Corporate Tax in Latvia

Latvia's tax system: the "Estonian" model explained

Latvia carried out a genuine tax revolution in 2018, adopting a model inspired by neighbouring Estonia. Before this reform, Latvian companies were subject to a classic 20% corporate income tax on their annual profits, much like most European countries. Since 1 January 2018, that mechanism has been completely rebuilt.

The principle is now this: as long as a Latvian SIA's profits aren't distributed, they are not subject to any tax. Taxation only kicks in once the company decides to distribute dividends or make similar distributions.

"In Latvia, corporate tax is a tax on distribution, not a tax on profit. As long as you reinvest, you pay nothing."

Why 0% as long as you reinvest?

In many European countries, corporate tax runs at 20-25% on all profits earned, whether distributed or not. A small business elsewhere that makes €100,000 in profit typically pays a large chunk of that in corporate tax every year, even if it reinvests everything into growth. A Latvian company in the same situation keeps the full €100,000 available to reinvest, a considerable lever for a business in a growth phase.

Corporate tax rates across Europe, for comparison

• Latvia: 0% on retained profits, 20% only on distributions
• France: 15% up to €42,500 profit, then 25% on all profits, distributed or not
• Germany: around 30% (federal + municipal)
• Belgium: 25% (20% for SMEs on the first bracket)
• Ireland: 12.5% on trading income (but a classic CIT, due every year)

The "Estonian" model: 0% as long as profits stay in the company

Corporate tax rate: the detail

When a distribution is made, dividends paid to shareholders, similar income, certain expenses unrelated to the business, the Latvian SIA owes tax at a rate of 20%. This rate applies to the gross amount of the distribution. The taxable base equals 20/80 of the net amount distributed, which works out to an effective rate of 20% on the gross amount (roughly 25% once the conversion coefficient is applied to the net amount).

A concrete example

Take a SIA that makes €100,000 in profit over a financial year:

• If it reinvests the full €100,000 into the business: €0 tax
• If it distributes €50,000 as dividends: it pays 20% × €50,000 = €10,000 tax, and actually distributes €40,000 net
• If it distributes the full €100,000: it pays €20,000 tax

The 2026 alternative regime: 15% CIT + 6% on dividends

An optional regime exists for SIAs owned only by individuals (maximum 5 shareholders): 15% CIT + 6% withholding on distributed dividends, often more advantageous for non-residents thanks to tax credits available in their country of residence. This rate is a 2025-2026 order of magnitude to confirm with the VID (the Latvian tax authority) before any decision.

Dividend taxation from a Latvian SIA

In Latvia, dividends paid by a company (SIA or AS) to its shareholders are taxed at 20% calculated on the gross amount of the distribution. This tax is paid by the Latvian company itself, not by the receiving shareholder, it isn't a classic withholding tax, it's the corporate tax itself, due at the time of distribution.

"In Latvia, dividend tax is paid by the company, not the shareholder. The dividend that arrives is already net, already tax-'cleared' at the company level."

Worked example: €50,000 distributed, French tax resident

To illustrate how a treaty interacts with the Latvian mechanism, here's a worked example for a shareholder who is a French tax resident (France has one of the longest-standing treaties with Latvia, in force since 1999):

Indicative simulation, excluding special cases. If you're tax resident in a different country, the treaty mechanism and rates may differ, always check the specific double-tax treaty (if any) between Latvia and your country of residence with a qualified advisor.

Exemptions between companies (parent-subsidiary directive)

Under EU Directive 2011/96/EU, dividends a Latvian company receives from a subsidiary in another EU member state are generally exempt from tax in Latvia, provided the parent company has held at least 10% of the subsidiary's capital for at least 12 months. Dividends received from another Latvian company that has already paid the distribution tax are likewise not taxed a second time on any further redistribution.

Salary or dividends: which strategy to choose?

A common question is whether to pay yourself a salary or dividends from your Latvian SIA:

Distribution procedure and timeline

• Formal decision by the shareholders' meeting (minutes required)
• Verification that the company has sufficient equity
• Distribution filed with the Latvian tax authority (EDS) before the 20th of the following month
• Payment of the 20% tax within the same deadline
• Transfer of the net dividends to the recipient(s)

Distributions can be decided and paid at any time of the year, without waiting for the year-end accounts to close, an extra advantage compared with countries where distributions can only happen after annual accounts are approved.

Double-tax treaties help avoid dividends being taxed twice

Double-tax treaties: avoiding being taxed twice

Latvia has signed double-tax treaties with more than 60 countries. These treaties set out precise mechanisms so the same income isn't taxed twice, typically through a tax credit: the withholding tax deducted in Latvia is offset against the tax due at home on the same dividends.

As an example, under the France-Latvia treaty (signed 14 April 1997, in force since 1 January 1999), Latvia can levy a withholding tax of up to 20% on dividends paid to non-residents, reduced to 10% for French tax residents holding less than 10% of the capital, and to 5% for those holding 10% or more. For a company shareholder benefiting from the EU parent-subsidiary directive, dividends received can be up to 95% exempt in the parent's home country if participation and holding-period conditions are met.

If you're tax resident outside France, check whether your own country has a double-tax treaty with Latvia and what mechanism it uses (credit, exemption, or none), the details vary significantly by jurisdiction.

Who pays what, and where? Company vs individual

To understand where and how you actually pay tax with a Latvian SIA, it helps to separate two completely distinct tax entities: the company itself (a legal person) and you as a shareholder or director (an individual). Many entrepreneurs assume that forming a company in Latvia means no longer paying tax at home, that's a mistake. The company stops paying corporate tax at home (under conditions), but you, as a tax resident somewhere, continue to declare your personal income there.

Summary table: who pays what and where

VAT for a Latvian SIA

The standard VAT rate in Latvia is 21% (reduced rates of 12% and 5% apply to certain goods and services). VAT registration is mandatory beyond €50,000 in annual turnover, or from the first intra-EU transaction. Once registered, the SIA is subject to regular filing obligations with the VID.

Is this legal and EU-compliant?

This question comes up systematically when entrepreneurs discover the Latvian system. The answer is unambiguous: yes, it's fully legal. Latvia has been an EU member since 2004 and a Eurozone member since 2014. Its tax system has been reviewed by the European Commission, which found it similar to the regime Estonia has applied since 2000. Latvia is not on any blacklist or greylist of non-cooperative jurisdictions and has a treaty network with more than 60 countries.

To fully benefit from Latvia's tax regime, a company must be legally formed in Latvia, hold a registered address there, and carry out a genuine economic activity. For non-resident entrepreneurs, it's entirely possible to form and run a SIA remotely, provided effective management is properly structured and accounting and tax obligations are respected.

Frequently asked questions about Latvia corporate tax