Business Environment

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In this page: Accounting Rules | Tax Rates | Intellectual Property | Legal Framework | Standards | Business Practices

 

Accounting Rules

Tax Year
The fiscal year begins on 1 January and ends on 31 December of the same year.
Accounting Standards
Since 1 January 2005, all consolidated accounts must be drawn up in conformity with European accounting standards IAS/IFRS.
Accounting Regulation Bodies
Ministry of Finance, Accounting Policy
Accounting Reports
A company's accounts must clearly reflect its operations and its financial results and give a precise and faithful picture of its financial situation.

Amounts are given in Latvian currency. The documents are in Latvian. If a member of a company is not a natural person or a legal entity of the country (registered company), it is possible, with the agreement of the parties concerned, to use a second language, that the auditors deem to be acceptable. The accounting documents and the supporting documents that accompany them must remain on Latvian territory. Any accounting entry must be supported by an appropriate document.

The accounting year spreads over 12 months. It corresponds to the civil year, but the shareholders can choose other dates. Companies that form a group must have identical accounting years. This year can be modified, but the modification must be justified and explained in the notes attached to the annual report.

A company's financial statements must include a balance sheet, a profit and loss account, notes to the accounts and an annual report.

Publication Requirements
In the event that the company exceeds two of the criteria listed below, the annual reports must be audited by a certified auditor or by a firm of certified (sworn) auditors, duly elected by the shareholders:
- Total assets: EUR 356,000;
- Net turnover: EUR 711,000;
- Average number of employees in the reporting year: 25

Moreover, the European Directive of 19 July 2002 obliges all European companies listed on the Stock Exchange to establish their consolidated annual accounts on the basis of IAS/IFRS.

Professional Accountancy Bodies
LACA , Latvian Association of Certified Auditors
Certification and Auditing
If two of the indicators below go over the indicated amounts, the annual report must be examined by an auditor or by an officially designated accounting audit body, chosen by the shareholders:
- total capital: EUR 170,000
- net turnover: EUR 340,000
- average number of workers during the accounting year: 25.
You can contact an external auditor in the list below:
KPMG, Deloitte, Ernst & Young, PricewaterhouseCoopers and Leinonen.
Accounting News

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Tax Rates

Consumption Taxes

Nature of the Tax
Value-added tax (VAT) - Pievienotas Vertibas Nodoklis (PVN in Latvian).
Tax Rate
21%
Reduced Tax Rate
Educational services; medical services; cultural and educational services; financial services provided by banks and insurance companies; insurance and reinsurance; betting and gambling; and postal services provided by Latvijas Pasts are exempt from VAT.

Exports of goods and related services; intra-Community supply of goods; international transport services; and tourism services provided outside Latvia are zero-rated. The supply of COVID-19 vaccines and related services, as well as COVID-19 in vitro diagnostic medical devices, are zero-rated until the end of 2022.

A reduced rate of 5% is applicable until 31 December 2023 on certain foodstuff (including fresh fruit, berries and vegetables). The reduced rate also applies to mass media and subscriptions thereto and printed literature (including for schools and universities).

Latvia applies a reduced VAT rate of 12% on certain categories of goods and services, including specialized products for infants; medicines and medical devices (those authorized by state pharmaceutical authorities); firewood and fuelwood supplied to natural persons; supply of thermal energy to natural persons; public transport services provided in Latvia; accommodation services provided in Latvia.

Other Consumption Taxes
Excise duty is imposed on oil products, alcoholic and non-alcoholic beverages, tobacco products and natural gas. Vehicles are subject to taxes paid on a monthly basis (EUR 31 up to 2,000 cc.; EUR 49 between 2,001 cc. and 2,500 cc.; EUR 66 between 2,500 cc. and 3,000 cc.; EUR 82 over 3,000 cc. Higher rates apply to foreign-registered cars).
Lottery and gaming organisers are subject to a tax (in the form of a license fee) ranging from EUR 2,000 to EUR 427,000.
Electricity supplied to end users is subject to a €1.01/MWh tax.

