New opportunities of using Latvian companies in international business

Transcription

1 Worldwide Company Service & Consulting Prime Consulting SIA RIETUMU Capital Centre Riga, Latvia New opportunities of using Latvian companies in international business Tatjana Lutinska Head of International Tax Planning & Business Structuring Bosco International Tax Planning Conference, Riga, September 2012

2 LATVIA, THE FINANCIAL CENTER OF THE NORTHERN EUROPE, EVER MORE ATTRACTIVE FOR INTERNATIONAL BUSINESS AND CAPITAL Latvia, the most developed soviet republic, right after getting independence in 1991 has actively started developing export of financial services. The country s advantages were external orientation of small, yet flexible Latvian economy, liberal legislation, absence of restrictions on capital flow. Starting from early 1990s Latvia has secured the status of a regional banking center for Russia and other post-soviet countries. Entry into the European Union in 2004 laid a foundation for conquering the European market. In twenty years having become the financial center of the Northern Europe, Latvia is now ready to offer the full range of services and opportunities to both East and West. FULL RANGE OF OPPORTUNITIES The basis of Latvian phenomenon is highly developed and regulated Latvian BANKING SYSTEM, which excels with: comprehensive range of banking products and services; orientation to non-resident clients, comprehension of business environment in the East and West; efficiency and competitive cost of service along with individual approach.

3 FULL RANGE OF OPPORTUNITIES Well-developed, regulated and fully EU integrated financial services market. Financial and investment companies, PSP & EMI, planning to launch the business in the region may obtain the required license in Latvia. Financial, corporate and other services in Russian and English Easily approachable location and comfortable living environment Attractive environment for set up of real business One of the lowest rates of corporate tax in Europe, 15%. Geographical position at the crossroads of transport routes. Essential infrastructure, financial and logistics system, availability of qualified workforce with Russian and English languages knowledge at competitive salaries. European funds for setting up and development of production and services business. Free economic zones. Government support for investments. All the advantages of old Europe, including political and economical stability and sound standing in international business community, and on the other hand accessibility and personal approach.

4 NEW OPPORTUNITIES POLICY OF LIBERALIZATION Policy of liberalization of the legislation consistently pursued by the Government over the last years, intended to provide Latvia with more advantages on the arena of international capital. July 2010 effective program of obtaining residence permit for foreign investors on the basis of: investment in real estate for the amount starting from 72,000 EUR, contribution to the subordinated capital of credit institution 300,000 EUR, contribution to the share capital of Latvian company for the amount starting from 36,000 EUR. Besides the right of visa-free stay in Latvia, residence permit allows free movement throughout the Schengen zone, and opposed to many other countries doesn t oblige to stay in the country within certain period reduction of income tax for individuals 2013 exemption from taxation for certain types of income and favourable taxation regime for international holding companies

5 FAVOURABLE HOLDING REGIME EFFECTIVE 2013 Recent amendments in the Law on Enterprise Income Tax bring Latvia in a line with such established centers of global holding activity as Cyprus, Malta, Netherlands, Luxembourg. Starting from 2013 sale of shares and dividends received are exempted from income tax for Latvian companies Starting from 2013 dividends paid to foreign companies are exempted from withholding tax Starting from 2013/2014 interests and royalties paid to foreign companies are exempted from withholding tax No stamp duties on share capital payment and shares transfer Group relief available Holding regime has no restrictions on participating interest, holding period, type of activity of subsidiaries, etc. The only limitation - it doesn t apply to income received from and paid to tax-free countries included in so-called black list of Cabinet of Ministers.

6 FAVOURABLE HOLDING REGIME EFFECTIVE 2013 The effect of EU Parents-Subsidiary Directive and Interest and Royalties Directive, as well as extensive network of double tax agreements allow to reduce or avoid taxes withheld from dividends, interest, royalties and other income paid to Latvia. The network of double tax agreements, so essential in investing activities, is wide enough to provide the functionality of Latvian holding regime. There are agreements with 52 countries effective at the moment: almost all European countries, USA, Canada, Israel, Turkey, Singapore, China, All post-soviet countries, including Russia (applicable from 2013), etc.

