Latvia’s total tax rate is the lowest of the Baltic States and the 11th lowest of the EU and EFTA region

11/09/13

The total tax rate in Latvia continues to fall and now stands at 35%, the 11th lowest of the EU/EFTA region and the lowest of the Baltic States (42.6% in Lithuania and 49.3% in Estonia), according to the latest Paying Taxes report from the World Bank Group and PricewaterhouseCoopers (PwC).

Latvia’s total tax rate of 35% comprises 4.9% corporate income tax (CIT), 27.2% labour taxes, and 2.9% other taxes. The 193 hours it takes an average company to meet its Latvian tax obligations (down from 264 hours in the past year) is still above the EU/EFTA regional average of 176 hours. The number of taxes payable in Latvia (only 7) is currently one of the lowest and ranks Latvia among the European top five, along with Norway, Sweden, Estonia, and Malta.

The Paying Taxes 2015 report finds that a medium-size company has an average total tax rate of 41% in the EU and EFTA region. It makes 12.3 tax payments and takes 176 hours to comply with its tax requirements. Globally the standard company studied on average has a total tax rate of 40.9 percent of commercial profits. It makes 25.9 tax payments a year and takes 264 hours to comply with its tax requirements.

“Latvia’s results compare favourably with those in Europe and the rest of the world, demonstrating the competitive edge of our country and tax rate. This means that companies doing business in Latvia are able to allocate more resources for developing their business or paying dividends. From a government perspective the authorities should be looking to improve their tax collection procedures, while keeping the environment attractive to businesses and investors, and devising a stable tax policy. I’m happy to see a considerable reduction in the time it takes companies to comply with their tax requirements. I’m sure this is partly due to recent improvements to our electronic filing system, yet this year’s methodology adjustments have also contributed,” said Zlata Elksnina-Zascirinska, Chair of the Board of PricewaterhouseCoopers SIA.

Ilze Rauza, Tax Director at PricewaterhouseCoopers SIA, comments on the significant difference between the tax burden in Latvia and the other two Baltic States: “If we compare the Baltic States, where Latvia has a considerably lower total tax rate, the biggest difference comes from labour taxes: 27.2% of commercial profits in Latvia versus 39% and 35.2% in Estonia and Lithuania respectively. The second biggest difference has to do with CIT: Latvia’s effective tax rate is 4.9% of commercial profits, while Estonia and Lithuania report 8.4% and 6.1% respectively (please note that Estonian tax is not payable until profits are distributed). This is good news and very important to Latvian entrepreneurs,” said Rauza.

Overall, Latvia ranks 24th, Estonia 28th, and Lithuania 44th among 190 economies around the world covered by the Paying Taxes 2015 study. All of the Baltic States have improved their rankings on the past year.

Country Ranking Total tax rate (%) Time (h) Payments
Latvija 24 35 193 7
Igaunija 28 49.3 81 7
Lietuva 44 42.6 175 11

Paying taxes has become easier over the past year for medium-sized companies around the world, the latest report from the World Bank Group and PwC finds. The time it takes an average company to meet its tax obligations dropped by four hours last year, according to the Paying Taxes 2015 study. The report also revealed that the total amount the average company paid in taxes and the number of payments it made also declined in the past year. This is a trend seen every year over the ten year period covered by the publication. The Paying Taxes 2015 report finds that on average, the standard company studied has a total tax rate (as defined under the Doing Business methodology) of 40.9 percent of commercial profits. It makes 25.9 tax payments a year and takes 264 hours to comply with its tax requirements.

“Taxes provide the sustainable funding needed for social programs and to promote economic growth. Policymakers need to find the right balance between raising revenue and ensuring that tax rates and the burden of compliance do not deter participation or discourage business activity,” said Augusto Lopez-Claros, Director, Global Indicators Group, Development Economics, World Bank Group. “During economic downturns, this balancing act is intensified; some public spending may increase, putting pressure on deficits, and governments may need to use tax policy as an economic stimulus.”

“The latest results from the Paying Taxes study show many economies are continuing to make progress in tax reform, but there is still a lot of scope to streamline and simplify tax systems,” said Andrew Packman, leader for Tax Transparency and Total Tax Contribution at PwC. “Tax reform is set to remain an important topic for governments around the world for some years to come, and this will include the need to take on board the proposals from the OECD to modernise the international tax system to cater for today’s globalised business.”

Paying Taxes 2015 measures all mandatory taxes and contributions that a medium-size company must pay in a given year. Taxes and contributions measured include the profit or corporate income tax, social contributions and labour taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, vehicle and road taxes, and other small taxes or fees.

The Paying Taxes annual report builds on the World Bank Group’s Doing Business reports’ chapter on Paying Taxes. For more information on the Doing Business report series, visit www.doingbusiness.org.

The Paying Taxes study has been collecting data in 189 economies around the world for ten years. For more information about the study, visit www.pwc.com/payingtaxes.

Contact us

Zlata Elksnina - Zascirinska
Country Managing Partner
Tel: +371 67094400
Email

Ilze Rauza
Tax Director
Tel: +371 6709 4400
Email

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