Latvia's UIN (corporate income tax) model is among the most progressive in the European Union. Since the 2018 reform: 20 % rate only on distributed profit and non-deductible expenses, 0 % on reinvested profit. This guide explains the model and how to maximally use it for growth investment.
Before 2018, Latvia had a standard 15 % UIN on all profit, creating an incentive to avoid declaring profit. The 2018 reform (similar to Estonia's 2000 model) shifted the tax base to the moment profit "leaves" the company — as dividends to shareholders, gifts or non-deductible expenses. The rate was raised to 20 % (but on a smaller base), and the result: more reinvestment, GDP growth +4–5 % per year in following years, larger net VID revenue.
UIN calculation is technically complex: if you pay EUR 80,000 net dividends, UIN = 80,000 × 20/80 = EUR 20,000 (total gross EUR 100,000 from capital). The 20/80 formula is like a gross-up — UIN is 20 % of gross, not of net. Other base components: non-deductible expenses (gifts above limit, entertainment without business purpose, fines, above-market interest between related parties), shareholder loans (if unrepaid), transfer pricing adjustments. All these elements add to the monthly UIN base.
Main strategy: retain profit in the company if there is no urgent need to pay dividends. Reinvestment does not require formal "proof" — simply do not pass a dividend resolution. Profit retention can last years, without UIN liability. When capital is needed for personal use, decide on dividends only for the necessary amount, not all accumulated profit. This gives freedom to plan UIN burden and choose low-tax years for dividends.
The UIN declaration is monthly (by the 20th of the following month) if in that month there has been distributable profit or non-deductible expenses. Otherwise — annual declaration by 30 April the following year. Many companies avoid monthly declarations by concentrating dividends in one month per year (usually April after year-end), so they are on the annual regime. Audit takes place on a 3–5 year cycle, with particular attention to dividend resolutions and non-deductible expense classification.
Talk to us about how the 4b2b ecosystem fits into your existing EDS flow. We have implementations from 10-employee firms to Nasdaq Riga companies.
