Taxation

Taxation of expatriates in Latvia – exploring options for personal tax planning: 

Taxation of expatriates in Latvia – exploring options for personal tax planning Valters Gencs Advocate

Tax free dividends: 

Tax free dividends Dividends (EU or LV) - no tax exemptions current or prior year; - no partnerships. Latvian resident – tax free 15% corporate tax (LV)

Becoming Latvian resident: 

Becoming Latvian resident 183 days in any 12 month period Resident permits Day count

Dual residency: 

Dual residency Worldwide income Worldwide income Taxed in Latvia Taxed in Sweden Double taxation !!! Latvian & Swedish tax resident

Tiebreaker test: 

Tiebreaker test Latvia Home Vital connection Habitual dwelling Passport Sweden Home Vital connection Habitual dwelling Passport Latvian resident Swedish resident

Attribution of income : 

Attribution of income

Capital gain: 

Capital gain Payer Offshore/ onshore Tax free income Sale of shares Latvian resident LV or foreign property

Suspect transactions: 

Suspect transactions Cash LVL 40000 (except salary, pension and social fee); Cash LVL 1000 change of small nominal; Cash LVL 10000 traveler checks purchases; EUR 15000 suspect transactions; Currency exchange more than LVL 5000; Transfers for LVL 40000 without opening account or taking from account.

Sale of real property: 

Sale of real property Payer Offshore/ onshore Tax free income Sale of real property hold for more than 12 month Latvian resident LV or foreign property

Tax free deposits: 

Tax free deposits Bank Deposits (EU or LV) - all foreign (EU) tax is creditable in LV Latvian resident – tax free

Disclosure of savings income: 

Disclosure of savings income Income from savings and deposits at credit institutions registered in Latvia and EU are not subject to personal income tax; The Taxation of Savings Directive provides for a mechanism for Latvian tax authorities to identify non-declared deposit income from foreign sources; Information on savings income earned in Latvian banks by non-residents allow taxation in accordance with the laws of the EU Member State where the person is resident; Directive had to be transposed in to Latvian law by May 1, 2004; Directive had to be implemented in practice from January 1, 2005.

Swiss banking secrecy : 

Swiss banking secrecy EU will introduce it’s EU Savings Tax Directive on July 1st, 2005. All EU members (except Belgium, Luxembourg and Austria) will introduce a system of automatic information exchange!

Switzerland: 

Switzerland -Switzerland’s agreement with the EU in no way compromises client confidentiality -Switzerland will introduce a withholding tax “termed EU-withholding” for individual clients having an account with a Swiss domiciled Bank, or domiciled in one of the above mentioned three countries.

Retention rates: 

Retention rates Such an individual client has the option of voluntary disclosure in order to avoid the following withholding rates: starting from July 1st, 2005 - 15%; starting from July 1st, 2008 - 20%; and finally from July 1st, 2011 - 35% .

 Who is affected? : 

Who is affected? If you are an individual with a custody account in Switzerland or one of the other “Third Countries” (Liechtenstein, Monaco, Andorra and San Marino) and you are domiciled (the country of domicile not the nationality!) in an EU country - you are most likely affected, since at least some of your investments will probably generate interest income.

Exceptions: 

Exceptions From the beginning, the issue has only involved cross-border interest payments to individuals who are residents in one of the above mentioned countries. Investment income – such as dividends – is not covered and neither are legal entities, public organizations or institutional investors!

Consulting fees: 

Consulting fees Salary paid from Swedish company Swedish company Expatriate Latvian company Withholding tax VAT Consulting fee

Withholding taxes: 

Withholding taxes Dividends 10% or 0% (2 year holding period with 20% required); Participation in partnership – 15%; Consulting fee – 10%; Interest to related party – 10%; Copyright royalty – 15%; Other royalty – 10%; Use of property – 5%; Sale of real property – 2%; Low tax country 15%, except: Dividends Interest from bank Supply of goods; Tax clearance received.

Residence Certificates: 

Residence Certificates Certificates valid for 5 years; Date and number of contract; Confirmation from Latvia tax authorities required (30 days answer); WTH paid by payer if exemption is not obtained.

Slide20: 

Dividends % Interest % Royalties % Armenia 5/15 10 10 Belarus 10 10 10 Belgium 5/15 10 5/10 Canada 5/15 10 10 China 5/10 10 10 Czech Republic 5/15 10 10 Croatia 5/10 10 10 Denmark 5/15 10 5/10 Estonia 5/15 10 5/10 Finland 5/15 10 5/10 France 5/10 10 5/10 Germany 5/10 10 5/10 Iceland 5/15 10 5/10 Ireland 5/15 10 5/10 Kazakhstan 5/15 10 10 Lithuania 0/15 0 0 Moldova 10 10 10 Malta 5/10 10 10 Norway 5/15 10 5/10 Poland 5/15 10 10 Portugal 10 10 10 Rumania 10 10 10 Sweden 5/15 10 5/10 Singapore 5/10 10 7.5 Slovenia 5/15 10 10 Slovakia 10 10 10 Switzerland 5/15 10 5/10 The Netherlands 5/15 10 5/10 UK 5/15 10 5/10 Ukraine 5/15 10 10 USA 5/15 10 5/10 Uzbekistan 10 10 10 Non-treaty country 10 0/5/10 5/15 Withholding Taxes (not all)

Sheltering income: 

Sheltering income 1. Company 2. Expatriate Latvian company Country X company (not low tax country) Dividend – no tax 1. WTH tax 15% (low tax country) Dividend 5% - 10% WTH Consulting fee 0% - 10% WTH 2. Dividends for residents – no tax