7 holding loan $ interest right to use IP $ royalty $ interest & royalty LATVIAN HOLDING STRUCTURE FOR INVESTMENT IN RUSSIA ultimate shareholder Russian individual ultimate shareholder any other individual ultimate shareholder any legal entity (except black listed) 9% (4) (5) (5) 1 $ on disposal of shares 1 Latvian holding company With substance in Latvia including Latvian bank account (2) (2) (3) 5% 15% (1) 1 2 5% 2 Russian company corporate tax 2 (1) If investment in capital not less than USD and participation not less than 25%. (2) 15% on net income/margin with possibility to set off tax withheld in Russia. Interest subject to thin capitalization rules (proportion of capital to loan 1:4, average statistical credit rate x 1.2, e.g. for USD currently 9%). (3) withholding tax from interest and royalty starting from Till 2014 withholding tax from interest 5% or 1, but only if paid to related companies. Till 2014 withholding tax from royalty or 5% ( or 5% or 15% for literature and art). (4) Set-off of tax paid in Latvia. (5) Zero taxation can be achieved through tax planning.

8 FROM TAX TREATY BETWEEN RUSSIA AND LATVIA 15 years awaited double tax agreement comes into force 6 November 2012 and applies to taxes from DTA provides the following preferences: Reduced withholding tax rates for dividends, interest and royalty. More favourable criteria of exisctence of permanent establishment. Payments for international transport and rental of transport vehicles used in international traffic are no more subject to withholding tax 1 in Russia. Other business profits and capital gains (except for use and sale of immovable property and shares of companies holding immovable property) are not subject to withholing tax. Payments for independent and dependent personal services are no more subject to withholing tax in other state provided services are not rendered on its territory or individual is not present in that state more than 183 days. Possibility to deduct from tax payable in Russia amount of tax already paid in Latvia. Latvian legislation allows that anyway.

9 holding loan $ interest right to use IP $ royalty $ interest & royalty LATVIAN HOLDING STRUCTURE FOR INVESTMENT IN UKRAINE ultimate shareholder individual ultimate shareholder legal entity (except black listed) (4) (5) (5) 1 $ on disposal of shares Latvian holding company With substance in Latvia including Latvian bank account (3) (2) (2) 5% 15% (1) 1 15% 1 15% Ukrainian company corporate tax 21% - 19% - 16% (1) 5% if participation in capital not less than 25%. (2) 15% on net income/margin with possibility to set off tax withheld in Ukraine. Interest subject to thin capitalization rules (proportion of capital to loan 1:4, average statistical credit rate x 1.2, e.g. for USD currently 9%). (3) withholding tax from interest and royalty starting from Till 2014 withholding tax from interest 5% or 1, but only if paid to related companies. Till 2014 withholding tax from royalty or 5% ( or 5% or 15% for literature and art). (4) Taxation according to individual s residence country. Possibility to set off tax paid in Latvia depending on the country (in Ukraine yes). (5) Zero taxation can be achieved through tax planning.

10 holding loan $ interest right to use IP $ royalty $ interest & royalty LATVIAN HOLDING STRUCTURE FOR INVESTMENT IN BELARUS ultimate shareholder individual ultimate shareholder legal entity (except black listed) (4) (5) (5) 1 $ on disposal of shares Latvian holding company With substance in Latvia including Latvian bank account (3) (2) (2) 1 12% % Belorussian company corporate tax 18% (2) 15% on net income/margin with possibility to set off tax withheld in Belarus. Interest subject to thin capitalization rules (proportion of capital to loan 1:4, average statistical credit rate x 1.2, e.g. for USD currently 9%). (3) withholding tax from interest and royalty starting from Till 2014 withholding tax from interest 5% or 1, but only if paid to related companies. Till 2014 withholding tax from royalty or 5% ( or 5% or 15% for literature and art). (4) Taxation according to individual s residence country. Possibility to set off tax paid in Latvia depending on the country (in Belarus yes). (5) Zero taxation can be achieved through tax planning.

