Many entrepreneurs who form an SIA in Latvia wonder if they should also move their personal tax residency there. The answer is no: the two are entirely independent. This article details the criteria, benefits, and steps that apply if you're nonetheless considering becoming a Latvian tax resident.
Tax Residency in Latvia: What Legal Criteria Apply?
Becoming a tax resident in Latvia means meeting certain specific criteria, defined by Latvian law and international tax treaties. Tax residency status is mainly determined by two elements: the number of days spent in the country and where your centre of vital interests lies.
Criteria for becoming a tax resident
- Physical presence of 183 days or more in Latvia within a tax year.
- Centre of vital interests located in Latvia, meaning the place where your family home or main economic activities are based.
For example, a consultant based in Riga more than 183 days a year, whose family and main activity are based in Latvia, meets these criteria. The country where their company is registered, on the other hand, doesn't factor in: an SIA can be registered in Latvia without its director being a tax resident there.
Why the centre of vital interests matters
The centre of vital interests is a decisive criterion for establishing your tax residency. It refers to the place where your most significant personal and economic ties are located. In practice, this comes down to where your family or your main business is based.
Tax Benefits of Residency in Latvia
Latvia offers an attractive tax environment for residents, particularly for entrepreneurs and investors. Here are some of the main advantages:
Income tax rates
Income tax rates in Latvia range from 20% to 31%, depending on income brackets. This progressive system is often more favourable than in many other European countries.
No wealth tax
Unlike some countries, Latvia doesn't levy a wealth tax, which can represent substantial savings for individuals with significant assets.
Favourable dividend regime
Dividends received in Latvia benefit from an advantageous tax regime. This makes it a popular destination for entrepreneurs looking to optimise their taxation. For more on tax optimisation in Latvia, see our dedicated article.
Administrative Steps to Obtain Tax Residency
Going through the administrative steps required to obtain tax residency in Latvia is relatively straightforward.
Process for entrepreneurs to follow
Here are the essential steps to obtain tax resident status in Latvia:
- Register your company in Latvia, for example as a holding company in Latvia.
- Obtain a residence permit, if necessary, depending on your personal and professional situation.
- Declare your main residence in Latvia to the tax authorities.
Required documents
Documents typically required include proof of residence, an employment or company management contract, and information about your economic activities in Latvia.
Points to Watch as a Latvian Tax Resident
Becoming a tax resident in Latvia also means taking a few important points into account.
Exit tax in your home country
If you're leaving a country like France to settle in Latvia, you could be subject to an exit tax. France's exit tax, for instance, applies to unrealised capital gains on certain assets when you leave. It's crucial to properly prepare your relocation to avoid unexpected costs — check whether your own country of departure applies a similar mechanism.
Good to know
The bilateral tax treaty between France and Latvia helps avoid double taxation and clarifies each country's tax obligations. Make sure you understand its implications to optimise your tax situation if this applies to you.
Reporting Obligations Back Home After Relocating
After obtaining tax residency in Latvia, certain reporting obligations may remain in force in your country of origin.
Declarations to make back home
Depending on your home country, you'll typically need to declare your change of residence to the tax authorities and continue to declare any income sourced from that country.
Impact on personal taxation
For example, if you receive rental income from property in France, it must still be declared in France, even if you're a tax resident in Latvia. It's advisable to consult an expert to properly understand the impact on your personal situation.
For more information and personalised support, contact our team. We're available to help you navigate the process of establishing tax residency in Latvia.