Corporate income tax

Latvian companies, which do not distribute profit, are exempt from the corporate income tax for the period from January 1 to December 31. If a company decides to distribute profits in favor of founders, the tax rises to 25%. The tax payable is formed as follows: a Latvian company is obliged to submit an annual financial report to the tax service of Latvia. The financial report summarizes the revenues, costs and expenses incurred during a specified period. The deadline for the annual report is usually within four months from the end of the company’s financial year (usually until April 30). After the report is submitted and profit is calculated, company’s participants decide whether to distribute profits and pay taxes or dispose a reinvestment.

The Value Added Tax (VAT)

Companies registered in Latvia have the right to receive VAT payer status in the Latvian tax service in two cases:<

• In case the turnover of the Latvian company has exceeded or will soon exceed 40000 EUR for the past 12 months.
• If a Latvian company plans to cooperate with companies registered in other EU countries.

Depending on the type of transaction, provided that the Latvian company has a VAT number, different tax rates are applied:

• Transaction between Latvian company and natural person from the EU (including citizens of Latvia) – 21%
• Transaction between a Latvian company and a non-EU citizen, but a person with a residence permit or bank account in the EU – 21%
• Transaction between a Latvian company and a natural person from a country outside the EU – VAT not applicable
• Transaction between a Latvian company and legal entity from Latvia – 21%
• Transaction between a Latvian company and legal entities from the EU (subject to the availability of VAT for both companies) – 0% (reverse charge)
• Transaction between a Latvian company and legal entities outside the EU – VAT is not applicable

A Latvian company has the right to claim a refund of the paid VAT within a month after the VAT report filing. The VAT report is submitted depending on the company’s activity:

• In case of business only on Latvian territory – every 3 months
• If there are deals with partners from the EU, outside Latvia – once a month
• No transactions – every 6 months

Payroll taxes

If a Latvian company hires a Board member or an employee (including a foreign one), the following tax rates apply to salary:

• Social contributions withheld from the employee’s salary – 10.5%
• Social contributions paid by the employer – 23.59%
• Income tax on individuals withheld from the employee’s salary:

1. up to 20 004 EUR – 20%,
2. from 20 004 EUR to 78 100 EUR – 23%,
3. more than EUR 78 100 – 31%.

For example, if an employee’s salary specified in the employment contract is 500 EUR, the total amount of taxes paid by the company for an employee will be 265 EUR, and the employee will receive 358 euros. Employee reports must be submitted monthly.

If a monthly turnover of a Latvian company has exceeded 2500 EUR, it is necessary to hire at least one employee or a Board member for a minimum salary (500 EUR). Both residents and non-residents of Latvia can be employed.

In Latvia there are several types of companies, namely:

• The Limited Liability Company (SIA)
• Individual merchant (IK)
• Joint-Stock Company (AS)

Limited Liability Company (LLC/SIA) is one of the most popular types. These companies have privileges in the formation of authorized capital, aimed at maintaining new businesses. Latvian SIA can be of two forms:

• Low-capital SIA, with a share capital up to 2799 EUR. Share capital can be paid partially at the time of registration. Over time, the share capital of a low-capital company should increase to 2800 EUR or more. The Low-capital SIA can be formed only by natural persons.
• SIA with full capital and authorized share capital over 2800 EUR. Upon registering the company, the share capital must be paid to a temporary bank account in Latvia. It can be used for the company needs after the registration in the Commercial Register.

The advantages of the SIA company include limited liability to the amount of investment in the company.

Latvian legislation does not require a certain number or residents among directors and members of the Board. The founders of the Latvian company invest their capital in the company’s share capital and receive dividends according to the number of owned shares.

• Forming a company in Latvia allows you to get an EU residence permit. Many European countries do not offer residence permits during the first five years. The process of getting a permit in other countries may take more than six months. In Latvia, you will need from two weeks to two months. Our company will file all the documents, and you will need to come to Latvia only for 3 days.
• Location. Latvia is in Northern Europe bordering with Estonia, Russia, Belarus and Lithuania. It is washed by the Baltic Sea, which provides access to the Scandinavian countries.
• A Russian and English speaking country. Latvia is among the leaders of other European Union countries in terms average languages known by a citizen
• 0% VAT rate is applied for transactions of purchase and sale of goods and services within the EU.
• Payment of dividends in favor of legal entities is not taxable.

• How to register a company in Latvia?

  There are two ways of registering a company in Latvia: remotely and in person. In the second case, the average incorporation period may take up to 2 weeks. The standard registration period of the company is 3 working days from the moment all incorporation documents are drafted and submitted with Commercial Registry of Republic of Latvia.  It requires your personal presence only with a Latvian notary.

  Steps to register a company a Latvian SIA?

  • Company name approval
  • Preparation and filling of incorporation documents
  • Certification of the signature of all founders and members of the Management Board on registration documents in the presence of a notary (including a foreign notary)
  • In case of remote registration, sending signed documents to Riga with translation
  • Payment of mandatory duties and fees, filing to the Commercial Register of Latvia
  • Registration of a Latvian company
  • Sending documents by courier

  What is required to register a company in Latvia?

  • Company name
  • Information about the Director (scanned passport copy, address of residence)
  • Information about shareholders
  • The amount of the company’s authorized share capital, the number of shares and their nominal value
  • Business activity