LATVIA Law and Practice Contributed by: Jānis Kārkliņš, Annija Kārkliņa, Ēriks Krēsliņš and Rihards Strads, BERG
commissioning. The minimum warranty period is one year for first-category buildings and three years for second- and third-category buildings. In practice, warranty security is typically set at up to 5% of the contract price for the first two years and up to 2% for the remaining period. Performance bonds are also commonly required, usually capped at 10% of the total contract price. 7.6 Liens or Encumbrances in the Event of Non-Payment According to Latvian law, contractors or designers are not entitled to directly unilaterally encumber immov - able property in the event of non-payment. Any such rights must arise from the contract. In the absence of such contractual provisions, contractors and design - ers may seek protection of their interests through judicial proceedings, including (inter alia) securing their claim, such as requesting the registration of an encumbrance in the Land Register. 7.7 Requirements Before Use or Inhabitation Under the Construction Law, a building may not be used until it is accepted for commissioning, although exceptions apply. For example, a building may be commissioned in stages if the design provides for par - tial use during construction and the relevant regulatory requirements are met. Commissioning is initiated by the developer, who must ensure that as-built measurements, cadastral survey - ing and, where applicable, an energy performance certificate are completed before submission. Upon request, authorities that issued technical conditions must provide an opinion on readiness for commission - ing within ten working days. Once all documentation is received, the competent building authority, in co- ordination with the developer, sets the commissioning date, which must not exceed ten working days from submission.
Where reconstructed immovable property is sold, VAT applies to the value added by the reconstruction – ie, the difference between the sale price and the prop - erty’s value before reconstruction or before the works began. The standard VAT rate is 21% where VAT is applicable and the obligation to remit VAT rests with the seller. By contrast, the transfer of used immovable property is generally exempt from VAT. 8.2 Mitigation of Tax Liability There are several methods that may be used to miti - gate tax liabilities in acquisitions of large real estate portfolios. A common approach is the use of share deals instead of direct asset transfers. However, it should be noted that, although share transactions may mitigate transfer taxes, they may still be subject to income tax, depending on the structure and circum - stances of the transaction. 8.3 Municipal Taxes There is no separate municipal tax in Latvia for the occupation of business premises. Instead, busi - nesses are subject to an annual real estate tax set by municipalities, generally ranging from 0.2% to 3% of the cadastral value. A higher rate (up to 3%) may apply to dilapidated or improperly maintained prop - erty, while lower rates or reliefs may apply depending on the property’s use and municipal rules. 8.4 Income Tax Withholding for Foreign Investors Enterprise income tax is withheld at 3% of the consid - eration on the disposal of immovable property and 5% of rental or lease payments made to non-residents. The tax must be withheld by Latvian resident compa - nies (excluding individuals) and permanent establish - ments, unless personal income tax has already been applied. An exemption applies where the payer is not required to withhold tax under the Enterprise Income Tax Law. In such cases, the non-resident must declare the income and pay 3% tax within 30 days of the dis - posal. Additional exemptions apply in specific situa - tions, such as payments to private pension funds or
8. Tax 8.1 VAT and Sales Tax
VAT in Latvia is charged on the consideration for trans - actions involving new (unused) immovable property.
431 CHAMBERS.COM
Powered by FlippingBook