From 1 January 2013, dividends will not be taxed, thus Latvia will introduce and recognize a corporate structure. The exemption applies to residents and non-residents as well as to natural and legal persons not established in low-tax countries and territories. It is expected to facilitate business through Latvian companies and to limit offshore transactions.
Amendments to the Corporate Income Law provide that, as of January 1, 2013, dividend income arising from a transfer of shares is not taxable, for both resident and non-resident. However, these rules do not apply to countries and territories included in the offshore list.
As far as taxes are concerned, not all offshore areas are included in the list of low tax and free tax zones and territories for tax purposes. The list is set out in Cabinet of Ministers Regulations No. 276 adopted on 26 June 2001. Sixty-four countries and territories have recently updated regulations.
It is common practice in Europe to maintain a holding system. The new events will help Latvia to attract investors and promote the business environment.
Concerning holding companies, the frequency of dividend distribution, the holding period and the number of shares may play an important role. Latvian law does not impose any obstacles in this regard. The Latvian Corporate Income Tax Act does not expressis verbis require either the term of holding or the number of shares. Thus, Latvian law offers advantages over jurisdictions such as Cyprus, Germany or Malta.
Another advantage is the lack of special requirements for foreign entrepreneurs. For example, there are no barriers or restrictions for foreigners to be a director or to become a shareholder, ie citizenship or residence is not relevant. There are also no special requirements for using a Latvian bank account, and foreign bank accounts are allowed.
By the Latvian Company Law, dividends are paid annually based on a resolution of the shareholders.
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