NEW CIT CONCEPT in Latvia from 01.01.2018. The CIT is payable at the moment of profit distribution (including deemed profit distribution). In case of reinvestment of profit CIT shall not be applied. The applicable CIT rate is increased from the current 15% to 20%( from net amount). Non-business expenses will be treated as profit distribution, e.g. representation costs, penalties, non-business costs for which CIT will be payable on a monthly basis, but for transfer pricing differences or thin cap CIT will be payable on annual basis. Following the tax reform several tax reliefs will be abolished, including depreciation for tax purposes, extra tax allowances for new equipment, support for research and development costs, as well tax relief for large investments.

1. Corporate Income Tax in
Latvia from 01.01.2018.
Inara Funeaux
Riga, Latvia
http://www.financialintelligence.eu

2. Corporate Income Tax
Tax rate and base
• The corporate income tax rate applied on taxable income is 0% on
undistributed/ reinvested profit
• The corporate income tax rate is 20% on the gross distributed
amount or 20/80 on the net income
• The corporate income tax taxable period is 1 month, the CIT
declarations need to be submitted on the 20th of of the subsequent
month and payment need to be made for the relevant amount

3. Corporate Income Tax
Taxation base
The taxation base is the profit which is distributed:
1) as dividends (also interim dividends) or deemed to be distributed ( expenses not
having a business purpose, gifts, and representative expenses,
2) liquidation quota
3) transfer pricing adjustments,
4) cession of debts (to related persons or at value not corresponding to the market
value)
5) payment of interest if the interest rate is substantially in excess of the market rate,
6) loan to related persons – deemed profit distribution,
7) doubtful-debts written-off, in case law enforcement measures are not carried out
– artificial forgiveness of debts.

4. Corporate Income Tax
Taxation base
Expenses that are not directly related to a taxpayer’s economic activity.
• expenses for entertainment activities for owners or employees and other
benefits;
• gifts, credits and loans converted to gifts;
• value of assets used for other purposes, maintenance costs of this asset;
• representation and personnel sustainability expenses > 5% of the salary fund of
the pre-taxation year, for which state social insurance mandatory contributions
made;
• fine, contractual penalties and amounts of deficits or plundering not indemnified,
amounts of deficits exceeding limits;
• transactions – evaluated through economic substance over legal form.

5. Corporate Income Tax
CIT Special Provisions
• Flowing through dividends – the CIT is not applicable, if the income from
which the dividends have been paid has already been subjected to CIT or
withholding tax.
• Holding regime - the exemption for income from alienation of shares has
been maintained, in case if holding lasts for a period of at least 36 months.
• Representation expenses - not subjet to CIT, provided they do not exceed
5% of the total gross salaries fund calculated for the employees.
• Transition period – profits made in the previous years (until 2018) are not
subject to the new CIT at 20% rate, regardless when such profits are
distributed. If distributions are made to individuals, the 10% PIT rate apply
during the first two years, and the 20% PIT rate after such transitional
period.

6. Corporate Income Tax
Taxation Special Provisions
• Donations to public benefit organizations (PBO)
• Flowing through dividends.
• Holding regime
• Representation expenses
• Transition periods
• Investment projects/ special economic zones/ accumulated losses

7. Corporate Income Tax
Taxation of distribution of profit :
Distributed profit is generally subject to the 20% CIT at 20/80 of the net amount of
profit distribution. For example, a company that has a profit of 100 EUR available
for distribution, can pay dividends of 80 EUR, and pay CIT of 20 EUR.
The rule allows dividends from most foreign subsidiaries to pass through without
taxation in Latvia. Only dividends from low tax territories do not qualify for the
exemption. ( see low or zero tax countries and territories ).
In case of dividends distributed to individuals no personal income tax (PIT) apply.

8. Corporate Income Tax
Tax rebate for donations :
Companies will be allowed to apply one of the following tax incentives
for donations to public benefit organizations:
• to decrease CIT payable on dividends by 75% of the donated amount
but not exceeding 20% of CIT payable
• to make tax free donations not exceeding 5% of the profit from the
previous year
• to make tax free donations not exceeding 2% of the gross salary fund.

9. Corporate Income Tax
Tax reporting requirements:
The new CIT taxation period will be one month. The CIT return will be
filed till the 20th date of the following month. As a transitional
provision, only one CIT return will be filed for the period Jan – Jun
2018.
Companies whose current financial year differs from the calendar year
will be obligated to prepare interim financial statements as at 31
December 2017 and submit their CIT returns and calculate CIT for
a period till 31 December 2017 (according to the current CIT
provisions).

10. Corporate Income Tax
Transitional period:
The law does not provide for the payment of CIT advances, except for
the transitional period from 01/01/2018 to 30/06/2018 .
Each month, by the 20th date of the following month, taxpayer shall
pay an advance payment of corporate income tax corresponding to
1/20 of the CIT calculated for the taxation period of 2016 for the time
period from 01/01/2018 till 30/06/2018.
These advance payment will be taken into account when finalising the
CIT payment calculated according to the CIT declaration for the
taxation period from 01/01/2018 to 30/06/2018.

11. Corporate Income Tax
No longer required
• to calculate the tax allowance to facilitate research and development
(R&D)
• To apply the 1.5 coefficient for CIT relief purpose on the purchase
value for new qualifying machinery
• To calculate the depreciation for the assets for the tax purposes
• To determine the fair valuation impact for assets

12. Thank you !
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