0% Corporate Income Tax in the EU? Yes - While Profits Work for Your Business: Why Open a Company in Latvia
0% Corporate Income Tax in the EU? Yes - While Profits Work for Your Business: Why Open a Company in Latvia
Latvia applies 0% CIT to undistributed and reinvested profit. Learn how the tax model and SIA registration work for EU business.
ТЕКСТ СТАТЬИ — ГОТОВ ДЛЯ ПРЯМОГО КОПИРОВАНИЯ
0% corporate income tax for an EU company sounds like a marketing trick. In Latvia, it is a real feature of the tax system: if profit stays in the company and is used to develop the business, corporate income tax is not charged on that profit at that stage. CIT becomes payable when profit is distributed, for example as dividends, or when the company creates one of the taxable deemed-distribution items defined by law.
This is why Latvia can be especially attractive to entrepreneurs who do not want to pay annual corporate income tax simply because their business made a profit. Funds can remain in the company and be used for expansion, marketing, equipment, product development, inventory and working capital, while CIT is deferred until profit is distributed.
If you are planning an EU business, NBC.LV can help design the structure and fully support yourcompany registration in Latvia- from incorporation documents to the organisational launch of the business.
0% - a number that changes the logic of business growth
In many countries, a company earns profit, pays corporate tax for the financial year and only then decides what to do with the remaining funds. Latvia uses a different model. Earning profit by itself does not create an immediate CIT liability. As long as profit is not distributed and no taxable deemed-distribution item arises, the CIT rate on that retained profit is effectively 0%.
For a growing company, this creates a meaningful cash-flow advantage. The business can keep using the capital it has earned. The more actively profits are reinvested, the more relevant this model can become.
How corporate income tax works in Latvia
Since 2018, Latvia has applied a deferred corporate income tax model. The general CIT rate is 20% of the tax base, but the tax is not imposed on annual accounting profit simply because it exists. It applies primarily to distributed profit and to specific items treated as deemed profit distributions.
· Undistributed profit retained in the company - 0% CIT.
· Reinvested profit used for further business development - 0% CIT, provided no separate taxable item arises.
· When profit is distributed, CIT becomes payable.
· CIT may also arise on certain non-business expenses, related-party transactions, loans and other items that the law treats as deemed distributions.
The accurate message is therefore: Latvia applies 0% corporate income tax to undistributed and reinvested profit. That is both stronger and more precise than claiming that a Latvian company has no taxes at all.
A simple example: the company earns €100,000
Imagine a Latvian SIA earns €100,000 and its shareholders decide not to withdraw the profit. Instead, the company uses it to hire specialists, finance marketing, build a new product, purchase equipment or increase working capital.
If the profit remains in the company and no other taxable items arise, CIT on that €100,000 is 0 at that stage. The company can use the full amount for further growth.
If the shareholders later decide to distribute dividends, tax becomes payable. Under the standard regime, the calculation uses a 20% rate and a 0.8 coefficient. For example, if the company wants to distribute €8,000 in net dividends, the standard CIT calculation results in €2,000 of tax and €10,000 of total pre-tax distributed profit.
What changed in 2026: an alternative dividend regime
From 1 January 2026, some Latvian companies have an additional option. Where all shareholders of the taxpayer are natural persons, the company may, subject to the statutory requirements, choose an alternative regime when distributing dividends: 15% CIT at company level and 6% personal income tax on the corresponding dividend income received by the individual.
This does not mean the alternative regime is automatically better than the standard regime. The result depends on the ownership structure, the tax residence of the dividend recipient, tax treaties and other circumstances. This is why the tax model should be analysed before the company is incorporated, not after the first profit distribution.
Important: 0% CIT does not mean a company pays no other taxes
This distinction matters. A Latvian company may have other tax obligations depending on its activity and transactions.
· VAT. The standard Latvian VAT rate is 21%. The general mandatory registration threshold for domestic taxpayers is €50,000, although EU transactions and certain services can trigger registration earlier.
· Payroll taxes and social insurance contributions apply when the company employs staff and pays remuneration.
· Specific rules can apply to certain assets, payments to non-residents, regulated activities and specialised sectors.
· Non-business expenses and certain related-party transactions can enter the CIT base even without an ordinary dividend payment.
Latvia's advantage is therefore not "zero taxes everywhere". It is a clear principle: while profits remain inside a genuine business and continue working for that business, corporate income tax on those profits can remain at 0%.
Why this model can be powerful for a growing company
Business capital is most valuable when it can be put back to work quickly. For a company that reinvests a meaningful share of profit each year, the Latvian model can provide useful flexibility in managing cash flow.
· More funds remain available for product and team development.
· Marketing and international expansion can be financed from the company's own profit.
· Working capital can grow without annual CIT simply because the company recorded a profit.
· Shareholders can choose the timing of profit distribution in line with the business plan and tax strategy.
This structure is especially logical for businesses that plan to scale rather than withdraw all earnings every year.
