Undistributed profit in Latvia is exempt from CIT
On the 4th and 11th of July, 2017 the Cabinet of Ministers of Latvia approved a number of draft laws providing for the significant changes in the tax legislation of the country which will enter into force on January 1, 2018. The most significant of them will be the application of the CIT 0% rate for the reinvested profits. In other words, the enterprise will be subject to the corporate income tax only if it pays dividends or other payments for the purpose of actual distribution of the profits (conditionally distributed profit). Therefore since 2018, the company's profits are exempted from CIT, but it has to pay 20% of the income tax from the amount of dividends. At the same time, the shareholders will not have to pay personal income tax (PIT). Although, according to the bill, the CIT rate is 20%, and the tax base should be divided by a factor of 0.8, the effective tax rate actually equals 25%. It is notably that CIT will be applied not only to the dividends in the traditional sense, but also to the "deemed dividends", which are considered a new concept in Latvian tax legislation, and comparable with the dividends to the costs. Here it is important to note that the last ones...
