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Latvia: Law of Offshore

Law on Free Zones

Extracts from the law:

CHAPTER I – GENERAL PROVISIONS

Section 1. Terms Used in this Law

2. The following terms are … used in this Law:

4) indirect taxes – customs duties, natural resources tax, excise duties and value added tax;

5) direct taxes – enterprise income tax and immovable property tax;

12) investments made by a zone corporation or a licensed corporation – the long-term investments in the fixed assets [material investments (buildings, constructions, technological equipment and machines, unfinished building constructions) and non-material investments (costs of acquiring patents and acquisition of technology)] of a zone corporation or licensed corporation, as well as the zone authority or free port authority and which conform to all of the following conditions referred to in this Clause: a) are provided for in the agreement between the zone authority and the zone corporation or the free port authority and the licensed corporation regarding the making of investments, b) that conform to the criteria specified in sub-clause “c” of the clause 1 of the Article 2 as well as in the clauses 2, 5 and 8 of Article 4 of the Commission Regulation (EC) Nr.1628/2006 of 24 October 2006 regarding application of Articles 87 and 88 of the EC Treaty to national regional investment aid (further on Commission Regulation Nr.1628/2006).

Section 2. Purpose of the Law

The present Law determines the procedures for the application of:

1) indirect taxes in the Free Port of Riga, the Free Port of Ventspils, the Liepaja Special Economic Zone and the Rezekne Special Economic Zone; and

2) direct tax relief and the performance of State social insurance payments in the Liepaja Special Economic Zone, the Rezekne Special Economic Zone, the Free Port of Ventspils and the Free Port of Riga.

CHAPTER II – APPLICATION OF INDIRECT TAXES

Section 3. Application of Indirect Taxes to Delivery of Goods and Services

1. Goods, which are not intended for further exportation and which are delivered to a licensed corporation, a zone corporation, a zone authority or a Free Port Authority by a person registered as a value added tax payer (hereinafter “tax payer”), shall be subject to an 18% or 5% rate of value added tax in accordance with the Law On Value Added Tax if not otherwise provided for in this Section.

2. The following shall be subject to 0% rate of value added tax:

1) supply of goods to a licensed corporation, a zone corporation, a zone authority or a Free Port Authority in a free zone of a free port or special economic zone territory (hereinafter “free zone”) by a tax payer for further exportation;

2) supply of such goods to a licensed corporation, a zone corporation, a zone authority or a Free Port Authority as conform to the requirements specified in Section 1, Paragraph 2, Clause 12 of this Law.

3. If the goods referred to in Paragraph 2, Clause 1 of this Section are sold in the free zone, they shall be subject to 18% or 5% rate of value added tax in accordance with the Law on Value Added Tax.

4. If a licensed corporation, a zone corporation, a zone authority or a Free Port Authority supplies the goods referred to in Paragraph 2, Clause 2 of this Section to another person earlier than five years from the moment of its purchase, a licensed corporation, a zone corporation, a zone authority or a Free Port Authority shall calculate the value added tax from the initial value, and pay such tax to the State budget in the taxation period when the supply of the goods took place and this tax may not be deducted as an input tax.

7. Petroleum products which are delivered to a licensed corporation, a zone corporation, a zone authority or a Free Port Authority shall be exempt from excise duty while the petroleum products are located in the free zone territory of a licensed corporation, a zone corporation, a zone authority or a free port authority.

8. Petroleum products shall be exempt from excise duty in case when these products are utilised by a licensed corporation, a zone corporation, a zone authority or a port authority for:

1) vessels and other floating craft which are not utilised for leisure and recreational needs;

2) vessels used for shipbuilding, testing and maintenance needs;

3) vessels and other floating craft which are utilised for works of dredging and enlargement of waterways and ports; and

4) electricity generation or in combined equipment which generates electricity and heat.

Section 4. Restrictions on Retail Trade

1. In the free zone territory of licensed companies and zone companies, the delivery of goods and provision of services to natural persons (hereinafter “retail trade”) is prohibited, except:

1) the delivery of food and medical goods;

2) public catering, medical, communications and financial transactions; and

3) trade in tax-free shops, that have been established in accordance with the Customs Law and operate in accordance with the procedures prescribed by the Cabinet.

2. The retail goods delivered and services provided in the free zone territory of a licensed corporation and a zone corporation referred to in Paragraph 1, Clause 1 and 2 of this Section shall be subject to an 18% or 5% rate of value added tax in accordance with the Law on Value Added Tax, except for those goods and services which are exempt from value added tax in accordance with Section 6 of the Law on Value Added Tax.

