transactions with non-resident legal persons it is necessary to ascertain
whether the remuneration of the transaction is subject to the withholding of
the corporate income tax (hereinafter — the CIT).
following payments to non-resident legal persons are subject to the CIT withholding:
1) remuneration from management and advisory
services — 20 % of the remuneration amount;
2) remuneration from the alienation of immovable property
in Latvia (including also the alienation of stock if the immovable property in
Latvia or investment of the immovable property in equity capital constitutes
more than 50 % of such asset value) — 3 % of the remuneration
3) all payments and dividends disbursed to any person
located, set up or established in low lax or tax haven countries or
territories — 20 % of the remuneration amount. Except for payments
regarding supply of goods and purchased public circulation securities of the
European Union or European Economic Area, provided that such transactions took
place at the market price;
4) remuneration from leasing or renting an immovable
property in Latvia — 5 % of the remuneration amount (applicable from 12
regards advisory services, it should be noted that such aspects as the
substance and nature of a transaction, instead of the legal form, should be
considered upon ascertaining whether the respective service is to be classified
as an advisory service. For instance, provision of information on a marketing
strategy, market research, development of a business plan and consultancy in
the IT sector can be also regarded as advisory services.
obligation of withholding arises when the payment of remuneration is made.
regard to the CIT
from non-resident legal person, by the 20th date
of the subsequent month, a taxpayer is required to submit to the State Revenue
Service (hereinafter — the SRS) a report on the income gained by the
non-resident and the taxes paid in the Republic of Latvia. The
must be also paid by the referred to date. Upon request of the non-resident, it
is possible to issue a certificate on the CIT
and paid in Latvia.
it was necessary to withhold the CIT from the remuneration, but it was not done,
the taxpayer in any case must pay the CIT. In this case the payment should be
settled from the funds of the remuneration payer. Such costs of the taxpayer
will be classified as costs non-related to the commercial activity whereof an
additional 25 % CIT will be required to be paid.
is an option to apply an exemption or a reduced CIT rate, if the non-resident
is the resident of such country with which Latvia has not signed a tax
convention for the avoidance of double taxation. To a large extent the
conditions laid down in the tax convention provide for an exemption from the
CIT deduction for remuneration from management and advisory services. In order
to apply the exemption in accordance with the provisions of the tax convention
it is necessary to receive from the non-resident legal person a residence
certificate determined by the respective country and/or also a residence
certificate approved by Latvia (i.e., the form indicated in Annex 1 to
Cabinet Regulation No. 178). If the total remuneration amount per one
non-resident in the taxation year exceeds EUR 5000, the payer must obtain
a confirmation from the SRS regarding the right to apply the exemption or the reduced
the remuneration amount does not exceed the referred to amount, it is not
necessary to receive a confirmation from the SRS for the application of the tax
exemption or reduced tax rate.
drawn up documents of the residence certificate must be at the disposal of the
remuneration payer by the date of submission of the CIT declaration on the last
month of the reporting fiscal year. In practice, however, the payer requests to
submit the respective residence certificate before paying of the remuneration.
Thus avoiding any risk arising from failure to submit or delayed submission of
the respective residence certificate after the remuneration payment. As an
alternative, the CIT might be withheld from the remuneration amount by the
moment of receipt of the residence certificate.
should also be considered that there is a limited period for the application of
an exemption, depending on the documents at the disposal of the payer. Namely,
the requirements for granting an exemption could be applicable to the taxation
year in which the respective documents for the application of an exemption have
been issued or for a period of one year from the date of issue of such
documents, or for a period of five years.
the non-resident legal person had the right to apply the tax exemption
specified in the tax convention, but the respective documents have not been
drawn up at the moment of the remuneration payment, the non-resident legal
person has the right to recover the CIT withheld from the SRS.
regards payments to persons located, set up or established in low lax or tax
haven countries or territories, the legislator gives the right to request an
exemption from the 20 % CIT withholding. The application of an exemption
must be requested from the SRS by submitting an application and explanations
regarding the transaction in order to prove that the respective transaction was
not made for the purpose of evading or reducing tax liabilities.
Information of the Advisory Department
Should you have any questions or further
information is required, please contact our tax advisers.