Understanding Holding Company Taxation in Latvia
Holding company taxation in Latvia rests on a simple principle: reinvested profit isn't taxed, distributed profit is. This contrasts with the more rigid tax systems of many other European countries, where profits are taxed as soon as they're earned, whether reinvested or not.
The key principle: 0% as long as profit stays in the holding, taxation only on distribution.
Applicable Corporate Income Tax (CIT) Rate
For holding companies in Latvia, the tax rate on profits is 0% as long as dividends aren't distributed. This temporary exemption lets companies reinvest their profits with no immediate taxation. Once dividends are distributed, a 20% rate applies, an effective rate of around 25% after the conversion coefficient (0.8) is applied. A 2026 alternative regime exists for SIAs owned only by individuals: it caps the charge at 15% corporate income tax (CIT) plus a 6% withholding on dividends (PIT), a combination often more advantageous for non-resident founders thanks to bilateral tax treaties, including the one signed with France.
Exemption on Dividends From Subsidiaries (Parent-Subsidiary Directive)
Dividends received by a Latvian holding from its subsidiaries can be exempt from tax, provided the conditions of the EU parent-subsidiary directive are met: holding at least 10% of the subsidiary's capital, for a minimum period of 12 months.
Good to know
Companies domiciled in Latvia are taxed on their worldwide results, while non-domiciled companies are only taxed on income generated within Latvia.
Advantages of a Latvian Holding for International Entrepreneurs
Forming a holding company in Latvia offers several advantages:
- Favourable taxation: the ability to defer taxation until dividends are distributed allows for optimised tax management. See our article on SIA dividends for more detail.
- EU legal framework: as an EU member, Latvia guarantees a credible, reassuring legal framework.
- A favourable environment: with tax incentives for reinvestment and a growing ecosystem (around 500 to 570 active startups, up roughly 11%, driven notably by fintech and SaaS), Latvia is establishing itself as a hub for startups and SMEs.
Steps to Form a Holding Company in Latvia
Forming a holding company in Latvia remains an accessible process, with registration possible in a few business days in the simplest cases. Expect 5 to 10 days in an optimistic scenario, or 2 to 4 weeks once bank account opening is factored in, often the longest step for a non-resident. Here are the key steps:
- Choosing the structure: opt for a SIA (limited liability company), the most common and accessible form for foreign entrepreneurs.
- Share capital: the minimum share capital required is €2,800 for a standard SIA. A micro-SIA is accessible from €1 up to €2,799, but only for individuals (see the table below).
- Documents needed: prepare the company's articles of association, a certificate of no criminal record, and other supporting documents.
- Registration: register your company with the Latvian companies register.
- Opening a bank account: a Latvian bank account is needed to facilitate financial transactions.
| Variant | Share capital | Conditions |
|---|---|---|
| Standard SIA | €2,800 minimum, paid before registration | No restriction on founders |
| Micro-SIA | €1 to €2,799 | Individuals only, max 5 shareholders, 25% of annual profits set aside until capital reaches €2,800 |
Use Case: Reinvesting Rather Than Distributing
In practice, a holding that chooses to reinvest its profits rather than distribute them immediately pays no corporate tax that year: cash stays available to fund growth (hiring, R&D, acquisitions) rather than going towards upfront tax. It's only once profits are actually distributed that the 20% rate (~25% effective) applies. This deferral can represent tens of thousands of euros in extra cash in the early years, provided you fully understand local tax obligations and stay compliant with your own country's tax residency rules.
Comparison With Other European Jurisdictions
Latvia positions itself as a competitive alternative to other European jurisdictions for holding company taxation:
| Country | Rate on reinvested profits | Rate on distribution |
|---|---|---|
| Latvia | 0% | 20% (~25% effective) |
| France | 25% | 25% (taxed on earning, reinvested or not) |
| Germany | ~30% | ~30% (taxed on earning, reinvested or not) |
The structural difference is clear: in countries like France and Germany, profit is taxed as soon as it's earned, whether reinvested or distributed. In Latvia, only profit actually distributed is taxed.
Ensuring Legal and Tax Compliance
To avoid reassessment risk, it's crucial to meet Latvian legal and tax obligations. A few tips:
- Work with a local expert to navigate the tax complexities.
- Make sure your operations comply with your country of residence's tax laws.
- Keep complete, accurate records of every financial transaction.
To find out more about forming a holding company in Latvia and getting tailored support, contact our team of experts today.