Prior to the introduction of the tax reform in Latvia, companies, reinvesting profits back into business, were required to pay the corporate income tax at a rate of 15%.
At the same time, in case of dividends being paid by Latvian company to non-resident individuals they were subject to withholding tax in Latvia at a rate of 10%, while non-resident legal entities were exempt from withholding tax. So, payments made by Latvian company to a non-resident company were subject to a 15% tax in Latvia, while payments to a non-resident individual were subject to a 25% tax.
The Latvian Saeima has adopted new law for implementation of tax policy reform. According to this law, companies investing their profits in business instead of paying dividends are exempt from taxes (zero-rate corporate income tax) from 2018. However, payments made by company independently to a non-resident legal entity or individual are now subject to a 20% tax rate in Latvia.