Latvian holding company

[JustAnotherNomad]

Has anyone looked into holding companies in Latvia?
They have a good network of tax treaties. As an EU country, the parent-subsidiary directive would apply and it seems like there is no withholding tax on dividends - except on payments to blacklisted countries. But that black list is very short.
In other words, similar benefits as Cyprus, but probably cheaper to run and better reputation.
Or am I missing something?

 

[JustAnotherNomad]

They have capital gains tax, which is of course an obvious downside. But I would think it should be possible to avoid that somehow as they only have CIT on distributed profits, like Estonia. Maybe one could invest capital gains into an offshore company etc., making sure the investment isn’t counted as a profit distribution.

 

[Martin Everson]

As a holding company for which company - an EU or non-EU company?

If an EU company then there is little advantage over other EU holding companies i.e Cyprus, Estonia, Malta, Bulgaria one etc etc due to EU parent subsidiary . The only thing you need to look out for is any substance requirements for the holding company. Also if you are paying dividends to another company outside the EU then any blacklisted jurisdictions as you mentioned.

 

[JustAnotherNomad]

Yes, Malta and Cyprus look nice, but they would probably raise red flags most places. I would expect you’d have to show substance. I’m not sure about Malta, but CY companies require an annual audit, so accounting isn’t that cheap.

Google says Bulgaria has WHT on dividends paid to non-EU residents, usually 5%.

I guess Estonia and Latvia are pretty much the same, yes.

Haven’t really looked into taxes received from non-EU companies yet, expect for US. Cyprus is of course great since there is no capital gains tax. Not sure about the others.

 

[NicolasMaduro]

Yes, Malta and Cyprus look nice, but they would probably raise red flags most places. I would expect you’d have to show substance. I’m not sure about Malta, but CY companies require an annual audit, so accounting isn’t that cheap.

Google says Bulgaria has WHT on dividends paid to non-EU residents, usually 5%.

I guess Estonia and Latvia are pretty much the same, yes.

Haven’t really looked into taxes received from non-EU companies yet, expect for US. Cyprus is of course great since there is no capital gains tax. Not sure about the others.

Malta also have a very very very low revenue treshold for audit.

And other downside for Malta is its really nearly impossible to get a traditional bank account. Even personal bank account sometimes require urin sample.

 

[Marzio]

require urin sample

LOL are you serious?

 

[JustAnotherNomad]

I’m pretty sure that was a metaphor and you don’t actually have to pee into a cup to open an account.

 

[Sols]

Annual audits are mandatory in both Cyprus and Malta, but neither would cost much more than one or two thousand EUR for a low-activity holding company if you shop around. If that's too much and eats up a significant portion of your revenues, what are you doing setting up an overseas holding company?

I don't see Latvia used much. It's not a reputable jurisdictions. Malta and Cyprus may not be either but at least they are popular and well understood, with legal systems closely resembling that of English common law.

You will have more issues with a Latvian holding company than a Maltese or Cypriot, unless you are Latvian or have connections to Latvia.

If you want alternatives to Malta and Cyprus, take a look at UK, Luxembourg, Netherlands, Belgium, and Switzerland if you want to keep it within Europe. Depending on the exact nature and size of the setup, there may or may not be tax applicable.

 

[Konstanz]

Stay away from incorporating Eastern European companies or living/residencies... It might be easy to set-up, but tax audits are very common.
Also, they start prosecutions if they find even minor discrepancies.

 

[JustAnotherNomad]

Who will audit and start persecution? You mean tax authorities in customer’s countries? Or local authorities?
I have a couple friends with companies in Estonia, they have never told me anything like that.

 

[NicolasMaduro]

Stay away from incorporating Eastern European companies or living/residencies... It might be easy to set-up, but tax audits are very common.
Also, they start prosecutions if they find even minor discrepancies.

If you incorporate in for example Latvia or Estonia, and you do bookkeeping, and dont do fraud I dont see how and why they would prosecute you and for what? If you are audited surely they will find errors and might adjust some numbers and refuse deductions for some expenses if you are missing invoices/appendix.

Even shareholders loan they would never prosecute for that, but rather tell you to pay back or claim that its distributed profits. So what would they prosecute for? Do you have examples?

 

[JustAnotherNomad]

In fact now that you mention it, one of my friends had a company that was audited in Estonia. He said they accepted almost all expenses, and that was the end of it. I’ve heard even buying a suit for a talk you’re given can count as a deductible business expense. But I haven’t done business there myself.

 

[Konstanz]

In fact now that you mention it, one of my friends had a company that was audited in Estonia. He said they accepted almost all expenses, and that was the end of it. I’ve heard even buying a suit for a talk you’re given can count as a deductible business expense. But I haven’t done business there myself.

On small amounts maybe , yes. No problem. I have a friend from Eastern European country. He is audited there non stop because of high amounts and they try to extract the last penny of him. It's not worth time
I suggest to stick to Cyprus, Malta, UAE etc..

 

[Marzio]

I have a friend from Eastern European country.

What about being more specific? There are many countries in the Eastern Europe and for a friend that had problems in one of them others are not having problems in others so why generalize?

 

[Martin Everson]

I’m pretty sure that was a metaphor and you don’t actually have to pee into a cup to open an account.

Well not yet at least

P.S I would avoid the UK for a holding company as its no longer part of the EU. Hence after the transition period the EU Parent Subsidiary directive will not apply and your left to look at the detail of each EU countries biliateral agreement for WHT .

 

[Marzio]

Hence after the transition period the EU Parent Subsidiary directive will not apply

Maybe they will work out an agreement like Switzerland that isn't part of EU but the EU parent-subsidiary directive is in force?

 

[JustAnotherNomad]

You can bet that the EU will use that as a bargaining chip.

 

[Martin Everson]

Maybe they will work out an agreement like Switzerland that isn't part of EU but the EU parent-subsidiary directive is in force?

Maybe your right and UK can work out an agreement with EU similiar to Switzerland. However the EU Parent Subsidiary is not in force with Switzerland as they are not part of EU but they have a similar EU-Swiss arrangement reducing WHT to zero.

 

[AdamT1]

On small amounts maybe , yes. No problem. I have a friend from Eastern European country. He is audited there non stop because of high amounts and they try to extract the last penny of him. It's not worth time
I suggest to stick to Cyprus, Malta, UAE etc..

Yes, continuous tax audits. Especialy if company's major revenue is zero rated VAT. Then you have to regularily apply for input VAT refud and get audited automaticly with many questions regarding nature of revenue and why the company does not generate payable VAT up to providing strong proof re: place of services provided (to define applicable VAT jurisdiction) etc.. (experience with Balts, PL, BG)

 

[JustAnotherNomad]

Yes, continuous tax audits. Especialy if company's major revenue is zero rated VAT. Then you have to regularily apply for input VAT refud and get audited automaticly with many questions regarding nature of revenue and why the company does not generate payable VAT up to providing strong proof re: place of services provided (to define applicable VAT jurisdiction) etc.. (experience with Balts, PL, BG)

Can you give some more details? What would they try to discover?
Isn’t it quite normal that you only have net VAT refunds when all your clients are abroad? In fact, wouldn’t the input VAT prove that you are actually resident in that country?
For example, let’s say your company is registered in Latvia, you deliver B2B consulting services and all your customers are in Italy. So you never charge any VAT as the sales are VAT-reversed (the buyer pays Italian VAT). You buy a computer, a company car and some other office equipment in Latvia, for which you apply for a VAT refund. Why would that be any issue? Wouldn’t that rather be proof that you are actually in Latvia? For why would you otherwise buy the computer there?
I feel like I’m missing something here.