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In Latvia, the periodical taxes on income are as follows:2


The income-tax is a graduated tax to which companies are subject as well as individuals; it is imposed afresh upon income already liable to one of the other taxes and is also levied upon all income that does not come within the scope of any of those taxes.

The tax on income from capital is levied upon the income from securities issued by the State, by public corporations and by enterprises whose head office is in Latvia, and upon the income from all capital invested in the country in the form of deposits, loans, securities, etc. The tax is proportional and is collected at the source.

Similar to this tax is the special tax on advances made by credit establishments on security; this tax, however, is borne, not by the creditor, but by the debtor.

Taxes on urban and rural properties are land taxes imposed, in the one case, upon real estate in towns, in the other, upon country estate. Both are proportional taxes and only affect income derived from land and buildings in Latvia.

The taxes on trade and industry are divided into the patente tax, the profits tax, and the capital tax.

Patente tax is based on turnover, and industrial and commercial enterprises are divided into a number of categories, each with its own rate of tax. In the case, however, of credit and insurance establishments, the tax is based, not on turnover, but on the registered capital.

The profits tax, as its name implies, is assessed on the net profits of an enterprise, and the capital tax, which is peculiar to companies, is computed by applying to the capital of the taxable enterprise a certain rate varying with the profit.3




An individual’s fiscal domicile is the place where he permanently resides.

Liability to tax in Latvia depends not so much upon a taxpayer’s domicile as upon the source of his income. We shall see under the heading “Taxable Income” the exceptions to and qualifications of this rule. The taxes to which individuals, like all other taxpayers, are liable are the graduated income-tax, the taxes on urban and rural properties, tax on trade and industry and the tax on income from capital.

If a person not domiciled in Latvia resides there for more than six months in the tax year and is not in receipt of income taxable in Latvia by reason of its source, such person will none the less be liable to pay tax on a certain income figure, computed for the whole year on the basis of certain external evidence and his standard of living. When a person spends less than six months in Latvia, his taxable income is determined, not empirically, but from the income he has actually received during his stay in the country.


Partnerships, which include general partnerships, joint ventures, de facto associations and other associations not possessing legal entity, are liable to the same taxes and taxed under the same conditions as individuals. They do not, however, in themselves constitute taxable entities and, while the taxes are computed on the basis of the income they enjoy, the tax is assessed against each member or partner and is divided between them according to their respective shares in the partnership or association; if the amount of individual shares is not known, the tax is divided per capita.


Companies comprise all associations with a legal entity — i.e., share companies, limited partnerships with share capital and co-operative societies. These companies are domiciled where they have their real centre of management, in most cases, that is, at their registered office. They are liable under the same conditions as individuals and partnerships (constituting, of course, entities taxable as such), but, for purposes of taxes on trade and industry, they have always to produce their balance-sheet and are taxed on the basis not only of their turnover and profits, but of their registered capital.


Income liable to taxation is divisible into income from real estate, income from capital, industrial and commercial profits, salaries and wages, remuneration of the liberal and kindred professions, and miscellaneous income.

Let us now consider the taxes on each of these classes of income, having regard to the origin of the income and the domicile of the recipient.

Income from Real Estate. — This income is in the first place liable, according to its nature, either to the tax on urban properties or to the tax on rural properties. These two taxes are strictly territorial and the domicile of the person who enjoys landed income is of small importance, the necessary and sufficient condition of liability being that the taxable income is derived from real property in Latvia. Income from urban estate is further liable to income-tax, but not the income from rural estate. Landed income from abroad is never liable to income-tax, even if the recipient lives in Latvia.

Landed income includes only income from the property or from a property right to the soil, and the law exempts from income-tax agricultural income and income from similar activities (stock-breeding, market-gardening, fruit-growing, forestry, fisheries, etc.), which also do not come within the scope of the tax on income from rural property.

Income from Capital. — By capital yield is meant all income from shares, bonds and other securities, from deposits, current accounts, loans, etc., to the exclusion of capital which a man invests in his own business or enterprise.

If the income is from securities or interest paid in any form whatever by public enterprises or credit establishments, the tax on income from capital is deducted at the source (subject to various exemptions we shall deal with under the heading of assessment), whatever the domicile or residence of the recipient.

Further, such income, whatever its source, will be liable to income-tax if it accrues to persons domiciled in Latvia. Thus, as regards the first of these taxes, fiscal liability is based upon the source of the income and, as regards the second (in so far as it is imposed on the income now in question), on the recipient’s domicile.

Industrial and Commercial Profits.—This income, which further includes all receipts of whatever origin associated directly or indirectly with the exercise of a business or industry, is liable to the various taxes on trade and industry, which we shall discuss in detail under the heading “Assessment” (pages 289 and 290), and is also liable to income-tax. Both taxes are payable only if the enterprise has its head office or an establishment in Latvia.

The income from participations in such enterprises is taxable under the same conditions as the profits of the enterprises themselves.

Salaries and Wages.—Salaries and wages, which include all kinds of remuneration and advantages arising out of services performed on behalf and under the authority of another person, are liable only to income-tax.

