Special Corporate Income Tax regime: no taxation on undistributed profit

Latvia is in the European Union and in Euro-zone. Companies can obtain Tax Resident Certificate within days.  Latvian companies are usually most cost-effective in terms of accounting and administration. They are the easiest to set-up.

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Latvia introduced new Corporate Income Tax regime on January 1st 2018: 

Re-invested profit is not be taxed. I.e. CIT is not charged on company profit until it is distributed into dividends and similar payments.

The tax rate is calculated at 20/80 or 20% to brutto profit.

For example: you decided to pay €10 000 as dividends. 10 000 / 0.8 *20% = 2500. Effective tax is: €2500.

The distribution of profit will be taxed only at Company level. Further after, this amount will not be taxed at private shareholder level and no additional withholding tax will appear. 

Note that the following payments will be considered as profit distribution:

• Expenses not related to the business;

• Doubtful debtors’ amounts;

• Increased interests payments;

• Loans with related parties;

• Loans and payments not at arm-length.

Taxation period: monthly tax declaration is introduced instead of annual tax declaration. However, the monthly tax declaration is filed only for the months when dividends get paid. So, nill tax declarations do not need to be filed. The tax is payable by the 20th day of the following month.