Baltic States

Market overview

Estonia, Latvia and Lithuania were not idle in 2017, as all three Baltic states enacted country-by-country reporting (CbCR) into domestic law.

Despite a political reshuffle in 2016, Estonia's new coalition government continued to press forward with implementation of the BEPS project. The country ratified the multilateral competent authority agreement, also known as BEPS Action 13, concerning the automatic exchange of CbC reports in March 2017. Information exchange will set in in January 2018.

The Lithuanian parliament passed amendments to its tax law to include CbCR requirements on May 23 2017, with the regime taking effect on June 5 2017. Neighbouring Latvia legislated CbCR shortly after, on June 8 2017.

Within the context of adopting the OECD's BEPS guidelines, Baltic tax authorities have also placed increased scrutiny on TP practices by multinationals.

Advance pricing agreements (APAs) are frequently used in Lithuania, which is not the case in the other two states.

"[The Lithuanian] tax authorities approve all APAs," said Kristine Jarve, head of Deloitte Lithuania. "There is less activity in Estonia and Latvia."

In Lithuania, APA legislation is relatively straightforward. Taxpayers conclude unilateral APAs with officials and base their multilateral and bilateral APAs on existing treaties to avoid double-taxation.

Jarve said that Estonian and Latvian tax officials had tougher approaches to APAs as well as a definite lack of expertise within this field.

Latvia necessitates that taxpayers, whose cross-border transactions exceed €1.43 million ($1.7 million) over 12 months, have the option of concluding APAs with the State Revenue Service. There are specific application requirements: certain information must be provided, as well as accounts of procedures and time frames for concluding APAs and settling the fee for filing APAs.

In Estonia, there are no platforms in place for taxpayers to negotiate tax APAs with tax officials.

Jānis Taukačs, partner and head of the tax and customs team at SORAINEN, agrees that APAs are rare in the market but will become more popular in parallel with officials prioritising TP auditing.

"The authorities search for these [APA] agreements," said Taukačs. "There is a quite substantial risk that companies will try to distribute hidden profits by playing with prices. There is much more stress on discovering these types of distributions."


Tax authorities

Estonia
Estonian Tax and Customs Board
Lõõtsa 8a, 15176 Tallinn
Tel: +372 880 0810
Fax: +372 676 2709
Email: emta@emta.ee
Website: www.emta.ee

Latvia
Ministry of Finance
1 Smilsu st., Riga LV-1919
Tel: +371 6709 5405
Fax: +371 6709 5503
Email: info@fm.gov.lv
Website: www.fm.gov.lv

Lithuania
Ministry of Finance
Lukiškių Str. 2, 01512 Vilnius
Tel: +370 5 239 0000
Fax: +370 5 279 1481
Email: finmin@finmin.lt
Website: finmin.lrv.lt/en/


Tax rates at a glance

Estonia: Tax rates at a glance

(As of July 2017)

The tax law in Estonia has been frequently amended, and further changes are likely to be introduced. Because of these frequent changes, readers should obtain updated information before engaging in transactions.

Corporate tax rate 20% (a)
Capital gains tax rate 0/20% (b)
Branch tax rate 20% (a)
 
Withholding tax (d)
Dividends 0% (c)
Interest 0 (d)
Royalties 10% (e)
Rental payments 20% (f)
Services 0/10/20% (g)
Salaries and wages 20%

  1. Resident companies and permanent establishments of non-resident companies are not subject to tax on their income. They are subject only to tax at a rate of 20% on the gross amount of distributed profits and certain payments made. The tax rate is applied to the gross taxable amount divided by a specified percentage.
  2. Resident companies and permanent establishments of non-resident companies are not subject to tax on their capital gains received. They are subject only to tax at a rate of 20% on the gross amount of distributed profits. Non-resident companies without a permanent establishment in Estonia are subject to tax at a rate of 20% on their capital gains derived from Estonian sources.
  3. Withholding tax is not imposed on dividends. Dividends are subject to 20% corporate income tax at the level of the resident distributing companies only.
  4. Interest payments are generally exempt from withholding tax. Withholding tax at a rate of 20% is imposed on interest paid to resident individuals (including payments made by contractual investment funds on the account of the funds), except for interest received from European Economic Area (EEA) credit institutions from deposits. Interest paid to non-residents as a result of ownership of contractual investment funds is subject to a 20% withholding tax if more than 50% of the assets owned (directly or indirectly) by the fund during a two-year period preceding the date of the interest payment is real estate located in Estonia and if the interest recipient has at least 10% ownership in the contractual investment fund at the moment of receiving the interest. Withholding tax is not imposed on interest paid from the profits of contractual investment funds if the profits have already been taxed.
  5. Withholding tax at a rate of 10% is imposed on payments to non-resident individuals and companies. Royalties paid to companies resident in other EU countries or Switzerland are not subject to withholding tax if the provisions of the EU Interest-Royalty Directive are satisfied. A 20% withholding tax is imposed on payments to resident individuals.
  6. Withholding tax at a rate of 20% is imposed on payments to resident individuals and non-residents.
  7. The 20% rate applies to payments to nonresidents from low-tax jurisdictions (a low-tax jurisdiction is a jurisdiction that does not impose a tax on profits or distributions or a jurisdiction in which such tax would be less than ⅓ of the Estonian tax payable by resident individuals on a similar amount of business income). The 10% rate applies to payments to other nonresidents for services rendered in Estonia. A 0% rate may apply under double tax treaties.

