million dollars from the United States.
Restrictions on Foreign Ownership
- In general, there is no discrimination in Latvia between foreign and local investors. Nevertheless, there are restrictions in specific matters.
- An individual who is a foreign resident may not purchase real estate. The only possibility available to a foreign resident to purchase real estate is by means of a Latvian company.
- There are restrictions in regard to companies that obtain control of air transport, security services and the operation of lotteries and gambling (there is no restriction in regard to lottery and gambling companies if the foreign residents are residents of the EU).
- Foreign companies that invest in radio and television broadcasting may purchase a maximum of 49% of control.

BENEFITS FOR FOREIGN INVESTOR
Foreign investors in Latvia are eligible for various benefits.
Benefits for an Investment in a Development Area
There are 2 free ports and 2 special economic zones in Latvia.
The free ports are in the Riga area and in the area of Ventspils. The special economic zones are in the Liepaja and Rezekne regions, to the east of Latvia near the border with Russia and Belarus.

The 2 special economic zones were founded for 20 years, until 2017 with an option to extend the period of benefits.

Direct and indirect tax benefits are granted in the 4 areas on condition that the sales of a company in the SEZ within Latvia do not exceed 20% of total sales.

The main benefits are:
- Exemption from VAT.
- Exemption from customs duty on imports and exports.
- An 80% - 100% exemption from real estate tax.
- A rebate of 80% on corporation tax.
- The option to offset losses 10 years forward.
- Increased rates of depreciation.

TAX BENEFITS
- Tax reductions of up to 40% of the investment for companies that invest in large projects that are supported by the State.
- Tax reductions of up to 30% of the investment in hi-tech firms (a deduction of 20% in other sectors).

Special Economic Zones (SEZ)

Foreign investors in Latvia are eligible for various benefits.

BENEFITS FOR AN INVESTMENT IN A
DEVELOPMENT AREA

- There are 2 free ports and 2 special economic zones in Latvia.
- The free ports are in the Riga area and in the area of Ventspils. The special economic zones are in the Liepaja and Rezekne regions, to the east of Latvia near the border with Russia and Belarus.
- The 2 special economic zones were founded for 20 years, until 2017 with an option to extend the period of benefits.
- Direct and indirect tax benefits are granted in the 4 areas on condition that the sales of a company in the SEZ within Latvia do not exceed 20% of total sales.
- The main benefits are:
- Exemption from VAT.
- Exemption from customs duty on imports and exports.
- An 80% - 100% exemption from real estate tax.
- A rebate of 80% on corporation tax.
- The option to offset losses 10 years forward.
- Increased rates of depreciation.

LATVIA DOUBLE TAXATION TREATIES
Latvia is a signatory to a Treaty for the Prevention of Double Taxation with many countries all over the world.

Draft agreements with additional countries are at the discussion stages.

A Double Taxation Prevention Treaty, in principle, enables offsetting tax paid in one of 2 countries against the tax payable in the other, in this way preventing double taxation.

Another important factor is the grant of an exemption or tax at a reduced rate on certain receipts such as interest, royalties, dividends, capital gains and others that are connected with a transaction carried out between parties associated with the Double Taxation Prevention Treaty.

It is of the utmost importance to stress that the Double Taxation Prevention Treaty takes precedence over the Latvian Income Tax Ordinance. In other words, if certain income is taxable under the Latvian Income Tax Ordinance but there is an exemption (reduced tax) under any Taxation Treaty, the income is taxed, if at all, but only according to the provisions of the Taxation Treaty.

DOUBLE TAXATION AGREEMENTS

List of Countries Latvia, 2006

Armenia

Belarus

Belgium

Bulgaria

Canada

China

Czech Republic

Croatia

Denmark

Estonia

Finland

France

Germany

Georgia

Greece

Hungary

Iceland

Ireland

Kazakhstan

Malta

Lithuania

Moldova

Netherlands

Norway

Poland

Portugal

Romania

Slovenia

Spain

Sweden

Switzerland

Singapore

Slovakia

Turkey

UK

Ukraine

USA

Uzbekistan

Further information may be found on the following site: www.Ida.gov.lv

LATVIA VISAS AND WORK PERMITS
- Overseas residents must present valid documents on entering Latvia; including a passport and an entry visa.
- No visa is required from residents of the EU who enter Latvia for less than 90 days in a 6-month period. There are special bi-lateral agreements with another 39 countries.

