Latvia: New withholding tax rates

19.08.2013

Effective

immediately

legal entities that are neither residents in Latvia nor residents in low-tax or tax-free countries and receiving income from Latvian securities (both bonds and equities) are exempt from withholding tax.

The withholding tax rate on dividend income paid on Latvian securities to beneficial owners that are legal entities resident in low-tax or tax-free countries or territories (“tax-haven countries”), is increased from 10% to 15%.

Background

The new rates are a consequence of government approval of several changes to the Latvian Corporate Income Tax law applicable as of 1 January 2013, which include, among other things, the extension, subject to submission of the required certification within the prescribed deadlines, of tax exemption at source1 to all certified beneficial owners that are legal entities and neither resident in Latvia nor established, located or registered in a tax-haven country2 listed below.

Standard withholding tax rates

The standard rates of withholding tax applicable on income paid on Latvian securities are as follows:

Government bonds:

  • Non-resident legal entities - 0% (15% for entities resident in tax-haven countries);
  • Latvian legal entities - 0% (interest is included in the taxable corporate income subject to a 15% corporate income tax);
  • Non- resident individuals - 0% (15% for residents of tax-haven countries);
  • Latvian individuals - 0%.

Corporate bonds:

  • Non-resident legal entities - 0% (15% for entities resident in tax-haven countries; 10% where payer and recipient are related parties; 5% where a payer is a Latvian registered bank and the recipient is a related party to a payer);
  • Latvian legal entities - 0% (interest is included in the taxable corporate income subject to a 15% corporate income tax);
  • Non-resident individuals - 10% (15% for residents of tax-haven countries);
  • Latvian individuals - 10%.

Equities:

  • Non-resident legal entities - 0% (15% for entities resident in tax-haven countries);
  • Latvian legal entities - 0%;
  • Non-resident individuals - 10% (15% for residents of tax-haven countries);
  • Latvian individuals - 10%.

Impact on customers

To ensure the accurate application of tax exemption at source, customers must ensure that all securities are held by final beneficial owners eligible for tax exemption according to the above list.

If the securities are held by taxable beneficial owners, customer must, before each impacted income event, provide Clearstream Banking with a List of Beneficial Owners including the following information:

  • Account number;
  • The ISIN code;
  • Data identifying the final beneficial owners:
    • For natural persons – name and surname, the personal identification code, country of residence.
    • For legal entities – company name, registration number and date, country of residence. If the entity is a holder of nominee account, “nominee holder” shall be indicated additionally after the company name.
    • For investment funds – name of management company of the investment fund, name of the investment fund, registration number, country of registration.
    • For investment plans of state funded pension scheme – name of management company of the investment plans, name of the investment plan, identifier assigned by the State Social Insurance Agency to the investment plan, country of registration.
    • For private pension funds – name of the pension fund, name of the pension plan, registration number, country of registration.
    • Holding of each beneficial owner.

The Latvian market does not currently provide a consolidated deadline to certify before payment date. The effective time to disclose and process the beneficial owners’ information depends on the time frame between the Record Date (approved by the Annual General Meeting of the company distributing the dividends) and the Payment Date. Therefore, the deadline to disclose the final beneficial owners will be communicated by Clearstream Banking in the SWIFT MT564 or CreationOnline Corporate Action Notification message distributed to customers before each income event.

Even if the List of Beneficial Owners is received after the deadline indicated in the notification, Clearstream Banking will forward it to the local depository. It is the decision of the Latvian withholding agent whether or not to take it into consideration and to amend the payment made at source.

Tax exemption based on the nominee

Currently, Latvian tax legislation does not clarify whether the tax rate must be applied based on the list of the final beneficial owners of the securities or on the nominee holders’ status and residency.

Clearstream Banking being the nominee for Latvian securities, income may be paid, by default, gross based on its status and residency. Despite such possibility, customers should disclose all beneficial owners that are not eligible for tax exemption in order to comply with the Latvian standard withholding tax rates.

Furthermore, the identity of all beneficial owners may be requested by the Latvian Tax Authorities after the payment date. Consequently, Clearstream Banking reserves the right to revert to customers for any additional information or corrective action upon request from the Latvian issuer and/or the local depository. Customers shall hold Clearstream Banking harmless for any loss, cost, expense, liability or damage that Clearstream Banking could face in case of any tax adjustment Clearstream Banking would need to perform on their account, no matter when this adjustment would take place.

Low-tax or tax-free countries and territories

1. Alderney33. Macau
2. Andorra34. Maldives
3. Anguilla35. Isle of Man
4. Antigua & Barbuda36. Marshall Islands
5. Aruba37. Mauritius
6. Bahamas38. Monaco
7. Bahrain39. Montserrat
8. Barbados40. Nauru
9. Belize41. Netherlands Antilles
10. Bermuda42. New Caledonia
11. Brunei43. Niue
12. Cayman Islands44. Panama
13. Cook Islands45. Qatar
14. Costa Rica46. Saint Helena
15. Djibouti47. Saint Kitts & Nevis
16. Dominica48. Saint Lucia
17. Ecuador49. Saint Pierre & Miquelon
18. Gibraltar50. Saint Vincent & Grenadines
19. Grenada51. Samoa
20. Guam52. San Marino
21. Guatemala53. Sao Tome & Principe
22. Guernsey54. Seychelles
23. Hong Kong55. Tahiti
24. Jamaica56. Tonga
25. Jersey57. Turks & Caicos Islands
26. Jordan58. United Arab Emirates
27. Kenya59. Uruguay
28. Kuwait60. Vanuatu
29. Labuan61. Venezuela
30. Lebanon62. Virgin Islands UK
31. Liberia63. Virgin Islands US
32. Liechtenstein64. Zanzibar

Further information

We continue to closely monitor the market and will inform customers if the Latvian tax legislation is amended in order to clarify the withholding tax process (for example, the applicability of the maximum tax rate, the necessity to disclose the identity of the final beneficial owners for obtaining tax exemption, the request of additional documentation etc.).

For further information, customers may contact the Clearstream Banking Tax Help Desk on:

LuxembourgFrankfurt
Email:tax@clearstream.comtax@clearstream.com
Telephone:+352-243-32835+49-(0) 69-2 11-1 3821
Fax:+352-243-632835+49-(0) 69-2 11-61 3821

or Clearstream Banking Customer Service or their Relationship Officer.

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1. Already available on dividends paid to beneficial owners resident in European Union (EU) or European Economic Area (EEA) Member States.
2. According to regulations approved by The Cabinet of Ministers of the Republic of Latvia (Cabinet Regulations No.276).
3. Clearstream Banking refers to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).