The first article in our corporate income tax (CIT) series mentioned the concept of deemed distribution of profit introduced by the new CIT Act. Deemed distributions will be considered to take place if a company incurs non-business expenses, lends to related parties, shares out surplus assets on winding-up, pays excessive interest, etc. This article explores the CIT treatment of one type of deemed distribution: non-business expenses.
On 28 July 2017 Parliament adopted amendments to the Corporate Income Tax (CIT) Act in their final reading, significantly changing the principles of CIT treatment. The new CIT model largely resembles the one Estonia adopted 17 years ago (see our Flash News edition of 18 May 2017) which provides for paying tax at the time any profit is distributed (including deemed profit distributions). This article explores some of the new principles for calculating CIT.
The Latvian Cabinet of Ministers’ decision of 9 May 2017 to support the draft national tax policies for 2018–2021 has made it clear that the next six months will see significant changes to the Latvian tax system. Confirming the intention announced earlier to move the Latvian corporate income tax (CIT) regime closer to the Estonian model, the proposed policy solutions provide for reforming the CIT system from 1 January 2018 to charge a 0% tax on reinvested profits and a 20% tax on gross profits at the time of distribution. With the proposals still at a developmental stage, this article explores the Estonian model to discover how the so-called 20/80 tax rate principle works.