Latvia- a draft amendment to the Corporate Income Tax Law

In general, the taxation of corporate profits in Latvia is postponed until the profit is distributed as dividends or deemed to be distributed, and in some other specific cases, for example, Corporate Income Tax (hereinafter- CIT) has to be paid for expenses that do not qualify as related to the taxpayer’s economic activity.

It is proposed now to change CIT regime for credit institutions and consumer credit service providers because these two categories of taxpayers have been making extra profits without taking additional risks due to increased interest rates by the European Central Bank. At the same time, the increase in profits does not guarantee an increase in CIT payments to the state budget if the taxpayers decide not to distribute the profit. 

According to the draft, from January 1, 2024, the aforementioned taxpayers will have to pay CIT on the profit made in the previous financial year, regardless of whether or not the profit is distributed as dividends, applying a tax rate of 20%. If the profit of the previous year will be fully or partially distributed as dividends, the tax calculated on the dividends can be reduced by the previously paid tax calculated based on the profit of the previous financial year. CIT calculated on other tax objects (except for dividends, deemed dividends, and conditional dividends) cannot be used to reduce this tax liability.

The consumer credit service providers have to submit the tax calculation together with the previous year’s annual report, but the credit institutions do it no later than April 1 of the tax year.

The draft law still needs to be reviewed and approved by the Parliament.