Capital Gains Taxation in Latvia
Latvia's capital gains tax system is designed to tax profits realized from the sale or disposal of capital assets. The legal framework governing this taxation is outlined in the Law on Personal Income Tax (Likums par iedzīvotāju ienākuma nodokli), specifically in Article 9.
Definition of Capital Gains
In Latvia, capital gains refer to the profit derived from the disposal of capital assets, which include:
- Real estate properties
- Stocks and securities
- Bonds and debentures
- Business assets
There is no distinction made between short-term and long-term capital gains for tax purposes.
Calculation of Taxable Capital Gains
Taxable capital gains are calculated as the difference between the selling price of the asset and its acquisition cost. The formula for calculating capital gains is as follows:
Capital Gain = Selling Price - Acquisition Cost - Expenses
Adjustments or deductions may be allowed in the calculation of the gain, including expenses related to the sale (e.g., brokerage fees, legal fees) and any improvements made to the asset during ownership.
Tax Rates
Capital gains in Latvia are taxed at a flat rate of 20%. This rate applies to all categories of capital gains, regardless of the holding period or the nature of the asset disposed of.
Legal Framework
The taxation of capital gains in Latvia is governed by the following articles of the Law on Personal Income Tax:
- Article 9(1) defines capital gains as the profit derived from the disposal of capital assets.
- Article 9(2) outlines the formula for calculating taxable capital gains.
- Article 9(3) specifies the flat tax rate of 20% applicable to capital gains.
Policy Objectives
Latvia's capital gains tax system aims to generate revenue for the government while ensuring that individuals and businesses contribute their fair share of tax on profits realized from investments and asset disposals. The flat tax rate of 20% provides a simple and transparent tax regime that encourages investment and economic growth.
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