Latvia operates one of the most distinctive corporate tax regimes in the European Union. Since a reform effective January 2018, companies registered in Latvia only pay corporate income tax when they distribute profits — not when they generate them. Retained earnings and amounts reinvested in the business are entirely exempt from tax in the year they arise.

How the distributed profit tax works

The headline rate is 20%, applied on a gross-up basis. In practical terms: if a Latvian company distributes €100,000 in dividends, the CIT liability is €20,000 — payable by the company before distribution, meaning the gross pre-tax amount is €125,000. Profits left inside the company and reinvested in operations, equipment, real estate, or subsidiaries attract no CIT until they are eventually taken out. This is structurally advantageous for businesses with long reinvestment cycles or those accumulating capital for future transactions.

  • Distributed profits (dividends): 20% corporate income tax
  • Retained and reinvested profits: 0% — no tax until distribution
  • Standard VAT rate: 21%
  • Reduced VAT (12%): medicines, certain medical devices, some publications, hotel accommodation
  • State social security contributions: approximately 34% in total — 23.59% employer contribution plus 10.50% employee contribution

Double Taxation Agreements

Latvia has over 60 double taxation agreements in force, covering all major EU member states, the United Kingdom, Russia, Georgia, Ukraine, the United States, Canada, and a significant number of Asian and Central Asian jurisdictions. This makes Latvia an effective intermediate holding location for groups operating across multiple countries, since dividend flows, royalties, and interest payments between treaty countries can typically be structured to minimise or eliminate withholding tax obligations at source.

Under the EU Parent-Subsidiary Directive, dividends paid between EU-resident corporate entities (with a minimum 10% shareholding held for at least 12 months) are generally exempt from withholding tax. Combined with Latvia's DTT network, this is why Latvian holding companies are frequently used as the European hub in international corporate structures.

Practical implications for your structure

The right tax position depends on where your shareholders are resident, where your customers are located, where your intellectual property sits, and what your profit distribution plans look like over the next few years. There is no single template that fits every situation. N3XTLV's advisory team models the full tax impact of proposed structures before any entities are incorporated, so decisions are made with a clear picture of the tax consequences — not revised after the fact.