SIA - the main company format in Latvia
The most common form for small and medium-sized businesses is the SIA, or sabiedrība ar ierobežotu atbildību - a Latvian limited liability company.
A standard SIA has minimum share capital of €2,800. Latvia also allows a reduced-capital SIA below €2,800, but this form comes with additional restrictions: shareholders must be natural persons, their number is limited, and board members must also be shareholders of the company.
The choice between a standard and reduced-capital SIA should not be based only on the amount of capital. If the structure includes a corporate shareholder, multiple projects, investors or future ownership changes, a standard SIA is often more practical.
Can a foreigner open a company in Latvia?
Yes. Non-residents may own shares in a Latvian SIA. A foreign entrepreneur can establish a company for genuine operations in Latvia and the European market, provided the structure and documents meet the requirements.
Foreign founders should prepare beneficial-owner information, ownership structure, expected business activity, source-of-funds information and a clear business model in advance. These issues matter not only for the Enterprise Register but also for subsequent banking and AML checks.
How quickly can an SIA be registered?
In straightforward cases, official review of properly filed incorporation documents generally takes 1-3 working days. This is the Enterprise Register's review period, not a promise that the entire business will be fully operational in a single day.
Before filing, the ownership and management structure, incorporation documents, legal address, beneficial-owner information and share capital must be arranged. After registration, the company may still need an account, VAT registration, accounting, contracts and sector-specific permits.
NBC.LV approaches the task as a business launch, not merely the acquisition of a registration number.
What you need to prepare
· a selected and checked company name;
· details of the founder or founders;
· board composition and representation rights;
· share capital and allocation of shares;
· a legal address in Latvia;
· beneficial-owner information;
· a founding decision or agreement and articles of association;
· a compliant method for signing and filing the documents.
The exact document package depends on the founders, nationality, ownership structure and filing method.
A corporate account: an important stage that cannot be guaranteed automatically
Company registration and opening a business account are separate processes. A bank or payment institution performs its own KYC and AML review and evaluates the owners, activity, payment geography, counterparties and source of funds.
For non-resident structures, the quality of the business model and supporting documents is particularly important. We therefore recommend planning not only how to incorporate the SIA, but how the company will operate after registration.
Who should consider Latvia?
A Latvian company can be attractive to entrepreneurs who plan to operate in the EU, invoice in euros and keep a significant share of profit inside the business for growth. Typical examples include IT and SaaS projects, consulting, B2B services, e-commerce, international trade, agency and service businesses.
However, one structure does not fit everyone. VAT treatment, the place of effective management, a permanent establishment in another country, the owner's personal taxes and transfer-pricing rules can materially change the final outcome.
5 mistakes that can destroy the 0% advantage
1. Assuming that 0% CIT means the company has no taxes at all.
2. Paying the owner's personal expenses from the company account without proper treatment.
3. Ignoring VAT analysis before starting EU sales.
4. Registering a purely formal company without a clear economic rationale, documents and genuine operating model.
5. Choosing the structure only by minimum share capital without considering banking, investors, dividends and future changes.
A Latvian company can be part of a broader relocation plan
For some international entrepreneurs, incorporation is connected not only with commercial goals but also with plans to live and work in Latvia. Owning an SIA does not automatically grant a residence permit. However, a real business may be connected with statutory residence grounds if the relevant requirements are met.
If relocation is part of your plan, review theresidence permit options in Latviaas a separate step. NBC.LV can assess the corporate and immigration elements as one coordinated project.
Why entrust your company registration to NBC.LV
The registration form itself is only a small part of the job. A mistake in the ownership structure, articles of association, board representation rights, share-capital choice or tax model can cost far more than professional preparation at the start.
NBC.LV helps select the appropriate legal form, prepare incorporation documents, complete registration, arrange the legal-address solution and organise ongoing accounting and legal support. For international clients, we also consider non-resident structures, beneficial owners, bank compliance and future residence plans.
Want to open a company in Latvia and use the benefit of 0% CIT on undistributed profit?Contact NBC.LV for company registration in Latvia. We will analyse your business model, recommend an appropriate structure and support the process from document preparation to launch.
Frequently asked questions
Is corporate income tax in Latvia really 0%?
Yes, for undistributed and reinvested profit, provided no other taxable item arises. CIT becomes payable when profit is distributed or in other situations specified by law.
Can a foreigner establish an SIA?
Yes. Non-residents may be shareholders of Latvian SIAs. The exact documentation depends on the structure and filing route.
What is the minimum share capital of an SIA?
A standard SIA requires €2,800. A reduced-capital SIA can have a lower amount, but additional restrictions apply to its shareholders and management.
Must the company register for VAT immediately?
Not always. The general threshold for domestic taxpayers is €50,000, but some cross-border transactions may trigger registration earlier. This should be checked before the first transaction.
Can a company be registered remotely?
In many structures, yes, if an appropriate electronic-signature or representation route is available. The exact process depends on the founders and documents.