The term “double taxation agreements” refers to bilateral or multilateral pacts that prohibit the double imposition of taxes on the same income or property by two or more countries (DTAs). The most important objectives of the DTA are to distribute the right to collect taxes among the countries that have agreed to its terms, eliminate inequities, ensure the safety and equality of taxpayers, and put an end to tax evasion.
The DTA provides two distinct avenues by which payments can qualify for tax benefits. On the one hand, the amount of tax that is owed can be lowered or the person might be excluded from paying any tax at all. On the other hand, monies that have been withheld and taken out of an employee’s paycheck may be reimbursed.
There have been double taxation agreements signed between Latvia and the following countries: Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Kazakhstan, Korea, Kyrgyzstan, Lithuania, Luxembourg, Macedonia, Malta, Moldova, Morocco, Netherlands, Norway, Poland, Portugal, Romania, Serbia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland
These agreements must first receive approval from the Ministry of Finance before they can be published in the Official Gazette of Latvia.
Note
The most important provisions of the double taxation treaties involve the corporate income tax that must be paid by companies that have subsidiaries in Latvia or one of the other partner countries. Crediting (paying in Latvia and receiving credit at the place of origin) or exempting the ordinary corporation tax of 15% (7% in the case of a small enterprise) is an option (not paid at all in Latvia).
Other clauses address the issue of the withholding tax that is applied to dividends, interests, and royalties that are distributed to foreign firms. This tax may be decreased or even removed in some cases. This might be anywhere from 0 to 15 percent if the country in question is a treaty country.
It is the goal of double tax treaties to eliminate the practice of taxing income and capital twice, once in the country in which residents are based and once in Latvia.
These nations either utilize credits (in which case income is still subject to taxation but the resident country grants a credit) or exemptions to prevent the imposition of a second tax on the same earnings (the income is taxed only in the country of residence).
Withholding taxes on dividends, interest, and royalties can be anywhere from 0% to 15%; nevertheless, they are significantly lower than the rates that apply in nations that are not a party to any international treaties.
Information exchanges
The final paragraphs of the treaties that have been drafted using OECD models address the issue of the parties exchanging tax information with one another. As a consequence of this, the authorities in Latvia are authorized to enquire about a taxpayer who resides in another nation, and the same is true for the situation when it is looked at from the other direction.
As a matter of course, if these sections are not there, the nations who are interested will come to agreements about the exchange of tax information; however, as of the time of this writing, Latvia has not done so. Although Latvia has the same rights and obligations as the other members of the EU, including the need to supply essential information to the concerned states, it is possible to receive the information that is required. This is because Latvia is a member of the EU.
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