Latvia's corporate taxation system includes various direct and indirect taxes, with CIT and VAT being the most significant taxes for companies operating in the country. Understanding the various tax rates, tax brackets, and legislation is crucial for corporations doing business in Latvia.
Corporate Income Tax
Corporate Income Tax (CIT) in Latvia is a direct tax levied on the net income of companies operating in the country. The Corporate Income Tax Act (Law on Corporate Income Tax), along with subsequent amendments, governs corporate income tax in Latvia.
Domestic Companies:
Domestic companies in Latvia are taxed on their worldwide income. As of 2021, the standard CIT rate is 20% calculated based on the profit distribution.
Foreign Companies:
Foreign companies with a permanent establishment in Latvia are subject to CIT only on the income attributable to the Latvian permanent establishment. The standard CIT rate of 20% applies, calculated based on the profit distribution.
Value Added Tax (VAT)
VAT (Piebaddedzērtais vērtība nodoklis) is an indirect tax in Latvia, applicable to the sale of goods and services. The Value Added Tax Law governs VAT in Latvia. VAT is levied on every stage of the supply chain, from production to consumption. There are three VAT rates in Latvia:
- Standard rate: 21% (applied to most goods and services)
- Reduced rate: 12% (applied to specific goods and services, such as some food products, heating, and medicines)
- Zero rate: 0% (applied to certain goods and services, such as exports, international transportation, and certain medical services)
Sales Tax
Latvia does not impose a separate sales tax, as the VAT system covers the taxation of goods and services.
Import Duties
Import duties in Latvia are governed by the European Union (EU) customs legislation, as Latvia is a member of the EU. Latvia follows the EU's Common Customs Tariff (CCT) for imports from non-EU countries. Import duties vary depending on the product and its classification under the Combined Nomenclature (CN) code. Rates can range from 0% to 17% or higher, depending on the type of goods. In addition to import duties, imported goods are also subject to VAT.
Export Duties
Latvia, as an EU member, does not impose export duties on goods exported to other EU countries. For exports to non-EU countries, Latvia follows the EU's export regulations, which generally do not impose export duties except in specific cases, such as the export of certain agricultural or cultural goods.
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