Corporate income tax
Latvian companies, which do not distribute profit, are exempt from the corporate income tax for the period from January 1 to December 31. If a company decides to distribute profits in favor of founders, the tax rises to 25%. The tax payable is formed as follows: a Latvian company is obliged to submit an annual financial report to the tax service of Latvia. The financial report summarizes the revenues, costs and expenses incurred during a specified period. The deadline for the annual report is usually within four months from the end of the company’s financial year (usually until April 30). After the report is submitted and profit is calculated, company’s participants decide whether to distribute profits and pay taxes or dispose a reinvestment.
The Value Added Tax (VAT)
Companies registered in Latvia have the right to receive VAT payer status in the Latvian tax service in two cases:<
- In case the turnover of the Latvian company has exceeded or will soon exceed 40000 EUR for the past 12 months.
- If a Latvian company plans to cooperate with companies registered in other EU countries.
Depending on the type of transaction, provided that the Latvian company has a VAT number, different tax rates are applied:
- Transaction between Latvian company and natural person from the EU (including citizens of Latvia) – 21%
- Transaction between a Latvian company and a non-EU citizen, but a person with a residence permit or bank account in the EU – 21%
- Transaction between a Latvian company and a natural person from a country outside the EU – VAT not applicable
- Transaction between a Latvian company and legal entity from Latvia – 21%
- Transaction between a Latvian company and legal entities from the EU (subject to the availability of VAT for both companies) – 0% (reverse charge)
- Transaction between a Latvian company and legal entities outside the EU – VAT is not applicable
A Latvian company has the right to claim a refund of the paid VAT within a month after the VAT report filing. The VAT report is submitted depending on the company’s activity:
- In case of business only on Latvian territory – every 3 months
- If there are deals with partners from the EU, outside Latvia – once a month
- No transactions – every 6 months
If a Latvian company hires a Board member or an employee (including a foreign one), the following tax rates apply to salary:
- Social contributions withheld from the employee’s salary – 11%
- Social contributions paid by the employer – 24.09%
- Income tax on individuals withheld from the employee’s salary:
- up to 20 004 EUR – 20%,
- from 20 004 EUR to 55 000 EUR – 23%,
- more than EUR 55 000 – 31.4%.
For example, if an employee’s salary specified in the employment contract is 500 EUR, the total amount of taxes paid by the company for an employee will be 265 EUR, and the employee will receive 356 euros. Employee reports must be submitted monthly.
If a monthly turnover of a Latvian company has exceeded 2 150 EUR, it is necessary to hire at least one employee or a Board member for a minimum salary (430 EUR). Both residents and non-residents of Latvia can be employed.
Microenterprise Tax (micro company tax)
A micro-enterprise is entitled to obtain the status of a micro-enterprise tax payer – 15% turnover tax (provided that the company’s turnover for the past 12 months has not exceeded 40 000 EUR). The amount of authorized capital and residence of the Board of Directors does not change it.