The Latvian tax deducted from dividends at the agreement rate of 15 per cent (5 per cent if the recipient is a United Kingdom company which controls directly at least 25 per cent of the voting power in the company paying the dividend) qualifies for credit as a direct tax (see INTM164010(c)). This reduced rate does not apply if the dividends are effectively connected (see INTM153110 fifth sub-paragraph) with a business carried on through a permanent establishment or fixed base which the recipient has in Latvia.
However, the EC Parent-Subsidiary Directive applies to Latvia from 1 January 2005. This bars the imposition of withholding taxes on dividends paid by a company resident in one Member State of the Community to a company resident in another Member State, where the company receiving the dividends holds a minimum of 20 per cent (from 1 January 2005)of the capital of the company paying the dividend. The level of control required to gain exemption will be 15% from 1 January 2007 and 10% from 1 January 2009.
A United Kingdom company controlling, directly or indirectly, at least 10 per cent of the voting power of the Latvian company paying the dividend is also entitled, under Article 23(1)(b), to credit for underlying tax (see INTM164010(d)).