Holding structure in Latvia
Dividends are not taxable income from 1 January 2013 and thus Latvia adopts and recognizes a holding company structure. The exemption applies to residents and non-residents as well as individuals and legal entities that are not registered in low-tax states and territories (tax havens). It is expected to facilitate transactions by Latvian companies and limit transactions with offshores.
The amendments to the Corporate Income Act provide that from January 1, 2013, share transfer income and dividend income will not be taxable, regardless of whether the individual is a resident or non-resident. However, the regulations do not apply to states and territories included in the list of offshores (also known as tax havens).
As for taxes, not all offshores are included in the list of low tax and free tax zones and territories for tax purposes. The list is established by Cabinet of Ministers Decree No. 276 adopted on June 26, 2001. The regulations have recently been updated and currently there are 64 countries and territories.
Benefits of the new incentive
In Europe it is common practice to maintain a holding regime. The new developments are expected to help Latvia attract investors and boost the business environment.
With regard to holding companies, the frequency with which dividends are paid, the period of holding shares and the number of shares can play a decisive role. The Latvian decree does not provide for any obstacles in this respect. The Latvian Corporate Income Tax Law does not expressly impose a time limit on the holding of shares or the number of shares. Thus, Latvian law offers advantages compared to jurisdictions such as Cyprus, Germany or Malta.
Another advantage is the lack of specific requirements for foreign businessmen. For example, there are no impediments or restrictions on foreigners being directors or shareholders, namely citizenship or residency is not critical. Also, there is no specific requirement to use a Latvian bank account, and foreign bank accounts are allowed.
According to Latvian company law, dividends are paid once a year based on the shareholders' profit decision.
Compared to European Union countries
Compared to other member states of the European Union, the tax principles in Latvia, Estonia and Lithuania are similar. Although there are differences compared to the Scandinavian countries where, in addition to the restrictions on offshore companies, there are regulations aimed at increasing tax payments on transactions with offshore companies. In Finland, Sweden and Denmark, for example, it is stipulated that if the corporate tax rate is less than 10% in the respective country, an additional tax must be paid. In this case, the regime in Latvia and other Baltic States is preferable and offers advantages.
According to a study published in the Official Journal of Dienas Bizness, there is no ban on providing services to offshore based companies. For example, if the person establishes an offshore company and registers a subsidiary in the same country where the person is resident and where the services are provided, according to Latvian, Estonian or Lithuanian legislation there are no significant restrictions compared to companies in others countries established as offshores. It is not forbidden to provide services through own companies.
In summary, the new system and the incentive to introduce the holding system in Latvia should give priority to choosing to set up a business in Latvia from a tax perspective. Amendments to the Latvian Corporate Income Tax Act will come into force on January 1, 2013.
https://www.baltic-legal.com/latvia-holding-company-structure-eng.htm
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