Latvia has three Special Economic Zones (SEZ) and two free ports: Rezekne SEZ, Liepaja SEZ, Latgale SEZ, Riga free port, and Ventspils free port. Investment in manufacturing and diverse service sectors is encouraged by SEZ and free ports. Since their position provides for easy access to Latvian ports, airports, trains, and any other area via road, many business owners pick these regions. Some of the industries that picked Latvian Freeport and SEZ areas as the location for their investments and enterprises include mechanical engineering, chemical manufacturing, woodworking, electronics, and IT. Indirect taxes and direct tax refunds must be imposed in special economic zones and free ports following a certain method outlined in the Law on Taxation in Free Ports and Special Economic Zones.
Direct tax rebates
A capital company of the zone may apply discounts during the taxation period if the total of accrued direct tax discounts and discounts calculated during the taxation period does not exceed the interest from the accrued amount of investments to be applied for the relevant capital company. A capital company or licensed capital business in the zone that has a planned investment project with a value of more than 50 million euros is deemed to have a significant investment project. For certain investment initiatives, special rules must be followed. For corporation tax refunds and the total amount of immovable property tax rebates, the support percentage of 35%, 45%, or 55% is applied. Zones or a licensed capital business for real estate situated within the boundaries of a zone or free port may apply an immovable property tax refund of 80% of the assessed tax on real estate that is inside the property. A capital company or licensed capital company inside the zone is allowed to apply the corporate income tax with an 80% deduction from the total tax.
Indirect tax rebates
Capital firms or capital companies that are licensed in the zone are eligible for the following indirect tax rebates:
- Value-added tax is zero percent
- oil products are not subject to excise taxes
Tax breaks at the Port of Ventspils
The Ventspils Free Port is a special economic zone (SEZ) with significant tax benefits that support export and industrial activity while also enhancing the competitiveness of EU businesses on a worldwide scale. Licensed businesses have the right to apply significant direct and indirect tax discounts in compliance with the Law on the Application of Taxes in Free Ports and Special Economic Zones and EU rules. Corporate income tax and real estate tax are both lowered by 80% in the special economic zone until the firm recovers up to 35% of the investments (55% for small businesses and 45% for medium-sized businesses). It implies that the corporate income tax rate is 4% and the real estate tax rate is 0.3% throughout compensation. If dividends are issued to a firm in an SEZ in turn, the profit tax is just 4% rather than the typical 20%. Indirect taxes are also eligible for relief: Excise, Customs, and Value Added Tax.
Each of the zones offers generally comparable advantages, but they may vary somewhat depending on the industry and other factors:
- Real estate tax decrease of up to 100% (from the original 1.5%)
- Up to 80% of the first 15% corporate income tax cut
- Up to 80% of profits, management fees, and IP fees are exempt from withholding tax
Criteria and the Process for applying to get an SEZ status of licensed companies
Companies may apply for a license to operate in an SEZ or free port, granting them access to the tax breaks outlined in the legislation of the Republic of Latvia regarding the application of taxes in free ports and SEZs. The Free Port or SEZ must receive an application for acquiring the license to operate under free economic zone status. At least until 2035, the licensing process will be followed as laid out.
Documents required for the company’s application from the applicant
- a copy of the registration certificate for the company
- a copy of the company’s articles of association
- two years’ worth of annual reports (if available)
- a company’s strategy, including the timetable for anticipated investments
- a table with the assessment criteria for scheduled activities filled out and signed