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TAXES & BOOKKEEPING LATVIA

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  1. Regardless of whether you have acquired a ready-made company or gone through the company formation process, all legal entities need to follow a certain set of rules when it comes to taxes and bookkeeping. Under the Taxes and Duties Act, taxes and duties are imposed either by the state or municipalities. There are also several exceptions in terms of business support policies introduced by the government. Companies having Special Economic Zone (SEZ) status, enjoy significantly lower tax rates among other benefits. For example, corporate income tax is lowered to 3% of gross profit for companies with SEZ status. Additionally, a separate law was introduced for startup companies on 1 January 2017. The new law determines following state aid programs:
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  3. Fixed social tax charge with the consent of employees;
  4. Support program with an aim to attract highly qualified workers;
  5. Corporate income tax credit and CIT rebate.
  6. Legal entities, which turnover in a 12-month period exceeds 50 000 EUR, must register as a value-added taxpayer. However, it is possible to register as a VAT payer also before this threshold is reached. Standard VAT rate in Latvia is 21% and it can be paid either quarterly or monthly, depending on specific criteria of the taxpayer.
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  8. Since 2018, 20% corporate income tax rate is applied only on profits that are distributed via dividends or used for purposes that are not directly related to the development of the business. No other taxes are applied on income earned by businesses. Resident companies pay CIT on their worldwide income. Corporate non-residents with a permanent establishment (PE) are charged a standard rate of CIT on their Latvian-sourced income. In the absence of a PE, foreign companies may be subject to 0 to 15% withholding tax on various qualifying payments, such as payments to tax havens and management fees.
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  10. Companies can also be registered as micro-enterprises. As opposed to other legal forms of businesses, micro-enterprise is a tax regime rather than a separate form of business. Micro enterprises pay 15% tax on the company’s turnover. Micro enterprises face numerous restrictions, such as the total yearly turnover of the company cannot exceed 40 000 EUR and salaries cannot exceed 720 EUR per month.
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  12. Latvian residents are charged personal income tax on their worldwide income. Non-residents are charged personal income tax on their locally-sourced income. In 2018, a progressive personal income taxation system was introduced. This means that personal income tax is charged at differentiated tax rates based on the amount of taxable income. Current personal income tax rates are as follows:
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  14. Personal income tax rate of 20% is imposed on the amount of taxable income that does not exceed 1 667 EUR per month or 20 004 EUR per year;
  15. Personal income tax rate of 23% is imposed on the amount of taxable income, which is between 1 667 EUR and 5 233 EUR per month or between 20 004 EUR and 62 800 EUR per year;
  16. Personal income tax rate of 31,4% is imposed on the amount of taxable income, which exceeds 5 233 EUR per month or 62 800 EUR per year.
  17. Other taxes paid by companies in Latvia include social security tax and state duty on business risk. Latvian companies are obliged to submit the tax report before 15th of the following month. Financial statement for the financial year should be submitted not later than four months after the end of the financial year.
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  19. https://www.company-formation-latvia.lv/#tax

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