Much of the acquisition cost in a share deal tends to be financed externally, i.e. by borrowing. Repayment of a shareholder’s loan is typically exempt from corporate income tax (CIT) under Latvian law (more details in our article CIT reform: lending to related parties). Also, if interest paid on the shareholder’s loan complies with Latvian thin capitalisation rules and transfer pricing rules and is used for business purposes, i.e. it qualifies as a business expense, the interest charges are exempt from Latvian CIT.
What are the most common errors in corporate income tax (CIT) treatment? And what controls can be used to avoid them? Episode 43 of PwC’s Tax Podcast features PwC tax director Irena Arbidane and senior consultant Tatjana Klimovica discussing the impact of common CIT errors on companies and exploring tax risks associated with management and consulting services.
This article explores a court ruling that was issued after a review by the State Revenue Service (SRS) found that invoices a company had expensed in its books did not meet requirements of the Accounting Act. A tax audit found the invoices do not qualify as supporting documents because no services were provided in exchange and the invoices were prepared incorrectly. The company faced an additional corporate income tax (CIT) liability of more than EUR 5 million.
Electrical vehicles (EVs) are gaining traction. According to the Auto Association, Latvia set a record in new EV registrations in 2023: 8.8% of total registered new passenger vehicles were electrical. Episode 41 of our podcast features Viktorija Lavrova, a PwC tax manager, and Aleksandrs Afanasjevs, a tax consultant, explaining what tax aspects should be considered if a company buys an EV, and whether the employer can reimburse EV charging costs if it’s being used for private as well as business purposes.
Recent years have seen the State Revenue Service (SRS) increasingly focus on transfer pricing (TP) risks, particularly management services and business support services rendered within a multinational enterprise (MNE) group. These services between related companies aim to promote a group member’s business, to cut costs it would have incurred in performing the particular functions on its own, or to offer some other comparable benefit from the synergy of doing business together. Yet there is also the other side of the coin – TP and corporate income tax (CIT) risks may arise if the recipient of services is unable to prove they were actually received and the fee was justified.
Belarus has unilaterally decided to suspend the operation of certain articles of its double tax treaties (DTTs) with 27 countries from 1 June 2024. This article explores the status of the Belarus-Latvia DTT and the list of affected countries.
The CIT Act requires companies to assess whether they have incurred expenses in acquiring and maintaining a luxury executive vehicle (LEV) for each tax period. This article explores how to determine the value of an LEV and what costs are chargeable to CIT, as well as looking at the new CIT treatment effective from 1 January 2024 of LEVs that are used for a long time.
The tax reform in Latvia involved changing its corporate income tax (CIT) system from 1 January 2018. Six years after the new system was put in place, the Ministry of Finance (MOF) has evaluated the CIT reform and prepared an evaluation of the impact of the CIT reform in 2018–2023 and a proposed scenario of further action. This article explores the purpose, content and key findings of this evaluation.
We have written before about what a social enterprise is and how it’s different from a business entity in the classical sense. Latvian law has put the Ministry of Welfare (MOW) in charge of fostering and developing social business activity in Latvia, monitoring the development of this sector, and promoting the operation of social enterprises.
We have informed our MindLink subscribers about the Pillar Two directive’s guidelines, looked at how implementing it could affect companies, and suggested how companies could get ready for the tax changes in good time. This article explores what’s new when it comes to passing the Pillar Two directive into Latvian law.
Moving towards a more environmentally friendly and energy-independent urban development in Riga, in October 2022 the Riga City Council passed amendments to Binding Rule No. 109, Procedures for granting real estate tax relief in Riga, which set up a new category of real estate tax (RET) relief – a 50% relief for energy-efficient buildings to be delivered for occupancy after 2023.
The Finance Ministry has come up with a number of proposals for amending the VAT Act from 2024. The goals are to improve the VAT rules by exempting VAT on services that are closely linked to sports, to minimise the administrative burden, to encourage improvements to the business environment, and to revise the conditions for how registered taxable persons can adjust input tax paid on bad debts. The proposals must be approved in their second reading by Parliament before they can take effect. This article explores what we see as key changes to the VAT Act.
The Ministry of Finance has suggested how tax legislation should be amended from 2024. This article explores proposals for amending the Corporate Income Tax (CIT) Act and the VAT Act relating to luxury executive vehicles (LEVs).
Transfer pricing (TP) experts of the State Revenue Service (SRS) have agreed to meet up with Latvian TP consultants on several occasions in late September to debate some pressing TP concerns and to set out the SRS opinion on how to solve current and future TP problems. In this article we will outline SRS comments on TP validation and look at some of the topics and questions put up for debate with the SRS.
