Corporate Income Tax
Corporate income tax is determined in accordance with the Corporate Income Tax Law (effective as of 01.01.2018) and Cabinet Regulation No. 677 of 14 November 2017 “Regulations on the Application of Norms of the Corporate Income Tax Law”.
The Corporate Income Tax Law defines conceptually new payment arrangements for corporate income tax. 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 tax base is composed of distributed profit and deemed distributed profit.
The following is considered to be distributed profit:
- calculated dividends, including extraordinary dividends;
- pay-outs equivalent to dividends;
- conditional dividends (calculated in accordance with Section 7 of the Law).
Deemed conditional profit included in the tax base (i.e., subject to tax) consists of the following:
- expenses non-related to economic activities, which are calculated in accordance with Section 8 of the Law;
- unsafe debts of debtors, which are calculated in accordance with Section 9 of the Law;
- higher interest payments, calculated in accordance with Section 10 of the Law;
- loan to a related person, which is calculated in accordance with Section 11 of the Law;
- income, which the taxpayer would have received, or expenses, which the taxpayer would not have incurred, if commercial and financial relations were formed or established in accordance with regulations, which would be in force between two independent persons, and if the value of transactions concluded between these related persons (one of which is a taxpayer) corresponded to the market price (value), the calculation methods of which are determined by the Cabinet of Ministers;
- benefits granted by a non-resident to its employees or members of the board (council) regardless of whether the recipient is a resident or non-resident, if they refer to the operation of a permanent establishment on Latvia;
- liquidation quota.
When assessing the tax base, the value of taxable objects is divided by the coefficient 0.8.
- Submission of a declaration
The taxpayer, using the SRS Electronic Declaration System, fills out the corporate income tax declaration on the results of the relevant taxation period and submits it to the SRS.
If the taxpayer has no taxable objects in the given month, he or she is entitled not to submit the declaration (except for the declaration for the last month of the reporting year).
- Terms for the submission of declarations and payment of taxes
For the period from January to June 2018, the taxpayer submits a unified declaration to the SRS and pays corporate income tax by 20 July 2018.
Tax advance payments do not have to be made, except during the transitional phase for the period from 1 January to 30 June 2018.
During the remaining months of 2018, the declaration is submitted and tax is paid every month by the 20th date of the following month. Those taxpayers for whom the taxation period is one quarter submit the declaration and pay tax every quarter by the 20th date of the month following the relevant quarter.
- Corporate income tax reliefs
The taxpayer has the right to apply tax reliefs, if a tax base, to which the relevant relief is applied, appears:
- relief to donators;
- relief to taxpayers who carry out agricultural activities;
- relief for tax paid abroad;
- relief for income from the alienation of shares;
- transfer of losses of the previous years, etc.
Capital companies of special economic areas and freeports have the right to continue to apply a relief in accordance with the Law On Application of Taxes in Freeports and Special Economic Areas.
The taxpayer has the right to continue to apply a discount in accordance with the Section 17.2 of the Law On Personal Income Tax (in force until 31.12.2017) for initial long-term investment made within the framework of a supported investment project.
The taxpayer has the right to choose to apply tonnage tax arrangements.
- Corporate income tax rates
Account of the State basic budget revenues
20% of the tax base
For non-residents — 3% and 20%
Payments to persons in low-tax and zero-tax countries or territories — 20%
Tax is applied to the tax base, which includes taxable objects:
1) distributed profit;
2) conditionally distributed profit.
When assessing the corporate income tax base, the value of taxable objects is divided by the coefficient 0.8.
Quarter (if the taxpayer, in accordance with Section 8 of the Law On Accounting, is entitled to register source documents once a quarter)
- Corporate income tax payers
Tax is paid by inland companies (including partnerships), institutions funded from the State or local government budget, the income of which from economic activities is not planned in the budget, permanent establishments and foreign businesses, as well as other foreign persons that gain income in Latvia.
Tax is also paid by individual (family) companies (including farming and fishing enterprises), which prepare annual reports in accordance with the Law On Annual Reports and Consolidated Annual Reports.
Tax is not paid by natural persons, societies and foundations, religious organisations, trade unions, political parties, as well as private pension funds, investment funds, alternative investment funds, etc.