11 holding loan $ interest right to use IP $ royalty $ interest & royalty LATVIAN HOLDING STRUCTURE FOR INVESTMENT IN KAZAKHSTAN ultimate shareholder individual ultimate shareholder any legal entity (except black listed) (4) (5) (5) 1 $ on disposal of shares Latvian holding company With substance in Latvia including Latvian bank account (3) (2) (2) 5% 15%/2 (1) 1 15%/2 1 15%/2 Kazakh company corporate tax 2 (1) 5% if participation not less than 25%, otherwise 15% tax. (2) 15% on net income/margin with possibility to set off tax withheld in Kazakhstan. Interest subject to thin capitalization rules (proportion of capital to loan 1:4, average statistical credit rate x 1.2, e.g. for USD currently 9%). (3) withholding tax from interest and royalty starting from Till 2014 withholding tax from interest 5% or 1, but only if paid to related companies. Till 2014 withholding tax from royalty or 5% ( or 5% or 15% for literature and art). (4) Taxation according to individual s residence country. Possibility to set off tax paid in Latvia depending on the country (in Kazakhstan yes). (5) Zero taxation can be achieved through tax planning.

12 holding loan $ interest right to use IP $ royalty $ interest & royalty LATVIAN HOLDING STRUCTURE FOR INVESTMENT IN EUROPE ultimate shareholder individual ultimate shareholder any legal entity (except black listed) (4) (5) (5) 1 $ on disposal of shares Latvian holding company With substance in Latvia including Latvian bank account (3) (2) (2) (1) (1) (1) EU (and Switzerland) company (1) withholding tax from dividend, interest and royalty between associated companies under EU Parents-Subsidiary Directive and EU Interest and Royalties Directive, subject to certain conditions referring to minimum shareholding (1) and transitional period (depending on the member state). (2) 15% on net income/margin. Interest subject to thin capitalization rules (proportion of capital to loan 1:4, average statistical credit rate x 1.2, e.g. for USD currently 9%). (3) withholding tax from interest and royalty starting from Till 2014 withholding tax from interest 5% or 1, but only if paid to related companies. Till 2014 withholding tax from royalty or 5% ( or 5% or 15% for literature and art). (4) Taxation according to individual s residence country. Possibility to set off tax paid in Latvia depending on the country. (5) Zero taxation can be achieved through tax planning.

13 OPPORTUNITIES FOR TRADING ACTIVITY Besides holding activity Latvian company is a convenient instrument for using in the international trading and intermediary activities and rendering commercial services. Corporate income tax rate - 15% - one of the lowest in Europe. Only margin, i.e.net profit after deduction of all business related expenses is subject to taxation. Thus effective tax rate may be reduced through expenses or using agency structure provided that transfer pricing rules are reasonably complied with. Starting from 2013 dividends, interest and royalty paid to companies abroad are not subject to withholding tax, except for payments to the "black list". Dividends paid to individuals are subject to withholding tax 1, reduced rate can be provided by double tax agreement. Possibility to set off may exists. Tax residence certificate regardless of the company s substance and director s residence. In case of operations within EU, which require European VAT registration, the company may easily register for VAT in Latvia. Transactions on the territory of Latvia are subject to VAT at a rate of 21%. Transactions between other EU countries generally are VAT exempt. The only restriction in trading activity is that payments to companies from tax-free countries included in so-called black list" of the Cabinet of Ministers are subject to withholding tax 15%.

14 $ interest $ royalty LATVIAN TRADING STRUCTURE shareholder individual shareholder legal entity 1 EU or non-eu suppliers/ subcontractors VAT 0 $ purchases of goods/services Latvian trading company With VAT registration and substance in Latvia including Latvian bank account Corporate tax 15% on NET profit VAT 0 $ sales of goods/services EU or non-eu customers (1) (1) (2) $ commission, intermediary, promotion, other business related services associated or non-associated foreign legal entities (1) withholding tax from interest and royalty starting from Till 2014 withholding tax from interest 5% or 1, but only if paid to related companies. Till 2014 withholding tax from royalty or 5% ( or 5% or 15% for literature and art). (2) Except payments for management and consulting services which are subject to 1 withholding.

