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Taxes in Latvia

The Latvia's taxation system is affected by both the Latvian legislation and the requirements laid down by the European Union. It can be described as average, because every tax payer contributes to the budget 30 % of his/her income on average. Besides, the Latvia's diverse system of tax rates, tax relief and allowances enables every tax payer to choose the optimum sector for their occupation and management of funds. The Republic of Latvia has the lowest effective (average) tax rate in the European Union. There are several areas of trade business with individual tax privileges – payments that are lower by 80 % to 100 %: for example, Liepāja and RΔ“zekne have special economic zones, and free ports of Riga and Ventspils can grant tax relief.

The tax principles are laid down by the law On Taxes and Fees. Taxes are administered by the State Revenue Service (SRS), and they are classified as direct and indirect taxes. Indirect taxes are taxes that are not directly deducted from income and that are levied on goods and services. In their turn, the direct taxes are taxes that are levied on all taxable income of natural persons and companies.

**Corporate income tax
**The object upon which the corporate income tax is imposed is the taxable income obtained by a tax payer during a taxation period. The tax base is corporate financial income adjusted according to the law. The adjustments are mainly implemented in order to ensure that the income is greater than expenses on which the tax is not levied (for example, expenses that are not directly related to economic activity) or in order to reduce the income by a specific amount in case if the law envisages tax relief.
Corporate income tax payers are the following:

resident or domestic companies performing economic activity, organisations and institutions funded from the state budget or municipal budgets, which obtain income from economic activity;
non-resident or foreign companies, business entities, natural and other persons;
permanent representative offices of non-resident undertakings the income tax rate of which is 20%.
Individual undertakings are payers of the personal income tax, and the tax rate ranges from 20% to 31.4%, depending on the amount of income.

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