Holding company structure in Latvia
Dividends will not be taxable income starting of 1st January 2013 and thus Latvia introduces and recognizes holding corporate structure. The exemption applies to residents and non-residents as well as natural persons and legal entities which are not registered in low tax states and territories (tax heavens). It is expected to facilitate business through Latvian companies and restrict transactions with offshores.
The amendments in the Corporate Income Law provides that starting of 1st January 2013, income raised on the basis of share transfer, income from dividends are not taxable irrespective whether the person is resident or non-resident. Though, the provisions are not applicable on states and territories included in the list of offshores (also called as tax heaven
).
As far as taxes concern, not all offshores are included in the list of low taxes and free-taxes zones and territories for taxation purposes. The list is stipulated by Minister cabinet regulations No.276, adopted on 26 June, 2001. The regulations recently have been updated and currently there are sixty four countries and territories.
Advantages of new incentive
It is common practice in Europe to maintain holding regime. The new developments shall help Latvia to attract investors and to promote business environment.
- In the light of holding companies, vital role may play the frequency of distributing dividends, time period of holding shares and the number of share. The Latvian regulation does not stipulate any obstacles in this regard. Latvian Corporate Income Tax Law does not require expressis verbis any time limit for holding shares, nor the amount of shares. Thus, Latvian law gives advantage comparing to such jurisdictions as Cyprus, Germany, or Malta.
- Other advantage is lack of specific requirements for foreign businessmen. For example, there are no obstacles or restrictions on foreigners to be director or to be a shareholder, namely citizenship or residency is not vital. Also, there is no specific requirement to use Latvian bank account and foreign bank accounts are permitted.
- According to Latvian Company Law, dividends are paid out once a year on the basis of shareholder`s decision on profit.
Comparing with European Union countries
Comparing with other European Union member states, tax principles are similar in Latvia, Estonia and Lithuania. Although there are differences comparing to Scandinavian countries where in addition to the restrictions with offshores, exists provisions aimed to increase tax payments for transactions with offshore companies. For example in Finland, Sweden and Denmark it is stipulated that if the corporate income tax is lower than 10% in the respective state, then a supplementary tax should be paid. In this case, the regulation in Latvia and other Baltic states is preferable and gives advantages.
According to research, published on gazette Dienas Bizness
, there is no prohibition to provide services for companies located in offshores. For example, if the person opens a company in offshore and register a subsidiary company in the same country where the person is resident and where the services is provided, then in accordance with Latvian, Estonian or Lithuanian legislation there are no significant restrictions comparing with companies incorporated in other countries than offshores. It is not prohibited to provide services through self-owned companies.
In conclusion, the new regime and incentive to introduce holding regime in Latvia in terms of tax law, should give preferences to opt for company establishment in Latvia. The amendments in Latvian Corporate Income Tax law will enter into force on 1st January, 2013.
Baltic Legal is able to set all formalities in the course of business migration, as well as company registration and offer full services of opening a company in Republic of Latvia. If you require company establishment services please contact us.