List of Low Tax Countries: 

List of Low Tax Countries Andorra Grenada Turks and Caicos Islands Anguilla Guatemala Tonga Antigua & Barbuda Hong Kong Uruguay Netherlands Antilles Jamaica Vanuatu United Arab Emirates New Caledonia Venezuela Bahamas Jordan Kenya Bahrain Cayman Islands Montserrat Barbados Cyprus St.Peter and Michael Belize Cook Islands Seychelles Bermuda Kampione St.Kitts and Nevis Kuwait Nauru Liberia Panama Libya San Marino British Virgin Islands Madeira and St.Maria Island Bruney Macao Dominical Republic Republic of Maldives Jersey Marshall Islands St.Vincent and Grenada Ecuador Island of Men St.Helens Guernsey Monaco Tahiti (French Polynesia) Gibraltar Costa Rica

Confirmation of tax paid: 

Confirmation of tax paid Payment order Application “Please issue a certificate on income derived and income tax paid in the Republic of Latvia.”

Statement of income: 

Statement of income Hereby we confirm that............................... (name, surname) has received in.......................from................ (country) (company name) ............................. as out of labour relation fee for (amount and currency) independent services except enterprise agreement for year 2004.

Remuneration schemes: 

Remuneration schemes Net agreements Equivalization & credits Share options Tax on tax pyramids a) loans b) cold comfort letters

Swedish 6 month rule: 

Swedish 6 month rule Rule - Swedish maximum marginal tax rate 57% - Latvian flat tax rate 25% - Potential savings 32% Work in one or more countries In Sweden less than 36 days - no tax in Sweden Income is taxed in Latvia

Swedish 12 month rule: 

Swedish 12 month rule Work in one country; In Sweden less than 72 days; Even if no tax according to Latvian law; Social fee in Sweden: - intention to stay for less 12 month – 32.82% and 7% (maxi 7% x 304200 = 21900 SEK); - intention to stay for more than 12 month – no social fee.

Finland: 

Finland Tax resident in Finland Latvia has right to tax Work outside Finland 6 month Visits to Finland less than 72 days Finnish tax resident – 3 years after left Finland

Denmark: 

Denmark Tax resident in Denmark: Work outside Denmark 6 month; Visits to Denmark 84 days per year; House abandoned – break of residency on 1 day; Tax applies (not paid) in host country.

Dutch taxes: 

Dutch taxes Progressive Dutch personal income tax rate on labour income amounts to: 1st bracket  (<EUR 16.893) 34,40% (including 32,6% national insurance contribution); 2nd bracket (<EUR 30.357) 41,95% (including 32,6% national insurance contribution); 3rd bracket (<EUR 51.762) 42%; 4th bracket (>EUR 51.762) 52%.

Dutch taxes: 

Dutch taxes Article 15 of the Dutch Latvian tax treaty  prescribes the following: main rule: work exercised in The Netherlands by a Latvian resident will be taxed in the NL.

Latvia allowed to tax: 

Latvia allowed to tax Provided that three cumulative conditions are met: The employee is present in The Netherlands for a period or periods not exceeding 183 days; and The remuneration is paid by, on behalf of, an employer who is not a resident of The Netherlands; The remuneration is not borne by a permanent establishment which the employer has in The Netherlands.

Dutch taxes: 

Dutch taxes Very attractive system for tax free allowances (up to 30% of the income) for highly specialized foreign personnel working in NL.

Social fee: 

Social fee 1996 – service agreements exempt Untill January 1, 2003 tax rate for expatriates was 8.52%, maximal subject to social tax for 2002 was LVL 17300 From August 23, 2002 foreign labour agreements excluded Social security treaties: Finland – 3 years; Estonia – 2 years; others – 12 months

E 101 certificate: 

E 101 certificate Sent for 12 month – pay in home country: Register for social fee in home country; 12 month may be extended to 5 years; Home country company shall send; Close connection to the employer.

E 101 certificate (cont.): 

E 101 certificate (cont.) Pay where work, regardless where is residence; Work in 2 states – pay where is residence; No residence in working states – where company’s legal address; Several employers – where is residence country.

No social fee: 

No social fee Non residents employed by non residents – 1 year, if social fee is made in home country; Royalty fee; Fee outside labour relations; Labour relations – enterprise agreement; labour relations.

Prevailing options: 

Prevailing options Self employed and employee - labour relation prevail; Non resident employed by non resident and any other - non resident by non resident status.

Social fee: 

Social fee Self - employed – LVL 402,6 (rate 30.50% from LVL 1320) Directors – LVL 278 (rate 9%+24.09% from LVL 960) Non – resident employed by non – resident – LVL 6208,8 (rate 31,02% from LVL 19900) Resident employed by non – resident – LVL 6567 (rate 33% from LVL 19900) Residents employed by resident – LVL 6584,91 (rate 9%-24.09% from LVL 19900)

Pensions: 

Pensions Men – 62 , women 59.5– years, 25.51 % from social fee goes to pensions Pension calculated as for 17.75 years 10 years requirement

Self - employed: 

Self - employed Independent activity: Consultant; Register as self employed; Tax certificate.

Slide42: 

For additional information please contact: Valters Gencs Law offices of Valters Gencs Riga, Valdemara Center, 3rd floor, Kr. Valdemara street 21, Republic of Latvia, LV - 1010 Phone: +371 7240090 Fax: +371 7240091 E - mail: valters.gencs@gencs.lv www.gencs.lv