Latvia – an attractive jurisdiction for holding companies

Triniti

Latvia has recently put itself on the map of jurisdictions that offer a friendly tax regime for incorporation of holding companies and structuring of international business transactions.

Taxation of Latvian holding companies

The three main aspects of the new favorable tax regime are: (i) taxation of dividends and other payments to holding company shareholders, (ii) taxation of share disposal, and (iii) taxation of publicly traded instruments.

(i) taxation of dividends, interest and royalties

As of 2013 the Corporate income tax is payable only on dividends received from tax havens.

As of 2013 dividends paid to shareholders registered in any jurisdiction (incl. Russia and other CIS countries), except for tax havens, will be tax exempt.

Dividends paid to shareholders registered in tax havens will be taxed at 15%.

Interest and royalties paid to non-residents will be tax exempt as of 2014.

(ii) taxation of share disposal

As of 2013 income coming from the sale of shares (except for companies registered in tax havens) will be tax exempt.

It must be noted that in comparison to other jurisdictions, the Latvian Corporate income tax law does not provide for any minimum shareholding proportion. There is also no minimum holding period. This allows income from short term speculative transactions to enjoy being tax exempt.

(iii) taxation of income from publicly traded instruments

As of 2013 profits coming from the sale of any publicly traded securities other than shares will become taxable and losses deductible in the year of sale.

Conclusions

The new tax treatment allows investors to enjoy a low tax rate on income earned in Latvia. This can be used to plan ownership of assets and designing international business transactions using Latvian holding companies.

Latvia’s double taxation avoidance treaties with 52 countries (incl. Russia, USA, EU countries), liberal company laws, affordable incorporation costs, fast establishment processes as well as well developed financial intermediary services make Latvia an attractive jurisdiction for incorporation of holding companies.

Additional info:
Bloomberg analytical material on Latvia’s financial system most recent developments –

http://www.bloomberg.com/news/2012-08-29/swiss-style-latvian-banking-hub-thrives-on-ex-soviet-cash-flood.html

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