(a) Dividends

Dividends of Latvian companies paid to foreign enterprises are subject to the ordinary law and pay the tax on income from capital, which is deducted at the source at the rate of 5 per cent.

A foreign enterprise will also be liable to income-tax on these dividends, if they are among the receipts of an industrial or commercial establishment which the enterprise maintains in Latvia. Again, if such establishment has foreign shares in its portfolio, the dividends therefrom will be liable to income-tax as receipts of the establishment in question.

(b) Interest

What was said above about dividends applies also to interest on Latvian bonds which the enterprise holds without having an establishment in the country, and to bond interest of any origin if the bonds belong to the portfolio of an establishment in Latvia.

Interest on Unsecured Loans. — As already mentioned, capital-yield tax is imposed, not only on income from Latvian securities, but on interest from deposits, current accounts, etc., with public enterprises or banks in Latvia.

Accordingly, any interest paid to a foreign enterprise under this head will always be liable to tax on income from capital, whether the enterprise has an establishment in the country or not.

Interest derived from Latvia is only taxable if it is among the receipts of an establishment situated in the country. In this case, it will be liable to income-tax, like all other interest accruing to such establishment, including interest on which the tax on income from capital has already been paid.

Interest on Secured Loans. — The fact that a loan is guaranteed by a security situated in Latvia is of no importance from the fiscal point of view, so that what was said with reference to unsecured loans applies here too.

(c) Directors’ Percentages

Directors’ percentages are liable to income-tax, even if paid to directors whose domicile or head office is abroad.

(d) Royalties for Use of Patents, Copyrights, Trade-marks, Secret Processes and Formula and Similar Income

If the holder of a patent or similar rights is not domiciled in Latvia and has no establishment there, no tax is levied upon the royalties he draws from the mere concession of these rights or patents.

But, if these royalties are among the receipts of an establishment in Latvia, they will be liable to income-tax and the taxes on trade and industry in the same way as the establishment’s other industrial and commercial receipts.

The same applies if the patent has not been merely licensed, but if its cession is to be regarded as a contribution towards the capital of an enterprise having its head office or an establishment in Latvia. In this case, the patent-holder will be liable, like any other partner or person entitled to a share in the profits of the enterprise, on his share of the taxes due from the concessionary enterprise.

(e) Rents from Real Estate, Mining Royalties and Similar Income

Property situated in towns and in the country is, as explained, liable, respectively, to the tax on urban estate and the tax on rural estate, which taxes are levied upon income from real estate. Income from urban property is further liable to income-tax; but not the income from rural estate. Nor is income from agricultural and similar exploitation liable to income-tax.

All other income from exploitation of the soil is subject to income-tax and to the different taxes on trade and industry.

(f) Gain derived from the Purchase and Sale of Real Estate, Securities and Personal Property

In Latvia, there is a tax on exceptional profits or on increased value. This tax is imposed, in particular, when property is sold at a profit, whether the transaction is an occasional or a regular one.

Income-tax will only be levied if these transactions in real or personal property, corporeal or incorporeal, are directly or indirectly included among the receipts of a business or industry carried on in Latvia.

If these receipts are not connected with a business or industry, they are not liable to income-tax, even if the operation was in the nature of speculation.

(g) Salaries, Wages, Commissions and Other Remuneration for Services

Remuneration in these forms is only taxable if it represents work done in Latvia or if it is paid in Latvia. In either event, taxation is independent of the taxpayer’s domicile. The same is true of the various emoluments of company directors.

(h) Income from a Trust

The question of taxing trusts does not arise in Latvia, the law not recognising these institutions.

(i) Income from carrying on a Business or Industry

If a foreign enterprise is to be taxable in Latvia on its industrial and commercial income, it must regularly carry out profit-making operations, either directly or through its employees thus: