On May 16, 2022, the Saeima of Latvia adopted a decision to suspend the agreement (convention) on the avoidance of double taxation and the prevention of tax evasion with respect to income and capital taxes, which was concluded in 2010 (ratified in 2012) between the government of the Republic of Latvia and the government of the Russian Federation.
The signing of this agreement at one time served the following purposes:
Based on this agreement, the following principles of tax legal relations were in effect:
The agreement provided for the types of income that were subject to double taxation:
If such double taxation occurs, the parties agree to eliminate it as follows:
The main thing to understand is that there is a big difference between the concepts of “citizen of the country” and “tax resident of the country”. The main principle is to determine the place where a person actually lives.
Ideally, he lives with his family. In general, a person becomes a tax resident of Latvia in two cases:
What exactly has changed since May 16?
Now the State Revenue Service of Latvia, when determining the obligation to pay taxes and calculating the amount of taxes, is guided by national tax legal acts, in particular, the Law “On Personal Income Tax”. This law establishes that the income of residents of Latvia permanently residing in the Republic of Latvia is taxed in the Republic of Latvia. At the same time, the tax calculated in Latvia is reduced by an amount equal to the tax paid abroad. This payment of taxes abroad must be supported by documents approved by the foreign tax authority, which indicate the taxable income and the amount of tax paid abroad.
The cancellation of the convention does not mean that the same income will be taxed in full in both countries (the country of receipt of income and the country of tax residence), the Latvian State Revenue Service will deduct the tax paid in the country of receipt of income when calculating the amount of tax, if the taxpayer will provide the above document.
In fact, the cancellation of the convention means that it is impossible to choose the country of tax residence, and also complicates the proof of payment of tax on income in the country of receipt of income, since simultaneously with the denunciation of the treaty, cooperation with the tax administration of Russia and the exchange of information are limited.