Latvia, a new holding and residence paradise on the horizon?

Latvia, a new holding and residence paradise on the
horizon?
Remi Troch
Director International Tax
Riga, 28 September 2012
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Latvia, a new holding and residence paradise on
the horizon? holding and residence paradise on the
horizon
What makes a holding regime attractive?
Dividends distributed
Dividends distributed by subsidiary to the corporate
shareholder must be free of withholding tax
Dividends received
Dividends received by holding must be free of CIT
Capital gains on
alienation of shares
Income from capital gains must be tax free
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Latvia, a new holding and residence paradise
on the horizon?
Attractive holding regime
or
Corporate
shareholder
Dividends
0% WHT
Dividends: 0% CIT
Alienation of shares: 0%
CIT
Holding
Current regime in Latvia
Corporate
shareholder
or
Dividends :
Regular 10% WHT; Treaty 0%
- 15% WHT, EU/EEZ Co 0%
Latvian
company
Dividends:
EU/EEZ Co hold. ≥ 25% 0% CIT
Otherwise tax credit (15% CIT)
Sale of shares: 15% CIT
Public EU/EEZ 0% CIT
Dividends
0% WHT
Subsidiary
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Dividends:
Treaty 0% - 15% WHT
EU/EEZ Co 0% WHT
Subsidiary
Latvia, a new holding and residence paradise on
the horizon?
 Starting from 1 January 2013 capital gains realised on the alienation of shares
will be tax exempt, while capital losses will not be tax deductible.
Exception: gain on sale of shares of offshore companies: 15% CIT

Starting from 1 January 2013 the following will be non-taxable – i.e. no
withholding tax:
a) dividends a Latvian company pays to a non-resident company
Exception: offshore companies: 15% withholding tax
Currently: 10% (except EU/EEZ resident company), treaty 5%/10%, offshore – 10%.
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Latvia, a new holding and residence paradise on
the horizon? Ctd.
b) dividends a Latvian company receives from a non-resident company
Exception – offshore companies: 15% CIT
Currently: dividends received are taxable (except if parent company owns at least
25%), offshore – 15% in any case.

