How a permanent establishment is formed?
According to the Taxes and Duties Act, it is considered that a non-resident (a foreign merchant) has a permanent establishment in Latvia if the following conditions are met:
- Non-resident (a foreign merchant) uses a specific place to make business in Latvia
- The place is used to perform economic activity
Regardless of the above-mentioned conditions, it considered that non-resident (a foreign merchant) has a permanent establishment in Latvia if a non-resident (a foreign merchant) performs in Latvia at least one of the following activities:
- Uses a construction site or constructing buildings, assembly or installation works or performs related to the construction site advisory work
- Uses special equipment or technology to perform research activities or mining of natural resources, uses drilling platforms or performs related advisory work
- In the period of time which in total does exceed 30 days in any of six-month period provides services, such as consulting, the management or technical services, by using his employees or especially attracted staff
- Uses activity of legal, individual, or another person in his own interests, if the mentioned person regularly (more than once in a taxation period) uses the authority to conclude an agreement on the name of a non-resident (a foreign merchant)
A person is considered as a taxpayer if a person regularly (more than once in a taxation period) uses the authority to conclude an agreement on the name of a legal, individual, or another person, which is established in:
- Tax-free or lox-tax countries or territories
- States with which the Republic of Latvia has not concluded and has not entered into force a treaty on double taxation and prevention of tax evasion (except EU countries).
Application of the Convention on double taxation and prevention of tax evasion
Convention usually narrows the concept of the permanent establishment, arguing that the term “permanent establishment” should not include:
- Using of equipment, which is used only to store goods, for demonstrations or deliveries
- Storage of goods and products, which belong to enterprise and only are used for storage, demonstrations or deliveries
- Storage of goods and products, which belong to enterprise and are intended for processing in another enterprise
- Permanent place of business, which is used only for the purchase of goods and products or for collecting information
- Permanent place of business, which is used only for performing support work for a company
Registration of permanent establishment
Permanent establishments are being registered in the State Revenue Office in accordance with the Cabinet of Ministers Regulations of 27 March 2007 Nr. 150 ” Regulations regarding the Registration of Taxpayers’ and Taxpayer Units with the State Revenue Service”.