Amendments effected in the framework of the tax reform as of 1 January 2018 provide for a conceptually new corporate income tax (CIT) assessment procedure. From now on, the CIT rate will be 20 % but it will only apply to the profit share which will be distributed or disbursed as dividends, or used for purposes not directly related to business development whereas the reinvested profit will no longer be subject to CIT. In future, no CIT advance payments will have to be made.
As of 1 January 2018, the CIT rate is 20 %. Reinvested profit will be subject to 0 % tax. CIT at the rate of 20 % will only have to be paid from the profit share which will be distributed or disbursed as dividends, or used for purposes not directly related to business development. When assessing the CIT base, the value of taxable objects is divided by the coefficient 0.8.
Procedure for declaration and payment of tax
As of 2018, CIT application is transferred from the moment the profit is generated to the moment the profit is distributed. This means that in the year 2018 the CIT assessment is postponed until the moment the company’s profit is distributed or otherwise channeled to cover expenses, which do not contribute to the taxpayer’s further development. The tax base for corporate income tax is composed of distributed profit and deemed distributed profit.
Tax period will also change next year; in future, it will be a calendar month or, for certain taxpayers - a calendar quarter. This means that for the period from January to June 2018 taxpayers must submit to the State Revenue Service one CIT declaration and the tax must be paid until 20 July 2018. Whereas with regard to the other months of the year 2018, the CIT declaration must be submitted monthly (if the company has any taxable objects in the given month) and the tax must be paid until the 20th date of the following month. If the taxpayer has no taxable objects in the given month, he is entitled not to submit the declaration (except for the declaration for the last month of the reporting year).
Taxation of dividends
If dividends will be calculated to be paid from the profit generated as of 1 January 2018, the company will have to pay CIT at the rate of 20%. Whereas the natural person - the recipient of these dividends will not be liable to pay personal income tax on these dividends.
CIT incentives for company’s charitable donations
A company having made charitable donations over the reporting year is entitled to use one of three alternative CIT incentive models:
- The company may choose not to include the donated amount in the CIT base of the tax period, but the amount may not exceed 5 % of the after-tax profit generated in the previous reporting year;
- The company may choose not to include the donated amount in the CIT base of the tax period, but the amount may not exceed 2 % of the total gross salaries calculated for the previous reporting year, in respect of which mandatory state social insurance contributions have been paid;
- The company may choose to reduce the amount of tax assessed on dividends. In this case, relief amounts to 75 % of the donated amount (but may not exceed 20 % of the amount of tax assessed on dividends). The company will be eligible to apply the tax relief for charitable donations if, during the reporting year, it will have donated to public benefit organizations, state institutions or state-owned capital companies carrying out functions delegated by the Ministry of Culture.
Further information on the corporate income tax changes is provided in the informative material published by the SRS. Additional information on corporate income tax, applicable rates, due dates for submission of declarations and payment of tax is available on the SRS website. General additional information about the effect of the tax reform on various categories of taxpayers, is available on the SRS website, in sections for private individuals and entrepreneurs, ‘How Will the Tax Reform Affect Me?', and in the section Actual/News, you can find information on the free SRS seminars along with presentations and video materials of the seminars already conducted. Information on the tax reform is also available on the website of the Ministry of Finance and on the Saeima website.
 CIT advance payments will only have to be made during the transitional phase for the period from 1January to 30 June 2018.
 Information available in Latvian