Source: EY, Donoway.eu and PwC

Latvia: Tax rates at a glance

Because of the rapidly changing tax law in Latvia, readers should obtain updated information before engaging in transactions.

(As of July 2017)

Corporate income tax rate 15%
Branch tax rate 15%
 
Withholding tax (a)
Dividends 0% (b)
Interest 0% (c)
Royalties 0% (d)
Management and consulting fees 0/10/15% (e)
Payments for the use of property located in Latvia 5%
Gains on transfers of real estate or shares of real estate companies located in Latvia 2% (f)
 
Net operating losses (years)
Carryback 0
Carryforward Unlimited (g)

  1. These taxes apply to payments by Latvian residents or permanent establishments to non-residents.
  2. No withholding tax is imposed on dividends paid by Latvian entities, except for dividends paid to a resident of a state or territory that has been recognised as a low-tax or no-tax state or territory in accordance with Cabinet Regulations. The 30% rate applies to payments of interim (extraordinary) dividends (the Commercial Law contains specific rules regarding these dividends), and the 15% rate applies to the payments of all other dividends made to a resident of a state or territory that has been recognised as a low-tax or no-tax state or territory in accordance with Cabinet Regulations. The holder of a securities account that settles payments with a state or territory that has been recognised as a low-tax or no-tax state or territory in accordance with Cabinet Regulations must withhold the tax on dividends that have been disbursed by stock companies with publicly traded shares.
  3. No withholding tax is imposed on interest payments made by Latvian entities except for interest paid to a resident of a state or territory that has been recognised as a low-tax or no-tax state or territory in accordance with Cabinet Regulations. The 5% rate applies to the interest paid by Latvian-registered banks, and the 15% rate applies to all other interest payments made to a resident of a low-tax or no-tax state or territory in accordance with Cabinet Regulations.
  4. No withholding tax is imposed on royalties, except for royalties paid by Latvian entities to a resident of a state or territory that has been recognised as a low-tax or no-tax state or territory in accordance with Cabinet Regulations. A 15% tax rate applies to payments made to a resident of a low-tax or no-tax state or territory in accordance with Cabinet Regulations.
  5. The 10% rate applies to management and consulting fees. The 0% rate applies to management and consulting fees paid to residents of countries that have entered into double tax treaties with Latvia (the residence certificate must be submitted). The 15% rate applies to payments of management and consulting fees made to a resident of a state or territory that has been recognised as a low-tax or no-tax state or territory in accordance with Cabinet Regulations.
  6. This is a final withholding tax imposed on gains derived by non-resident companies without a permanent establishment in Latvia from sales of Latvian real estate. This tax also applies to sales of shares if certain conditions are met.
  7. Losses incurred in or after 2008 may be carried forward for an unlimited number of years.

Source: EY and PwC

Lithuania: Tax rates at a glance

(As of July 2017)

Corporate profit tax rate 15% (a)
Capital gains tax rate 15% (b)
Branch tax rate 15% (a)
 
Withholding tax (c)
Dividends 0/15% (d)
Interest 0/10% (e)(f)
Royalties and know-how 10% (e)(g)
Sale, rent or other transfer of real estate located in Lithuania 15% (e)
Compensation for violations of copyrights or related rights 0/10% (e)(g)
 
Net operating losses (years)
Carryback 0
Carryforward 5/Unlimited (h)

  1. This is the standard rate of profit tax. Reduced rates apply to small, agricultural, social or nonprofit companies and to companies registered and operating in free-economic zones that satisfy certain conditions.
  2. In general, capital gains are included in taxable profit and are subject to tax at the regular profit tax rate. A capital gain derived from the sale of shares of a company registered in a European Economic Area (EEA) country or in a tax treaty country is exempt from tax if either of the following conditions is satisfied:
    • The shares have been held for at least two years and the holding represents more than 25% of shares of the company throughout that period.
    • The shares were transferred in a reorganisation (as stipulated in the Law on Profit Tax), the shares have been held for at least three years, and the holding represents more than 25% of the shares of the company throughout that period.
    This rule does not apply if the shares are sold to the issuer of the shares.
  3. The withholding tax rates may be reduced by applicable tax treaties.
  4. The dividend withholding tax is a final tax. Under the participation exemption rule, the rate is 0% if the recipient is a company (not located in a tax haven) that holds at least 10% of the shares of the payer of the dividends for a period of at least 12 months.
  5. These withholding taxes apply to payments to nonresident companies.
  6. Interest paid to an entity registered in an EEA country or in a tax treaty country is exempt from tax. In other cases, a 10% withholding tax is applied.
  7. Royalties, payments for know-how and compensation for violations of copyrights or related rights are subject to a 0% withholding tax if the criteria stipulated in the Council Directive 2003/49/EC of June 3 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different member states are met. In other cases, the 10% withholding tax rate applies.
  8. Losses from disposals of securities and derivative financial instruments may be carried forward five years to offset gains derived from disposals of such items. Losses from the disposal of shares of companies registered in an EEA country or in another tax treaty country cannot be carried forward if the shares have been held for at least two years and if the holding represents at least 25% of shares of the company throughout that period. However, these losses can be offset against capital gains derived from disposals of securities and derivative financial instruments in the current year. Other losses may be carried forward for an unlimited period, unless the entity ceases to carry on the activity that resulted in the loss.

Source: EY, globalpropertyguide.com and PwC