The Latvian parliament passed a new corporate tax law on 28 July 2017. The law will enter into force on 1 January 2018.
Unlike the current corporate income tax (CIT) regime, the proposed CIT regime is based on a cash-flow taxation model, which provides that CIT is payable at the moment of profit distribution (including deemed profit distribution). In the case of profit reinvestment CIT will not be applied. The applicable CIT rate will increase from the current 15% to 20%.
Under the new law, 20% tax will apply to dividends paid by a company, but personal income tax will not be charged on dividends received by individuals. The rest of the profit that is not reinvested will also be subject to the 20% corporate tax. The new Corporate Tax Law does not require companies to make advance tax payments, except for a transition period from January 1 to June 30, 2018, which will substantially improve companies’ cash flows.
The payment of corporate tax will be postponed until the moment a company’s profit is distributed or spent on other purposes that do not contribute to further growth of the company. The taxable period will be one calendar month, as compared to 12 months at this time. The law also incorporates several provisions intended to prevent tax evasion.