15 LATVIAN COMPANIES AS SERVICE AND OPERATIONAL CENTRES Before Latvia has got ready to become holding centre, it had already been selected by a number of international groups as a location for their shared service and operational centers, including finance, IT, back-office and of course export-import units. The most impressive example of export unit is a Russian chemical giant URALHEM, mineral fertilizers producer, which in 2009 set up in Latvia its company for export operations from Russia to EU, American and African countries. Last year SIA Uralchem Trading became the biggest Latvian company with turnover exceeding 1 billion EUR. According to the company s management Latvia has been chosen because of advantage of its ports and warehouses, proximity to Russia, transport connection and Russian-speaking community. As a place for its office in Riga URALHEM has selected premises of Rietumu Capital Centre. A lot of such trading units examples are listed in Top-50 of Latvian companies, Elko Grupa, Samsung Electronics Baltics, Severstallat, Roche Latvija and others. Examples of service centers: Tieto, Cytec, Statoil Fuel & Retail, SEB, DNB, Tele2. Prime Consulting started to register and administer Latvian companies for foreign clients in 2004.

16 GENERAL INFORMATION ON LATVIAN COMPANIES Company is private or public body corporate - a limited liability company (SIA) or a joint stock company (AS). Minimum paid-up share capital for SIA is 2000 LVL or ~ 2850 EUR. Shareholders/founders of a company may be legal entities or individuals, residents or nonresidents of Latvia, the number is not limited. Directors of a company may be only individuals, residents or non-residents of Latvia, the number is not limited. Company registration takes from 2 working days, in case the client-founder arrives in person, to 10 working days in case the company is registered remotely and the founder is a foreign company. Application for VAT registration takes 10 working days.

17 REGISTRATION PROCEDURE Registration procedure of Latvian company is quite easy and fast. The only thing the client shall do is: 1. To provide information: company name; shareholders data (passport copy for natural person, or certified and translated into Latvian incorporation documents for foreign legal entity); shares distribution if several shareholders; directors data (passport copy, address, we provide if agreed); legal address (we provide if required). 2. To sign incorporation documents prepared by PRIME CONSULTING. 3. To pay the company s share capital.

18 LATVIAN COMPANY ADMINISTRATION PRIME CONSULTING provides full range of services related to the company s activity administration: Legal address and accounting services Services of local directors, virtual and real office Legal support, tax consulting, representation of the company s interests with state authorities of Latvia Financial and tax returns of the company are being submitted electronically, i.e. documents are not required to be signed by directors monthly, which simplifies workflow. Correspondence received at the company s registered office is immediately transferred to the client (scanned and sent by , or by courier on request). PRIME CONSULTING provides immediate signing of the company s documents in case of using services of nominee directors.

19 We are a partner of RIETUMU, the largest privately owned bank in Latvia for corporate customers and high net worth individuals. We have been advising high net worth individuals and corporate clients in EU and CIS countries on the issues of international tax planning, assets protection and business structuring since Latvian legislation and business organization practice are the main areas of our expertise. Besides Latvia we deal with company formation and administration, legal support and financial reporting in more than twenty different jurisdictions. We advise on the issues of international banking, bank products, compliance with due-diligence procedures (KYC, AML & Compliance). We assist in obtaining licenses for activities of credit institutions, forex and other brokerage companies, investment management companies, PSP & EMI Prime Consulting. All rights reserved. Legal Disclaimer & Copyright Notice: *** This material is for information purposes only. It is not comprehensive nor does it provide legal and/or tax advice. Any and all information is subject to change without notice. Prime Consulting accepts no liability for losses to any person that occur due to any action taken in reliance on the information herein. Accordingly, we recommend you to seek appropriate professional advice regarding any specific issues. This material may be used only for noncommercial purposes. Any republishing of the material or portion thereof or any distribution of this material shall include a reference to our copyright.

20 Prime Consulting SIA RIETUMU Capital Centre 7 Vesetas Street, Riga, LV-1013, Latvia phone Tatjana Lutinska, Head of International Tax Planning & Business Structuring mob tlutinska@primeconsulting.lv prime_tax