Double Tax Treaties in Latvia

Double tax treaties in Latvia allow for the reduction of the tax burden for individuals/ companies who derive their income from both Latvia and another county with which such a treaty is in place. Latvia has signed almost seventy such treaties and foreign companies can have certain tax benefits when obtaining income from Latvia and their county of residence. Our team of agents who specialize in company registration in Latvia can give you more information.

What is double taxation?

Being taxed twice on the same income is referred to as double taxation. For instance, if US citizens owe taxes to both their foreign country of residence and the USA, they may be liable to double taxation while living overseas. Corporate stockholders are more frequently subject to double taxation.

To avoid double taxes, some corporations change their legal status to a partnership. However, double taxation for expats often refers to having their income taxed by both Latvia and their homeland. If you are facing double taxation in Latvia, you can get in touch with our company formation agents. They can run a thorough check on your home country’s treaties with Latvia and inform you if you can avoid double taxation in this country.

Terminologies for taxpayers in Latvia 

In a double tax treaty, a company or an individual means those natural persons or legal entities that are treated as residents for tax purposes in a given jurisdiction. This tax liability based on the residence means that the individual or company has its place of management or incorporation in the country or that he/she is domiciled there. For companies, the double tax treaties also have an article that defines the term “permanent establishment”. For taxation purposes, this is a fixed place of business through which the company performs its business activities. This can be:

• a place of management for the business based in one or both of the signatory states;
• a branch;
• an office;
• a factory or workshop;
• a mine, gas well, quarry, or other establishments for the extraction of natural resources;
• a building or construction site as well as an installation project.

Please note that these terms are subject to change as they can be redefined in a given double tax treaty signed by Latvia and another country. Get in touch with our Latvian company formation agents to learn about the current amendments.

How the double tax agreement works

The prevention of double taxation assures that honest taxpayers do not have to pay taxes in two different countries. It also serves as a mechanism to encourage investments from specific states by providing tax breaks or reduced tax rates. It is a straightforward method for promoting cross-country investments. The taxpayer must provide the deductor with certain documentation, including a self-declaration, a copy of their PAN card, a visa or passport, the evidence of the country of origin they claim to be a citizen of, and a tax residency certificate to benefit from the double tax agreement (DTA).

Tax rates and regulations differ from one state to another and are based on the DTA that each country has signed. Tax credits and exemptions are the two ways that DTAs can be applied. While the exemption may be claimed in either of the two nations, the tax credit must be sought in the country where the taxpayer resides. The DTA’s provisions prohibit investments made to reduce taxes. Therefore, an investment that a firm makes in one country and then reinvests in another one to save taxes does not come under the DTA’s ambit.

You are welcome to rely on our company registration agents in Latvia as they can guide you on how to avail yourself of maximum benefits from double taxation treaties legally.

Incomes covered under the double tax treaties in Latvia 

As far as the types of income discussed and covered in a double tax treaty are concerned, some provisions in many DTAs signed by Latvia include the following:

• Income from the immovable property: including the income derived from agriculture or forestry in some cases. Immovable property is a term that is defined by the state in which the said immovable property is situated and it is treated as per the laws in that country;
• Business profits: included here are those profits derived by a permanent establishment or those from the sale of goods or merchandise through the said establishment. The main feature of a double tax treaty in Latvia is that it allows these business profits to be taxed solely in the state where the permanent establishment derives the profits in question (thus abolishing taxation in both states for the same profit amount);
• Income from shipping and air transport: profits derived from engaging in this type of transport or from operating aircraft in international traffic;
• Dividends: as far as these are concerned, Latvia does not levy a withholding tax on dividends, nor on interest and royalties (exceptions include those payable to black-list jurisdictions which are then subject to a 20% tax rate);
• Income from independent and dependent personal services;
• Director’s fees;
• Income derived by artists and sportsmen;
• Pensions or similar remuneration.

Required documentation for double taxation relief in Latvia

To claim double taxation relief in Latvia, you typically need the following documentation:

• Proof of residence: you must prove that you are a tax resident of Latvia. This is often done by providing a certificate of tax residence, which you can obtain from the Latvian tax authorities (VID);
• Tax returns and supporting documents: copies of tax returns filed in the other country where the income was earned and proof of taxes paid abroad (such as: tax receipts, assessments, or certificates from foreign tax authorities);
• Certificate of tax payment: this document confirms the amount of tax paid in the foreign country and may be required to claim a foreign tax credit;
• Income documentation: proof of income from foreign sources, such as pay stubs, contracts, dividend statements, or investment income reports of the company;
• Tax treaty application form: if you are applying for reduced withholding tax rates on income (such as dividends, interest, etc.), you may need to submit a specific form provided by the foreign tax authorities that cites the relevant provisions of the DTA.

