Latvia

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Tax Policy

TAX POLICY

Income Tax Rate 25%

Corporate Tax Rate 15%

Sales Tax / VAT Rate 22%, reduced rate 12%

Personal income tax

In 2011 Latvian residents are liable to personal income tax at a flat rate of 25% (in 2010 the tax rate was 26%) on their worldwide income. This includes all income (except capital gains) after deductions such as social insurance contributions paid by employees, allowances, deductible expenses unless specifically exempt. Non-residents are liable to personal income tax at a flat rate of 25% on their Latvian source income.

The tax year is the same as the calendar year. The same rate of 25% generally applies to salary income and to trading income. (There are special rules for micro-companies).

All residents are entitled to a monthly non-taxable personal allowance which, in 2011, amounts to LVL 45, and an allowance for each dependent of LVL 70.

Tax in respect of salaries, bonuses and most other types of payments made by Latvian companies is withheld at source and remitted to the tax authorities. If the recipient of income is registered as a sole trader, he/she is responsible for calculating and paying income tax.

From 1 January 2010 amendments to the Personal Income Tax Act took effect with respect to income from capital. According to these amendments, tax is withheld at source from interest and dividends at a rate of 10%. Bank interest and dividends from Latvian and EU registered companies were previously tax exempt. Dividend income is deemed to be earned when the dividend distribution decision is made (except in respect of dividends of public listed companies). The withholding tax must be paid to the tax authorities by the 5th day of the following month.

Corporate Tax Rate

The standard rate of tax for a corporation in 2011 is 15%.

Enterprise income tax in Latvia is one of the lowest in EU – 15% which at the present moment is one of cornerstones for attraction of investments. It is facilitated also by different enterprise income tax rebates.

Starting from 2011 the enterprise income tax rebate for large – 7,1 million euro and more – investment projects is renewed in Latvia, however, only in priority sectors. Special support may be received only by limited range of sectors – production of food products (except for agriculture and fishery), production of wood products, chemical and pharmaceutical products, production of computers, electronic and optical equipment, as well as production of metal and finished metal products, except for steel industry and shipbuilding.

Tax for Small Enterprises

From 2011 Latvia has introduced a tax of 9% – for small enterprises the turnover of which does not exceed EUR 100 000 (LVL 70 000) per year and which employ up to 5 employees.

Local taxes

Local authorities are permitted to levy stamp duties. They may be levied on the following: obtaining a building permit; placements of advertisements at public locations; organising public trading events etc.

Real estate tax

Real estate tax is paid by Latvian and foreign companies and individuals that have title (registered with the Land Registry) or legal possession of real estate in Latvia i.e. land, buildings and engineering structures - roads, bridges, pipelines, communication lines, power station structures, fencing etc.

The standard rate of real estate tax is 1.5%. Tax is calculated on the cadastral value of land, buildings, and engineering structures. Some classes of real estate are exempt of tax, such as state or municipal real estate used for performing certain functions. Newly built or reconstructed buildings used for business purposes qualify for a one year tax relief from the date that the construction is completed.

From 1 January 2010, residential houses and apartments not used in businesses are also subject to real estate tax.

A progressive rate has been set for residential houses and any parts of non-residential buildings that are functionally used for living and not used in a trade or business:

- 0.2% of cadastral values up to 40,000 lats

- 0.4% of cadastral values exceeding 40,000 but not exceeding 75,000 lats-

0.6% of cadastral values exceeding 75,000 lats.

A double rate of 3% applies to uncultivated land capable of agricultural use.

Other taxes

Stamp duty is payable on registration of title to real estate with the Land Book at 2% of purchase price (or cadastral value if higher), up to a maximum of LVL 30,000.

Sales tax/value added tax (VAT)

The general rate of VAT is 22% (from 1 January 2011). A reduced rate of 12% is applied to certain products and services such as medical goods (according to the list approved by the Cabinet of Ministers), baby food, supplies of books, mass media, inland public transportation services, hotel services (accommodation), supplies to individuals of heating, and natural gas. Exports and related services are zero-rated.

Intra-Community supply of goods (to a customer registered as a VAT payer in another Member State) is zero-rated.