Latvia

Foreign tax credit

Any foreign tax paid on income included in the tax base is allowed as a credit against the CIT charged on dividends for the year. However, the credit must not exceed the Latvian tax attributable to the income taxed abroad and must be confirmed by the foreign tax authority. Any unused tax credit may be carried forward.

Donations to public benefit organisations

Donation relief is available on donations to Latvian public benefit organisations or their equivalents in an EU/EEA member state or a country that has an effective DTT with Latvia. The donor can take relief on one's total donations by using one of the following three methods:

1. Exclude donations from the tax base at up to 5% of profit after taxes for the past year.
2. Exclude donations from the tax base at up to 2% of total gross wages on which NSIC were paid in the past year.
3. Reduce the CIT charge on dividends by 85% of the donated amount, capped at 30% of the CIT charge on dividends. 

Donations to public benefit organisations are not considered non-business expenses if the company has chosen method 1 or 2 and does not exceed mentioned limits.

Section 11.4 of the Ukraine Act provides special provisions for donations to support Ukraine that a taxpayer donating for assistance in Ukraine may keep the donation out of his taxable base and avoid the rules of the CIT Act if the following criteria are met simultaneously:

• The donation is made to a public benefit organisation or state-funded institution that forwards cash and non-cash donations to Ukraine for helping victims.
• The purpose of the donation indicated to the donee directly refers to funds destined for Ukraine.
• The donor has no arrears of taxes (duties) totalling over EUR 150, according to the taxes (duties) debtors database administered by the State Revenue Service.

Large investment relief (LIR)

No new LIRs are granted after 2017. According to transition rules, LIR may still be claimed by reducing CIT on declared dividends for LIR applications filed before 2018.

Free ports and special economic zones (SEZs)

Companies operating in a free port or SEZ are entitled to CIT and RET relief. These areas include the free ports of Ventspils and Riga and the SEZs of Rezekne, Latgale, and Liepaja.

Qualifying companies may claim CIT relief of up to 80% of the CIT charged on dividends.

RET relief amounts to 80%. In addition, a municipality that issues binding rules has the power to reduce the percentage amount of an RET relief to 10% of the tax charge (without applying any other rebates).

Municipalities are to publish their binding rules for the coming tax year by 1 November. Thus, each free port and SEZ municipality will be able to decide about an RET rebate to apply in the coming year according to its budgetary projections.

Total CIT and RET relief a company can claim depends on the amount of qualifying investment it has made in the free port or SEZ area. Depending on the size of the company, the total available tax relief ranges from 35% to 55% of the amount invested.

Deferred tax

The new CIT rules have cancelled all temporary differences between the financial accounting basis and tax basis of assets and liabilities from 1 January 2018. With temporary differences between the values of assets and liabilities in financial accounting and for tax purposes ceasing to exist from that date, no deferred tax asset will be realised or deferred tax liability settled after 2017. Hence, deferred tax assets or liabilities are no longer recognised on the balance sheet as at 31 December 2017.

Tax incentive for deductibility of research and development (R&D) costs

After the new CIT rules were introduced on 1 January 2018, the tax incentive for deductibility of R&D costs was cancelled.