Advantages of double tax treaties in Latvia

Double taxation treaties help both individuals and governments to work in a safe environment. Latvia may utilize a double taxation agreement (DTA) to resolve potential double taxation disputes with other countries. These agreements stop individuals, investors, or businesses from having to make two payments for the same taxable income in Latvia and in the other state. Find below the benefits you can get from a double taxation treaty:

1. Encourages foreign investments: double taxation treaties protect the rights of foreign workers, while also encouraging international investments, which could otherwise be deterred if businesses were required to pay taxes locally and in their country of fiscal residence. They give investors legal certainty and lessen the tax obligations placed on international investors. If you are a foreign investor who is interested in investing in Latvia, you can rely on our company formation agents. They can explain to you the whole procedure of application and double tax avoidance method currently regulated in Latvia;

2. Prevents fraud and tax evasion: double taxation agreements can be a powerful tool in the fight against fraud and tax evasion in addition to preventing conflicts about double taxation. For instance, the double taxation agreement between Latvia and Spain forbids individuals, investors, and businesses from being taxed twice for the same accounting event.

Get support from our experts if you have questions about the benefits of Latvian double taxation treaties.

How to benefit from a DTA in Latvia

Investors and individuals should remember that the basis for the elimination of double taxation is a deduction of the income derived from one jurisdiction in the other jurisdiction, in an equal amount. For example, Latvia can allow a deduction from the income tax for a resident who is subject to a DTA or a deduction from the tax on the capital of a certain resident. Most double tax agreements also include special articles that refer to the exchange of information between two signatory states, as needed to carry out the provisions of the treaty. Moreover, the two signatory states will also agree to assist one another in collecting the due taxes. When a request for tax collection assistance is made, it should be accompanied by a certificate that states the taxes owed by the taxpayer in question.

Some agreements for the avoidance of double taxation can include a mention of excluded companies. These can refer to income derived from certain activities. For more information, we recommend talking to one of our taxation lawyers in Latvia.

Current Latvian DTAs with other countries

Below there is a list of recent double tax treaty updates between Latvia and other countries:

• Latvia-Pakistan: in 2017 the two countries initiated the procedures for concluding the DTA;
• Latvia-Andorra: in 2017 the negotiations were commenced for the amendment of the treaty;
• Latvia-Japan: the DTA entered into force in 2017;
• Latvia-Switzerland: the two countries signed a Protocol to the DTA in November 2016;
• Latvia-Cyprus: a DTA was signed in April 2016;
• Latvia – Saudi Arabia: on November 7, 2019, the countries signed a tax treaty. The credit mechanism is used in both states to prevent double taxation;
• Latvia-Vietnam: in August 2018 the double tax treaty between the two countries entered into force.
• EU/EEA Member States: all EU and EEA countries, including Germany, France, Spain, Sweden, and others, have DTAs with Latvia.
• major economies: The United States, Canada, Russia, China, Japan, Australia, and many other countries;
• other countries: Latvia also has DTAs with a range of other states, such as Turkey, India, South Korea, and countries in the Middle East, including Israel and the United Arab Emirates.

One of our agents who specialize in company formation in Latvia can give you more details about the protocols and amendments and how the changes can affect your business. Get in touch for complete information about taxation in Latvia and how the double tax treaties influence business and individual taxation.

DTA concerning the Latvian taxes 

When a double tax treaty (DTA) is in place, the taxes payable in Latvia can be reduced by the amount of income tax paid in the other jurisdiction. This is subject to certain conditions both for individual income and for business income. Branches in Latvia may benefit from this if they meet the general requirements. In general, a double tax treaty or a convention for the avoidance of double taxation will include references to the following types of taxes:

• the profits tax in Latvia: the 20% corporate tax rate applicable to companies deriving income from the country;
• the personal income tax in Latvia: the tax rates for individuals who derive income from Latvia, usually from employment, are progressive and are between 20% and 31.4% according to the amount of yearly income;
• the property tax in Latvia: levied at a local level, the real estate property tax is equal to 1.5% of the cadastral value of a given building;
• the corporate tax and the personal income tax in the other signatory state: here the other jurisdiction will include its taxes, as defined by that state’s internal tax laws.

The double tax treaty also applies to any similar taxes or to those imposed in place of or in addition to the ones listed above after the signature date of the treaty (or as stated in the actual treaty text). 

Furthermore, if you are a company holder who is looking for professional accounting services in Latvia, you can rely on our agents. Their services are at your disposal. For accounting, the reporting year normally corresponds with the calendar year and has 12 months. The first reporting year for a newly founded business may span on a shorter or longer time frame, but it cannot exceed 18 months. Companies are required by the State Revenue Service (SRS) to prepare an annual statement. You can also rely on our accountants in Latvia to make an annual report for your company. 

Through a consultation and practical assistance from our agents, you can keep your business safe in a foreign state. For example, you should also know that, if you are planning to start a company in Latvia, you can avoid double taxation. This can happen if your country is a signatory to a double taxation treaty with Latvia.

Contact our company incorporation consultants in Latvia if you need assistance in such matters.