On 26 May 2015 there were adopted the amendments to Cabinet Regulation No. 556 “Application of Rules of the Corporate Income Tax Act” (Cabinet regulation No.556) about the following.
Determinated procedure for non-residents to prepare tax reassessment
According to the law “On Corporate Income Tax” (CIT Act) from payments made to non-residents it is required to withhold tax at 10% for received management and consultancy services, for the use of property located in Latvia – 5%[1], but for the sale of real estate in Latvia – 2%[2].
According to the amendments to the CIT Act and to Cabinet regulation No. 556 starting from 2015 the non-resident, who is a resident in the EU or resident in a country that has an effective double tax treaty with Latvia, has the option to submit a CIT reassessment of the above mentioned payments with the right to deduct the costs and applying the 15% rate from the profit gained[3]. It should be noted that the reassessment procedure for payments relating to the sale of real estate in Latvia, was already in force in year 2014.
Non-residents have the right to reassess tax amount only if the tax were withheld at the time of payments (i.e. 10%, 5% or 2%) and they have supporting documents to substantiate deducted expenses.
According to Cabinet regulation No. 556 there is provided a claim form that should be submitted to the State Revenue Service by the non-resident. Non-resident has a right to receive back from the State budget the overpaid CIT based on the submitted claim form and prepared reassessment. The claim form can be submitted only in paper or electronic (scanned) form.
Provided explanation about asset revaluation
According to the CIT Act[4] when determining taxable income, results of revaluation of balance sheet and off-balance sheet items should not be taken into account. Since in some cases the same type of transaction is possible to record differently: to book in the income statement or only into balance sheet accounts, there is a different interpretation of this provision, thus Cabinet Regulation No. 556 have been supplemented by 66.1 point and examples in the Appendix 4.1.
They define, if company makes asset revaluation, and it is invested in the share capital of another company, then regardless of the manner in which the asset revaluation reserve is reflected in the accounting records, the company has to increase the taxable income for the value of increase or reduction of the asset, which is turned off.
[1] It should be noted that, according to Article 1(8) of CIT Act payment for the right to use of industrial, commercial or scientific equipment or for their usage is considered as remuneration for royalties, where the tax does not apply.
[2] Article 3, Part 4, Points 2, 5 and 7 of the CIT Act
[3] Article 3, Part 4.8
[4] Article 6, Part 5 of the CIT Act
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