Visas
The main classes of visas in Latvia:

- An airport visa - permits a stay in the area of a Latvian airport without entry into Latvia.
- A transit visa - this obligates the bearer of the visa to leave Latvia within 72 hours of the date of entry. The visa is valid for up to 6 months.
- Short term visa - allows a stay of up to 90 days. The visa is valid for a maximum of one year from the date of issue.
- Long term visa - allows a number of entries, up to 90 days on each occasion. The visa is valid for a maximum of 12 months.
Residential Permits
- A residential permit enables foreigners to live or work in Latvia.
- The permit is required for residency in Latvia of over 90 days within a period of six months from date of entry into Latvia.
- The permit is also required to manage or open a business in Latvia.
Work Permits
- The permit is required for a foreign resident who wishes to work in Latvia.
- An employment contract with a business registered in Latvia must be presented.
- A work permit must be presented before starting an employment contract.
- A "residential permit" or special visa must be attached to the employment contract.
- In the following case, a work permit is unnecessary:
- Managers who are not authorized signatories, of a company that represents a
Foreign Firm;
- Shareholders, who are not authorized signatories, of companies registered in
Latvia.
- Owners of permanent residential permits.

LATVIA RATES OF INCOME TAX
From 1 January 2002, the Latvian corporate income tax was reduced from a flat rate of 25% to a flat rate of 22%. The rate was 19% in 2003 and dropped to 15% from 2004.

Companies eligible for specific tax rate reductions will continue to calculate their reduction entitlements based on a flat tax rate of 25%.

Latvia Calculation of Taxable Base

The taxable base of resident companies is their worldwide income and capital gains.

A permanent establishment (branch) of a non-resident company is treated by the law as a separate Latvian taxpayer. The profits of a Latvian branch of a non-resident company are taxed on a normal assessment basis at the same rate as the profits of a resident company. However, internal charges between the Branch and its Head Office such as interest, management fees etc. are not deductible.

Latvia uses a double declining-balance method of depreciation for tax purposes. Effective annual rates of depreciation are as follows:

- Buildings, constructions, long-term plantations (10%);
- Oil research and extraction platforms together with the equipment necessary for their functioning, located on these platforms; oil research and extraction ships (15%);
- Rolling stock and railroad technological equipment, sea-going and river transportation vessels, technological equipment of merchant marine, transportation fleet and ports, energy equipment (20%);
- Computers and their appliances, including printing devices, information systems, software products and data storage equipment, communication means, copying machines and their appliances (40%);
- Other fixed assets (40%).

Goodwill may not be amortized for tax purposes. Concessions, patents, licenses and trademarks are amortized on a straight-line basis.

It is possible to carry tax losses forward for five years. Where a change in the control of a Company occurs, the right to existing losses is lost unless the Company continues to undertake for the next 5 years the same fundamental business activity that it undertook during the previous 2 years. Companies are not allowed to carry losses back.

Interest paid to anyone (except Latvian registered credit institutions) that exceeds an allowed amount for the tax period is not deductible. The allowed amount is calculated by multiplying the average short-term credit rate charged by Latvian banks in the last month of the tax period, by the company's equity at the beginning of the tax period. Undeducted interest can be carried forward indefinitely subject to the annual calculation of allowable interest. The right to carry forward undeducted interest is lost if there is more than a 50% change in the ownership of the Company.

Tax incentives and concessions available in special economic zone are described in Free Zones.

A parent and subsidiary(s) that have 90% common ownership are treated as a group. The companies must be Latvian residents or residents of a country with which Latvia has an operative Double Taxation Treaty. Although there is no fiscal unity for taxation purposes, consolidated financial statements are required for the group. Losses can be transferred between group members who are Latvian residents.

Regardless of ownership level, dividends from Latvian companies are received tax exempt excluding dividends paid by a Latvian company that utilizes some form of corporate income tax relief. In this case the dividends are subject to tax in accordance with the percentage of the tax relief obtained by the paying Company.

Dividends from non-resident companies are normally taxable. They are, however, not taxable if at the moment of payment the Latvian recipient owns at least 25% of the capital and voting rights in the paying Company and the payer is not a Company resident in a listed low or nil tax jurisdiction.

Foreign taxes paid are not tax deductible in Latvia. A tax credit may be granted for these taxes but not exceeding the amount of Latvian tax payable on that income (i.e. ordinary credit) on a source-by-source basis. Payments to low tax countries ordinary are the subject to 25% withholding tax.

