Latvia Corporate Tax Guide 2026

Overview — Corporate Tax in Latvia

Corporate income tax in Latvia is administered by the Valsts ieņēmumu dienests (VID). Since 2018, Latvia operates a unique retained earnings-based CIT system. Resident companies are taxed only on distributed profits and deemed profit distributions. Non-resident companies with a permanent establishment (PE) in Latvia are taxed similarly on profits attributable to the PE. The corporate tax year follows the calendar year unless the company uses a different fiscal year. Corporate tax returns must be filed by 30 June of the following year. Latvia's CIT regime is one of the most competitive in the EU for companies that reinvest their profits.

CIT Rate — 0% on Retained, 20% on Distributed

The standard CIT rate structure for 2026:

• Retained earnings: 0% — profits kept in the business and reinvested are not subject to corporate tax. This creates a powerful cash flow advantage and encourages reinvestment.
• Distributed profits: 20% on the grossed-up distribution amount. The effective rate on the net distribution is 25% (20/80 formula).
• Calculation: If a company distributes EUR 100 as a dividend, the CIT due is EUR 100 × 20% = EUR 20 (effectively 25% on the EUR 80 net dividend).
• Timing: CIT is payable at the time of distribution, not at the time profits are earned.

Deemed Profit Distributions

Certain transactions are treated as deemed profit distributions and trigger CIT even if no actual dividend is paid:

• Non-business expenses: Expenses not related to economic activity (e.g., personal expenses, gifts, fines)
• Below-market loans: Loans to related parties at below-market interest rates
• Losses from related-party transactions: Transactions with related parties not at arm's length
• Bad debts: Write-offs of receivables from related parties (with certain exceptions)
• Excess interest: Interest payments exceeding thin capitalisation limits

These deemed distributions are subject to the same 20% CIT rate (25% effective).

Dividend Received Exemption

Dividends received by a Latvian resident company from a foreign subsidiary are generally exempt from CIT if:

• The Latvian company holds at least 10% of the share capital of the foreign subsidiary
• The holding period is at least 12 months
• The foreign subsidiary is subject to a tax comparable to Latvian CIT (applies under EU Parent-Subsidiary Directive and most DTTs)

Dividends received from Latvian subsidiaries are also exempt, as CIT is already paid at the distributing level.

Capital Gains on Shares

Capital gains from the sale of shares by a Latvian company are treated as follows:

• Holding of ≥10%: Gains are exempt from CIT if the shares have been held for at least 12 months and the participation exemption conditions are met
• Holding of <10%: Gains may be taxable as a distribution upon realisation
• Losses: Capital losses on exempt gains are not deductible

Withholding Tax on Cross-Border Payments

• Dividends: 20% domestic WHT (0% to EU companies under Parent-Subsidiary Directive with ≥10% holding)
• Interest: 0% WHT on interest paid to both residents and non-residents (no withholding)
• Royalties: 0% WHT on royalty payments (Latvia does not impose withholding tax on royalties to non-residents)

Loss Carryforward

Tax losses under Latvia's CIT system are treated differently than in traditional systems. Since CIT is payable only on distributions, losses do not carry forward in the conventional sense. However, previously taxed reserves may be distributed free of further CIT. Unused losses from the pre-2018 system were carried forward for 5 years under transitional rules.

Transfer Pricing

Latvia has transfer pricing rules aligned with OECD guidelines. The requirements apply to transactions between related parties exceeding certain thresholds:

• Documentation threshold: Transactions exceeding EUR 50,000 (goods) or EUR 15,000 (services) with related parties
• Master and local file: Required for groups meeting the EUR 50 million consolidated revenue threshold
• Country-by-country reporting: Applies for groups with consolidated revenue over EUR 750 million
• Advance pricing agreements: Available through VID

FAQs

Is there really 0% CIT on retained earnings?

Yes. Latvia's unique CIT system means no corporate tax is payable on profits that are retained and reinvested in the business. Only when profits are distributed as dividends or used for non-business purposes does CIT become due. This makes Latvia highly attractive for growing companies that reinvest profits.

What is the effective CIT rate in Latvia?

The effective rate on distributed profits is 25% (20% on the grossed-up amount). However, since no tax is due on retained earnings, the effective rate on total profits depends on the proportion distributed. A company that reinvests all profits pays 0%.

Does the Latvian CIT regime apply to all companies?

The 0/20% CIT regime applies to all resident companies, including joint-stock companies (AS), limited liability companies (SIA), and cooperatives. Micro-enterprises may opt for the alternative micro-enterprise tax regime (12.5%, 15%).

Disclaimer

This guide provides general information about Latvia corporate tax (CIT) for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Latvian tax advisor (nodokļu konsultants) or VID directly for advice specific to your business. InvestmentKit does not provide tax advice.