Directrices generales de la concentración 1 Marco jurídico

Generally, corporate income tax (CIT) in Latvia is levied on all taxable income, with some exceptions. CIT of 15% is payable on income which is computed as taxable

Latvia

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There are no deduction restrictions if the interest is paid to a Latvian or an EU registered credit institution, or on funds borrowed from a credit institution in a country with which Latvia has concluded a double taxation treaty.

According to the thin capitalisation rules, two calculations for determining the deductible amount of interest must be made. The calculation of deductible interest must be made on an annual basis.

Under the first calculation, the amount of principal upon which interest was paid during the year is multiplied by 1.57 times the average short-term interest rate for the last month of the taxation period as determined by the Bank of Latvia. If the interest payment for the tax year exceeds this amount, the excess is not deductible for taxation purposes. Under the second calculation, the amount of interest paid is disallowed proportionally to the amount by which the average amount of the principal outstanding during the year exceeds a multiple of four times a company’s equity as stated in its annual accounts at the beginning of the year, reduced by any amounts that are long-term investment revaluation reserves or other reserves that have not been reflected in the official profit and loss statement. Interest on “profit participating loans” is deductible with the same limits. The higher disallowance is applied.

Non-deducted interest payments cannot be carried forward for deduction in future taxation years.

that entity’s assets directly or indirectly consisted of real estate located in Latvia. The real estate proportion is determined based on the company’s balance sheet at the beginning of the taxation period. Tax Depreciation

Depreciation rates are laid down in the CIT Law and are 10% for buildings and constructions and 40% for incorporated plant and machinery, all on a reducing balance basis.

Tax Losses

Tax losses can be carried forward for up to eight years if they were incurred up to 2007. Losses correctly calculated and incurred from 2008 onwards can be carried forward for an unlimited period of time. Taxpayers registered in Special Economic Zones can carry forward the losses incurred since 2005 for an unlimited period of time.

Thin Capitalisation

Interest payments may be deducted from a company’s taxable income; however, the deductible amount is restricted.

Dividends

There is no withholding tax (WHT) on dividend payments made by a Latvian resident to a non-resident. Withholding tax of 15% is applicable to dividends which the Latvian resident pays to a non- resident established in a jurisdiction with low or zero taxes.

Regardless of the level of ownership, dividends received are tax exempt except for dividends paid by a Latvian company which utilises some form of corporate income tax relief, or if the payer of dividend is from a low tax or zero tax country or territory.

Other Withholding Taxes

Latvia imposes withholding taxes on the following payments made to non-resident entities:

• management and consulting services:10%;

• payments for the use of fixed or movable property in Latvia: 5%;

• payments of interest by Latvian commercial banks to recipients in low or zero tax countries.

Withholding tax rates may be reduced in line with double taxation treaties to which Latvia is a party.

Corporate income tax of 15% must be withheld at source on any payments made to entities registered in or located in one of the low or zero tax countries and territories designated by the Latvian government. The tax authorities may waive this payment requirement if certain conditions are met.

REAL ESTATE TAX

Tax on immovable property (land and buildings) is paid by individuals and legal entities which own or have legal control over real estate.

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Municipalities have the right to set the rate of property tax between 0.2% and 3% of a property’s cadastral value. A tax rate of more than 1.5% of the property’s cadastral value may be set only in cases where the property is not being managed properly. If a municipality had not published binding regulations on property tax rates up until 1 November of the previous taxation period, the following tax rates are applicable:

• for property and land used for business activities and also for engineering or technical buildings: 1.5% of the cadastral value of the property;

• for agricultural land not currently used for agricultural purposes: 3% of the cadastral value;

• for houses, apartments for inhabitants and additional premises (garages, storage rooms, etc.) not used for business purposes, then the following: - 0.2% of the cadastral value if it does

not exceed EUR 56,900;

- 0.4% of the amount of the cadastral value from EUR 56,900 to EUR 106,700;

- 0.6% of the amount of the cadastral value which exceeds EUR 106,700. The minimum tax payment from each taxpayer to a particular municipality is EUR 7.

• For houses and apartments that belong to legal entities and which are not leased out to an individual: 1.5%;

• for engineering constructions that are taxable with real estate tax but are not registered in the information system of the State Cadastre of Immovable Property: 1.5% (from 1 July 2012);

• for completed buildings which are in use but have not been formally commissioned – 3%.

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