CHAPTER III – APPLICATION OF DIRECT TAX RELIEF AND PERFORMANCE OF MANDATORY STATE SOCIAL INSURANCE PAYMENT

Section 6. Immovable Property Tax Rebate

1. A zone or licensed corporation is entitled to apply an immovable property tax rebate in the amount of 80% of the tax amount calculated (not applying other rebates) to the immovable property, located in the territory of the zone or a free port, of which they have ownership, legal possession, or which they have been granted the right to use, unless otherwise provided for in Section 10 of this Law.

2. Upon the decision of a local government, a zone or a licensed corporation is entitled to apply an immovable property tax rebate up to the amount of 20% of the tax amount calculated (not applying other rebates) to the immovable property, located in the territory of the zone or free port, of which they have ownership, legal possession, or which they have been granted the right to use, unless otherwise provided for in Section 10 of this Law.

Section 7. Enterprise Income Tax Relief

1. A zone corporation or a licensed corporation is entitled to apply enterprise income tax rebate in the amount of 80% of the tax amount calculated.

2. In commencing advance payments of enterprise income tax, a zone corporation or licensed corporation shall take into account the tax rebate provided for in Paragraph one of this Section and shall calculate the advance payments in accordance with the procedures prescribed in the Law on Enterprise Income Tax.

3. A zone corporation or a licensed corporation, when paying dividends, and remuneration for management and consultancy services and payment for intellectual property to a non-resident, shall withhold enterprise income tax from such payments with an 80% rebate of the tax amount calculated.

4. A zone corporation or a licensed corporation shall reduce income subject to enterprise income tax by the investments in such infrastructure or social objects as belong to the State or local government and are located in the territory of a special economic zone or a free port, if such investments have been made in accordance with an agreement which has been concluded with the zone authority or a free port authority.

Section 9. Conditions for the Application of Direct Tax Relief

1. A zone corporation or a licensed corporation shall acquire the right to apply direct tax relief as of the taxation period in which permission to receive direct tax relief has been issued.

2. The right to apply direct tax relief shall terminate as of the taxation period in which the permission to apply direct tax relief is no longer in effect.

3. The taxation period for enterprise income tax and immovable property tax for zone corporations or licensed corporations and a zone authority or Free Port Authority is the calendar year. The first taxation period may be shorter than a calendar year but may not be longer than 12 months.

Section 10. Procedures for the Application of Enterprise Tax Rebate

If the accumulated amount of direct tax rebates together with the immovable property tax rebate for a taxation period as prescribed in Section 6, Paragraphs 1 and 2 of this Law exceeds the percentages of the accumulated amount of investments … the immovable property tax rebate for a taxation period shall be reduced by the relevant exceeding amount and the zone corporation or licensed corporation shall pay immovable property tax in the amount equal to the immovable property tax rebate reduction.

Section 11. Application of Enterprise Income Tax Rebates

1. If a zone corporation or licensed corporation, in calculating the immovable property tax rebates prescribed in Section 6, Paragraphs 1 and 2 of this Law, has applied Section 10 of this Law, it is not entitled to apply the enterprise income tax rebate as prescribed in Section 7 of this Law.

2. If the accumulated amount of direct tax rebates and the tax rebates applied within the taxation period in accordance with Section 6, Paragraphs 1 and 2 of this Law, and the rebates calculated in accordance with Paragraph 1 of Section 7 together exceed the percentages of the accumulated amount of investments of a zone corporation or a licensed corporation … the enterprise income tax rebate calculated for the taxation period shall be reduced by the relevant exceeding amount.

3. In the case mentioned in Paragraph 2 of this Section, the reduction of advance payments made by the zone corporation or the licensed corporation in the taxation period, which is calculated as the difference between the advance payments, which should be calculated by applying the tax rebate in accordance with the restrictions, prescribed in Paragraph 2 of this Section, and the advance payments calculated in accordance with Section 7, Paragraph 2 of this Law, shall be considered as a delayed tax payment for which the increase in the basic tax debt and delayed payment amount shall be calculated in accordance with the procedures prescribed in the Law on Taxes and Fees.

Section 13. Performance of State Social Insurance Payments

1. Mandatory social insurance payments shall be made by zone corporations or licensed corporations for their employees and by persons employed in zone corporations or licensed corporations in accordance with the Law on State Social Insurance, except for the case described in Paragraph 2 of this Section.

2. In respect of a person employed in a zone corporation or a licensed corporation – an alien who pays mandatory State social insurance payments or similar payments in his or her state of residence – a zone corporation or a licensed corporation is entitled to perform monthly mandatory social insurance payments from an amount which is less than the monthly work income of the socially insured person, but which is not less than 15 minimum monthly salaries. The zone corporation or the licensed corporation shall agree with the relevant person in writing in respect of the amount from which the mandatory State social insurance payments are to be calculated.

3. Persons employed in a zone corporation or a licensed corporation, for whom reduced State social insurance payments are made, may receive all the guarantees and services as prescribed in the Law on State Social Insurance and in other laws in conformity with the mandatory social insurance payments made for these persons.

 

 

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