You already know that there is such a practice in Latvia to make advance tax payments (please read our article about tax reporting in Latvia).
Cases when you have to pay taxes in advance
According to Latvian tax legislation, a company has to pay taxes in advance if it was profitable last year. It means that you have to pay an estimated amount of income tax in Latvia each month in equal parts (not at the end of the year).
This practice is not something that our clients face every day, so we would like to clarify everything for you. To optimize incoming taxes, Latvia charges income tax on a monthly basis from last year profitable companies via advance payments.
How is the Latvian advance payment tax rate calculated?
- Let us assume that last year’s income tax of a company is 10.000 Euro.
- 10.000 Euro times the predicted next year’s inflation rate. Let us assume it will be 1,2. Total is 12.000 Euro.
- Divide total sum for 8 months (taking into account, that you will submit annual income tax report in April) and you will get the amount, which should be paid monthly. In our case, it is 1000 Euro.
As a result, a company will have to pay 1000 Euro of advance income tax each month.
Such practice helps to divide tax burden equally. On the other hand it can lead to working capital decrease.
Tax return in Latvia
Let us assume that you have paid advance income tax to Latvia last year.
When you create an annual report, you might face the following situation:
- The company has losses or got less profit than it was expected.
- The company got the same profit as last year (unlikely).
- The company got more profit, comparing to last year.
If the first point concerns you and your company was unprofitable last year, there are two options for you:
- Invite a certified auditor, get an audited report and return your overpaid taxes.
- Keep the overpaid amount “on balance” and “pay” taxes from this balance further on.
If your profit equals last year’s profit, you do not have to pay anything at the end of this year. But keep in mind that you will still need to pay advance tax payments the following year.
If the company had more profit, you will have to pay additional 15% difference between the sum, that has already been taxed and sum, which you got as a profit.
BBCRiga is a company which provides services of remote accounting maintenance for more than 10 years on Latvia’s territory. Our accountants and lawyers know what they are doing. Your tax burden optimization is our concern. Please contact our managers as for company’s registration and remote accounting services.