Page 32 - Mazars Central and Eastern European tax guide 2023

Latvia Other indirect tax types in Latvia include excise and 20% is applied for income of less than EUR 20,004 per
year; 23% - for income between EUR 20,004 and EUR
customs duties, and some transactions related to public
administration (e.g., submitting application forms, issuing 78,100 per year; 31% for income exceeding EUR 78,100
certificates, granting permissions, etc.) are also subject per year. The maximum amount of the object of social
to stamp duty. contribution tax in the amount of 78,100 EUR is set for
2022, 2023 and 2024.
SIA Mazars Latvia VAT options in
Duntes str 6-213, Latvia Applicable / limits The tax on annual income of more than EUR 78,100 per
Riga, Latvia, LV-1013 year is calculated in a recapitulative order when submitting
Phone: +371 67379031 From 1 July, 2021 the OSS system the annual income declaration. If a payroll tax book is not
www.mazars.lv Distance selling is in force. VAT registration threshold submitted at a place of employment, the salary tax rate
of EUR 10,000 per year is applicable.
is 23% regardless of monthly income.
Call-off stock ü Also, from 1 July 2022, the non-taxable minimum has been
VAT group registration ü increased from 350 EUR to 500 EUR (please see wage
Cash accounting – yearly EUR 300,000/year applicable to private calculations below).
amount in EUR (approx.) entrepreneurs or agricultural companies.
Corporate taxes and other direct taxes Tax exempt capital gains – from 2018 onwards, distributed Income from capital and capital gains is taxed
profit from the sale of directly owned shares (except for Import VAT deferment ü at 20% PIT rate.
Since 2018, CIT is payable only on distribution of profit, shares of low/tax free companies) is not subject to CIT Active incomes fall under the scope of the SSC system:
Timber and related services, deals with
generally: dividends (also interim dividends), deemed unless the company has held the relevant shares for fewer scrap metal, construction services, grain individual social contributions equal a total of 34.09%,
dividends, non-business expenses, loans issued to related than 36 months, or the shares belong to a company the Local reverse charge crops, precious metals, game console of which the employer’s contribution is 23.59% and the
parties, interest payments subject to thin capitalization majority of whose assets by value comprise of real estate supplies, supplies of ferrous and non- employee’s contribution is 10.5%. Benefits in kind earned
rules, bad debts to be written off, transfer pricing located in Latvia. Exemption does not apply where the ferrous semi-finished metal products. within employment are taxed with PIT and SSC at standard
adjustments, liquidation quota, etc. The CIT rate is 20% main purpose of setting up the taxpayer or the structure Option for taxation rates. The examples below show the cost to the employer
from gross taxable value (expense/distribution value) is to benefit from the holding regime (i.e., tax optimization letting of real estate No and employee in the cases of the minimum and the
or 25% from net value (i.e., a 20/80 rate).
or avoidance of taxes has taken place). supply of used real estate ü average wage in the private sector.
Since 2018, the following thin capitalization rules are Tax exemption is not applicable to profits from the VAT registration EUR 40,000/year
applicable: (1) the debt/equity ratio exceeds 4 to 1; sale of financial instruments (e.g., investment fund threshold
(2) the amount of interest paid exceeds EUR 3 million notes, securities, bonds, etc.), nor to royalties and
and it exceeds 30% of EBITDA. If either of the two thin interest received. Personal income tax / Social security system
capitalization thresholds are exceeded, the interest Starting from 1 January, 2018, a progressive PIT rate was
payment will be subject to 25% CIT from the net excess A withholding tax (WHT) of 20% is applied to management introduced. From 1 January 2022, it includes the following:
interest value. and consulting service fees paid by Latvian companies
to foreign companies; 3% WHT is applied to remuneration
paid to a foreign company for the disposal of real estate Average wage
Transfer pricing in Latvia located in Latvia, or for the disposal of shares holding Wage related taxes in Latvia Minimum wage in private sector
real estate located in Latvia; 5% WHT will be applied
Arm’s length principle ü Since 2005 to remuneration paid to a foreign company for renting in EUR in EUR
Documentation liability ü Since 2013 or leasing of real estate in Latvia and WHT of 20% is applied 620 1,352
to all payments to offshore companies. Under the active
APA ü Since 2013 international treaty network consisting of more than Total wage cost 766 123.59% 1,671 123.59%
Country-by- Since 2017 63 double tax treaties, WHT may be avoided.
Country liability ü Vocational training contribution – 0.00% – 0.00%
Master file-local file VAT and other indirect taxes Social contribution tax 146 23.59% 319 23.59%
(OECD BEPS 13) Since 2018 Gross salary 620 100.00% 1,352 100.00%
applicable The general VAT rate is 21% for the sale of goods and
Penalty services. A reduced rate of 12% is used, for example, for Personal income tax* 10,98 20.00% 242 20.00%
Penalty of up to 1% of the medical goods, periodicals, accommodation services, Employees' contributions 65,1 10.50% 142 10.50%
lack of documentation ü controlled transaction, but not and thermal energy supplied to private individuals. Net salary*
exceeding EUR 100,000. Furthermore, a reduced 5% VAT rate is applicable for the 544 87.73% 968 71.60%
20% tax on gross value of supply of fruit and vegetables which are typically grown * When calculating the applicable PIT, it is assumed that the employee has submitted its salary tax book to the employer. It is also
tax shortage ü underpayment assumed that the non-taxable minimum applied is 0 EUR in case of average wage (it is calculated for each taxpayer individually) and
+ late payment interest in Latvia. As of 1 January 2022, VAT on books, news in case of minimum wage – 500 EUR.
websites, etc. has been reduced from 12% to 5%, and
Generally, the related
parties shall be two or more on e-books from 21% to 5%. A 0% rate is applicable for the
natural or legal persons, export of goods and for the supply of Covid-19 vaccines
or representatives of such and devices and services related to Covid-19 treatments.
Related parties > 50% persons or groups under
specified conditions listed Exemptions are in place for postal services, medical
by the law (e.g., parent and and health services, certain financial services, etc.
subsidiary; shareholding; Entrepreneurs with annual sales of less than EUR 40,000
majority of votes; etc.). Oļegs Sējāns
Low value-added services: are exempt from VAT obligations. Monthly returns are Managing Partner
Safe harbours No 5% mark-up. electronically recorded. The options/limits based on the Phone: +371 67379031
Level of attention paid by Tax EU Directive are determined in the VAT Act. E-mail: olegs.sejans@mazars.lv
Authority 8/10

32 Mazars Central and Eastern European tax guide 2023 Central and Eastern European tax guide 2023 Mazars 33