Taxes for Czechs in Latvia /part 1/
Latvia offers great incentives to incorporate for the Czechs. Double Taxation Avoidance Agreement signed between Latvia and Czech Republic includes possibilities of 5% tax on dividends and tax exemption for personal income.
Resident according to Czech-Latvian Double Taxation Avoidance Agreement
In order to qualify a resident in Latvia for tax purposes then his status shall be determined as follows:
a) it is assumed that this person is a resident of the State in which he has a permanent home, if he has a permanent home in both countries, it is assumed that a resident of the State with which his personal and economic relations (center of vital interests);
b) if it can not be determined, the State in which he has his center of vital interests or if he has a permanent home in either State, it is assumed that a resident of the State in which an habitual abode;
c) if he has an habitual abode in both States or in neither of them expected to be a resident of the State of which he is a citizen;
d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States the question by mutual agreement.
Elimination of double taxation for Czech residents
If a resident of the Czech Republic, double taxation shall be avoided as follows:
a) Czech Republic, when imposing taxes on its residents to the base on which such taxes imposed income or assets that may be in accordance with the provisions of this Treaty also be taxed in Latvia, but shall allow the amount of tax computed on such a base an amount of tax paid in Latvia. This reduction, however, exceed that part of the Czech tax, calculated before the reduction, which is attributable to the income or assets that may be under the provisions of this Agreement taxed in Latvia;
b) if, in accordance with the provisions of this agreement or national legislation is the income derived or capital owned by a resident of the Czech Republic exempt from taxation in the Czech Republic, Czech Republic, when calculating the tax on other income or capital of that resident, take into account the exempted income or capital.
Participation Exemption on Dividends in Latvia and Czech Republic:
Lithuania employs the participation exemption rule pursuant to the Parent-Subsidiary Directive 2011/96/EC. Therefore, dividends are not taxed when received by the parent company from the subsidiary where the parent company holds more than 10% of the subsidiary.
Taxation of Dividends according to Czech-Latvian Double Taxation Avoidance Agreement
Pursuant to the Article 10 of Czech-Latvian Double Taxation Avoidance Agreement dividends paid by a company which is resident of a Contracting State a resident of the other Contracting State may be taxed in that other State.
However, such dividends may also be taxed in the Contracting State in which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed:
When the Czech company as a recipient is the beneficial owner of the dividends distributed by the Latvian company, the withholding tax rate applied in Latvia is 5% provided that the beneficial owner is a company (other than a partnership) which directly holds at least 25% of the capital of the Latvian company paying dividends.
In all other cases the tax rate amounts to 15%.
The term "dividends" as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which, under the tax laws of the State in which the company the distribution is a resident assimilated to income from shares.
To find out more about tax benefits for Czech especially in the Baltics (Estonia, Latvia, Lithuania), please contact our attorneys at law at info@gencs.eu.
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