To motive entrepreneurs invest money into development of the company, improving capitalization and facilitating attraction of funds for further development of enterprises.
Along with the new CIT payment procedure, the investment environment in Latvia has become more attractive to companies. When investing and establishing a company in Latvia, a taxpayer obtains many advantages:
- CIT shall not be paid for reinvested profit, because the 0% CIT rate is applied to the reinvested profit.
- CIT at the rate of 20% shall only be paid from the profit share which will be distributed or disbursed as dividends, or used for purposes not directly related to business development. If a company does not pay dividends, but decides to invest the earned profit into business, the profit tax shall not be paid. Thus, the Latvian tax policy enables international companies to invest profit into business development without losses.
- Distributed profit (dividends) is subject to tax once, tax on income shall be collected on the company level by applying 20% CIT rate.
- Since 1 July 2018 the CIT advance payments are cancelled; therefore more current assents remain at the disposal of the company that can be used for business development.
- CIT payment may be reduced by donating to the public benefit organization, budget institution or state capital company, being engaged in the provision of culture services on behalf of the state, as well as for donation to such non-governmental organization that is registered in another Member State of the European Union or country of the European Economic Area, with which Latvia has concluded a convention regarding prevention of double taxation and tax evasion, if the convention has come into force and the non-governmental organization operates in the status that is equal to the provisions of public benefit organization of Latvia in accordance with regulatory enactments of the relevant Member State of the European Union or country of the European Economic Area.
Corporate income tax is determined in accordance with the Corporate Income Tax Law, (www.likumi.lv) and Cabinet of Ministers Regulation "Rules for the Application of the Norms of the Corporate Income Tax Law", (www.likumi.lv.)
The Law provides for deferring tax payment until profit is distributed or otherwise used for expenses, which do not ensure the further development of a taxpayer, i.e., the application of tax is transferred from the moment of gaining of profit to the moment of distribution of profit. Thus, tax will have to be paid regardless of the amount of income gained during the year only if the taxpayer distributes profits in dividends or pay-outs equivalent thereto, makes expenses non-related to economic activities, makes higher interest payments, disburses loans to related persons, etc.
The taxpayer has the right to apply tax rebates, if a tax base, to which the relevant rebate is applied, appears:
The taxpayer has the right to choose to apply tonnage tax arrangements.