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. Since consulting services include a variety of activities, paragraph 30 of the Cabinet of Ministers’ Rule No. 677 of 14 November 2017 explains that services are treated as consulting services on the basis of their economic content and substance, not only their legal form, including preparation of various types of documents (calculations, projects, and business plans), supply of information on changes in accounting software, market research and advertising, in production equipment and technology markets, and on other matters related to the trader’s strategic development, production and sales, or research into the trader’s economic activities.
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. The residence certificate for a payment of up to EUR 5,000 in a financial year does not need approval from the SRS and is valid for one year. If the payment exceeds EUR 5,000 the residence certificate must be approved by the SRS and is valid for five years.
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
WHT at a 5% rate is applied to gross income received by non-residents from rent of real estate located in Latvia.
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.
Payments on which CIT must be withheld at source must be reported on or before the 20th day of the following month.
Any other payments to non-residents (even if the payer was eligible for an exemption under a double tax treaty) must be reported to the SRS at the time of filing the CIT return for the last month of the financial year. The SRS must be notified if total payments to a non-resident exceed EUR 5,000 for the year.
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|
- 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 has been amended as of 1 January 2023 (Cabinet Regulation No. 794 of 20 December 2022) to ensure compliance with the EU list of tax havens. Currently, it lists 12 jurisdictions.
Below is an updated list of countries and territories that are considered tax havens:
|The Republic of Fiji||Panama Republic||Trinidad and Tobago|
|Guam (US)||The Independent State of Samoa||US Virgin Islands|
|The Republic of Palau||Samoa (US)||Vanuatu|
||Turks and Caicos Islands|