Effects on businesses from upcoming tax reforms
Year 2018 will come with some significant tax reforms in Latvia and Estonia affecting businesses of all size. Latvia is introducing 0% tax rate on reinvested profit, Estonia is lowering the income tax rate for regular profit distribution and other measures to improve the competitiveness of each country are taken.
Tax for reinvested profits
One of the main changes in Latvia that will come into effect on 1st January 2018 is the 0% corporate income tax (CIT) rate on reinvested profit. The aim of the tax reform is to motivate entrepreneurs to keep the money in the company. It should improve the capitalization and facilitate the fund raising for further development of the company. It is also anticipated that 0% rate would improve attraction of foreign investments, as it would greatly facilitate cash flow during the investment period. This system already is working in Estonia. While, in Lithuania there are similar initiatives under consideration; however, no specific decisions are made yet. At the moment, in Lithuania a standard CIT in amount of 15% applies also on reinvested profits.