Latvia is European Union (EU) member state since 2004 and is a well-known EU jurisdiction. With the 2013 changes and amendments in the Law on Enterprise Income Tax Latvia has become a key element for successful business establishment worldwide, and more particularly very attractive jurisdiction for Holding Company establishment, as income form subsidiaries is no longer taxed. Latvia can actually be considered an offshore, if looked at from an Eastern perspective.
With these amendments, Latvia joined the club of existing low-tax regimes in Europe, such as Cyprus, Malta, Netherlands, Luxembourg, Austria, Denmark, Switzerland and others. This change is essential and mostly beneficial to CIS and Russian businessmen.
With these amendments Latvia advances well ahead of Malta, who clearly loses on eastern front and Cyprus, because of the lack of effective double tax agreements with any CIS countries and Estonia reason being the lack of tax conventions with Russia and Uzbekistan. Company registration procedure in Latvia is very simple, and does not require personal presence of shareholders, moreover, the cost of administration is lower than in Switzerland, Denmark or Luxembourg.
Unlike other EU jurisdictions, in Latvia there are no imposed conditions to qualify for withholding tax exemptions, neither for holding period, capital or the nature of business. E.g., 1% of company capital held for 1 month is will also be tax exempt.
As form January 2013 Latvian tax regime has become one of the most advantageouse holding tax regime in Europe.
- Corporate Income Tax (CIT) is fixed at 15%, which is one of the lowest on EU.
- Shares and dividends received are exempted from income tax.
- Dividends paid to foreign companies are exempted from withholding tax.
- Interests and royalties paid to foreign companies are exempted from withholding tax, as form January 2014.
What makes Latvia better than other jurisdictions in Europe?
Latvian tax regime along with EU directive 2003/123/EC, allows for Latvian companies not to be taxed on dividends received from non-resident entities.
Latvia is a part of EU, hence Latvia benefits form EU agreements. The directive on Parent companies and their subsidiaries in the European Union (Directive 2003/123/EC) allows for income that is passed to a parent company, based in EU, from subsidiary company, based in EU, not to be taxed at source.
The subsidiary company is taxed according to the tax system in the jurisdiction it is located. The income is taxed where the subsidiary is located and income that is sent to the parent company in Latvia, and is not taxed any further, as form January 2013.
Let’s say, trading company established in high tax jurisdiction like Germany or France, is owned by a Holding company in Latvia, can in taxes, as the subsidiary would be taxed in accordance with local laws for income generated, while the dividend is passed on to Latvian Holding without withholding tax, in accordance with the directive, and without any further taxation on arrival, as in accordance with Latvian tax laws.
If the Latvian Holding is owned by another Holding company in lower tax jurisdiction, which has double tax treaty arrangements with Latvia in force, then more efficient structure can be achieved.
Choosing Latvian Holding Company in your structure may let you benefit form a more favourable tax system than any other EU jurisdiction may offer, moreover company formation and maintenance costs in Latvia are comparatively low.
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