On Thursday, 9 June, the Saeima ratified the Agreement between Latvia and Russia on Preventing Double Taxation and Tax Evasion in Regard to Income and Capital Tax by supporting the relevant draft law in the final reading. According to the agreement, Latvian businesses operating in Russia will henceforth be guaranteed a stable taxation regime which will not be affected by changes in Russian taxation policy, while businesses operating in the international transport sphere will not have to pay income tax in Russia.

The adoption of the agreement will create a stable environment for investments and will facilitate the operations of Latvian entrepreneurs in Russia. The Foreign Affairs Committee, which was responsible for the relevant draft law, pointed out that our neighbouring countries have certain advantages in operating in the Russian market because they already have similar agreements in place. The agreement between Latvia and Russia which the Saeima ratified today has been in the making for over ten years.

According to the agreement, a tax of no more than five per cent may be imposed on dividends in their country of origin and that royalties may be taxed in an amount not exceeding five per cent of the total amount of the royalty. Currently entrepreneurs are taxed in the other country in accordance with its national laws and regulations, and the other country can change tax rates or the method of calculating taxable income.

This intergovernmental agreement also stipulates that income gained from air, sea, rail and road transport will be taxed in the business’ country of origin. That means, for example, that a Russian branch office of a Latvian airline will be exempt from taxation in Russia and will be taxed only in Latvia; conversely, the same principle will apply to Latvian branch offices of Russian businesses.

Another goal of the agreement is to combat tax evasion. The agreement will create a legal basis for cooperation between Latvian and Russian tax administrations and will provide for regular exchange of information. Currently, for example, the State Revenue Service of Latvia does not have a legal responsibility to answer requests for information by the Russian tax administration concerning business partners and the income of taxpayers.

Saeima Press Service