What is holding company in Latvia?
According to Commercial law and other related laws and regulations holding company in Latvia Limited Liability Company (LLC) or Joint Stock Company (JSC). Company in Latvia can do all types of business which are not prohibited by law. It means that your LLC or JSC in Latvia can buy and sell other companies or be a holding of share in other companies. More about company formation you can read in article Latvian company formation.
What are advantages of holding company in Latvia?
Non-direct incomes such as receiving dividends, selling shares, income from intellectual property is not obliged with Corporate Income Tax or Profit tax. It means that you can establish company in Latvia and use it as holding company for your other companies and according to law you will not have to calculate and pay profit tax.
Exceptions are for low tax and no tax countries – these payments are taxable with Corporate Income Tax.
Main reason to make holding company in Latvia is to save on Corporate Income Tax from following activities:
– income of selling shares;
– paying and receiving dividends;
– payment for intellectual property;
– interests
Income from selling shares
Latvian company can be owner of any other company shares and Latvian company can do purchase and sales of other company shares.
Profit for such business is not taxable with Profit tax. Only exception is profit which is made from sales of offshore company shares.
That is stated in Low on Corporate Income Tax section 6, part 4, point 9:
”In determining taxable income, the profit of a taxpayer shall be decreased by income from alienation of stock, except the case when a capital company, the alienation of stock of which has occurred, is a resident of such state or territory which in accordance with the provisions of laws and regulations has been recognised as a low-tax or tax-free state or territory.”
It means – if Latvian company buys shares and later sells them and makes profit – then this profit is not taxable with Profit tax.
If these shares are shares of company from low-tax or tax-free state or territory, then profit is taxable.
Dividends
Paid or received dividends to other legal entities are not taxable with Profit tax.
Only exception – if dividends are received or paid to any person from low-tax or tax-free state or territory, then these dividends are subject to the Profit tax.
That is stated in Low on Corporate Income Tax section 3, part 4, point 8:
“Corporate income tax shall be deducted from the irrespective of any provisions of this Law, enterprise income tax shall be deducted at the rate of 15 per cent from all payments and dividends paid by residents of Latvia or by permanent representations of non-residents to legal, natural or other persons as are located, have been set up or established in low-tax and tax-free countries or territories referred to in Cabinet regulations, including payments made to representatives of such persons or into bank accounts of third parties and payments made by way of mutual accounting entries.”
and on Low on Corporate Income Tax section 11, part 2:
“A taxpayer’s taxable income shall be increased by the amount of dividends receivable from the dividends of such payer who is a resident of such state or territory which in accordance with the provisions of laws and regulations has been recognised as a low-tax or tax-free state or territory.”
Intellectual property
According to Law on Corporate Income Tax section 1, part 8:
“Payment for intellectual property – that is any payment received as remuneration for:
– any copyright (including neighbouring rights);
– for the right to use copyright (including neighbouring rights) to a literary, scientific or artistic work, including computer programs, films, sound recordings, patents, trademarks, sample design or model, plan, secret formula or process;
– for the right to utilise manufacturing, commercial or scientific equipment;
– for utilisation manufacturing, commercial or scientific equipment;
– for information in respect of industrial, commercial or scientific activity and experience.”
Latvian company payment for intellectual property to non-residents is not taxable with Profit tax.
Only exception – if Latvian company do payment for intellectual property to any person from low-tax or tax-free state or territory, then these dividends are subject to the Profit tax.
That is stated in Low on Corporate Income Tax section 3, part 4, point 82:
“Without prejudice to any other provisions of this Law, the enterprise income tax shall be deducted at the tax rates referred to hereinafter from the following payments to legal persons, natural persons and other persons who are domiciled, established or founded in the low-tax or tax-free countries or territories indicated in Cabinet regulations, including payments to the representatives of such persons or payments made to bank accounts of third parties, and the payments made in the form of mutual settlement of accounts from payments for intellectual property –15 per cent from payments.”
If Latvian company receives payment of intellectual property – that profit of Latvian and company and that is taxable – it means company must pay profit tax 15% from such income.
Interest
Latvian company payment for intellectual property to non-residents is not taxable with Profit tax.
Only exception – if Latvian company do interest payment to any person from low-tax or tax-free state or territory, then these dividends are subject to the Profit tax.
That is stated in Low on Corporate Income Tax section 3, part 4, point 82:
“Without prejudice to any other provisions of this Law, the enterprise income tax shall be deducted at the tax rates referred to hereinafter from the following payments to legal persons, natural persons and other persons who are domiciled, established or founded in the low-tax or tax-free countries or territories indicated in Cabinet regulations, including payments to the representatives of such persons or payments made to bank accounts of third parties, and the payments made in the form of mutual settlement of accounts from interest payment – 5 per cent, provided that they are disbursed by credit institutions registered in the Republic of Latvia, or 15 per cent from all other interest payments.”
There can be certain circumstances when Latvian company is obliged to pay profit tax for the part of paid interest, for example, interest rate or total amount to be paid exceed limit.
If Latvian company receives payment of intellectual property – that profit of Latvian and company and that is taxable – it means company must pay profit tax 15% from such income.
Business type
Latvian holding company can manage any type of business which is not prohibited by law. One company can manage unlimited number of different business types.
Employment
If Latvian company hire employees taxes must be paid. These are taxes for employees:
Social insurance tax – 34.09% (23.59% – are paid by company and 10.50% – are paid from employee salary);
Personal income tax – 23%;
Risk duty – 0.36 eur per employee.