LATVIA: PLAN TO SIGN CONVENTION BETWEEN REPUBLIC OF LATVIA AND REPUBLIC OF CYPRUS.

On February 6, 2014, in the meeting of Secretaries of the State, was announced the draft law, prepared by the Ministry of Finance of Republic of Latvia, regarding Convention between Republic of Latvia and State of Cyprus for avoidance of double taxation and prevention of fiscal evasion in respect to taxes on income.

The Convention shall promote business, attract foreign investment and shall facilitate the activities of investors in Latvia and Cyprus.

For now, Contracting State investors in the other Contracting State are imposed with the taxes according to other State`s tax laws. The other State can change tax rates, as well as the procedure for calculating the taxable income.

In the current situation the constancy of imposing of certain tax provisions for longer period of time is not guaranteed for Contracting State investors. Therefore it is difficult to plan precisely investments, their returns and profits.

Provisions of the Convention anticipate providing each Contracting State investors with stable tax payment regime in the other Contracting State, which will not be affected with the amendments of tax laws in the other State.

Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed: a) 0 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership); b)  10 per cent of the gross amount of the dividends in all other cases.

Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. Such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed: a)     0 per cent of the gross amount of the interest, if the interest is paid by a company that is a resident of a Contracting State to a company (other than a partnership) that is a resident of the other Contracting State and is the beneficial owner of the interest; b)   10 per cent of the gross amount of the interest in all other cases.

Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. Such royalties may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed: a)     0 per cent of the gross amount of the royalties, if the royalties are paid by a company that is a resident of a Contracting State to a company (other than a partnership) that is a resident of the other Contracting State and is the beneficial owner of the royalties; b)  5 per cent of the gross amount of the royalties in all other cases.

After Convention shall enter into force, the information exchange will be performed according to provisions of Article 26 of Economic Cooperation and Development organization Model Convention (OECD Model Tax Convention on Income and on Capital), what is included in the Convention.

The Agreement can be signed after it is approved in the Cabinet of Ministers of Republic of Latvia. After signing, it will be necessary to approve it in the Parliament of Latvia - Saeima.