COMPANY FORMATION IN LATVIA
Positioned at the crossroads of northern and eastern Europe, the Baltic state of Latvia is rapidly making the most of its EU membership. Corporate tax rate is fixed at 15%, one of the lowest in the EU. A company in Latvia is well positioned to be an effective European intermediary for trade between Western and Eastern, “Russian- speaking” countries.
LATVIAN COMPANY KEY FEATURES
· Shelf Companies with VAT available.
· 1 Board member and 1 Shareholder required – can be citizens of any country
· Minimum share capital is ˆ2800
· It is a Resident Company from day 1.
· Corporate tax rate is one of the lowest in EU – 15%
· Convenient geographical location between Europe and CIS countries.
POPULAR LATVIA COMPANY APPLICATIONS
LIMITED LIABILITY COMPANY (SIA) FOR TRADING
The most popular business entity is the limited liability company (SIA) broadly used as European trading vehicle as VAT registration is normally easy to obtain, and the corporate tax is only 15%.
Latvian Limited Liability Company is liable for taxation (15%) on worldwide income. Thus from its incorporation date at the Register of Enterprises it is considered to be a Resident Corporate Tax Payer, and can take advantage of numerous Double Tax Treaties.
LIMITED LIABILITY COMPANY (SIA) FOR HOLDING
Special holding regime is introduced in Latvia from January 1st 2013. As appose to other „holding jurisdictions” like the Netherlands, Austria, Cyprus, etc.
Latvia does not impose any requirements to the holding company in terms of percentage of participation, holding period, type of activity or level of taxation in the country of the subsidiary, etc.
Dividends are exempt of withholding tax as of January 1st 2013.
Along with the new Latvian law the EU Parent Subsidiary Directive remain in action, allowing 0% withholding tax for EU resident companies. Withholding tax can be as well reduced under a double tax treaty. Latvia has concluded more than 50 double tax treaties, including Ukraine.
· 0% on dividends, received by a Latvian company from non-resident companies (except offshore companies). Effective as from January 1st, 2013.
· 0% on capital gains from sale of shares of non-resident subsidiaries (except offshore). Effective as from January 1st, 2013.
· 0% on dividends, paid by a Latvian company to non-resident companies (except offshore companies). Effective as from January 1st, 2013.
· No restrictions for Participation Exemption, i.e. no minimum holding period, no minimum percentage of holding and etc.
For companies with small turnover and low costs Latvian Micro-Enterprise is a low-tax, time & money consuming vehicle. Micro-Enterprise is a standard limited liability company with special taxation - 9% from turn-over (not profit!) It usually works for service companies i.e. consulting in any field, translations, marketing research, etc., thus companies with relatively low expenses.
Any entity can apply for 9% Micro-Enterprise Tax Status, if it meets the following criteria:
· Annual turn-over does not exceed LVL 70 000 (about EUR 99 600 00)
· Director(s) must also be the Shareholder(s) and must be private person(s).
· Company can employ no more than 5 employees
· Maximum salary of the employee (including board member) must not exceed LVL 500 (about EUR 711) per month.
· It is possible to be a Shareholder only at no more than one Micro-Enterprise.
· Special taxation of 9% applied to turnover. Tax is paid every quarter.
· Micro-Enterprise can be registered for VAT
· Monthly salary of the board members and/or employees (maximum LVL 500 (about EUR 711) is net. No additional social taxes apply provided that 9% Micro-Enterprise Tax already covers such taxes.
· 10% withholding tax applies on the distribution of profit after deduction of expenses.
· Micro-Enterprise Tax Company can be turned into a regular company.
LATVIAN COMPANY TAXATION
· CORPORATE INCOME TAX (CIT): rate is fixed at 15%, one of the lowest in the EU. There is no remittance tax for Latvian branch. Micro-enterprises pay 9% tax from the annual turnover.
· INCOMING DIVIDENDS: 0% paid to non-resident entities (if not off-shore states).
· CAPITAL GAINS TAX (CGT): 0% paid to non-resident entities (if not off-shore companies).
· WITHHOLDING TAX:
ROYALTIES: 0% on dividends, paid by a Latvian company to non-resident companies (except offshore companies). 5-15% paid to individuals.
DIVIDENDS: 0% on dividends, paid by a Latvian company to non-resident companies (except offshore companies). 10% paid to individuals.
INTERESTS: 0% on dividends, paid by a Latvian company to non-resident companies (except offshore companies). 10% paid to individuals.
· BILATERAL TAX TREATIES with 51 countries.
· VALUE ADDED TAX (VAT). EU VAT regime. The standard rate for inland sales is 21%.