Latvia holding company formation
New favourable tax regime for Latvian international holding companies
Starting from 2013 favorable tax regime for international holding, financial companies and companies holding intellectual property becomes effective in Latvia.
Starting from 2013 sale of shares and dividends received are exempted from income tax for Latvian companies.
Starting from 2013 dividends paid to foreign companies are exempted from withholding tax.
Starting from 2014 interests and royalties paid to foreign companies are exempted from withholding tax. Even now in certain cases these payments are exempted.
No stamp duties on share capital payment and shares transfer.
No controlled foreign corporations rules for legal entities.
The effect of EU Parents-Subsidiary Directive and Interest and Royalties Directive, as well as extensive network of double tax agreements allow to reduce or avoid taxes withheld from dividends, interest, royalties and other income paid to Latvia.
Double tax agreements at the moment are effective with 51 countries, including almost all European countries, all post-Soviet countries, USA, Canada, China, Israel, Turkey, Singapore.
Holding regime has no restrictions on participating interest, holding period, type of activity of subsidiaries. The only limitation – it doesn’t apply to income received from and paid to tax-free countries included in so-called “black list” of Cabinet of Ministers.
Dividends paid from Latvia to individuals are subject to withholding tax 10%, reduced rate can be provided by double tax agreement. Possibility to set off may exist depending on the legislation of individual’s residence country or relevant tax convention (for example, citizens of post-Soviet countries can take this advantage).
Comparing with European Union countries
Comparing with other European Union member states, tax principles are similar in Latvia, Estonia and Lithuania. Although there are differences comparing to Scandinavian countries where in addition to the restrictions with offshores, exists provisions aimed to increase tax payments for transactions with offshore companies.
For example in Finland, Sweden and Denmark it is stipulated that if the corporate income tax is lower than 10% in the respective state, then a supplementary tax should be paid. In this case, the regulation in Latvia and other Baltic states is preferable and gives advantages.
According to research, published on gazette Dienas Bizness, there is no prohibition to provide services for companies located in offshores. For example, if the person opens a company in offshore and register a subsidiary company in the same country where the person is resident and where the services is provided, then in accordance with Latvian, Estonian or Lithuanian legislation there are no significant restrictions comparing with companies incorporated in other countries than offshores. It is not prohibited to provide services through self-owned companies.
In conclusion, the new regime and incentive to introduce holding regime in Latvia in terms of tax law, should give preferences to opt for company establishment in Latvia. The amendments in Latvian Corporate Income Tax law will enter into force on 1st January, 2013.
TBA is able to set all formalities in the course of business migration, as well as company registration and offer full services of opening a company in Republic of Latvia.
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