On 9 June 2011, the Latvian parliament ratified the Latvia-Russia double tax treaty signed in Moscow on 20 December 2010. The treaty is planned to come into force on 1 January 2012 after being ratified by the Russian State Duma.

This double tax treaty is largely based on the OECD Model Tax Convention and is quite similar to most of the treaties Latvia has signed with as many as 51 countries.

The main purpose of the treaty is to prevent situations when one and the same income is taxed in both Latvia and Russia. For instance, any income a Latvian tax resident derives in Russia will be taxed in both countries until the treaty comes into force. The treaty helps to determine the tax residence country of a person that might be considered resident in both countries under their national law. For treaty purposes, a person is resident in only one country. The treaty describes how particular types of income should be taxed, determines which country has priority, and creates a mechanism for eliminating double taxation in Latvia or Russia.

Main withholding tax treaty rates are set as follows: for dividends - 5% if a company holds directly at least 25% of the capital of the other country's capital and the investment capital is at least 75,000 USD. Otherwise 10%.

For interest - 5% of the gross interest amount, if the loan is granted by a credit institution (bank) to a bank in the other country, 10% otherwise.

For royalties the maximum withholding tax rate is set at 5%.

The treaty is also expected to promote trade and business in Latvia and Russia by creating a stable investment climate and resolving taxation issues between the two countries in line with internationally recognised standards.

This article has been prepared by specialists of ABLV Corporate Services based on mass media publications. Specialists of ABLV Corporate Services provide legal and tax advise, including advise on international tax planning, establishment of holdings, trade, investment, and protection structures, purchase of real estate and other assets, as well as advise on change of residence and acquirement of residence permits. More detailed information on services provided by ABLV Corporate Services can be found at http://www.ablv.com/ru/services/advisory