How is the tax system in Latvia? – everything you need to know
Latvia – as one of the European Union countries, offers efficient and electronic business registration for all member states. Its favorable tax system attracts foreign investors, who can take advantage of the conducive CIT and VAT rates applicable there.
Small and medium-sized entrepreneurs most often choose to establish a limited liability company SIA (Sabiedriba ar ierobezotu atbildibu / Latvian Limited Liability Company). This is the most advantageous legal form for foreign entrepreneurs, as the optimal tax system in Latvia allows them to reduce their tax liability.
Taxation system in Latvia – Corporate Income Tax
Latvia’s business-friendly tax system is based on a competitive EU corporate income tax (CIT) rate of 15%. It is crucial that the income tax in Latvia is only payable when profits are distributed. This enables the entrepreneurs to manage Latvian company assets more efficiently, as well as encourages long-term investment. The tax system in Latvia also includes CIT exemption for income from capital gains.
Taxation system in Latvia – Personal Income Tax, Dividend Tax
The personal income tax (PIT) rate in Latvia is progressive, depending on the income received. Based on current revenue limits, it is as follows:
- 20% – in case of incomes up to EUR 20 004.00
- 23% – for incomes above EUR 20.004,00 up to a maximum of EUR 62.800,00
- 31% – if the income exceeds EUR 62 800,00
The tax system in Latvia regulates taxation of distributed dividends at the rate of 20%. However, if the company already has paid the CIT, then the PIT is not levied in this case. The above regulations apply to Lithuanian companies, EU and EEA companies, excluding tax haven companies and MBT (Microbusiness Tax) payers. Latvian tax residents are not required to pay income tax on dividends received from abroad.
Taxation System in Latvia – Value-Added Tax
The standard rate of Value-Added Tax (VAT) in Latvia is 21%. A reduced VAT rate of 12% also applies to pharmaceuticals, medical products for the disabled, or hotel services. Locally produced fruits and vegetables are also subject to a preferential VAT rate of 5%.
Latvia has one of the most expedient tax systems in the European Union, characterized by simplicity and transparency. The friendly attitude towards foreign investors makes entrepreneurs from all over the world more and more willing to operate business in this country.
If you are thinking of moving your company to Latvia – contact us, and our specialists will gladly check if this is the right solution for you.