Income Tax Law of Latvia was amended in 2013. These amendments have fostered a brand new investment climate and helped Latvia to become the best country for starting a holding company.
What is a holding entity?
During business development and territorial expansion, the need to open new subsidiaries or affiliates in other cities and countries appears. It causes some problems with business management, logistics, financial flows and tax burden.
Starting a holding entity, that will establish subsidiaries, is a sophisticated solution to this problem.
The main task of such entity is to incorporate distanced offices into one structure and take the financial flows and group assets under control. E.g. the holding entity owns trademarks and subsidiaries are paying royalties for using these trademarks. Such scheme optimizes tax burden.
It often happens that the holding entity becomes an intermediate link between the individual entrepreneur (or offshore company) and all other structure’s enterprises. Thus the subsidiaries are protected from pains and penalties that can be brought by individual entrepreneurs’ creditors.
Where to register a holding entity?
Taxation rate is the main criteria of jurisdiction choice. Businessmen should consider which type of income is taxed (dividends, interests, royalty, assets selling) and which is not.
Holland used to be the most favourable place in the world for offshore holding companies registration until recently. Holdings that are registered there and follow special rules do not pay taxes for main income items. In 2013, Latvia made changes in legislation, creating a “holdings-zone” with no additional rules for holding entities. I.e. holdings main income items are not taxed there.
By shaping a friendly environment for business, Latvia strives to raise funds, develop a healthy economy and secure its’ integration into European and world’s society.
Why to start a holding company?
Registration of a holding entity in Latvia is suitable for:
- systematic control of all assets of the group;
- intra-group financial flow optimization (including losses distribution);
- holding group enterprises effective management, subsidiaries support;
- attracting credits on beneficial terms for further investment not only for side projects but also for intra-holding activity;
- development of maintenance services for holding group companies e.g. accounting, legal, recruiting or personnel out staffing services, etc.
New tax conditions allow businessmen (both residents and non-residents) to systematize their enterprises’ activity by setting up holding entities in Latvia.
Here are some holding companies advantages.
1. Tax benefits are advantageous for holding enterprises
Holdings in Latvia are tax-free for:
- income from sale of subsidiaries shares, dividends from subsidiaries;
- dividends paid to stakeholders (legal entities, including non-residents);
- interest paid for loans;
- payments for intellectual property (royalties).
But you should consider that these privileges are not applied to offshore companies. Latvia has a black list out of 68 territories and countries with low tax rates, e.g. Belize, Panama, Seychelles, etc.
Latvia has also signed more than 50 tax conventions with almost all European states, Ukraine, Belarus, Kazakhstan, etc. There is also a tax treaty signed with Russia, which brings additional advantages to holding companies.
2. Holdings registration is simple in Latvia
- The statutory fund amount is minimal for opening a company in Latvia.
- Number of founders and number of shareholders are not limited in Latvia and it does not matter if they are legal entities, individual entrepreneurs, residents or non-residents.
- The same concern the directors – they can be both residents and non-residents.
- Registering a holding in Latvia takes from two working days and can take up to 10 days if registration is performed remotely.
3. More freedom in activity and management
Latvian business environment stimulates management and simple companies opening without any additional limitations:
- activity type, directors’ residence place or the choice of legal form of holding in Latvia;
- process of issuing or drawing loans from businesses, which are part of holding entity and which are not;
- purchase, sale of patents and licences, owning patents and trademarks;
- any business activity, performed by the holding company;
- the registered in another country company’s subsidiary statutory fund ownership interest; minimal term of subsidiaries shares ownership;
work with non-residents and individual entrepreneurs, immobility command.
One of the strongest arguments to open a company in Latvia is the country itself.
There are a few key points that you should be aware of:
- congenial investment climate;
- convenient country location between the EU and CIS with the developed transport and telecom industry;
- Latvia is part of both, the EU and the Eurozone;
- there is a developed banking system that offers vast choice of products for business’ operation;
- access to low-priced highly-qualified employees;
- no linguistic barrier as Latvian citizens speak both English and Russian.
To get more information please refer to our article on advantages of running business in Latvia.
Why registration in Latvia has more benefits than registering in a different country?
Comparing to other holding preferential terms zones (such as Netherlands, Malta, Cyprus), Latvia shows up as a country with a low registration and operation expenditure rate.
Please take into account the overall investment climate in Latvia, which is attractive for external investors, set up relationship with EU countries, infrastructure, etc. This full factors complex shows that registering a holding in Latvia is a very deliberate and far-seeing choice.
BBCRiga will help you with the registration of a company in Latvia and will provide you full support. Selling companies and services for them are also in scope of our activities.
Please contact our consultants in order to get more information about holding companies registration advantages and alternative options of starting a business in Latvia.