The list of 'low tax' countries is as follows: Antilles (Netherlands), Andorra, Anguilla, Antigua & Barbuda, Aruba (The Netherlands), Bahamas, Bahrain, Barbados, Belize, Bermuda, British Virgin Islands, Brunei Darussalam, Cayman Islands, Cook Islands (New Zeeland), Costa Rica, Cyprus, Dominican Republic, Ecuador, Gibraltar, Grenada, Guama, Guatemala, Guernsey, Hong Kong (Sjangana), Island of Men, Jamaica, Jersey, Jordan, Jisbuty, Kampione, Katara, Kenya, Kuwait, Labuana (Malaysia), Lebanon, Liechtenstein, Liberia, Maldives, Macao, Madeira (Portugal), Mauricia, Marshall Islands, Monaco, Montserrat, Nauru, New Caledonia, Niue (New Zeeland), Olderne, Panama, San Marino, Seychelles, St. Helens, St. Kitts and Nevis, St. Maria Island (Portugal), St. Pjer and Michael (France), Samoa, Santome and Prinsipi Republic, St. Lusia, St. Vincent and Grenada, Tahiti (French Polynesia), Tonga, Turks and Caicos Islands, United Arab Emirates, Uruguay East Republic, Vanuatu, Venezuela, Virgin Islands (USA) and Zanzibar Islands (Tanzania).

Latvia Filing Requirements and Payment of Tax
Latvia has a self-assessment taxation system. The taxpayer calculates the amount of tax payable and reports this amount in a declaration. The taxation authorities may audit the declaration within a period, which is currently up to three years after the payment of the tax for the year in question. The Latvian corporate tax declaration is based on the income disclosed in the Company's audited profit and loss statement for the year, subject to adjustment as above.

The tax year either is the calendar year or may differ from the calendar year if so stipulated by the charter of the company. The fiscal year should be 12 months, however, a company being incorporated part way through the year may have an tax period which is shorter or longer than 12 months, although, on no account should any tax period exceed 18 months. The annual tax returns must be filed within four month of the end of the tax period to which it relates. Large companies are allowed to extend this deadline up to seven months. Monthly advance payments of tax are required.

The annual income declaration must be filed within 30 days after the annual shareholders’ meeting, but not later than four months after the year-end.

Companies must make tax advance payments by the 15th day of each month. In general, for the period from the first month of taxation period until and including the month of filing the annual report, but not later than four months after the taxation year ends, monthly advance payments are equal to one-twelfth of the tax calculated for the year that is two years before the current tax year, adjusted for inflation. For the rest of the months, the monthly advance payments are each equal to one-eighth of the following: the tax calculated for the preceding year, adjusted for inflation and reduced by the advance tax payments made in accordance with the above procedure.

Any balance of the tax due must be paid within 15 days after the date due for the annual income declaration.

Latvia Social Taxes
An employer must withhold social tax on a monthly basis at the rate of 26.09%. The total tax payable is 35.09%, so 9% must be paid from the employee’s payroll.
From January 1, 2003, the social insurance rate was reduced to 33%, split between the employee – 9% and the employer – 24%.

Expatriates employed by non-resident employers are subject to a social tax of 8.52%. The self-employed rate of social insurance payments is 32.27%.

Latvia Withholding Tax
For non-resident companies without a permanent establishment in Latvia, the final withholding tax is imposed on proceeds received from sale of Latvian real estate. The rate of withholding tax is 2 per cent for income from the sale of Latvian real estate.

Loss on sale of securities may be offset only against income on sale on securities within next 5 years.

Withholding taxes imposed on payments to non-residents are as follows:

- dividends - 10%;
- remuneration for management and consultation services - 10%;
- interest payments among related enterprises and persons - 10%, but if performed by Latvian commercial banks - 5%;
- remuneration for intellectual property: payments for the right to use literary works or pieces of art, including cinema films, video or sound recordings - 15%; payments for the use of other forms of intellectual property - 5%;
- remuneration for the rent or use of property located in Latvia - 5%;
- income from the sale of real estate in Latvia – 25%;
- remuneration from the sale of securities in Latvia – 10%;
- payment for the sale of real estate located in Latvia is 2% of the total proceeds;
- payments made to entities or individuals in any of the low-tax territories listed above - 25%, other than for dividend payments, normal deposit interest paid by Latvian Credit Institutions and payments for goods that have their origin in the low or nil tax country or territory.

Latvia Value Added Tax
Taxable entities are individual or legal entities that in the course of a trade or profession perform taxable transactions within Latvia. Taxable transactions are the supply of goods or services within Latvia, self-consumption, the import of goods and export of goods and services.

Individual and legal entities whose taxable transactions exceed 10,000 LVL in a 12 month period must register for VAT.

