Holding Company in Latvia: Structuring Your Group for Tax Optimisation

Are you an entrepreneur with several business activities looking to optimise your taxation? Setting up a holding company in Latvia can be a sound option. Find out about the tax advantages this country offers and how to structure your group effectively.

Holding Companies: Definition, How They Work, and Tax Advantages for a Group

A holding company is a parent company that holds stakes in other companies, called subsidiaries. Its main role is to manage shareholdings and optimise the group's financial management.

The tax advantages of a holding company are numerous:

• Tax optimisation: Pooling the results of subsidiaries lets you offset one entity's losses with another's profits.
• Dividend exemption: Thanks to mechanisms such as the EU's Parent-Subsidiary Directive, dividends a holding company receives from its subsidiaries can be exempt from tax.
• Easier succession: A holding structure simplifies passing companies on within the same family or between partners.

Why Choose Latvia to Set Up a Holding Company?

Latvia offers very favourable tax conditions for holding companies, making it a strategic choice for many European entrepreneurs.

• 0% corporate tax: Reinvested profits aren't taxed, encouraging internal growth.
• Exemption on intra-group dividends: Provided the conditions of the Parent-Subsidiary Directive are met (at least 10% shareholding held for at least 12 months), dividends received from European subsidiaries are in principle not subject to withholding tax.
• No withholding tax, under conditions: Dividends paid to other EU companies benefit from the same regime, simplifying profit distribution once the shareholding and holding-period thresholds are met.
• A network of more than 60 tax treaties: This helps avoid double taxation and secures international financial flows.

Latvia positions itself as a credible base for European holding companies.

Worked Example: Setting Up a Holding Company in Latvia for a Multi-Activity Entrepreneur

Let's imagine an entrepreneur running two distinct businesses: a SaaS (Software as a Service) product and a consulting practice. By setting up an SIA holding company in Latvia, they can centralise financial flows and optimise their tax management.

Here's a worked example:

• SaaS revenue: €300,000 a year
• Consulting revenue: €200,000 a year
• Reinvested profit: €100,000

In this case, the reinvested profit isn't taxed, letting the entrepreneur increase their investment capacity without adding to their tax burden.

Using the holding structure, they can also optimise their remuneration via dividends, benefiting from the tax exemptions Latvia offers.

Latvian Holding vs a Standard-Rate Country: What Are the Tax Differences?

When comparing a Latvian holding company with one in a country applying a standard corporate tax rate, such as France, several tax and administrative differences emerge:

Criterion	Latvia	France
Corporate tax	0% on reinvested profits	25%
Withholding tax on dividends	0% to the EU	30%
Administrative complexity	Moderate	High

Comparing a Latvian SIA with other EU company structures highlights significant advantages in terms of cost and flexibility for Latvia.

Economic Substance: Avoiding Abuse of Law

Economic substance is essential to guaranteeing the legality of your structure in Latvia. It means demonstrating that a genuine, substantial activity is carried out in the country, beyond purely tax considerations.

• Physical location: Maintaining an office in Latvia and employing local staff.
• Operational activity: Demonstrating tangible commercial or management activity.
• Documentation: Keeping evidence of economic activity and decisions made locally.

Following these recommendations will help you optimise your taxes while avoiding abuse of law.