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Corporate Income Tax in Latvia 2018


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NEW CIT CONCEPT in Latvia from 01.01.2018.
The CIT is payable at the moment of profit distribution (including deemed profit distribution). In case of reinvestment of profit CIT shall not be applied. The applicable CIT rate is increased from the current 15% to 20%( from net amount).
Non-business expenses will be treated as profit distribution, e.g. representation costs, penalties, non-business costs for which CIT will be payable on a monthly basis, but for transfer pricing differences or thin cap CIT will be payable on annual basis.
Following the tax reform several tax reliefs will be abolished, including depreciation for tax purposes, extra tax allowances for new equipment, support for research and development costs, as well tax relief for large investments.

Published in: Economy & Finance
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Corporate Income Tax in Latvia 2018

  1. 1. Corporate Income Tax in Latvia from 01.01.2018. Inara Funeaux Riga, Latvia
  2. 2. Corporate Income Tax Tax rate and base • The corporate income tax rate applied on taxable income is 0% on undistributed/ reinvested profit • The corporate income tax rate is 20% on the gross distributed amount or 20/80 on the net income • The corporate income tax taxable period is 1 month, the CIT declarations need to be submitted on the 20th of of the subsequent month and payment need to be made for the relevant amount
  3. 3. Corporate Income Tax Taxation base The taxation base is the profit which is distributed: 1) as dividends (also interim dividends) or deemed to be distributed ( expenses not having a business purpose, gifts, and representative expenses, 2) liquidation quota 3) transfer pricing adjustments, 4) cession of debts (to related persons or at value not corresponding to the market value) 5) payment of interest if the interest rate is substantially in excess of the market rate, 6) loan to related persons – deemed profit distribution, 7) doubtful-debts written-off, in case law enforcement measures are not carried out – artificial forgiveness of debts.
  4. 4. Corporate Income Tax Taxation base Expenses that are not directly related to a taxpayer’s economic activity. • expenses for entertainment activities for owners or employees and other benefits; • gifts, credits and loans converted to gifts; • value of assets used for other purposes, maintenance costs of this asset; • representation and personnel sustainability expenses > 5% of the salary fund of the pre-taxation year, for which state social insurance mandatory contributions made; • fine, contractual penalties and amounts of deficits or plundering not indemnified, amounts of deficits exceeding limits; • transactions – evaluated through economic substance over legal form.
  5. 5. Corporate Income Tax CIT Special Provisions • Flowing through dividends – the CIT is not applicable, if the income from which the dividends have been paid has already been subjected to CIT or withholding tax. • Holding regime - the exemption for income from alienation of shares has been maintained, in case if holding lasts for a period of at least 36 months. • Representation expenses - not subjet to CIT, provided they do not exceed 5% of the total gross salaries fund calculated for the employees. • Transition period – profits made in the previous years (until 2018) are not subject to the new CIT at 20% rate, regardless when such profits are distributed. If distributions are made to individuals, the 10% PIT rate apply during the first two years, and the 20% PIT rate after such transitional period.
  6. 6. Corporate Income Tax Taxation Special Provisions • Donations to public benefit organizations (PBO) • Flowing through dividends. • Holding regime • Representation expenses • Transition periods • Investment projects/ special economic zones/ accumulated losses
  7. 7. Corporate Income Tax Taxation of distribution of profit : Distributed profit is generally subject to the 20% CIT at 20/80 of the net amount of profit distribution. For example, a company that has a profit of 100 EUR available for distribution, can pay dividends of 80 EUR, and pay CIT of 20 EUR. The rule allows dividends from most foreign subsidiaries to pass through without taxation in Latvia. Only dividends from low tax territories do not qualify for the exemption. ( see low or zero tax countries and territories ). In case of dividends distributed to individuals no personal income tax (PIT) apply.
  8. 8. Corporate Income Tax Tax rebate for donations : Companies will be allowed to apply one of the following tax incentives for donations to public benefit organizations: • to decrease CIT payable on dividends by 75% of the donated amount but not exceeding 20% of CIT payable • to make tax free donations not exceeding 5% of the profit from the previous year • to make tax free donations not exceeding 2% of the gross salary fund.
  9. 9. Corporate Income Tax Tax reporting requirements: The new CIT taxation period will be one month. The CIT return will be filed till the 20th date of the following month. As a transitional provision, only one CIT return will be filed for the period Jan – Jun 2018. Companies whose current financial year differs from the calendar year will be obligated to prepare interim financial statements as at 31 December 2017 and submit their CIT returns and calculate CIT for a period till 31 December 2017 (according to the current CIT provisions).
  10. 10. Corporate Income Tax Transitional period: The law does not provide for the payment of CIT advances, except for the transitional period from 01/01/2018 to 30/06/2018 . Each month, by the 20th date of the following month, taxpayer shall pay an advance payment of corporate income tax corresponding to 1/20 of the CIT calculated for the taxation period of 2016 for the time period from 01/01/2018 till 30/06/2018. These advance payment will be taken into account when finalising the CIT payment calculated according to the CIT declaration for the taxation period from 01/01/2018 to 30/06/2018.
  11. 11. Corporate Income Tax No longer required • to calculate the tax allowance to facilitate research and development (R&D) • To apply the 1.5 coefficient for CIT relief purpose on the purchase value for new qualifying machinery • To calculate the depreciation for the assets for the tax purposes • To determine the fair valuation impact for assets
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