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Corporate Taxes

Company Tax
20% (effective rate at 25% with the application of a 0.8 coefficient to increase the tax base)
Tax Rate For Foreign Companies
Resident companies are taxed on profits distributed from their worldwide income, whereas permanent establishments of non-resident entities are taxed only on profits distributed from Latvian-source income. Other Latvian-source income derived by non-residents may be subject to a final withholding tax or corporate income tax by way of assessment.
Capital Gains Taxation
Capital gains arising from the disposal of assets are treated as ordinary income and are subject to a 20% corporate income tax when profit is distributed.
Gains obtained by a non-resident on the sale of a property or a company's shares where more than 50% of its assets consist of Latvian real estate, is subject to a 3% tax on gross proceeds (exemptions apply for residents of EU/EEA countries). A nonresident’s income from the sale (or from the contribution into share capital) of real estate located in Latvia, or the sale of shares of a company where more than half of the company’s assets consist of Latvian real estate, is subject to a 3% withholding tax.
Main Allowable Deductions and Tax Credits
The new tax model only includes distributed profits in the tax base; therefore, no provision is made for the depreciation of tangible and intangible assets.
The tax code does not provide any specific treatment for start-up expenses. On the other hand, VAT on goods and services acquired before the VAT registration of the company can be recovered.
Excess interest payments are considered a deemed profit distribution and subject to a 20% income tax. Bad debts remaining unrecovered 36 months after a provision was made are generally deductible.
Entertainment and all other "non-commercial" expenses (including benefits in kind offered to employees) are exempt from corporation tax up to 5% of gross salary. Excess amounts are subject to corporation tax. Costs related to passenger cars whose value excluding VAT is above EUR 50,000 are considered non-business expenses and subject to a 20% tax rate (except for special purpose vehicles).
Donations to Latvian charities or their equivalents in the EU Member States or the European Economic Area (that have concluded a tax treaty with Latvia) are eligible for deductions which may apply to the tax base at up to 5% of profit or up to 2% of total gross wages. Alternatively, donations may give rise to a 75% reduction in corporate income tax on dividends.
Tax losses accumulated up to 2017 can be carried forward up to five years (until 31 December 2022) to reduce taxable distributed profits by 50% (or 15% of the loss per year). Payments to foreign affiliates must respect the arm’s length principle or are considered a profit distribution and are taxed at a 20% rate.
Other Corporate Taxes
The property tax is payable on commercial properties but also on technical structures owned by private companies (highway, parking space, bridge, tunnels, etc.) and property that is part of a residential complex but used by legal entities for non-residential purposes. The rate can be determined by municipalities (between 0.2 and 3% with the standard rate at 1.5%). The rates provided for in the Latvian Tax Code apply if a municipality refuses to announce its rates before 1 November.
Stamp duties are collected on a number of legal transactions, including the registration of real estate (at 2% of the sale price or the cadastral value). Contributions in kind to the capital of the company are subject to a stamp duty of 1%.
Social security contributions payable by the employer amount to 23.59% of the salary. The amount of annual income subject to social security contributions is capped at EUR 78,100, but income above the threshold is subject to solidarity tax at 25% (borne partly by the employer and partly withheld from the employee’s salary).

Natural resources obtained through a commercial activity, products harmful to the environment, radioactive substances and polluting activities are subject to a tax on natural resources (variable rate depending on the weight, volume and quantity of the product).
Other taxes apply on vehicles, electricity, lottery and gambling (EUR 2,000-427,000 license fee).
Other Domestic Resources
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 

Country Comparison For Corporate Taxation

  Latvia Eastern Europe & Central Asia United States Germany
Number of Payments of Taxes per Year 7.0 13.9 10.6 9.0
Time Taken For Administrative Formalities (Hours) 168.5 226.2 175.0 218.0
Total Share of Taxes (% of Profit) 38.1 36.5 36.6 48.8

Source: Doing Business - Latest available data.

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Individual Taxes

Tax Rate

Personal income tax Progressive rates from 20% to 31%
Up to EUR 20,004 20%
EUR 20,004 - 78,100 23%
Above EUR 78,100 31%
Capital gains tax 20% on qualifying capital gains
Allowable Deductions and Tax Credits
The following items are exempt from the scope of personal income tax:
- income from investments in private pension funds and insurance indemnities (10% of taxable income, capped at EUR 4,000),
- gain on the sale of personal property.

Moreover, individuals may deduct from the income reported on their tax returns:
- Donations to acceptable charitable organisations
- Education and medical expenses (up to 50% of taxable income, capped at EUR 600 per year for expenses on behalf of other family members)
- Differential personal allowance (DPA): A lump-sum deduction varying between EUR 0 and EUR 350 a month depending on the annual taxable income (increased to EUR 500 from July 1 2022): for tax year 2022, the full DPA only applies to individuals with a monthly income up to EUR 1,800, varying according to the level of income. An additional deduction of EUR 250 per month applies for each qualifying dependant.

