Taxation period is the calendar month, and corporate income tax will be payable by the 20th of the following month if a taxable event occurred. The “tax point” is when the liability is created, e.g.. a non-business expense is booked or a shareholder decision for a dividend distribution is made.
Taxation of dividends
Because the changes to the corporate income tax and individual income tax systems will form a unified system, there are changes made to the taxation of dividends. The individual income taxation of dividend income and income from other profit distributions will not change when:
- Corporate income tax is paid on the distributed profits in Latvia or
- Corporate income tax is paid in a foreign country where the tax was withheld at source
Holding company regime
The holding company regime provides an exemption from corporate income tax on dividend and capital gains income, and abolished the withholding tax on dividend payments to corporate shareholders.
- A rebate of up to 80% of tax is available for licensed entities located in special economic zones and free ports. The rebate has been approved as compatible with the EU state aid rules.
- A corporate tax credit in the amount of 25% of the amounts invested may be granted for long-term investments above EUR 10 million in state-supported industries (manufacturing, information technology, telecommunications, logistics), subject to approval by the Cabinet of Ministers. For the portion of an investment between EUR 50 million and EUR 100 million, a tax credit in the amount of 15% may be granted.
- A 300% super deduction is applied to qualifying R&D costs (direct labor costs of R&D staff and R&D services from scientific institutions and accredited laboratories in the EU/EEA) for corporate income tax purposes. Specific requirements must be fulfilled to qualify for the deduction.
- Start-up companies are entitled to make fixed monthly payments equal to two minimum compulsory state social insurance contributions (i.e. a total of EUR 259 in 2017) per employee, instead of paying full payroll taxes, and also are entitled to corporate income tax rebates. Startup company status is granted by a state-formed commission according to criteria set by the law.
Value added tax
- VAT is charged on supplies of goods and services, intra-community acquisitions of goods and services and the importation of goods and services.
- The standard rate is 21%, with a reduced rate of 12% applying to certain goods/services. Some items are zero-rated, and others are exempt (e.g. financial and insurance services).
- The taxable period generally is the calendar month, although it may be a quarter or a six-month period in certain cases. Returns must be submitted and tax paid by the 20th day of the month following the taxable period.