With retroactive respect to 2008: tax losses can be carried forward
indefinitely.
 The interest on a loan to acquire shares is – within the limits of the thin
capitalization rules – tax deductible.
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Latvia, a new holding and residence paradise on
the horizon
 Starting from 1 July 2013 the following is exempt from withholding tax:
a) interest paid by a Latvian company to a related EU company
Currently: 0% (non-related), 10% (related except EU/EEZ – 5%), treaty - 5%/10%,
offshore – 15%.
b) royalties paid by a Latvian company to a related EU company
Currently: 15% (for literary and art work), 5% (other), except EU/EEZ – 5%, treaty –
5%/10%, offshore – 15%.
 Starting from 1 January 2014 the above mentioned will apply also to related
non-EU companies.
Exception – offshore companies! 15%
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Latvia, a new holding and residence paradise on
the horizon?
 Latvia has quite an extensive DTT network with former “East Block” countries;
the withholding tax on dividends is usually reduced to 5%.
 It benefits from all EU Directives;
 Treaty with Russia signed but not yet ratified;
 The Corporate Income Tax rate is one of the lowest in Europe: 15%;
 General Transfer Pricing rules, but documentation required.
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Conditions for a temporary Residence Permit in
Latvia
BDO Zelmenis & Liberte
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Statistical Data – Population of Riga
Population of Riga - 713 270 people
4%
9%
Latvians
4%
42%
Russians
Belarussians
Ukrainians
41%
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Other nationalities
Advantages provided by RP in Latvia
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1)
Right for unlimited residence in Latvia.
2)
Right for visiting member states of the Schengen
Area 180 days per year.
3)
RP is also granted to the spouse and under-age
children.
4)
RP is issued for 5 years; after this term, an
extension of the term or receiving a permanent
RP is possible (when certain criteria are
fulfilled).
5)
Opportunity to acquire and register vehicles in
the Republic of Latvia.
6)
Almost all citizens of Latvia can communicate in
Russian or understand Russian.
7)
The resort city of Jurmala offers an extensive
cultural programme (concerts of Russian popstars, festivals of humour, etc.).
Advantages provided by RP in Latvia – Business Reasons
1)
Simplicity of establishing a company
(maximum 3 days)
2)
Corporate income tax only 15 %; personal
income tax: 25% (24% in 2013)
3)
No additional permits required to
establish a company or to work
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1)
21st place in the «DOING BUSINESS» list in 2011
2)
Low level of corruption, democratic government
policy
3)
Existence of large-scale companies (Woodprocessing; Transport and logistics; Food
industry)
4)
Beneficial geographical situation with exit to the
Baltic Sea (neighbouring countries are Estonia,
Russia, Belarus, Lithuania). Flight to Moscow,
Kiev or Berlin no longer than 1.5 hours
5)
Access to EU funds, for instance, in 2007-2013,
4.53 billion Euros have been assigned to
projects in the area of transportation, tourism
and others
Most Popular Provisions for receiving RP
In accordance with the Immigration Law of the Republic of Latvia, an RP may be obtained in three
ways:
INVESTMENTS IN BANKS
INVESTMENTS IN COMPANIES
Investments in subordinate capital of a
bank – LVL 200.000 (~ EUR 286.000)
а) Investment in statutory capital of a
company – LVL 25.000 (~ EUR 36.000)
ACQUISITION OF REAL PROPERTY
а) Riga, Riga Planning Region - LVL 100.
000 (~ EUR 143.400)
b) Other regions of Latvia - LVL 50.000
(~ EUR 72.000)
Rules re. minimum cadastral income
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(with limitations – annual turnover of the company
shall not exceed LVL 7 million, number of employees
shall not exceed 50, minimum of LVL 20.000 tax
paid during the year)
b) Investment in statutory capital of a
company – LVL 100.000 (~ EUR 143.000)
c) Board Member of a Company which
exists at least 1 year at time of application
Documents Required
To receive a Residence Permit, the following documents must be submitted to the Representative
Office of the Republic of Latvia abroad (or to the Office of Citizenship and Migration Affairs of
Latvia):
 Questionnaire;
 Picture;
 Certificate of good conduct;
 Document confirming necessary
means of subsistence;
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Documents Required, Ctd.
 Document confirming the envisaged place of residence in the Republic of
Latvia and the right to stay there;
 Document confirming payment of the state duty (for real property;
payment of the bank investment; payment of investment in the company)
has been made by bank transfer.
 Valid health insurance policy and certificate by Latvian medical institution
confirming absence of TB.
 Documents can be submitted in Latvian, English, Russian, French or
German.
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Procedure for Receiving Temporary Residential Permit in
Latvia
Acquisition of real property (investments in
bank, investments in company)
Submission of documents
Review of documents
Receiving temporary residence permit
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STRICTLY FORMAL APPROACH TO THE
PROCEDURE OF RECEIVING RP – FACT OF
THE DEAL, FULFILMENT OF
REQUIREMENTS. IMPOSSIBILITY OF
REJECTION WITHOUT JUSTIFIED REASON.
Term for Review of the Documents for a Temporary
Residence Permit in Latvia
Term for review*:
 1 month – LVL 70 – ( ~ EUR 101);
 10 business days – LVL 170 – ( ~ EUR 242);
 5 business days – LVL 220 – ( ~ EUR 316).
* Depending on the amount of duty paid.
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RESPONSIBILITY
Information included into the current presentation has been based upon legal enactments and
international agreements.
Please consider that the current presentation contains general information. We do not rest upon
specific conditions, lacking very accurate information. Thus, this presentation may be used only as a
general recommendation.
Should you have any reason to consider that the information used in this presentation is incomplete or
our conclusions are inaccurate, please inform use immediately.
We hope that the current presentation contains answers to questions you are interested in. Should you
have any additional questions or require assistance, please apply to us and we will be glad to offer you
our help!
BDO Zelmenis & Liberte
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CONTACTS
Remi Troch
Director International Tax
“BDO Zelmenis & Liberte”
Attorneys at law
Alberta street 1-2, Riga, LV-1010
Phone: (+371) 67222237
Fax: (+371) 67222236
E-mail: [email protected]
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