Special Expatriate Tax Regime
Non-residents are only taxed on their Latvia-source income, whereas Latvian residents are subject to Latvian income tax on their worldwide income.
An individual is resident in Latvia if the individual’s permanent place of residence is in Latvia or if the individual is present in Latvia for 183 days or more in any 12-month period.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
See the list of the Double Taxation Agreements
Withholding Taxes
Dividends, interest and royalties: 0/20% (only if the recipient is a resident of a country blacklisted by Latvian tax authorities).

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Intellectual Property

National Organisations
Consult the Patent Office of the Republic of Latvia. The application for the grant or registration of a patent can be done in the language of the country, in English, in Russian or German. These applications have to be addressed to the patents office in Latvia, either directly or through the intermediary of a legal representative. The related law of patents was voted in 1993 and as for trademarks, the law was passed in the same year.
Latvian law is very similar to French Law but the protection of intellectual property rights will be consolidated in the near future.
Regional Organisations
In Latvia there are several non-governmental organizations which defend intellectual property, such as, for example, the association LIVA .
 

National Regulation and International Agreements

 
Type of property and law Validity International Agreements Signed
Patent
 
Patent Law 30 March 1995
20 years, renewable for a period not exceeding 5 years
Trademark
 
Law on trademarks and indications of geographical origin 16 June 1999
10 years, renewable for a consecutive period of 10 years Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks
Design
 
Law on the protection of Designs and Industrial Models 4 May 1993
5 years, renewable for two consecutive 5-year periods  
Copyright
 
Law on copyright 6 April 2000
Came into force on 11 May 2000. The text of the law
WIPO Copyright Treaty
Industrial Models
 
Law on the protection of Designs and Industrial Models 4 May 1993
Text of the law
 

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Legal Framework

Independence of Justice
The Constitution of the country provides for an independent judiciary and the government generally respects this freedom. But judicial reforms are slow and prone to corruption.
Equal Treatment of Nationals and Foreigners
Foreign nationals can expect an impartial trial from the country’s judicial system.
The Language of Justice
The judicial language in the country is Latvian.
Recourse to an Interpreter
Having an interpreter is possible.
Sources of the Law and Legal Similarities
The main source of the law in the country is the constitution of 1922 (amended in 1998); the legal system is based on a civil law system. Latvia being a member of the European Union (it joined the EU in May 2004), the national law in the country has to comply with the conditions of the Community legislation.
Checking National Laws Online
Latvian laws on line (website in Latvian)

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Standards

National Standards Organisations
LVS, Latvian Standardization Organization
Integration in the International Standards Network
The Latvian standardization organization (LVS) is member of European Committee for Standardization (CEN), of European Committee for Electrotechnical Standardization (CENELEC), of International Organization for Standardization (ISO), of International Electrotechnical Commission (IEC), of European Telecommunications Standards Institute (ETSI) and of International Telecommunication Union (ITU).
Classification of Standards
To get further information about terminology and standards in Latvia, you can visit the LVS Latvian Standards website.
Online Consultation of Standards
Catalog of Latvian Standards
Certification Organisations
LATAK The Latvian National Accreditation Bureau

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Business Practices

General Information
Passport to trade, Business etiquette in Latvia
Opening Hours and Days
Offices: open from 9 am to 6 pm (Monday to Friday). They close on Saturday and Sunday.
Shops: open from 10 am to 7 pm (Monday to Friday). On Saturday, shops open from 10 am to 5 pm. Shops sometimes also open on Sunday.
Banks: open from 10 am to 2 pm and from 3 pm to 5 pm (Monday to Friday). They close on Saturday and Sunday.
Administrations: open from 10 am to 5 pm (Monday to Friday). They close on Saturday and Sunday.
Supermarkets: open from 8 am to 10 pm (or even midnight) all week.
Some groceries and pharmacies stay open 24/24.
 

Public Holidays

New Year's Day 1 January
Good Friday Friday before Easter Sunday
Easter Monday Easter Monday
Labor Day 1 May
The Republic of Latvia joined the European Union 4 May
LIGO holiday (summer solstice) 23 June
Feast of St John (JANI) 24 June
Proclamation of the Republic, national day 18 November
Christmas Day 25 December
St Sylvester 31 December
 
 

Periods When Companies Usually Close

Christmas and New Year's Day A week before New Year's Day.
 

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Latest Update: November 2022