← Guides / Latvia

Latvia Cross-Border Tax Guide 2026

Latvia's cross-border tax framework is shaped by its EU membership (since 2004), euro adoption (2014), and extensive double tax treaty network (60+ countries). Key features include the 183-day residency rule, worldwide income for residents, reduced withholding tax rates under treaties, the participation exemption for corporate holdings, and transfer pricing rules aligned with OECD guidelines. Latvia applies CFC rules under the EU ATAD directive but maintains a business-friendly approach.

183-Day Residency Rule

  • 183-day test: An individual is considered a tax resident of Latvia if present for 183 days or more in the calendar year. Both arrival and departure days count.
  • Consequences: Tax residents are subject to worldwide income taxation under progressive IIT rates (20–31%).
  • Primary residence test: Maintaining a permanent home in Latvia may establish residency even without 183 days.

Worldwide Income for Residents

  • Worldwide taxation: Latvia tax residents are taxed on worldwide income, including foreign employment, business profits, investment income, and capital gains.
  • Foreign tax credit: Latvia provides a unilateral foreign tax credit for taxes paid abroad. The credit is limited to the Latvia tax attributable to the foreign income (per-country limitation).
  • Treaty relief: Where a DTT applies, treaty provisions override domestic law and allocate taxing rights between countries.

Source-Only Taxation of Non-Residents

  • Non-residents — source-only: Non-residents are taxed only on Latvia-source income. Foreign income is not subject to Latvia tax.
  • Latvia-source income includes: employment income for work performed in Latvia, business income attributable to a Latvia PE, rental income from Latvia real estate, dividends from Latvia companies (20% WHT), and other Latvia-source payments.

Withholding Tax (WHT) on Cross-Border Payments

  • Dividends: Domestic WHT 20% (individuals and companies). 0% under EU Parent-Subsidiary Directive (≥10% holding, 12 months). Reduced to 0–15% under most DTTs.
  • Interest: 0% WHT on interest paid to both residents and non-residents. No Latvia withholding tax on cross-border interest.
  • Royalties: 15% domestic WHT (companies). 0% under EU Interest and Royalties Directive for associated EU companies. Reduced to 5–15% under most DTTs.

Participation Exemption

Latvia provides a participation exemption for corporate holdings:

  • Qualifying conditions: ≥10% equity holding and ≥12-month holding period
  • Dividends: Exempt from CIT on receipt. Dividends received from foreign subsidiaries are not subject to Latvia CIT.
  • Capital gains: Gains from the sale of qualifying shareholdings are exempt from CIT.
  • Subject-to-tax test: The foreign subsidiary must be subject to a tax comparable to Latvia CIT (generally satisfied for EU and treaty country subsidiaries).

DTT Network — 60+ Treaties

  • Network: Latvia has concluded double tax treaties with over 60 countries.
  • Key partners: All EU member states, US, UK, Japan, Canada, Australia, Switzerland, Norway, China, India, UAE, South Africa, Singapore, South Korea, and many CIS countries (Russia, Belarus, Ukraine, Kazakhstan, Uzbekistan, Azerbaijan).
  • Treaty benefits: Reduced WHT rates on dividends (0–15%), interest (0–10%), royalties (5–15%). Most treaties follow the OECD Model.
  • Exchange of information: All treaties include exchange of information clauses aligned with OECD standards.

Transfer Pricing

  • OECD alignment: Latvia's transfer pricing rules follow the OECD Transfer Pricing Guidelines.
  • Documentation threshold: Transactions exceeding EUR 50,000 (goods) or EUR 15,000 (services) with related parties require documentation.
  • Master and local file: Required for groups with consolidated revenue exceeding EUR 50 million.
  • Country-by-country reporting: Applies for groups with consolidated revenue over EUR 750 million.
  • Advance pricing agreements: Available through VID (APA programme).

CFC Rules (Controlled Foreign Company)

  • ATAD implementation: Latvia introduced CFC rules under the EU Anti-Tax Avoidance Directive (ATAD) effective 2019.
  • Scope: The rules apply to Latvia companies or individuals that control a foreign entity if the foreign entity's income is predominantly passive and the effective tax rate in the foreign jurisdiction is less than 50% of the Latvia tax rate.
  • Exemption: CFC rules do not apply if the foreign entity has substantial economic activity (personnel, premises, assets).

FAQs

What is the WHT rate on dividends paid by a Latvia company to a foreign parent?

The standard domestic rate is 20%. Under the EU Parent-Subsidiary Directive, the rate is 0% for EU parent companies with ≥10% holding and 12-month holding period. Under many DTTs, the rate is reduced to 0–15% depending on the holding level.

Does Latvia have thin capitalisation rules?

Yes, Latvia applies thin capitalisation rules limiting interest deductibility to the higher of EUR 3 million or 30% of EBITDA (under ATAD). Interest exceeding these limits is treated as a deemed distribution and subject to CIT.

Can a Latvia holding company receive dividends from abroad tax-free?

Yes, under the participation exemption, qualifying dividends received by a Latvia company from foreign subsidiaries are exempt from CIT. The conditions are ≥10% holding, ≥12-month holding, and the foreign subsidiary must be subject to a comparable tax.

Disclaimer

This guide provides general information about Latvia cross-border taxation 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 situation. InvestmentKit does not provide tax advice.