From 1 January 2013, dividends are no longer taxable income, which is why Latvia introduces and recognizes the holding company structure. The exemption applies to residents and non-residents, as well as individuals and entities not registered in low-tax jurisdictions (tax havens). This is expected to facilitate transactions through Latvian companies and restrict transactions with offshore companies.

The amendments to the Corporate Income Act provide that from January 1, 2013, income from share transfers and income from dividends are not taxable, regardless of whether the individual is resident or non-resident. However, the provisions do not apply to states and territories included in the offshore companies list (also known as tax havens).

As far as taxes are concerned, not all offshore companies are included in the list of low-tax and tax-free zones and jurisdictions for tax purposes. The list is established in Decree No. 276 of the Cabinet of Ministers of June 26, 2001. The regulations were recently updated and currently cover 64 countries and territories.

Benefits of the new incentive
In Europe it is common practice to keep the holding regime. The new developments are expected to help Latvia attract investors and boost the business environment.

With regard to holding companies, the frequency of dividend payments, the period of ownership and the number of shares can play a crucial role. The Latvian legislation does not provide for any obstacles in this regard. The Latvian corporate income tax law expressly does not prescribe a time limit for the ownership of shares or the amount of the shares. Thus, Latvian law offers an advantage compared to countries like Cyprus, Germany or Malta.
Another advantage is the lack of specific requirements for foreign businessmen. For example, there are no impediments or restrictions for foreigners to be directors or shareholders, i. H. citizenship or residency are not critical. Also, there is no specific requirement to use a Latvian bank account, and foreign bank accounts are allowed.
According to Latvian company law, dividends are paid once a year based on the shareholders' profit decision.
Comparison with European Union countries
Compared to other member states of the European Union, Latvia, Estonia and Lithuania have similar tax principles. However, there are differences compared to the Scandinavian countries where, in addition to the restrictions with offshore companies, there are regulations aimed at increasing tax payments for transactions with offshore companies. For example, Finland, Sweden and Denmark stipulate that additional tax is payable if the corporate income tax rate in that country is less than 10%. In this case, the regime in Latvia and other Baltic States is preferable and offers advantages.

According to a study published in the Dienas Bizness Official Journal, there is no ban on providing services to companies based abroad. For example, if the person establishes an offshore company and registers a subsidiary in the same country where it is resident and where the services are provided, according to Latvian, Estonian or Lithuanian legislation there are no significant restrictions compared to companies in other countries incorporated as an offshore company. It is not forbidden to offer services through own companies.

In summary, from a tax point of view, the new regulation and the incentive to introduce a participation regime in Latvia should lead to preferential establishment of companies in Latvia. Changes in Latvian corporate tax law will come into effect on January 1, 2013.