Accounting Outsourcing and
Tax compliance in Latvia

Latvia – Accounting Outsourcing and Tax Compliance

Global Expansion Plus provides accounting outsourcing and tax compliance in Latvia. We provide services with support of our local accountants and tax specialists. We will perform bookkeeping, accounting and filling tax return on your behalf bearing all associated compliance risks. Latvia, as an independent state has laws set forth to govern its people. Among them are the tax laws, which set out details and procedures of how tax should be imposed. Accounting for taxation in Latvia differs based on the type of tax, rate, activity, and source of income, among other factors.

Latvia in facts

  • Location: Baltic State
  • Territory: 64,589 square kilometers
  • Capital: Riga
  • Official language: Latvian
  • Currency: Euro (EUR)
  • Population: 1,92 million

Corporate income tax (CIT) in Latvia

An entity registered as a corporate in Latvia is subject to CIT. The rate will vary based on the income source. Latvia is among the few countries that offer CIT based on the distributed profits. For example, after achieving profits, at the end of a financial year, a company may decide to distribute some of its profits as bonuses or dividends. The proportion subject to distribution will qualify for CIT. The rate is 20%. Undistributed profits, capital gains due to proceeds from the sale of assets are exempt from taxation.
Apart from distributed profits, deemed distributions also qualify corporate profits for CIT imposition. The deemed distributions, in this case, comprise of:
  • Bad debts (where it is exempt if paid in 36 month);
  • Expenses not related to the business;
  • Loans offered to individuals;
  • Interest paid in excess;
  • Adjustments in the transfer pricing;
Profits deemed to be distributed an indirect gesture that does not relate to the activities of the core business and thus deemed as such.
To benefit from huge tax cuts, newly established businesses have the option to apply for the Micro-business tax (MBT). However, their shareholders have to be individuals and register an annual revenue of less than EUR 40,000.

Value-added Tax (VAT) in Latvia

Goods and services supply will be subject to VAT. The normal rate is set at 21% for both local goods and imports plus services. For services supplied within the country by non-residents, they go through the same treatment of VAT imposition.
A lower VAT rate of 12% applies to products and services involving:
  • Baby food;
  • Medical equipment and devices;
  • Local public transport;
  • Publications on literature context;
  • Heating expenses in households;
  • Textbooks;
  • Newspapers;
Fresh vegetables and fruits with no value addition to them are subject to 5% VAT. The condition for this to apply is that they should not have undergone any form of treatment. There are VAT exempt goods and services in Latvia. All exports and goods or services to diplomats are exempt from taxation. Also, the supply of goods to persons taxable in member countries is exempt.
Other services exempt from VAT include:
  • Sale of real estate;
  • Education services;
  • Insurance service;
  • Medical; and
  • Financial services;

Personal Income tax (PIT) in Latvia

Latvian tax laws offer a graduated scale on how to tax its citizens for the income they earn. PIT is progressed in a way that, the more you earn, the higher the taxation rate. It concludes as follows:
  • Up to EUR 20,004 – 20%
  • EUR 20,005 to EUR 62,800 – 23%
  • Over EUR 62,800 – 31.4%
The graduated scale also applies to royalties and interest incomes. However, for residents receiving such incomes, a WHT of 20% applies while non-residents are subject to 23% of the same.
In 2019, Latvia passed a law to categorize cryptocurrency as a capital asset. As such, capital gains from trading or investing in cryptocurrencies are subject to the same treatment as other assets.

Withholding Tax (WHT) in Latvia

Non-residents and residents are subject to WHT for incomes received. Nonetheless, WHT does not apply to all incomes. The following rates apply based on the source of income for non-residents:
  • Consulting and management fees – 20%
  • Sale of shares and real estate – 3%
  • Royalties, interest and dividend incomes – 20%
Non-residents from countries with a double taxation treaty with Latvia may be exempt from WHT for incomes generated in the country. However, if the incomes are paid to companies or individuals in countries where no such taxation is available, then they will be subject to WHT. Tax havens exist in many countries, which sees to lower the tax burden for entities and citizens of the country in question.

Payroll-Related Taxation in Latvia

Employees, on a monthly salary, are subject to WHT, where the employer is liable to deduct the same from the gross salary. A graduated scale is applicable, similar to the one when accounting for PIT.
Social contributions exist in Latvia for payroll-related incomes. Employers are subject to a rate of 24.09% of the gross income of the employee. It is a liability borne by the employer rather than the employee. On the other hand, an employee is subject to contribute to the social security fund at a rate of 11%, which deducted at source.

Import/ Export related taxation in Latvia

Custom duty

Imports bear a cost before they can be allowed to interact locally freely. There is a customs fee at the clearance point of entry of the items. Products coming into Latvia have to cross-check and verified which comes at a cost. The rates range from 0% to 20%, depending on the value and type of products. As for exports, they are exempt from any customs charges to help encourage the same.

Excise taxes

The duty covers both locally produced and imports. All harmful products, whether imported or locally produced, will be subject to excise duty. Such taxes aim to increase the cost of the products in an attempt to discourage consumption or over-supply. Examples of such products include; tobacco, cigarettes, and alcohol, among others. The rates have fixed amounts per unit of the product.
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