Taxation in Latvia
Please note important changes in tax policy of Latvia as of 01.01.2018:
Corporate Income Tax (CIT):
Re-invested profit will 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.
Capital gains will be taxed at 20%.
Minimum salary is increased to €430 (currently minimum salary is €380).
Personal Income Tax is currently flat rate 23%. After 01.01.2018 it will be:
— 20% — for profits under €20 000 per year
— 23% — for profits between €20 000 and €55 000 per year
— 31,4% — for profits over €55 000.
Social security payments will be 35,09% per month, of which 11% is paid by the employee and 24,09% is paid by the employer.
Value Added Tax (VAT): threshold for VAT registration is lowered from current €50 000 to €40 000 per year as of 01.01.2018. Reverse VAT will be used for companies involved in trade of games consoles, household appliances, construction materials and metals.