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HMRC internal manual

Double Taxation Relief Manual

HM Revenue & Customs
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Latvia: Interest and royalties

Interest or royalties arising in Latvia and paid to a resident of the UK who is the beneficial owner of the interest or royalties are taxable in Latvia at a rate not exceeding 10 per cent (5 per cent for royalties for the use of industrial, commercial or scientific equipment) (Articles 11(2) and 12(2)), except where the interest or royalty is effectively connected with a permanent establishment or fixed base which the UK-resident recipient has in Latvia. In the latter circumstances the provisions of the Business Profits Article (Article 7) or the Independent Personal Services Article (Article 14) will apply.

Where Latvian-source interest is paid to a UK resident who is the beneficial owner of the interest, in respect of a loan made to the Government of Latvia, or one of its political sub- divisions, local authorities, agencies or instrumentalities, or of a loan made, guaranteed or insured either by the United Kingdom Export Credits Guarantee Department or the Bank of England, it is exempted from Latvian tax (Article 11(3)).

The EC Directive on Interest and Royalties (2003/49EC) (see INTM4000010 to 400110) provides for the abolition of source state taxation on interest and royalty payments made between associated companies in different Member States. It also ensures that the payments are subject to tax once in a Member State.

However, Latvia has obtained a derogation and will be allowed to defer full implementation of the Directive and carry on deducting withholding taxes until the expiry of an eight year period commencing 1 July 2005. For the first four year period the permitted rate is 10 per cent, for the second four year period, it is 5 per cent.