In order that this tax may be due, the taxable remuneration must represent services accomplished in Latvia, or the remuneration must be paid in Latvia.

Income from the Liberal and Kindred Professions.—This heading embraces the remuneration of doctors, lawyers, teachers and persons engaged in artistic, scientific or literary work.

Here, too, only income-tax is collected and it is only due if the person exercise his calling in Latvia.

Miscellaneous Income.—Under this heading are included retiring pensions, various allowances, life annuities paid by insurance companies, author’s copyrights and patent royalties devolving upon heirs, and other income not included under any of the above headings.

Such income is only taxed in Latvia if it accrues to persons domiciled there (this income is liable to no other tax than income-tax), except as regards pensions paid by public banks in Latvia.

Extraordinary income, like single gifts, bequests, dowries, insurance payments and the surplus value of property, also soldiers’ pay on active service, is not taxable. Nor does taxable income include family allowances paid by the State and public corporations to their officials, or insurance benefits paid by the State or insurance funds in case of sickness or accident.


General Remarks: Returns, Procedure, Appeals

The only taxes for which the taxpayer need not furnish a return are the tax on income from capital and the tax on income from rural estate. For all others, a return must be furnished annually (on a date which will be mentioned in dealing with the assessment of each tax), except for tax on income from urban estate, for which returns are triennial.

These returns are sent to the tax inspectors, who have wide powers to obtain from public administrations and enterprises and from the taxpayer all information necessary for checking the returns.

The tax is assessed by “tax committees”, presided over by inspectors of the Administration, who are aided by assessors chosen from among taxpayers. A fortiori these committees have the same rights of control and enquiry as tax inspectors.

Taxpayers may contest the decisions of committees, first by appealing to the committee and then by appeal to the “Central Tax Committee” at Riga, which is made up of officials of the different administrations and representatives of taxpayers. A final appeal lies with the Senate — that is, the first chamber of the legislative body.

These appeals must be lodged within certain time-limits fixed for each case and varying, as a rule, from a fortnight to one month from the date of serving the assessment notice.

Further, failure to make a return or to observe the provisions of the law and the orders of committees and refusal to comply with the requests of committees or inspectors for information render the offender liable to a fine and may deprive him of his rights of appeal.

Tax on Income from Urban Estate

Determination of Taxable Income. — The taxable income is obtained by deducting from gross income the cost of maintaining and working the estate. These costs are reckoned according to the nature of the property and the purposes for which it is used. The amount is fixed by the Finance Minister and varies from one town to another between 20 and 95 per cent of gross income, according to the property.

Exemptions. — The following property is exempt from this tax: estates belonging to the Government and to public corporations or to religious and cultural foundations, charitable and educational institutions, hospitals, etc.; also, subject to reciprocity, premises belonging to foreign diplomatic representatives. Moreover, no tax is collected if it amounts to less than 2 lats per estate. New dwelling-houses are not taxable for the first three years.

Computation of Tax. — The rate is 1½ per cent of the rental value of the property; 75 per cent of the yield goes to the commune in which the property is situated.

Tax on Rural Estate

Determination of Taxable Income. — The rental value on which tax is levied and which must correspond to the theoretical net income of the estate is determined by the Administration on the basis of the land register and all other relevant data.

Exemptions. — The exemptions are in principle the same as for the tax on urban estate. But property the rental value of which does not exceed 500 lats is tax-free, and new property, brought into existence under agrarian reform, is exempt from tax for the first six years.

Computation of Tax. — The rate is 1½ per cent, of which one-third goes to the local commune.

Tax on Income from Capital

Determination of Taxable Income. — This tax is imposed on:

It should be noted that this tax is levied exclusively upon the incomes enumerated and that interest on loans between private persons and income from foreign securities are not liable.

Since this tax is collected at the source, the recipient of taxable income does not need to make a return to the Treasury.

The rate of the tax is 5 per cent, and, owing to the method of collection, no question of abatement, deduction, etc., can arise.

Credits opened or advances granted by State, municipal or private banks on pledges in the form of securities or bills are liable to a special tax amounting per annum to 0.396 per cent of the sum advanced. The banks pay this tax in the course of the month following the closing of their accounts and may recover from the borrower.

Taxes on Trade and Industry

As already mentioned, industrial and commercial enterprises are liable to a patente tax, fixed on the basis either of turnover or of the enterprise’s registered capital (banks and insurance enterprises); further, they are liable to profits tax, computed on the basis of net profits, and to a tax on the registered capital, which concerns only companies.

Determination of Taxable Sum

Persons liable to the taxes on trade and industry have to file a return with the fiscal administration before April 1st of each year, giving their turnover, profits and any other particulars which may help to assess these taxes. The date is advanced to February 1st for enterprises that have been established in the course of the previous year.

Patente tax being based on turnover, it is not necessary to deal in detail with the methods which are used to ascertain this turnover; the Administration fixes it, of course, by reference to the returns, the accounts of the enterprise, if any, and other evidence derived from various sources which, in the absence of accounts, enable the turnover to be determined by a process of assumption.

Nor does any difficulty arise in connection with insurance enterprises and banks; the patente tax due from them is determined by reference to their operations, and this applies also to the tax on the capital of companies.

