Buy property in Latvia

Usually, an individual, which considers to buy property in Latvia for personal use, for example an apartment, summer house, house, will register himself as the owner. In such a situation, it is not necessary to particularly consider tax aspects, except to take into account the fact that when the property is later expropriated, the income may have to pay personal income tax in Latvia and/or in the country of residence.

If an individual or legal entity intends to buy real estate in Latvia, for the purpose of carrying out the business activity or to hold it as a passive investment for resale, then the tax consequences should be assessed in advance. The property buy transaction via legal entity could be considered also in situations, if the individual does not wish to be seen as a registered owner, for example, because of pending or probable litigation that may expose it to the property loss risk. In such situations, the real estate could be acquired, using the company shares which belong to a trust or similar foundation, against which no legal claims associated with the individual could be raised.

The purpose of this article is to provide insight into Latvia taxes that should be considered before purchasing real estate in Latvia if the real estate is intended for commercial exploitation and/or is intended for resale in the nearest future.

Before buying real estate in Latvia the following decisions should be made:

Purchase the real estate directly or use the separate company which owns such property?
If the real estate is purchased using a real estate company – where this real estate company should be established: in Latvia or abroad?

Should I buy property in Latvia myself or use a particular company for such purposes?

The seller of the property often may be interested to sell not the real estate itself, but the company that owns such real estate. There are a number of reasons for doing that:

If real estate is sold by a Latvian company, the income from the sale of real estate constitutes profit, which, when divided into dividends, will have to pay corporate income tax in the amount of 20% of the distributed profit. If the company, in turn, sells shares in another Latvian or foreign company, then the income from the sale of such capital shares is also subject to a 20% tax at the time of distribution of dividends. However, if the equity shares are held by the seller for more than 36 months, the capital gain will not be taxable. So, selling equity shares in a company in which the real estate is located can be more profitable than selling the real estate directly to the company.
If the property is sold by a Latvian or foreign company, the buyer or seller must pay a 2% state fee for the re-registration of ownership rights in the land register (with or without a maximum amount limit of EUR 42,686). If, on the other hand, the shares of the company are sold, then only an insignificant state fee must be paid for the re-registration of the ownership rights of the shares in the Enterprise Register.
If the property is sold by the company that has purchased it as “unused real estate” (meaning that it has paid value-added tax within the last 10 years) and the purchaser is not a Latvian value-added taxpayer, then the seller might have a liability to repay at least a part of the input VAT recovered previously. If, however, the shares in the real estate company are sold, there is no such duty for the seller of the shares. But such duty may arise for the purchaser if the property is used for purposes which are exempt from the value-added tax (for example, for rented out for residential purposes).
If the property is sold by a company, the seller still has a right to pay real estate tax for the period until the end of the taxation year. If, however, the real estate company is sold, the tax obligation is retained by the company which is being sold and therefore undertakes such costs.

However, it should be noted that the following factors benefit the seller (with the exception of only 2% of the stamp duty for the re-registration of ownership, in practice normally covered by the buyer). Does the buyer benefit from buying shares of the real estate company rather than the real estate itself? As a general rule, the answer will be no, for the following reasons:

When buying shares in a company, the buyer will usually acquire not only an empty company, but also all the contractual rights and obligations that the company has assumed over time. In addition, there is a risk that not all obligations are listed and therefore unplanned expenses or legal proceedings may arise when the buyer deals with assumed obligations.
The buyer will not be able to list the purchased real estate at its actual value and calculate depreciation on the purchased building/structure from the full purchase price, as would be the case if the real estate itself were purchased. Instead, the acquired company will continue to calculate tax depreciation on the residual book value, which will usually be less than the transaction value. Given the new corporate income tax system, the difference between the purchase value of the equity shares and the balance sheet value of the real estate will not have tax consequences. However, such a difference between the value of the company’s equity shares and the value of the real estate can cause problems in the future (see, for example, the next point).
If the previous buyer resells the real estate itself and not the shares of the company, then he will have to pay 20% corporate income tax on the difference between the sale price of the property and its purchase value. Thus, if the purchase value of the real estate is significantly lower than the sale value of the real estate, then the buyer will have a capital gain for this difference at the time of sale, for which he will eventually have to pay a corporate income tax of 20%.
If, on the other hand, the buyer resells the shares in the company rather than real estate, it should be assumed that the next buyer would want to reduce the purchase price by the factors already mentioned.
As a general rule, the acquisition of an enterprise entails additional costs than the purchase of own real estate related to the enterprise’s legal, financial, and tax research (due diligence).
Purchase financing is more complicated because, firstly, the buyer takes over already existing liabilities (if any), secondly, there may be additional restrictions on the deduction of interest on the share purchase business, and thirdly, additional restructuring costs will arise, if the loan interest is to be deducted and transferred to the acquired company.

