Looking to establish your business in Europe?
Latvia might just be the perfect destination for you. With its competitive corporate tax rate, simple tax system, and various tax incentives, Latvia is a robust place for companies intending to start their work in the region.
However, businesses incorporated in Latvia need to understand their tax obligations and comply with all relevant tax laws and regulations to avoid penalties and ensure their ongoing operations.
Whether you’re a small business owner or a multinational corporation, understanding corporate taxes in Latvia can help you make informed decisions about your business operations in Europe.
In this article, we’ll take a closer look at the various forms of Latvia corporate taxes, the benefits of the Latvia corporate tax rate, and things you need to know about filing your Latvia corporate tax return. So, let’s jump into it and examine the ins and outs of business taxes in Latvia.
Corporate Taxes in Latvia
Latvia corporate taxes is an attractive proposition for firm intending to make their existence in Europe. With its robust tax rates, simple tax system, and various tax incentives, Latvia offers a supportive environment for businesses of all sizes.
The corporate tax rate in Latvia is 20% as of February 2023. This applies to all companies, including limited liability companies, joint-stock companies, partnerships, and branches of foreign companies.
Latvian firms are taxed on their worldwide earnings, while foreign corporations are taxed only on their earnings generated in Latvia. However, Latvia has tax pacts with over 50 countries, which can offer ease from double taxation for foreign companies.
Some of the additional tax benefits are accessible to businesses in Latvia. For example, companies that invest in research and development can benefit from a reduced tax rate of 12.5% on income generated from those activities.
One of the key advantages of Latvia corporate taxes system is its competitive tax rate, which is lower than the average Latvia corporate tax rate in the European Union. It makes an appealing place for companies who are intending to make their existence in Europe while keeping their tax burden low.
It is important for businesses operating in Latvia to comply with all relevant tax laws and regulations, as failure to do so can result in penalties and fines.
Here is the revised Latvia corporate tax rate for February 2023.
|
Tax Type |
Tax Rate |
Tax Base |
|
Corporate Income Tax |
20% |
Profits earned in Latvia |
|
Value Added Tax |
A standard rate of 21%, a reduced rate of 12% |
Sales of goods and services in Latvia |
|
Personal Income Tax |
Progressive rates up to 31.4% |
Salaries, bonuses, and other employment-related income |
|
Capital Gain Tax |
20% |
Applied to earnings earned from the disposal of a particular property |
|
Microenterprise |
15% |
Turnover up to €100,000 |
|
Social Security Contributions |
24.09% |
Salaries, bonuses, and other employment-related income |
|
Excise Duties |
Various rates depending on the product |
Excises goods, like tobacco, liquor, and energy. |
|
Real Estate Tax |
0.2-3% |
The assessed value of immovable property situated in Latvia |
Various types of corporate taxes in Latvia
There are several types of corporate taxes in Latvia, that businesses may be subject to.
Value-added tax (VAT): This is a tax on the value added at each stage of production and distribution of goods and services. The common VAT rate in Latvia is 21%, although lessened rates of 12% and 5% apply to certain goods and services.
Capital gains tax: This tax is applied to profits earned from the disposal of certain assets, such as immovable property situated in Latvia. Thus, the capital gains tax rate in Latvia is 20%.
Social security contributions: Employers in Latvia are needed to disburse social security contributions to the better half of their workers. The rate of SSC differs as per the employee’s salary, but it can be up to 35.09% of the gross salary.
Real estate tax: This is a tax on real estate possessions and involves land and buildings. However, the real estate tax is around 0.2-3%.
Excise duties: These are taxes on particular goods, like tobacco, liquor, and energy and the rates of excise duties differ as per the type of product.
Benefits of the business taxes in Latvia
There are several benefits of the business taxes in Latvia, which are currently set at a flat rate of 20%:
Competitive tax rate
Latvia’s corporate tax rate is lower than the average corporate tax rate in the European Union, which makes it an attractive location for businesses looking to establish a presence in Europe.
Simple tax system
Latvia’s tax system is relatively simple, with few deductions and exemptions. This makes it easier for businesses to comply with tax laws and reduces the administrative burden.
Microenterprise tax regime
The microenterprise tax regime is available to small businesses with a yearly turnover of up to €100,000. This regime allows businesses to pay a flat tax rate of 15% on their turnover instead of corporate tax, which can be a more cost-effective option for small businesses.
Double taxation treaties
Latvia has signed double taxation treaties with many countries, which can help to reduce the tax burden for businesses operating internationally.
Tax incentives
Latvia offers various tax incentives for businesses, including tax credits for research and development activities, investment tax credits, and accelerated depreciation for certain types of assets.
Penalties for not filing your business taxes in Latvia
Failing to file your corporate taxes in Latvia on time can result in various penalties, which can add up quickly and cause financial stress for your business.
The following penalties could apply to you:
- Late filing penalty: If you forget to register your corporate tax return by the deadline, you might be liable to a belated filing punishment of up to €2,853.
- Late payment penalty: If you don’t pay the full amount of tax due by the deadline, you may be subject to a late payment penalty of up to 0.05% per day on the amount outstanding.
- Interest on unpaid taxes: If you don’t pay the full amount of tax due by the deadline, you may be charged interest on the amount outstanding until it’s paid in full.
- Additional tax assessment: If the tax authorities determine that your tax return is incomplete or inaccurate, they may issue an additional tax assessment and impose penalties for the underpayment.
- Criminal charges: In serious cases of tax evasion or fraud, criminal charges may be brought against the taxpayer, which can result in fines, imprisonment, or both.
Conclusion
Generally, Latvia has a friendly corporate tax system that makes establishing a presence in Europe easier for businesses. With its competitive tax rates, straightforward tax structure, and a variety of tax breaks, Latvia offers a compelling proposition for businesses of all sizes. By acknowledging the tax system and complying with all suitable laws and ordinances, industries can get better benefits from Latvia and thrive in this dynamic and growing economy.
Companies may also want to seek the advice of a tax professional at Odint Consultancy to ensure they are taking advantage of all available tax incentives and minimizing their tax liability.
FAQ’s
The corporate tax rate in Latvia is a flat rate of 20%.
Yes, Latvia offers various tax incentives for businesses, including tax credits for research and development activities, investment tax credits, and accelerated depreciation for certain types of assets.
The microenterprise tax regime is available to small businesses with a yearly turnover of up to €100,000. This regime allows businesses to pay a flat tax rate of 15% on their turnover instead of corporate tax.
Yes, Latvia has signed double taxation treaties with many countries, which can help to reduce the tax burden for businesses operating internationally.
Corporate tax returns in Latvia must be filed electronically through the State Revenue Service’s online portal. It’s crucial to assure that all appropriate details are involved and that deadlines are met to avoid penalties.
Penalties for non-compliance with Latvia’s corporate tax laws can include fines and interest on unpaid taxes.