The position is different in the case of profits tax. The law prescribes that the net profits liable to this tax shall be determined in two ways: empirically, by applying a certain coefficient to turnover, or on the basis of the enterprise’s accounts.

Normally, enterprises not belonging to companies are assessed to profits tax on the presumptive method and, if the taxpayer wishes to be taxed on the basis of his accounts, he must make a statement to that effect when submitting his return, while his accounts must be closed before May 1st of the tax year. He must also submit his books to the tax inspector, if requested.

For purposes of assessing taxable profits empirically, commercial and industrial enterprises are divided, respectively, into 223 and 194 kinds. For each kind, there are minimum and maximum profit coefficients, determined with due regard to the special conditions of each kind. The net taxable profit is obtained by applying to the enterprise’s turnover the coefficient for that kind of business.

If the application of these coefficients gives results that do not appear to reflect the real position of the enterprise, the assessment authorities may reduce the coefficient if the actual profits are lower than the profits reckoned empirically, or may increase it if the actual profits exceed the empirical figure.

Taxation on the basis of accounts is applied to private enterprises which expressly request this method and which satisfy the legal requirements mentioned above, and also to companies. The latter must provide the Administration with a copy of their balance-sheet during the month in which it is approved by the general meeting of shareholders.

In this case, the net profits are the difference between gross profits and expenditure deductible as having been incurred in earning and maintaining those profits.

Gross profits mean all cash receipts and all advantages in kind which an enterprise realises from its operations (whether these are directly or indirectly connected with its purpose or whether they are regular or occasional) or from property in its possession. The following is a fairly complete list of the expenses and items that may be deducted from gross profits in order to obtain the taxable net profit. Unless the contrary appears from the very nature of the expenses in question, the different components of this list are common to all enterprises, whether they belong to individuals or to companies:

Computation of Tax

Patente Tax. — The turnover figure calculated as above serves to divide taxpayers into a number of classes with a special rate of tax for each. For banks and insurance companies, however, patente tax is fixed on the basis not of turnover, but of registered capital.

Profits Tax. — This is a graduated tax, rising from 5 per cent for incomes not exceeding 2,000 lats to 15 per cent for incomes above 15,000 lats. The tax is also progressive in the case of companies, but its tariff is graduated on the basis of the yield on the capital of the enterprise and goes from 7.5% up to 17.25%.

From the profits tax is deducted the amount of patente tax already paid, but, if the amount of profits tax is less than the licence tax, no refund is made. Companies which have to submit a balance-sheet and whose profits are below 3 per cent of their capital pay no profits tax.

Half of both these taxes goes to the commune where the enterprise is situated.

Tax on Company Capital. — This tax is levied at the rate of ¼ per cent when no profits tax is payable; otherwise at ½ per cent.


Determination of Taxable Sum. — Income-tax is levied, in the first place, on income already liable to one or other of the taxes previously mentioned and also on income, like salaries, wages and remuneration of the liberal professions, on which no tax has been paid. Income-tax returns must be filed before April 15th by individuals and before May 15th by companies.

The taxable sum is the total net income of all classes, less certain deductions of income derived from no specific source.

The law divides income the total of which is liable to income-tax into income from capital, income from land and buildings, industrial and commercial profits, wages and salaries, remuneration of the liberal professions and miscellaneous income. It has therefore to be determined for each of these classes how the net amount is to be computed, before adding them all together:

This income too is assessed at its net amount. Pensions paid to persons disabled in the war and to the widows and orphans of fallen soldiers are tax-free.

All this net income is added together, including, in the case of a taxpayer with wife or children not of age living under his roof, the income of the latter, except income from their work. The authorised allowances are then deducted, giving the final sum taxable.

The deductions allowed from total net income are:

The following may not be deducted from total net income:

The net amounts having been added together and the above deductions made, the result is the net taxable sum.

Computation of Tax. — The tax is only levied if the taxable sum exceeds 2,000 lats. Its scale is graduated (see Annex) and rises from 58.30 lats for incomes between 2,000 and 2,010 lats to 36.692 lats for incomes of 150,000 lats, plus one-quarter of the income in excess of 150,000 lats.

The method of computation is different for legal entities which pay profits tax (whose profits, that is, exceed 3 per cent of their registered capital). In their case, the income-tax is equal to half the profits tax for the same year.

The income-tax of legal entities which pay no profits tax is computed according to the ordinary rules.


Taxes payable directly have to be paid in equal instalments on the following dates:

Income-tax: on December 31st of the tax year and on March 31st and June 30th following;

Tax on industrial and commercial enterprises: on September 30th, November 30th and February 28th;

Taxes on urban and rural estate: July 30th and November 30th.

Tax on income from capital, which, it will be remembered, is collected by deduction at source, must be paid to the Treasury by the debtor, who deducts it at source.

Income from bonds and other securities: during the month following the payment of interest;

Interest on sums deposited or on current accounts with public enterprises or banks: during the month in which the accounts are closed.

If the taxable income for the year during which the tax has been paid has substantially diminished, a total or partial remission of tax may be allowed. These remissions and alleviations are governed by rules specially provided for each tax.

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