New regime of holdings in Latvia

19.11.2012

In December 2011, the Latvian Parliament adopted amendments to the law "On Corporate Income Tax", which will come into force from 1 January 2013. Since then Latvia will be able to compete with major holding powers such as Cyprus and Malta.

With the help of legislative innovations Latvia creates an attractive tax regime for the registration of international holding companies. The new holding tax regime would greatly optimize the taxation of the company, because many tax rates are reduced to 0%. For example, the entry into force of the amendments at the rate of zero percent will be subject to the following:

1) withholding tax dividends, interest and royalties, which are paid by the resident of Latvia in favor of non-resident companies *. However, the zero rate on interest and royalties will come into force from January 1, 2014, and a zero rate of withholding tax on dividends - from January 1, 2013. There is no limit on the duration of the enterprise's structure or the size of the holding shares in associated companies.

2) Since 2013 alienation of capital produced by Latvian companies, will not be taxed. This exemption does not apply in the case where capital company, whose shares are disposed of, is a resident of the state, which is included in the "black list" of the Government of Latvia *.

3) The tax shall be exempt from payment for intellectual property that Latvian company paid to related companies are also not EU residents (including the CIS). That is a resident or non-resident EU can give to the use of Latvian companies patents and trademarks, and payment for their use will not be taxed.

With these legislative innovations Latvia provides new opportunities for international business and from 2013 will be able to enter the list of popular low-tax jurisdictions such as Cyprus, Malta, Liechtenstein, and the Netherlands.

In addition, it is worth recalling that Latvia has significant amount (more than 50) of DATs, including many European countries, the USA, Canada, China, the CIS countries, the agreement with Russia to come into force in 2013.

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* The regulation does not apply to non-residents, which are included in the "black list" of the Government of Latvia. Countries included in the "black list”, for example, are Hong Kong, BVI, Belize, Liechtenstein, Panama, the United Arab Emirates. The full "black list" of Latvia can be found here: http://www.likumi.lv/doc.php?id=25839

On the basis of: http://www.saeima.lv/

Expert’s opinion

"The black list of the Latvian government begins with Aruba and ends with Zanzibar. You can find here totally 66 countries. This list covers all the popular tax havens (Belize, St. Vincent, Seychelles, etc.), which are traditionally used in tax planning. So it will be hard simply use Latvian company instead of Cypriot one. While, for example, for European users who agree to receive the dividend is officially within the EU, such companies may be attractive. While it is unclear what the cost of registration Latvian holdings, the procedure for preparing and delivering reports. Time will put everything in its place. But it is not much time before the New Year. " 

Lomakin Yaroslav ( Managing Partner of Honest & Bright Company Ltd)