The following types of payments to non-residents, and in certain cases under Latvian transfer pricing rules to related Latvian companies using CIT reliefs, are subject to WHT.
Management and consulting fees are subject to a 20% WHT. The term ‘management and consulting’ means activities a non-resident carries out directly or through outsourced personnel to ensure the management of a Latvian company or to provide necessary advice.
A Latvian company can rely on a DTT to reduce the rate of WHT to zero for management fees if the non-resident does not create a PE. To this end, the Latvian company must obtain a valid residence certificate for each type of payment to each recipient before filing the annual CIT return. A valid residence certificate is one approved by the foreign tax authority and the SRS.
Disposal of real estate
A 3% WHT applies to proceeds from real estate disposals. This also applies to income arising on the disposal of shares or other participation in a Latvian or foreign-registered company or other entity if real estate in Latvia made up more than 50% of the asset value of that company, whether directly or indirectly through shareholdings in one or more other entities established in Latvia or abroad, in the period of disposal or the previous period.
Rent of real estate located in Latvia
Currently there are draft changes in legislation reviewed by the Latvian parliament stating that WHT at 5% rate will be applied to gross income received by non-resident from rent of real estate located in Latvia. The changes are expected to become effective in the foreseeable future, however the exact date is unknown yet.
Dividends paid to residents of tax havens are subject to a 20% WHT.
Interest and royalties
Interest and royalty payments attract WHT only if made to companies in tax havens. A 20% rate applies on all interest and royalty payments to tax havens.
Option for EU/DTT country residents
In the case of management fees and real estate disposal, EU/DTT country residents may choose between a WHT charge on total fees or a 20% tax on profit, provided the non-resident can present proof of expense. The Latvian company must first withhold the applicable tax, and the non-resident may later recover tax in excess of 20% charged on profit (income less expenses) by submitting a separate tax return.
Reporting payments to non-residents
Companies are required to notify the SRS of all amounts paid to non-residents on transactions made on or after 1 January 2017, regardless of whether the payment was subject to WHT. This is in line with the requirements of Council Directive 2011/16/EU on administrative cooperation in the field of taxation, which provides for automatic exchange of information on non-residents’ revenues.
Summary of WHT rates
Please see the following table for WHT rates applicable to the payments described above:
|Dividends (1)||Interest (1)||Royalties (1)||Management fees (3)||Disposal of real estate||Rent of real estate*|
|Non-resident companies and related Latvian companies using certain CIT reliefs||0||0||0||20||3||5|
|Companies in tax havens (2)||20||20||20||20||20||20|
* Draft legislation. The changes are expected to become effective in the foreseeable future, however the exact date is unknown yet.
- No WHT, except tax-haven companies.
- 20% WHT applies to all payments to companies located in tax havens. Goods/securities acquired at market prices are exempt.
- Payments to residents of DTT countries are not subject to WHT, provided the non-resident does not have a PE in Latvia and a residence certificate is available.
The list of tax havens is provided by Cabinet Regulation No. 655 of 7 November 2017, which lists 25 tax havens in total. However, a country is no longer considered a tax haven from the year a DTT begins to apply to that country or from the date the country is covered by a tax information exchange agreement (TIEA), unless those agreements provide otherwise.
With many of the blacklisted countries having signed the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which entered into force in Latvia on 1 November 2014, the list of tax havens has been significantly reduced.
Below is an updated list of countries and territories that are considered tax havens:
|Antigua and Barbuda||Jamaica||Saint Helena (UK)|
|Bahamas||Jordan||Tahiti (French Polynesia)|
|Brunei Darussalam||Liberia||US Virgin Islands|
|Ecuador||New Caledonia (France)||Island of Zanzibar (Tanzania)|
|Grenada||São Tomé and Principe|
|Guam (US)||Saint-Pierre and Miquelon (France)|