In view of the aspects described, if the buyer nevertheless decides to participate in the transaction by purchasing parts of the company, it may certainly consider asking the seller to reduce the price, taking into account the above-mentioned savings that will arise for the seller and additional costs that will arise for the buyer.

Buy property in Latvia through a company?

The answer to this question will largely depend on the intended use of the real estate, ie whether it is actively used in the course of business or not.

If the property in Latvia is used actively in economic activity (for example, a hotel in equipment, starts production, is managed for further leasing).

If such an object is purchased by a Latvian company, which further carries out this activity, then it will have to pay 20% corporate income tax on the earned taxable income (at the time of profit distribution).

If such an object is purchased by a foreign company, it is likely that such activity will create a so-called “permanent representative office” in Latvia. That is, it will have to register as an individual taxpayer in Latvia and pay corporate income tax in the amount of 20% on the earned taxable income. The profit that will remain after paying taxes can be transferred to a foreign company without additional taxes being withheld. However, it should be taken into account that the activity of a foreign company’s “permanent representative office” in Latvia is also likely to be subject to corporate income tax, but allowing for a reduction of the tax for the corporate income tax already paid in Latvia. Therefore, if the tax rate in this foreign country is higher than in Latvia (above 20%), then you will have to pay additional tax for this difference. Therefore, such a structure, when real estate is purchased by a foreign company for active use, will not cause additional tax costs only if:

this foreign jurisdiction has a lower corporate tax rate than in Latvia, or
if, under foreign jurisdiction, such income from a foreign “permanent establishment” is exempted from tax (for example, Lithuania will be exempt from tax, but in Cyprus or Malta the effective tax rate will be lower).

In conclusion, it can be said that it is more convenient to buy property in Latvia for active use through a company established in Latvia. If an existing or established company is used, such a company may incur additional tax costs in a foreign country, as well as additional administrative costs to ensure accounting and reporting in two countries.

Where immovable property is used for passive income

If the purchased property is used passively (for example, it will not be used there until resale), and the owner is a Latvian company, then the difference between the sale price of the property and its purchase value (at the time of distribution of profits in dividends) will be subject to 20% corporate income tax.

If, on the other hand, the seller of such real estate is a foreign enterprise, then the buyer – a Latvian company, must withhold 3% corporate income tax from the entire purchase amount. On the other hand, if the buyer does not have such an obligation, then the non-resident must himself withhold the 3% tax. In such a situation, the foreign company has the right to submit a later corporate income tax calculation for the tax payable in Latvia, paying 20% tax from the profit of the transaction, and reclaim the overpaid tax (therefore, the tax liability will not be greater than for a Latvian company in a similar situation).

In addition, a foreign company can evaluate the right to reduce the corporate income tax payable in its country of residence for the tax paid in Latvia (for example, if it is provided for by the local legislation or the tax convention concluded with Latvia).

Thus, if real estate is purchased by a foreign company without establishing a permanent representative office in Latvia, it is important that it is established in a country where the corporate income tax rate is as low as possible (for example, Malta) or where such a transaction is not taxed (for example, Cyprus or the Netherlands ). This option of not taxing the profit from the transaction (or taxing it partially by applying a 3% tax on the purchase amount) can also be used in other situations, for example the following.

An investor purchases real estate to be developed through a foreign company that develops the project outside of Latvia, and after the project is developed, the property is sold to a foreign or Latvian company (affiliated or unrelated) for the implementation of construction works. Thus, a portion of the profits of this transaction may be directed to that foreign jurisdiction. If in the jurisdiction of a foreign country, such income is not subject to profit tax, then in this way it is possible to achieve that part of the profit of the transaction is not subject to tax in any of the countries.

When planning such a transaction structure, it is important to make sure that the presence of a foreign company does not create a permanent representation, so that there is no risk that the Latvian tax authorities consider that the profit of the transaction is taxable in Latvia. When evaluating the establishment of permanent representation, it is necessary to take into account not only the laws of Latvia, but also the norms of the tax convention concluded between Latvia and this foreign country, which are usually more favorable. If such a tax convention has not been concluded or has not yet entered into force, it means that Latvian norms must be applied and therefore establishing a foreign company in such a country might not be the best solution.

In any case, in addition to the already described tax aspects, non-tax aspects should also be taken into account, for example, whether there is already a company in Latvia that is the home country of the investor (group), in which a holding company has already been established in the country, which will be the financier and how the financing will be structured.

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3Monday, August 3, 2026