Planning to set up a company in Latvia and wondering how to avoid being taxed twice on the same income? Signed in 1997, the France-Latvia tax treaty deals with exactly this: it sets out which country taxes what, so the same income is never fully taxed on both sides. Here's how it actually works, with worked figures, for French residents with a Latvian company.
Tax Residence Under the Treaty
Tax residence is a key concept in the treaty. It determines where an individual or company must pay tax. The treaty uses several criteria to establish tax residence, including main place of stay, centre of vital interests, and permanent home.
For example, if you spend more than 183 days a year in France, you'll generally be treated as a French tax resident. However, if your centre of personal and economic interests is in Latvia, that could affect your tax status.
Dividend Taxation and the Tax Credit
Contrary to what you might expect, the treaty doesn't provide for a classic withholding tax on Latvian dividends. In Latvia, distributed profits are taxed at 20% (around 25% in effective terms once the gross-up factor is applied), and it's the company itself that pays this tax at the point of distribution, not the shareholder. The dividend you receive is therefore already net of Latvian tax.
This is where the tax credit comes in — the treaty's central mechanism for avoiding double taxation: it lets you deduct tax already paid in Latvia from French tax, up to the amount of French tax due on that same income. Simplified illustration: if you paid €1,000 in tax in Latvia on a given income, and French tax on that same income comes to €1,500, the €1,000 tax credit is deducted, leaving only €500 to pay in France.
The tax credit prevents the same euro of profit from being fully taxed in both countries.
Let's take a concrete example: a Latvian SIA makes €10,000 in profit, fully distributed to a French-resident shareholder.
| Step | Amount |
|---|---|
| Profit distributed | €10,000 |
| Corporate tax paid in Latvia (20%) | − €2,000 |
| Net dividend paid to the shareholder | €8,000 |
| France's flat tax (30% on €8,000) | €2,400 |
| Tax credit (Latvian corporate tax already paid) | − €2,000 |
| Balance due in France | ≈ €400 |
| Combined total (Latvia + France) | ≈ €2,400 (24% of the profit) |
This calculation remains an indicative estimate, to be checked with a tax expert based on your situation. For the full mechanics, our guide to corporate taxation in Latvia goes into more depth.
This same tax-credit mechanism comes into play if you're weighing salary against dividends from your SIA.
Taxation of Salaries and Capital Gains on Securities
Salaries earned by a French resident working in Latvia are taxed in Latvia if the work is carried out there. However, they may also be taxed in France, with a tax credit to avoid double taxation.
For capital gains on securities, Latvia applies a 25.5% income tax, and these gains may also be taxed in France, under the same tax-credit principles.
Good to know
A non-resident director may be taxed differently depending on where they live and where they carry out their activities.
Worked Example: Sole Shareholder of a Latvian SIA, Resident in France
Take the case of a French resident who is the sole shareholder of a Latvian SIA. The dividends they receive have already borne Latvian corporate tax at the company level; they remain taxable in France on that same income, with the treaty preventing the total burden from becoming disproportionate.
For this shareholder, the tax credit provided by the treaty offsets part of the tax already paid in Latvia, which limits the overall tax burden, without necessarily bringing it exactly in line with what they'd pay under a purely French structure.
Setting Up a Company in Latvia Without Changing Your Tax Residence
Setting up a company in Latvia doesn't mean changing your personal tax residence. You can continue to live in France and run a company in Latvia, while benefiting from favourable Latvian taxation governed by the bilateral agreements between the two countries.
This structure is particularly well suited to entrepreneurs who want to optimise their company's tax position while keeping their personal tax residence in France.
The France-Latvia Treaty: Key Takeaways
The France-Latvia tax treaty gives concrete answers to the double-taxation question for French residents setting up an SIA. Whether you're a French resident and shareholder of a Latvian company, or you receive dividends from Latvia, understanding these mechanisms helps you avoid unpleasant tax surprises.
For personalised advice on international taxation and setting up your company in Latvia, our team is on hand for a free consultation.