LATVIA Law and Practice Contributed by: Jānis Kārkliņš, Edijs Brants, Pauls Zeņķis and Kristens Vorslavs, BERG
tion Law considers any consumer credit agreement with a total cost exceeding 0.07% per day of the loan amount as non-compliant. Under the Civil Law, the statutory interest rate for late payments is set at 6% per annum, while contracts for goods or services to consumers carry a rate 8% above the European Cen- tral Bank’s refinancing rate, unless otherwise agreed. Additionally, loans that deliberately exploit a borrow- er’s financial difficulties through excessive terms may trigger criminal liability. Under Latvian law, interest that is unreasonable or not in accordance with fair dealing practices shall be regarded as unlawful; however, this is determined by the courts on a case-by-case basis. Although interest generally may not be charged on interest, it may be calculated if a special promissory note is issued for an outstanding debt, or if a new promissory note replaces an earlier one covering the principal plus any outstanding interest. In such cases, the creditor may calculate new interest on the out- standing interest. 3.11 Disclosure Requirements Generally, there are no specific rules in Latvia requiring the public disclosure of financial contracts, as trade secrets and confidential information are protected by law. However, certain transactions may need to be disclosed to competent public authorities or during due diligence processes if legally required. A company with shares listed in a regulated market shall provide information about any transaction that is significant or may significantly affect its financial position or its ability to carry out certain types of commercial activities. Disclosure is also required if the transaction may materially affect the valuation of its listed shares, thereby ensuring investor protection and the proper functioning of the market. However, in this case, it is not stipulated that the financial contract itself must be disclosed; only the main information about the contract must be provided.
income tax on interest payments to the extent that average debt from non-bank lenders exceeds four times the company’s equity (adjusted for revaluation and non-distributable reserves) as reflected at the start of the reporting year. 4.2 Other Taxes, Duties, Charges or Tax Considerations Generally, transactions involving loans are exempt from taxation. Nevertheless, corporate income tax may apply in specific instances, particularly where interest payments are deemed to constitute a distri- bution of profits, such as in the case of dividends, thereby triggering a tax obligation. Also, in certain cases, a loan granted to a related party (company) may be treated as a deemed profit distribution and consequently become subject to corporate income tax. Banks and non-bank consumer lenders, how- ever, must pay corporate income tax every year. The corporate income tax rate is 20% applicable to the taxable base. From 2025, Latvian-registered credit institutions and branches of foreign credit institutions in Latvia are liable to pay solidarity contributions each quarter for the next three years. The calculation of the contribu- tions is based on an increase in the bank’s or branch’s net interest income exceeding the average net interest income in five financial years (2018–2022) by more than 50%, multiplied by the base coefficient for soli- darity contributions and applying a rate of 60%. 4.3 Foreign Lenders or Non-Money Centre Bank Lenders Generally, interest payments to non-resident lenders are exempt from withholding tax. However, lenders associated with a tax haven jurisdiction are subject to a 20% withholding tax. Furthermore, payments to foreign affiliates that do not conform to standard commercial terms – ie, terms that would be agreed upon between unrelated parties – may be treated as distributions of profit and, as a result, be liable to the 20% corporate income tax. It is advisable to avoid routing loans through jurisdic- tions considered tax havens, as such structures may trigger the reclassification of interest payments as profit distributions subject to corporate income tax. It
4. Tax 4.1 Withholding Tax
Payments of principal, interest or other payments made to lenders are generally not subject to withhold- ing tax. In Latvia, borrowers are subject to corporate
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