The standard VAT rate is 18%. A lower rate of 9% applies to some goods. Zero-rated transactions include:

- supplies of goods where the place of supply is not within Latvia,;
- services connected with the export of goods and transit carriage;
- services where the place of supply is deemed not within Latvia;
- supplies of goods and services connected with supply and servicing of international transport;
- travel agent's services for foreign customers and associated carriage of passengers and goods performed by international transport;
- supplies of goods and services under diplomatic and consular arrangements;
- supplies of goods and services provided under non-repayable foreign technical assistance.

VAT declarations are filed on a monthly basis. Input VAT cannot be claimed in respect of exempt transactions and input VAT can only be claimed in respect of transactions that are directly related to the income production of the individual or entity.

TAX & LEGAL NEWS IN LATVIA

Corporate Income Tax Law
Recently the new Governmental Regulations regarding corporate income tax was adopted. The new rules came into force on 1st of July 2006. The rules regulate as well as interpret how the withholding tax shall be imposed on payments to non-residents of Latvia.

Withholding taxes
Law “On Corporate Income Tax” adopted in 1995 determines that withholding tax is imposed on payments that are paid from residents and permanent establishments to non-residents, if on these payments the personal income tax is not imposed. The withholding tax is due in the moment of payment or decreases of liability in a balance sheet of the payer if decrease results from an offset of liabilities with a counterclaim and shall be paid into State budget until the 15th day of the following month. It is also allowed by law not to withhold the tax, except on dividends and payments for sale of immovable property, but in this instance the payment made does not reduce taxable incomes of Latvian company, namely, this payment is non-deductible cost. Law “On Corporate Income Tax” determines percentage rates as follows:

1) 10% from value of dividends, except cases, when dividends are paid to resident of other European Union state, if the resident owns at least 25% from capital and votes in the company paying dividends at least 2 years without interruption (including the pay-out day of dividends);
2) 15% from gained incomes from participation in partnership;
3) 10% from payment for management and consulting services;
4) 10% from interest payment, if payer and receiver are related parties or persons, except payment to related parties resident in EU countries;
5) payment for intellectual property - in amount of 15% from payment for copyrights (including neighbouring rights) or rights to use copyrights (including neighbouring rights) and also to literary and art, including films and video films; percentage for other intellectual property in amount of 5% from payment, except payment to companies resident in EU country;
6) 5% from reimbursement for use of property situated in Latvia;
7) 2% from reimbursement for alienation of real property situated in Latvia;
8) 15% of all payments made by Latvian residents or permanent establishments of non-residents to individuals, companies and other persons, that are established, found or just are situated in low-tax or offshore countries and territories prescribed by Governmental Regulations.

Intellectual property rights
Governmental Regulations precise that payment for copyrights (including neighbouring rights) or right to use the copyrights (including neighbouring rights), if related to computer program, should be imposed with a tax of 5%. The respective payments are related to use of copyrights or the right to use copyrights, but a payment for use of materialized creation that is protected by copyrights, cannot be considered as a payment for use of copyrights or the right to use copyrights.

Neighbouring rights belong to performers, phonogram producers, film producers and broadcasting companies. The objects of neighbouring rights are performance and its fixation, phonogram, film and broadcast.

The subjects of neighbouring rights are performers, phonogram producers, film producers and broadcasting companies or their assignees and legatees.

Consulting fee
Governmental Regulations specifies that consulting services means all consultative services rendered to Latvian taxpayer or permanent establishment of non-resident (e.g., rendering services, preparation of different kind of works and materials (calculations, projects, business plans), information providing about changes in accounting programs, in market research and advertisement, as well as in a market of equipment and manufacturing technologies and other questions, that are related to strategic development of performer of economical activities, manufacturing and realization of products, research of economical activities of performer). The application of law services are qualified as consultative services, because of their economical substance and nature, not only legal form.

Defining payments
The “payment” is considered as any payment reducing taxable incomes of payer.

“Payment” also includes percents, royalty, payment for services, payment for reimbursement of factual expenses, payment for insurance premium, bail and earnest, that is paid by Latvian residents and permanent establishments of non-residents in Latvia to any person, that lives or is established in low-tax or offshore country or territory, apart from if it is paid in cash, by transfer or other. Tax should be imposed in the moment of payment on all payments to off-shore or low-tax countries or territories also if the payment is made in advance.

The reimbursement for use of property in Latvia is considered as reimbursement from movables or real property.

To summarize, the governmental regulations precise different kinds of payments which are subject to withholding tax. In the same time, taxpayers may rely also on double taxation treaties which decrease the above-mentioned withholding tax rates. For example, Latvian double tax agreements do not foresee withholding tax on consulting fees.

Public Procurement Law
The Parliament of Latvia has recently passed the new Public Procurement Law of 2006.

 

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