Taxes for business in Latvia
Business-related taxes in Latvia are applied to any company that is a Latvian resident, i.e. it is registered in Latvia, being either a domestic company or a branch of a foreign business. Resident companies are taxed on their worldwide income, while non-resident businesses are taxed only for their income from Latvian sources.
Corporate income tax
Corporate income tax (Uzņēmumu ienākuma nodoklis) in Latvia is 15% (2016) one of the lowest in Europe. It is imposed on the annual profits, taking into consideration all the adjustments that the tax laws prescribes. Business expenses are deductible for the purposes of the corporate income tax. The tax exemption can also be applied to interest and public bond sales, but the bond must then quoted in markets regulated by the EU or the European Economic Area.
Another income that is taxed with the corporate income tax rate is the capital gains. This is particularly applied to the capital gains from selling property. In this case, the taxable income is the difference between the net tax value of a property and the sales price. Corporate income tax rate is not applicable to capital gains from the sale of shares.
Latvian corporate income tax also has a simplified version, that can be used by permanent businesses operating for no longer than 12 months. If such a business applies for a simplified tax regime, the corporate income tax is paid on 20% of the turnover.
Social security contributions
Social security contributions (Valsts sociālās apdrošināšanas obligātās iemaksas) in Latvia amount for 34.09% of an employee's salary. The payment is divided into two parts: the employer pays 23.59%, and the employee pays 10.5%, which are withheld from his/her salary.
If an employee's salary exceeds 48 600 EUR in a calendar year, then the rest of the money (salary above the limit) is taxed by a solidarity tax (Solidaritātes nodoklis). The rate and the proportions paid by an employer and an employee are the same as for the social security contributions. It must be noted, however, that the solidarity tax is not counted towards the state pension calculation, as well as it alone does not allow an employee to receive the pension, unemployment benefits, etc. As such, it is paid to the general state budget.
It must be noted that special conditions for paying the social security contributions may apply depending on the employer's and/or employee's status.
Value Added Tax
Value Added Tax (Pievienotās vērtības nodoklis) rate in Latvia is 21% (2016). The reduced rate for Latvian VAT is 12%, and it is applicable for certain goods, such as medical drugs and medical equipment.
You can read more about VAT in Latvia in the following articles:
Stamp duty
Stamp duty is a tax for registering real estate in Latvia by a legal entity (a company). The stamp duty rate is 2% of either the real property sales price or its cadastral value, whichever is higher. For non-residential property (offices, production plants) the maximum taxed value is 42 686.15 EUR.
Tax compliance
As for the tax compliance for businesses, the rules can be different for different taxes, but there is also a core of more or less common rules. First, the tax year is equal to the financial year most of the times, but in some cases it may also be the calendar year. Tax returns must be filed within 4 months after the end of a fiscal year, and consolidated returns are not permitted - each company must file a separate return..In general the taxes are due on the 15th day after the end of a relevant taxing period. If the taxes are not paid in time, an interest of 0.05%/day is imposed. As for the fines for violations, these can vary significantly depending on the tax and the scope of fraud, but most commonly they are in the range of 20% to 300% of the tax due.
